SEC Adopts Final “Naked” Short Selling Anti-Fraud Rule

October 22, 2008
To address concerns about abusive “naked” short selling of equity securities, the SEC recently adopted Rule 10b-21 under the Securities Exchange Act of 1934, which targets short sellers who deceive their broker-dealers about sources of borrowable equity securities for the purpose of complying with the “locate” requirements of Regulation SHO, or deliberately misrepresent their ownership of shares. A primary aim of the Rule is to reduce the incidences of “fails to deliver” securities and the negative impact fails to deliver may have on the market for such securities.

This update examines the key elements of the rule and its potential impact on other anti-fraud provisions.