SEC conducts industry-wide sweep for Rule 105 violations

Another industry-wide sweep by the SEC likely will lead to enforcement cases. Potential targets are institutional investors who have engaged in short selling before receiving an allocation in a secondary offering, associated persons of broker-dealers who facilitated their clients' activities, b...

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Bibliographic Details
Published in:Insights (Clifton, N.J.) N.J.), 2006-10, Vol.20 (10), p.15
Main Authors: Djinis, Anthony W, Bazil, Paul J
Format: Article
Language:English
Subjects:
Economic justification
Enforcement
Institutional investments
Investors
Laws, regulations and rules
Profits
Purchasing
Regulation M
Sales
SEC 34
Securities markets
Short sales
Short selling
Stock brokers
Stock exchanges
Stock markets
Violations
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Summary:Another industry-wide sweep by the SEC likely will lead to enforcement cases. Potential targets are institutional investors who have engaged in short selling before receiving an allocation in a secondary offering, associated persons of broker-dealers who facilitated their clients' activities, brokerage firms for failure to establish and maintain a supervisory system reasonably designed to achieve compliance with Rule 105 under the Exchange Act and the responsible supervisory personnel within the brokerage firms. Although under the radar screen to date, Rule 105 should be a worrisome rule to traders and firms alike, particularly in light of the Staff's expansive interpretation of Rule 105 as a strict liability rule that results in severe sanctions if violated. Moreover, the sweep now under way will closely examine whether a firm's supervisory and compliance system is set up to catch these potential Rule 105 violations, as well as other rule violations pertaining to short selling.
ISSN:0894-3524