DGS Corporate Alert - September 2008

SEC Issues Emergency Order:
Section 13F Filers Must Make Weekly Disclosure of Short Sales

The SEC issued an emergency order on Friday, September 19, 2008 requiring certain institutional investment managers to electronically file with the SEC a new form, Form SH, disclosing any short sale[1] transactions that occurred during the prior week. Any institutional investment manager that has filed or was required to file a Form 13F for the quarter ended June 30, 2008 is subject to the new requirement. A Form SH is due on the first business day of every calendar week immediately following a week in which the investment manager effected short sales. The first report will be due Monday, September 29, 2008, for short sales effected during the week of September 22, 2008.[2]

Form SH, which will be not initially be publicly available on the EDGAR system, must include disclosure of the number and value of securities sold short for each section 13(f) security that is not an option, and the opening short position, closing short position, largest intraday short position, and the time of the largest intraday short position, for that security during each calendar day of the prior week. A filing is required only when the investment manager effects a short sale of a section 13(f) security during the prior week. The information disclosed by investment managers on new Form SH will be made available to the public on the EDGAR system two (2) weeks after it is electronically filed with the SEC.

Finally, an institutional investment manager need not report short positions otherwise reportable if (i) the short position in the section 13(f) securities constitutes less than one quarter of one per cent (0.25%) of the class of the issuer’s section 13(f) securities issued and outstanding,[3] and (ii) the fair market value of the short position in the section 13(f) securities is less than $1,000,000.[4]

A copy of the Form SH can be found on the SEC web site at http://www.sec.gov/about/forms/formsh.pdf. Form SH instructions can be found at http://www.sec.gov/about/forms/formsh_instructions.pdf.

[1] For these purposes, a “short sale” is defined as any sale of a security which the seller does not own or any sale which is consummated by the delivery of a security borrowed by, or for the account of, the seller.

[2] Due to certain limits on the SEC’s emergency rulemaking authority, any emergency order must terminate in 10 days – here, based on the September 22, 2008 effective date, on October 2, 2008. The SEC, however, may extend the order beyond 10 days if it deems an extension necessary but cannot extend the order such that it continues in effect for more than a total of 30 calendar days – here, on October 22, 2008. It is not clear whether a Form SH filing will be due in connection with short sales effected during the time period from September 29 through October 2 if the order is not extended, and we will continue to monitor the situation to see if the SEC provides any additional guidance.

[3] For these purposes, the investment manager may rely on the number of shares issued and outstanding reported on the issuer’s most recent annual or quarterly report or any subsequent current report filed with the SEC pursuant to the Securities Exchange Act of 1934, unless the manager knows or has reason to believe the information contained in such report is inaccurate.

[4] The emergency order does not specify when the valuation of the short position should be made in order to determine eligibility for this filing exception.