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entitled 'Regulation SHO: Recent Actions Appear to Have Initially
Reduced Failures to Deliver, but More Industry Guidance Is Needed'
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
May 2009:
Regulation SHO:
Recent Actions Appear to Have Initially Reduced Failures to Deliver,
but More Industry Guidance Is Needed:
GAO-09-483:
GAO Highlights:
Highlights of GAO-09-483, a report to congressional requesters.
Why GAO Did This Study:
The Securities and Exchange Commission (SEC) adopted Regulation SHO to,
among other things, curb the potential for manipulative naked short
selling in equity securities. Selling a security short without
borrowing the securities needed to settle the trade within the standard
3-day period, can result in failures to deliver (FTD), and can be used
to manipulate (drive down) the price of a security. To further address
this concern, SEC recently issued an order amending Regulation SHO.
This report (1) provides an overview of Regulation SHO and related SEC
actions, (2) discusses regulators’ and market participants’ views on
the effectiveness of the rule, and (3) analyzes regulators’ efforts to
enforce the rule.
To address these objectives, GAO reviewed SEC rules and draft industry
guidance, analyzed FTD data, reviewed SEC and self-regulatory
organization (SRO) examinations, and interviewed SEC and SRO officials
and market participants.
What GAO Found:
To address FTD and curb the potential for manipulative naked short
selling in equity securities, Regulation SHO required broker-dealers to
(1) locate securities available for borrowing before effecting short
sales in that security and (2) close out FTD lasting ten consecutive
settlement days in securities for which a substantial number of FTD
accumulated (threshold securities). SEC imposed the close-out
requirement only on threshold securities because it believed high
levels of FTD could indicate potential manipulative naked short
selling. Increasing market volatility led SEC to issue a September 2008
emergency order requiring broker-dealers to close out FTD resulting
from short sales in any security the day after the settlement date. SEC
extended this requirement until July 2009 in an interim final temporary
rule. GAO found that the number of threshold securities declined after
the implementation of the stricter close-out requirement, but it is not
clear whether this trend can be sustained.
Some market participants believe that the stricter close-out
requirement does not prevent manipulative trading from occurring within
the 3-day settlement period. They recommend that SEC address potential
abuse by requiring all short sellers to borrow securities before a
short sale. As the Commission considers whether to finalize the
temporary rule, SEC staff said that they are continuing to evaluate the
appropriateness of a preborrow requirement for addressing FTD and
market manipulation related to naked short selling. However, SEC staff
said that the costs of a preborrow requirement might outweigh the
benefits because FTD represent 0.01 percent of the dollar value of
trades, and that a small group of securities (small market
capitalization, thinly traded, or illiquid) are likely to be the target
of any manipulative scheme.
SEC and SRO examiners have found that some broker-dealers do not
monitor whether the source a broker-dealer uses to locate available
securities is reasonable (i.e., does not result in FTD). The broker-
dealers may not have done so because firms do not expect that the
source from which it obtained the locate will be used to obtain shares
for settlement. In some cases, the executing broker-dealer may lack
information needed to establish whether the locates were reasonable.
SEC staff worked with the industry to draft guidance in 2007 to clarify
communication responsibilities in such instances, but SEC has not
finalized it. As a result, some firms may continue to be noncompliant
with the locate requirement. Furthermore, SEC sometimes did not provide
interpretive guidance for questions on the implementation of Regulation
SHO and temporary rule-related requirements, or did so after lengthy
delays. SEC does not have formal processes for determining which
requests for guidance merit a formal response, nor does it have a
process by which implementation issues that arise from temporary rules
can be readily addressed. Without timely and clear guidance to the
industry, SEC cannot ensure the consistent implementation of its rules
or help address the unintended consequences of operational issues that
occur while awaiting rule expiry or finalization.
What GAO Recommends:
GAO recommends that the SEC Chairman expedite the review and approval
of the draft guidance and develop a process to respond to
implementation issues that arise from temporary rules. SEC stated that
it would consider addressing the intent of the draft guidance in the
temporary rule and evaluate how it can further address implementation
concerns raised by the industry.
View [hyperlink, http://www.gao.gov/products/GAO-09-483] or key
components. For more information, contact Orice M. Williams at (202)-
512-8678 or williamso@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
SEC Initially Focused on Large and Persistent FTD in Certain
Securities, but Growing Concerns about Investor Confidence Led SEC to
Address FTD across the Market:
The 2008 Emergency Orders Appear to Have Reduced Threshold Securities
and FTD from Record Highs, but the Sustainability of This Trend Is
Unclear:
Some Commenters Contend a Preborrow Requirement Is Needed to Address
FTD and Market Manipulation, While SEC Is Still Considering Whether It
Would Be Appropriate:
Regulators Have Categorized Noncompliance with Regulation SHO as
Nonsystemic, but the Regulation Presents Some Compliance Challenges:
SEC Is Considering Finalizing the Temporary Rule by July 2009, but
Implementation Issues and Inconsistent and Untimely Provision of
Guidance Concern the Industry:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Clearing Agencies Settle Equity Securities Trades through
a 3-Day Settlement Cycle and Continuous Net Settlement:
Appendix III: Additional Trend Data on FTD in Threshold Securities, and
All Equity Securities:
Appendix IV: Comments from the Securities and Exchange Commission:
Appendix V: GAO Contact and Staff Acknowledgments:
Table:
Table 1: Number of Securities on the Threshold List for More Than 90
Consecutive Settlement Days, from January 2005 through December 2008:
Figures:
Figure 1: Average Number of Threshold Securities, by Month, from
January 2005 through December 2008:
Figure 2: Average Outstanding FTD for Threshold Securities, by Month,
from January 2005 through December 2008:
Figure 3: Total New FTD for Threshold Securities, by Month, from
January 2005 through December 2008:
Figure 4: New FTD for NYSE, NASDAQ, and Amex Threshold Securities as a
Percentage of Market Volume from January 2005 through December 2008:
Figure 5: VIX; S&P 500 Total Return Index; and Outstanding FTD and
Short Interest in NYSE, NASDAQ, and American Stock Exchange Securities,
from April 2004 through December 2008:
Figure 6: Average Daily Number of Securities with Outstanding and New
FTD for All Securities, by Month, from April 2004 through December
2008:
Figure 7: Average Outstanding FTD for All Securities, by Month, from
April 2004 through December 2008:
Figure 8: Average Number of Threshold Securities, by Month, and Number
of Days on the Threshold List, from January 2005 through December 2008:
Figure 9: ETFs as a Percentage of Threshold Securities, by Month, from
January 2005 through December 2008:
Figure 10: Trading Day Transactions and Broker CNS Positions:
Figure 11: Settlement Day and Broker CNS Positions:
Figure 12: Clearance and Settlement Process for Equity Securities
Trades in the United States:
Figure 13: Average Number of NYSE-listed Threshold Securities, per
Month, by Number of Days on the Threshold List, from January 2005
through December 2008:
Figure 14: Average Number of NASDAQ-listed Threshold Securities, per
Month, by Number of Days on the Threshold List, from January 2005
through December 2008:
Figure 15: Average Number of Amex-listed Threshold Securities, per
Month, by Number of Days on the Threshold List, from January 2005
through December 2008:
Figure 16: Average Number of Other Securities, per Month, by Number of
Days on the Threshold List, from January 2005 through December 2008:
Figure 17: Average Outstanding FTD, per Month, for NYSE-listed
Threshold Securities, from January 2005 through December 2008:
Figure 18: Average Outstanding FTD, per Month, for NASDAQ-listed
Threshold Securities, from January 2005 through December 2008:
Figure 19: Average Outstanding FTD, per Month, for Amex-listed
Threshold Securities, from January 2005 through December 2008:
Figure 20: Average Outstanding FTD, per Month, for Other Threshold
Securities, from January 2005 through December 2008:
Figure 21: Total New FTD, per Month, for NYSE-listed Threshold
Securities, from January 2005 through December 2008:
Figure 22: Total New FTD, per Month, for NASDAQ-listed Threshold
Securities, from January 2005 through December 2008:
Figure 23: Total New FTD, per Month, for Amex-listed Threshold
Securities, from January 2005 through December 2008:
Figure 24: Total New FTD, per Month, for Other Threshold Securities,
from January 2005 through December 2008:
Figure 25: Average Daily Number of Securities with Outstanding and New
FTD, per Month, for NYSE-listed Securities, from April 2004 through
December 2008:
Figure 26: Average Daily Number of Securities with Outstanding and New
FTD, per Month, for NASDAQ-listed Securities, from April 2004 through
December 2008:
Figure 27: Average Daily Number of Securities with Outstanding and New
FTD, per Month, for Amex-listed Securities, from April 2004 through
December 2008:
Figure 28: Average Daily Number of Securities with Outstanding and New
FTD, per Month, for Other Securities, from April 2004 through December
2008:
Figure 29: Total New FTD, per Month, for All NYSE-listed Securities,
from April 2004 through December 2008:
Figure 30: Total New FTD, per Month, for All NASDAQ-listed Securities,
from April 2004 through December 2008:
Figure 31: Total New FTD, per Month, for All Amex-listed Securities,
from April 2004 through December 2008:
Figure 32: Total New FTD, per Month, for All Other Securities, from
April 2004 through December 2008:
Figure 33: Average Outstanding FTD, per Month, for All NYSE-listed
Securities, from April 2004 through December 2008:
Figure 34: Average Outstanding FTD, per Month, for All NASDAQ-listed
Securities, from April 2004 through December 2008:
Figure 35: Average Outstanding FTD, per Month, for All Amex-listed
Securities, from April 2004 through December 2008:
Figure 36: Average Outstanding FTD, per Month, for All Other
Securities, from April 2004 through December 2008:
Abbreviations:
Amex: American Stock Exchange:
CBOE: Chicago Board Options Exchange:
CNS: Continuous Net Settlement:
DTC: Depository Trust Company:
DTCC: Depository Trust and Clearing Corporation:
ETF: exchange-traded funds:
FINRA: Financial Industry Regulatory Authority:
FTD: failures to deliver:
FTR: failures to receive:
NASD: National Association of Securities Dealers (now FINRA):
NAV: net asset value:
NSCC: National Securities Clearing Corporation:
NYSE: New York Stock Exchange:
OCIE: Office of Compliance Inspections and Examinations:
OEA: Office of Economic Analysis:
OTC: over the counter:
OTCBB: Over-The-Counter Bulletin Board:
SEC: Securities and Exchange Commission:
SRO: self-regulatory organization:
T: trade date:
VIX: Chicago Board Options Exchange Volatility Index:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
May 12, 2009:
The Honorable Carl Levin:
Chairman:
Permanent Subcommittee on Investigations:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
The Honorable Charles E. Grassley:
Ranking Member Committee on Finance:
United States Senate:
The Honorable Arlen Specter:
United States Senate:
When investors agree to trade an equity security, the buyer promises to
deliver cash to the seller, and the seller promises to deliver the
security to the buyer. The process by which the seller receives payment
and the buyer receives the security is known as clearance and
settlement. Trade clearance and settlement in the United States
operates on a standard 3-day settlement cycle. Trades are executed on
trade date (T) and settled 3 days later (T+3).[Footnote 1] According to
the Depository Trust and Clearing Corporation (DTCC), the holding
company whose subsidiaries are responsible for clearing and settling
broker-to-broker equity securities trades in the United States, 99.9
percent of daily transactions, by dollar volume, clear and settle
within the standard 3-day settlement period.[Footnote 2] In the
remaining transactions (0.01 percent) the seller did not deliver the
securities on time, resulting in failures to deliver (FTD). According
to the Securities and Exchange Commission (SEC), FTD can be caused by
mechanical error or processing delays, which are typically resolved in
a few days. However, FTD also can result from naked short selling.
While not defined in the federal securities laws or rules, according to
SEC, naked short selling generally refers to selling short without
having borrowed the securities to make delivery, potentially resulting
in FTD.[Footnote 3] When FTD persist for days or months, they can reach
a level that may affect the market for that security. They also may be
indicative of an illegal trading strategy known as manipulative naked
short selling, in which short sellers attempt to profit by using naked
short selling to flood the market with sales of a security with the
intent of lowering its price. For several years, and more recently in
the financial crisis, investors, publicly traded companies, and others
have expressed concerns about the level of FTD in specific securities
and the potential for manipulative naked short selling.
SEC has taken several actions in recent years intended to address FTD
and the potential for manipulative naked short selling. In August 2004,
SEC adopted Regulation SHO, which was intended to address large and
persistent FTD and curb the potential for manipulative naked short
selling.[Footnote 4] Among other things, the regulation imposed (1)
uniform requirements on broker-dealers to locate a source of securities
available for borrowing prior to effecting a short sale in any equity
security (generally referred to as performing a locate) and (2)
delivery requirements on broker-dealers for equity securities in which
a substantial amount of FTD had occurred, which the regulation
designated as threshold securities.[Footnote 5] Regulation SHO required
broker-dealers that have FTD in these securities lasting for 10
consecutive days to "close out" the FTD by the beginning of regular
trading hours the next morning (T+14) by purchasing securities of like
kind and quantity in the market, with some exceptions.[Footnote 6] As
we discuss in this report, in 2008, SEC took further actions, which
consisted of two emergency orders and an interim final temporary rule
(temporary rule), to address the potential for manipulative naked short
selling because of concerns about increasing market volatility.
This report addresses your interest in the implementation and
enforcement of Regulation SHO and subsequent regulatory actions and
their effectiveness in curbing FTD and the potential for manipulative
naked short selling. Specifically, this report:
1. provides an overview of the actions SEC has taken to address
potential manipulative naked short selling and FTD, including
Regulation SHO and the recent emergency orders, and the factors SEC
considered in taking them;
2. discusses the potential impact of Regulation SHO on FTD in threshold
and nonthreshold securities using trend analysis;
3. discusses regulatory, industry, and other market participants' views
on the effectiveness of Regulation SHO and the recent emergency orders
in curbing the potential for manipulative naked short selling;
4. analyzes SEC and self-regulatory organization (SRO) efforts to
enforce industry compliance with Regulation SHO and detect manipulative
naked short selling; and:
5. discusses industry experience with the implementation of the new and
enhanced delivery requirements.
To address the first objective, we reviewed the regulatory actions SEC
has taken to address naked short selling and FTD, including Regulation
SHO, amendments to the regulation, the recent emergency orders, and the
temporary rule relating to the delivery of equity securities. We also
conducted interviews with staff from SEC's Division of Trading and
Markets (Trading and Markets) to obtain information on the factors SEC
considered in taking these actions.[Footnote 7] To address the second
objective, we analyzed publicly available FTD data produced by the
National Securities Clearing Corporation (NSCC), a clearing agency
subsidiary of DTCC and the daily threshold lists published by the SROs.
We analyzed these data to identify FTD trends in the threshold
securities and across the market. We determined these data were
reliable for our purposes. To make this determination, we reviewed a
2005 Office of Compliance and Inspections and Examinations (OCIE)
examination that, in part, assessed NSCC's processes for generating
reports that are used to provide daily FTD data to SEC and the equities
SROs. We also employed our own data reliability tests. For example, we
reviewed the data for missing values and outliers as well as the
accuracy of pricing information. In addition, we reviewed analyses of
these data that SEC's Office of Economic Analysis (OEA) conducted. To
address the third objective, we reviewed and analyzed the requirements
of Regulation SHO, the relevant recent emergency orders, and the
temporary rule and an OEA study. We also conducted interviews with
staffs from Trading and Markets, OCIE, OEA, SEC's Division of
Enforcement (Enforcement), and the Financial Industry Regulatory
Authority, Inc. (FINRA); broker-dealers and two trade associations
representing broker-dealers; an issuer, and a trade association
representing issuers; securities lenders, and a trade association
representing securities lenders; securities lending consultants; an
investor; legal and subject area experts; and other market observers.
To address the fourth objective, we reviewed a 2005 joint sweep
examination that OCIE and the SROs conducted. In a sweep examination,
OCIE probes specific activities of a sample of broker-dealers to
identify emerging compliance problems in order that they may be
remedied before becoming too severe or systemic. We reviewed a sample
of subsequent OCIE and FINRA examinations, a 2006 sweep examination
that the Chicago Board Options Exchange (CBOE) conducted of its option
market making members, and FINRA examination guidance, and we
interviewed OCIE, FINRA, and CBOE staffs. We obtained data from FINRA
and CBOE on the numbers of Regulation SHO-related examinations
conducted since the regulation became effective and the number of
examinations that resulted in Regulation SHO deficiencies. To address
the fifth objective, we obtained and summarized comment letters
submitted to SEC on the temporary rule. We interviewed broker-dealers,
a trade association representing broker-dealers, and staffs from
Trading and Markets and an SRO.
We conducted this performance audit from March 2008 through May 2009 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives. Appendix I provides a more
detailed description of our scope and methodology.
Results in Brief:
A primary purpose of Regulation SHO is to curb the potential for
manipulative naked short selling by addressing those FTD in equity
securities that had accumulated to a level SEC considered high enough
to potentially affect the market for these securities. Recently,
growing concerns about volatile markets and declining investor
confidence prompted SEC to take emergency actions in the summer and
fall of 2008 to further address FTD and the potential for manipulative
naked short selling by issuing both permanent and temporary amendments
to Regulation SHO. For example, in July 2008, SEC issued an emergency
order to temporarily restrict naked short selling and FTD in the
publicly traded securities of 19 large financial firms, with limited
exceptions.[Footnote 8] SEC did not have evidence that manipulative
naked short selling was occurring in the securities of these
institutions when it issued the order. Rather, SEC issued the order
because it was concerned that rumors about the institutions may have
fueled market volatility, and that naked short selling could accelerate
a price decline in the securities of a firm targeted by any such rumor.
In September 2008, SEC took more comprehensive action to curb the
potential for manipulative naked short selling when, in consultation
with the Board of Governors of the Federal Reserve System (Federal
Reserve) and the Department of the Treasury (Treasury Department), SEC
issued another emergency order that, among other things, temporarily
enhanced close-out requirements on the sale of all equity securities.
The September emergency order required broker-dealers to deliver
securities resulting from short sales in any equity security (not just
threshold securities) by the settlement date (T+3), or if they have FTD
on the settlement date, to take action to purchase or borrow securities
to close out the FTD by the beginning of regular trading hours the next
morning (T+4), with limited exceptions.[Footnote 9] Broker-dealers who
can show that the FTD resulted from a long sale were allowed until the
beginning of regular trading hours on T+6 to close out the FTD.
[Footnote 10] Upon expiration of the emergency order, SEC extended
these requirements until July 31, 2009, as part of the temporary rule.
[Footnote 11]
Our analysis of FTD data from January 2005 to December 2008 showed that
the number of threshold securities initially declined after the
implementation of Regulation SHO in January 2005, but increased
significantly later, concurrent with the onset and worsening of the
financial crisis. The number of threshold securities initially declined
by about 45 percent between January 2005 and August 2006, from an
average of 423 per month to 231 per month, indicating that Regulation
SHO may have had an initial impact of reducing the number of threshold
securities soon after the regulation became effective, although other
factors may have contributed to this initial decline.[Footnote 12]
After July 2006, the average monthly number of threshold securities
began climbing and reached a record high of 582 in July 2008. Staffs
from OEA and Trading and Markets said that increased trading volume,
volatility, and short interest during this period likely played a role
in the increase in threshold securities during this period.[Footnote
13] Threshold securities declined significantly after SEC issued the
July and September emergency orders. While SEC issued the July
emergency order at the time that the number of threshold securities
reached their record high, it not clear whether this action had a
causal effect in the subsequent decline in threshold securities,
because only 1 of the 19 firms subject to the order was on the
threshold list before the order took effect. OEA officials said that
market uncertainty about whether SEC would take additional emergency
actions may have affected short selling volume and caused the number of
threshold securities to decline, but they did not have conclusive
evidence. In contrast, these officials noted that the September
emergency order appeared to have had a significant impact on threshold
securities, although the sustainability of this trend is yet unclear.
By November 2008, the average number of threshold securities had
declined to 72. This number temporarily increased to 123 by December
31, 2008, but subsequently declined. By May 5, 2009, there were 68
securities on the threshold list.[Footnote 14] Our analysis of FTD data
showed that the majority of securities on the threshold list graduated
from the list in a timely manner, although 80 percent returned to the
list at least once. Furthermore, until SEC issued the September
emergency order, some threshold securities persisted for extended
periods. About 300 unique securities persisted on the threshold list
for more than 90 days from January 2005 through December 2008. From May
2005, the first month that a security could have been on the threshold
list for more than 90 days, through September 2008, the average daily
number of such securities ranged from 12 to 63 per month, but after SEC
implemented the September order, they declined to zero.[Footnote 15]
About 50 percent of the remaining threshold securities in December 2008
were exchange-traded funds (ETF).[Footnote 16] SEC and FINRA staffs
believe that structural characteristics related to the creation and
redemption of these products may make them more likely to experience
FTD and appear on the threshold list.
Some market participants and others (commenters) believe that the
current locate and close-out requirements are not sufficient to curb
FTD resulting from short sales or to prevent manipulative trading.
[Footnote 17] First, some noted that Regulation SHO does not require
the entity on which a broker-dealer relied as a source of available
securities on the trade date to have shares available on the settlement
date. As a result, these commenters said that broker-dealers or other
entities with securities available for borrowing could provide locates
for more shares than they have available, which could lead to FTD.
These commenters said that SEC should require broker-dealers to borrow
securities prior to effecting short sales (preborrow), or at least
require sources of securities to set aside (decrement) shares as they
are providing locates, to ensure securities are available for
settlement. Second, although most FTD resulting from naked short sales
must be closed out on T+4, some commenters expressed concern that
market manipulation could occur within that time frame. These
commenters said that a short seller could still naked short sell
without limit, flooding the market with sell orders and manipulating
the price of a security downward, as long as the trader covered the
short sales with purchases prior to settlement day. To mitigate the
potential for this type of manipulation, these commenters also
recommended a preborrow requirement. Trading and Markets staff and
industry officials said that it is unlikely that broker-dealers provide
locates for more shares than they have available, because only a small
percentage of locate requests result in short sales.[Footnote 18] For
example, they said that many customers choose not to proceed with the
short sale order after obtaining or requesting a locate. Furthermore,
they said that because broker-dealers settle transactions in each
security on a net basis, the actual settlement obligation is often less
than the number of shares sold short, making borrowing unnecessary or
necessary only in limited quantities.[Footnote 19] To better understand
industry practices regarding locates, we reviewed several broker-dealer
examinations conducted by OCIE. We found that some of these firms
practiced decrementing, or some other form of inventory management to
help ensure that they did not provide locates for more securities than
they could fill on settlement date. Others, however, did not follow
these practices. Without such practices in place, it is unclear how
these firms can ensure that they are not providing locates in excess of
their available supply of securities. Regarding the potential for
market manipulation within the T+4 time frame, Trading and Markets and
FINRA staffs agreed that it is possible, but said that such
manipulation is likely to occur successfully only in those securities
that are highly illiquid, thinly traded, or have a relatively low
number of total shares outstanding. Trading and Markets staff also told
us that the costs of a marketwide preborrow requirement to address FTD,
manipulative naked short selling, or market manipulation occurring
within the T+4 time frame might outweigh any potential benefits,
especially considering that the vast majority of trades settle on time.
For example, an OEA analysis of the temporary preborrow requirement
implemented through the July emergency order and discussions with
market participants found that while the July order did reduce FTD in
the securities of the 19 firms subject to the order, it also increased
borrowing costs, resulted in fewer short sales, and affected liquidity
for these securities. However, Trading and Markets staff said that they
are continuing to evaluate the appropriateness of a preborrow
requirement as the Commission considers whether to finalize the
temporary rule.
OCIE and SRO staffs generally categorize Regulation SHO noncompliance
as nonsystemic deficiencies. After SEC implemented Regulation SHO, SEC
and the SROs quickly took steps to enforce its requirements, first by
conducting a joint sweep examination, and later through regular
surveillances of FTD data and routine and other compliance
examinations. Although these examinations have found a large number of
firms with Regulation SHO compliance deficiencies, OCIE and SRO staffs
told us these deficiencies generally were not indicative of systemic
problems or attempts to manipulate a security. However, OCIE examiners
also found that some broker-dealers were facing challenges in
determining whether locates were reasonable and were not resulting in
FTD. One way a firm may demonstrate that a locate source is reasonable
is to have procedures or systems in place to monitor whether the
related trades are resulting in FTD. However, according to OCIE
examinations, some broker-dealers are not monitoring whether locates
result in FTD because firms do not expect that the locate will be the
source from which it will obtain shares for settlement. Furthermore, in
the prime brokerage arrangement, while different broker-dealers may
provide execution and clearance and settlement services and the
customer can deliver the securities to the prime broker for settlement,
Regulation SHO does not obligate the clearing firm--in this case, the
prime broker--to provide trade settlement information to the executing
broker. As a result, the executing broker may not know if, at
settlement, the prime broker was unable to borrow shares to delivery,
and thus not have the information necessary to determine whether it can
rely on that customer's locates for future short sale transactions.
[Footnote 20] In March 2007, staff from Trading and Markets working
with the industry had considered revisions to the 1994 Prime Broker
Letter to address this information gap. The 1994 Prime Broker Letter
provided guidance that laid out the responsibilities of both the
executing and prime brokers for trades they executed and settled on
behalf of their clients, typically hedge funds.[Footnote 21] However,
Trading and Markets has yet to finalize the draft revised letter. In
the absence of the guidance, some firms may continue to be noncompliant
with the locate requirement. Furthermore, the perception that this
conduct may occur could undermine investor confidence in the markets.
Finally, while examinations have detected compliance deficiencies of
Regulation SHO, examiners stated that these deficiencies are not
necessarily indicative of manipulative naked short selling. Generally
speaking, SEC and the SROs also use other techniques, such as
electronic market surveillance, to identify potential instances of
manipulative naked short selling.
Although generally supportive of SEC's efforts to prevent manipulative
naked short selling, some industry officials said that the September
emergency order and the temporary rule resulted in certain unintended
negative consequences, such as increased market volatility and price
spikes. For example, a large industry group submitted data to SEC
suggesting that the temporary rule created significant, but temporary,
upward pressure on the prices of securities because broker-dealers are
required to close out their FTD at the opening of trading on the
morning of T+4 or T+6. Industry officials and SRO staff also told us
that throughout the implementation of Regulation SHO and the emergency
orders, Trading and Markets staff were responsive to some requests for
implementation guidance but did not answer other requests or did so
only after lengthy delays. For example, it took an extended period of
time for one SRO to receive and publish interpretive guidance from
Trading and Markets on technical questions the SRO submitted in 2005
about the implementation of Regulation SHO. Staff from this SRO said
while they waited for a response, they could not provide further
guidance on its implementation. Furthermore, a large industry group
told us that they were unable to obtain answers to multiple questions
on the implementation of the temporary rule. Trading and Markets can
provide written interpretive guidance (i.e., a formal response) to the
SROs and industry through exemptive orders, no-action letters,
compliance guides, staff legal bulletins, and answers to frequently
asked questions. Although Trading and Markets staff have discretion in
determining which SRO and industry requests merit a formal response,
SEC does not have formal processes or guidelines on which to base such
determinations. SEC's current strategic plan states that regulations
should be clearly written, flexible, and relevant and not impose
unnecessary financial or reporting burdens. The plan also states that
one potential measure for monitoring progress is the length of time
taken to respond to no-action letters, exemptive applications, and
interpretive requests. The strategic plan also states that to ensure
compliance with federal securities laws, SEC should work to enhance the
interpretive guidance process so that it meets the needs of staff, the
public, and other external stakeholders. Trading and Markets staff said
they have not always responded to industry requests for guidance
because they believed the provisions of Regulation SHO were clear or
because they believed that some of the requests reflected attempts to
find loopholes, rather than to seek clarification. Trading and Markets
staff also stated that with the temporary rule expiring at the end of
July 2009, they have been focusing on reviewing and analyzing the
comments for a recommendation for the Commission's consideration.
Furthermore, responding to some of the implementation issues related to
the temporary rule could have potentially required changes to the
temporary rule, something that Trading and Markets told us they are not
authorized to make. However, if the Commission does not take final
action on this rule until the expiration date, the rule will have been
in effect for 10 months. Without timely and clear interpretive guidance
from SEC, the SROs may be unable to effectively enforce SEC rules and
regulations, and SEC cannot ensure the consistent implementation of the
rules and regulations.
This report makes two recommendations to the SEC Chairman.
Specifically, the chairman should (1) promptly finalize the draft
revised 1994 Prime Broker Letter to address the current information gap
in Regulation SHO for prime brokerage arrangements when the temporary
rule becomes final and (2) develop a process that allows Commission
staff to raise and resolve implementation issues that arise from SEC
regulations, including emergency orders and temporary rules, in a
timely manner.
We provided a draft of this report to Chairman of the Securities and
Exchange Commission, and the agency provided written comments that are
reprinted in appendix IV. In its written comments, SEC stated that
regarding our first recommendation, it will consider the need to
clarify the communications between prime broker-dealers and executing
broker-dealers that would facilitate Regulation SHO compliance in
connection with its consideration of further action on the temporary
rule. Regarding our second recommendation, SEC stated that it is
committed to engaging in a deliberative process to develop meaningful
regulation of short selling and providing interpretive guidance to the
industry to facilitate implementation, as appropriate. SEC also stated
that it will evaluate whether there are additional steps that it can
take, consistent with the Administrative Procedure Act, to address
implementation issues raised by industry.
We provided relevant portions of the draft report to FINRA and CBOE for
their review and comment. FINRA, CBOE, and SEC provided technical
comments, which we have incorporated into the final report where
appropriate.
Background:
According to SEC, short selling provides the market with at least two
important benefits: market liquidity and pricing efficiency.[Footnote
22] For example, market professionals, such as market makers (including
specialists) may provide liquidity by naked short selling to offset
temporary imbalances in the buying and selling interest for securities.
[Footnote 23] Market makers generally stand ready to buy and sell the
security on a regular and continuous basis at a publicly quoted price,
even when there are no other buyers or sellers. Thus, market makers
must sell a security to a buyer even when there are temporary shortages
of sellers of that security available in the market. For the purposes
of this report, we refer to both market makers and specialists as
market makers. Efficient markets require that prices fully reflect all
buy and sell interest. Market participants that believe a security is
overvalued may engage in short sales to profit from a perceived
divergence of prices from economic values. According to SEC, such short
sellers contribute to pricing efficiency because their transactions
inform the market of their evaluation of the future price performance
of the security. This evaluation is reflected in the resulting market
price of the security.
Naked short selling may have negative effects on the market,
particularly when it results in FTD and those FTD persist for an
extended period and represent a significantly large unfulfilled
delivery obligation at the clearing agency. Specifically, SEC stated
that short sellers that fail to deliver securities on the trade
settlement date may face fewer restrictions than if they were required
to deliver the securities in a reasonable period. For example, SEC said
that short sellers may sometimes intentionally fail to deliver
securities to avoid borrowing costs, especially when the costs of
borrowing security are high. Furthermore, SEC stated that such sellers
could attempt to use this additional freedom to engage in trading
activities that deliberately and improperly depress the price of a
security. For example, SEC said that short sellers sometimes may
intentionally fail to deliver securities in an attempt to
manipulatively naked short sell a security. Issuers and investors have
raised concerns to SEC in recent years about manipulative naked short
selling, particularly in thinly capitalized securities that trade over
the counter (OTC).[Footnote 24] To the extent that large and persistent
FTD might indicate manipulative naked short selling, SEC stated that
such FTD may undermine the confidence of investors. In turn, investors
may be reluctant to commit capital to an issuer that they believe to be
subject to such manipulative conduct.
Due to the volume and value of trading in today's markets, NSCC nets
trades and payments among its participants using its Continuous Net
Settlement System (CNS System). This is a book-entry accounting system
in which each participant's daily purchases and sales of securities,
based on trade date, are automatically netted into one long position
(right to receive) or one short position (obligation to deliver) for
each securities issue purchased or sold. The participant's
corresponding payment obligations are similarly netted into one
obligation to pay money or into one obligation to receive money. If a
member is unable to fulfill its delivery obligation on settlement date,
FTD occurs and the CNS System maintains the net short position for that
participant until the obligation is fulfilled.[Footnote 25] As we have
previously discussed, while naked short selling may result in FTD,
there are other legitimate reasons why FTD may occur. FTD may result
from either a long sale or a short sale, and, according to SEC and
FINRA, may result from mechanical error or processing delays. For
example, processing delays can result from transferring securities in
physical certificate, rather than in book-entry form.
SEC oversees broker-dealers primarily through OCIE and Trading and
Markets and in conjunction with FINRA and other SROs. FINRA is an SRO
with statutory responsibilities to regulate its broker-dealer members.
As part of its responsibilities, FINRA conducts examinations of its
members to ensure compliance with SRO rules and federal securities
laws. OCIE evaluates the quality of FINRA examinations by conducting
oversight examinations of broker-dealers recently examined by FINRA as
well as through inspections of SROs that review all aspects of the
SRO's compliance, examination, and enforcement programs. OCIE also
directly assesses broker-dealer compliance with federal securities laws
through "special" and "cause" examinations. Special examinations
include sweep examinations. OCIE conducts cause examinations when it
has reason to believe something is wrong at a particular broker-dealer.
Additionally, OCIE conducts examinations of clearing agencies, which
are the SROs that clear and settle most securities trades in the United
States. Trading and Markets administers and executes the agency's
programs relating to the structure and operations of the securities
markets. SEC also has delegated authority to Trading and Markets to
administer the securities laws affecting broker-dealers and engage in
related oversight activities, such as SRO rule filings.[Footnote 26]
Where appropriate, SEC's Enforcement and the SROs' enforcement
divisions are responsible for investigating and disciplining broker-
dealers regarding violations of securities laws or regulations.
SEC Initially Focused on Large and Persistent FTD in Certain
Securities, but Growing Concerns about Investor Confidence Led SEC to
Address FTD across the Market:
When it initially promulgated Regulation SHO, SEC sought to curb the
potential for manipulative naked short selling by imposing (1) uniform
requirements on broker-dealers to locate a source of securities
available for borrowing and (2) additional delivery requirements on
broker-dealers for securities in which a substantial amount of FTD
occurred.[Footnote 27] However, growing concerns about volatile markets
and declining investor confidence prompted SEC to take emergency
actions in the summer and fall of 2008 to address all FTD in all equity
securities by issuing both permanent and temporary amendments to
Regulation SHO.
To Address Manipulative Naked Short Selling, SEC Initially Targeted
Regulation SHO to Large and Persistent FTD in Certain Equity
Securities, with Some Exceptions:
The locate and delivery requirements in Regulation SHO, which required
compliance beginning in January 2005, prohibited a broker-dealer from
accepting a short sale order in any equity security from another
person, or effecting a short sale order in any equity security for its
own proprietary accounts, unless it first located securities available
for borrowing. To satisfy this requirement, the broker-dealer must
either borrow the security, enter into an arrangement to borrow the
security, or have reasonable grounds to believe the security can be
borrowed so that it can be delivered on the settlement date. Executing
broker-dealers must obtain and document their source of borrowable
stock (a locate) prior to effecting the short sale.[Footnote 28]
Broker-dealers can demonstrate that they have reasonable grounds to
believe a security can be borrowed in time for settlement by directly
contacting a source for that security. Industry officials told us that
a potential source for securities might include the securities lending
desk of their own firm or that of another broker-dealer or the lending
agents for large institutional investors, such as mutual funds, pension
funds, or insurance companies. Regulation SHO also allows broker-
dealers to rely on industry-generated lists of securities that are
considered widely available, instead of contacting the source for those
securities directly. These lists generally are known as "easy-to-
borrow" lists.[Footnote 29] Regulation SHO also allows broker-dealers
to rely on assurances from a customer that the customer can obtain
securities from a third party in time to settle the trade (customer-
provided locate). Broker-dealers must document compliance with the
locate requirement.
Regulation SHO included three exceptions to the locate requirement.
First, it excepted market makers from having to obtain a locate when
they effect short sales in connection with bona fide market making
activities.[Footnote 30] SEC stated that this exception was necessary
because market makers may need to facilitate customer orders in a fast-
moving market without possible delays associated with complying with
the locate requirement. According to SEC, market makers are unlikely to
cause high levels of FTD, because most of them seek a net "flat"
position in a security at the end of each day--offsetting short sales
of a security with purchases of that security so that they do not have
to deliver securities under the CNS System. Second, Regulation SHO
allows an exception to the locate requirement when a broker-dealer
receives a short sale order from another broker-dealer (introducing
broker-dealer). In these cases, the introducing broker-dealer is
required to comply with the locate requirement, unless the executing
broker-dealer has entered into a contractual agreement to obtain
locates on behalf of the introducing broker-dealer. Third, Regulation
SHO provides an exception to the locate requirement in those cases
where a broker-dealer effects a sale on behalf of a customer that owns
a particular security, but through no fault of the customer or broker-
dealer, the broker-dealer does not expect that the security will be
delivered by the settlement date.[Footnote 31] An example of this
exception would be sales of restricted securities--securities acquired
in unregistered, private sales from the issuers through private
placement offerings. The sale of such securities often involves
processing delays that prevent the customer from obtaining and
delivering the securities on time. Since Regulation SHO requires broker-
dealers to mark sales as short if the customer does not have possession
of the securities at the time of the sale, broker dealers often must
mark the sale of restricted securities as short sales, even though the
customer owns the securities.
As we have previously discussed, Regulation SHO requires clearing
broker-dealers that have FTD in threshold securities persisting for 10
days after the normal settlement date (T+13) to close out their FTD by
purchasing securities of like kind and quantity by the beginning of
regular trading hours the next day (T+14).[Footnote 32] For example, if
a clearing broker-dealer has 100 FTD in threshold security XYZ for 13
consecutive days, the participant is required to purchase 100 shares of
XYZ by the next day to close out these FTD. Clearing broker-dealers
that do not close out their FTD threshold securities by the morning of
T+14 are required to preborrow, or arrange to borrow, securities of XYZ
before effecting additional short sales for themselves or for any of
their customers, until the FTD are closed out. In adopting these close-
out requirements, SEC stated that it believed it was addressing those
circumstances that warrant action to address the potential negative
effects of large and persistent FTD.[Footnote 33] By narrowly targeting
threshold securities, SEC stated that it would not burden the vast
majority of securities without similar concerns for settlement. At the
time SEC adopted the rule, OEA had calculated that approximately 4
percent of all reporting securities would qualify as threshold
securities.[Footnote 34]
As adopted, Regulation SHO included three exceptions to the close-out
requirement. First, the close-out requirement did not apply to any FTD
that were established prior to the security becoming a threshold
security.[Footnote 35] SEC included this exception, termed the
grandfather exception, because it was concerned about creating
volatility through short squeezes if large preexisting FTD had to be
closed out quickly after a security became a threshold security.
[Footnote 36] Second, SEC allowed a limited exception for FTD resulting
from short sales effected by options market markers to establish or
maintain a hedge on options created before the underlying security
became a threshold security, as long as the short sales were effected
as part of bona fide market making. SEC created this exception to
address concerns expressed by market participants that the close-out
requirement would affect the liquidity and pricing of options. These
market participants had argued that without the ability to hedge their
options through short sales, options market makers would cease options
trading in securities considered hard to borrow, and thus, prone to
FTD--in other words--securities most likely to enter the threshold
list.[Footnote 37] Finally, SEC excepted FTD resulting from sales of
customer-owned securities that the broker-dealer did not reasonably
expect would be in its possession by the settlement date, such as the
restricted securities that we previously discussed. Broker-dealers have
35 days to close out FTD resulting from the sale of these securities.
[Footnote 38]
After Considering Data Showing the Continued Persistence of FTD in Some
Securities, SEC Amended Regulation SHO in August 2007 to Eliminate a
Grandfathering Exception:
After considering data showing that substantial and persistent FTD in a
small number of threshold securities were not being closed out due to
reliance on the grandfather exception, SEC amended Regulation SHO in
August 2007 to eliminate it.[Footnote 39] At the time it adopted
Regulation SHO, the Commission stated that it would monitor its
operation to determine whether grandfathered FTD were being cleared
under the existing close-out requirement, or whether any further
regulatory action was warranted. We reviewed data that SEC used in its
deliberations to eliminate the grandfather exception. For example, we
found that OEA had estimated that from January 7, 2005, through
December 31, 2005, the average daily percentage of grandfathered FTD to
total FTD for securities on the threshold list was about 48 percent.
Furthermore, in 2005, OCIE conducted several examinations for
Regulation SHO compliance that found that some broker-dealers were
still carrying a significant amount of FTD in securities that they were
not closing out because they were relying on the grandfather provision.
In the 2007 rule amendment, SEC reiterated its concerns regarding the
impact that large and persistent FTD can have on the market for a
security.[Footnote 40] SEC also said that some issuers believed that
they had suffered unwarranted reputational damage because of investors'
negative perceptions about large and persistent FTD in their
securities. According to one issuer's comment letter, its investors
attributed the issuer's frequent reappearances on the threshold list to
manipulative short selling and frequently demanded that the issuer take
action to address this issue. SEC stated that any unwarranted
reputational damage caused by large and persistent FTD might have an
adverse impact on the security's price. We discuss the number of
securities that reappeared on the threshold list during the period of
our review in greater detail later in this report.
In Response to Increasing Market Volatility, SEC Issued an Emergency
Order in July 2008 to Temporarily Restrict Naked Short Selling in the
Securities of 19 Firms:
Increasing market volatility in the securities of financial
institutions of significance prompted SEC to issue an emergency order
on July 15, 2008, that temporarily restricted short sales in the
publicly traded securities of 19 large financial firms, unless the
seller had borrowed, or arranged to borrow, the security prior to
effecting the short sale.[Footnote 41] The order also prohibited any
FTD in these securities by requiring that the short seller deliver the
security on the settlement date. The order was effective from July 21,
2008, to August 12, 2008. SEC amended the order on July 18, 2008, to
except market makers engaged in bona fide market making from the
preborrow requirement.[Footnote 42]
SEC issued the order because it was concerned that rumors about
financial institutions of significance in the United States may have
fueled market volatility in the securities of some of these
institutions. Trading and Markets staff said that SEC's decision to
issue the order was precipitated by the rapid decline and subsequent
collapse in the price of the securities of the investment firm Bear
Stearns.[Footnote 43] This event raised concerns at SEC about a type of
market manipulation called short and distort (i.e., an individual short
sells a particular security and then attempts to drive down its price
by spreading false rumors about the company).[Footnote 44] Although a
trader could engage in a short-and-distort scheme without naked short
selling, SEC stated it was concerned that naked short selling could
accelerate a price decline in the event of a false rumor.
SEC chose the 19 financial firms because it believed that they were
particularly susceptible to short-and-distort schemes. Trading and
Markets staff said that they did not see evidence of naked short
selling or increased FTD in these securities prior to the issuance of
the emergency order. Instead, they said that the emergency order was an
attempt by the Commission to reassure the investing public that SEC
would not allow naked short selling to occur.
Sudden and Unexplained Declines in the Prices of Equity Securities Led
SEC to Issue Additional Emergency Orders in September 2008 That Address
FTD across the Market:
Citing concerns about sudden and unexplained declines in the prices of
equity securities generally, SEC, in consultation with the Federal
Reserve and the Treasury Department, issued an emergency order on
September 17, 2008.[Footnote 45] This order (1) temporarily enhanced
delivery requirements on the sale of all equity securities, (2)
implemented an antifraud rule targeted to short sellers that lie about
or misrepresent their intention to deliver securities in time for
settlement, and (3) eliminated the options market maker exception to
Regulation SHO's close-out requirement.[Footnote 46]
First, SEC added a temporary amendment to Regulation SHO through the
September order to enhance delivery requirements on sales of all equity
securities. The temporary rule requires clearing broker-dealers to
deliver securities resulting from any short sale by the settlement date
(T+3), or, if they have FTD on the settlement date, to take action to
purchase or borrow securities to close out the FTD by no later than the
beginning of regular trading hours on T+4. Participants that do not
close out their FTD on the morning of T+4 are required to borrow, or
arrange to borrow, securities before effecting additional short sales.
Clearing broker-dealers that can show that the FTD resulted from a long
sale, or a short sale by a market maker engaged in bona fide market
making, have until the beginning of trading hours on T+6 to close out
the FTD by purchasing securities of like kind and quantity. Upon
expiration of the emergency order, SEC adopted these requirements as an
interim final temporary rule, with a request for comments, which is set
to expire on July 31, 2009.[Footnote 47]
In issuing the temporary rule, SEC stated it was concerned that the
current locate and close-out requirements in Regulation SHO had not
gone far enough to reduce FTD and address potential manipulative naked
short selling, especially in light of the ongoing instability and lack
of investor confidence in the financial markets. SEC also noted that
because Regulation SHO's close-out requirement applied only to
threshold securities, FTD in nonthreshold securities never had to be
closed out. In addition, SEC noted that the current delivery
requirement for threshold securities under Regulation SHO and the lack
of any delivery requirement for nonthreshold securities enabled FTD to
persist for many days beyond the settlement date. SEC stated that the
temporary rule was needed to require earlier close outs of FTD so that
more sales would settle by settlement date. SEC acknowledged that the
temporary rule's delivery requirements may require the close out of
some FTD that occur because of ordinary settlement delays and would
ordinarily clear up within a few days, but SEC believes that these
requirements were necessary to help ensure that all trades in all
equity securities settled by settlement date and that FTD would be
closed out promptly after being incurred.
The September order also made effective SEC's proposed "naked" short
selling antifraud rule. The rule is intended to clearly affirm the
liability of individuals who deceive specified individuals about their
intention or ability to deliver securities in time for settlement,
including individuals who deceive their broker-dealer about their
locate source or ownership of shares and fail to deliver securities by
settlement date. Enforcement staff said that a rule highlighting the
illegality of these activities would focus the attention of market
participants on such activities. This rule does not provide SEC with
any additional enforcement powers. Following the expiration of the
order, SEC made the amendment permanent.[Footnote 48]
Third, the September order made effective a proposed rule amendment to
eliminate the options market maker exception from Regulation SHO's
delivery requirement.[Footnote 49] SEC had proposed to eliminate this
exception in August 2007, based in part on data it had obtained from
SROs showing that substantial levels of FTD continued to persist in
some threshold securities as a result of this exception.[Footnote 50]
Following the expiration of the order, SEC made the amendment
permanent.[Footnote 51]
SEC issued a second emergency order on September 18, 2008, also in
consultation with Federal Reserve and Treasury Department officials,
that temporarily restricted all short sales in the publicly traded
securities of about 800 financial institutions (short sale ban).
[Footnote 52] In the order, SEC noted its continued concerns regarding
recent market conditions, and noted that short selling in the
securities of a wider range of financial institutions than those
subject to the July emergency order may be causing sudden and excessive
fluctuations of the prices of such securities that could threaten fair
and orderly markets. The order expired on October 8, 2008.
The 2008 Emergency Orders Appear to Have Reduced Threshold Securities
and FTD from Record Highs, but the Sustainability of This Trend Is
Unclear:
We reviewed trends in threshold securities and their FTD from January
2005 through December 2008 (the review period). These measures showed
initial declines soon after the implementation of Regulation SHO, but
subsequently increased during 2007, concurrent with increasing
turbulence in the markets brought on by the financial crisis. We
observed significant declines in threshold securities and their FTD
after SEC implemented the July and September 2008 emergency orders, but
the sustainability of this trend is unclear.
Threshold Securities Initially Declined after Implementation of
Regulation SHO, but They Increased Significantly in 2007 and 2008 as
the Financial Crisis Worsened:
We reviewed trends in threshold securities and their FTD between
January 2005 and December 2008. Although definitive conclusions cannot
be drawn from simple trend analysis, we had difficulty discerning an
intermediate impact of Regulation SHO on these measures. Figure 1 shows
the average number of securities on the threshold list, by month, over
the review period. Although subject to volatility from month to month,
the average monthly number of threshold securities declined from 423 to
231, or by about 45 percent from January 2005 through August 2006. This
decline was most pronounced in the first 6 months after the regulation
became effective, and particularly in the first month, when the number
of securities declined from 529 on January 10, 2005 (the date the SROs
published the first threshold list), to 414 by January 31, 2005. After
July 2006, however, the average monthly number of threshold securities
per month began to trend upward, reaching a record high of 582 for the
review period in July 2008. This upward trend corresponds to several
indicators of the severity of the current financial crisis, including
several bankruptcies involving mortgage lenders starting in December
2006; announcements by the ratings agencies of downgrades and reviews
for potential downgrade of mortgage-related assets starting in June
2007; and negative announcements by Bear Stearns beginning in June 2007
and its subsequent merger to avoid collapse in March of 2008, among
others. Caution should be used in interpreting the trends in threshold
FTD, especially since we do not have an appropriate measure of FTD
prior to Regulation SHO.[Footnote 53]
Figure 1: Average Number of Threshold Securities, by Month, from
January 2005 through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Average number of threshold securities: 423.13.
Month and Year: 2005, February;
Average number of threshold securities: 385.16.
Month and Year: 2005, March;
Average number of threshold securities: 359.32.
Month and Year: 2005, April;
Average number of threshold securities: 317.57.
Month and Year: 2005, May;
Average number of threshold securities: 296.9.
Month and Year: 2005, June;
Average number of threshold securities: 288.36.
Month and Year: 2005, July;
Average number of threshold securities: 298.6.
Month and Year: 2005, August;
Average number of threshold securities: 307.48.
Month and Year: 2005, September;
Average number of threshold securities: 289.9.
Month and Year: 2005, October;
Average number of threshold securities: 275.05.
Month and Year: 2005, November;
Average number of threshold securities: 270.6.
Month and Year: 2005, December;
Average number of threshold securities: 281.67.
Month and Year: 2006, January;
Average number of threshold securities: 274.3.
Month and Year: 2006, February;
Average number of threshold securities: 324.11.
Month and Year: 2006, March;
Average number of threshold securities: 324.61.
Month and Year: 2006, April;
Average number of threshold securities: 308.68.
Month and Year: 2006, May;
Average number of threshold securities: 297.5.
Month and Year: 2006, June;
Average number of threshold securities: 251.91.
Month and Year: 2006, July;
Average number of threshold securities: 254.75.
Month and Year: 2006, August;
Average number of threshold securities: 230.87.
Month and Year: 2006, September;
Average number of threshold securities: 238.95.
Month and Year: 2006, October;
Average number of threshold securities: 264.62.
Month and Year: 2006, November;
Average number of threshold securities: 277.05.
Month and Year: 2006, December;
Average number of threshold securities: 294.75.
Month and Year: 2007, January;
Average number of threshold securities: 256.45.
Month and Year: 2007, February;
Average number of threshold securities: 270.89.
Month and Year: 2007, March;
Average number of threshold securities: 311.05.
Month and Year: 2007, April;
Average number of threshold securities: 317.6.
Month and Year: 2007, May;
Average number of threshold securities: 361.18.
Month and Year: 2007, June;
Average number of threshold securities: 373.05.
Month and Year: 2007, July;
Average number of threshold securities: 415.95.
Month and Year: 2007, August;
Average number of threshold securities: 459.52.
Month and Year: 2007, September;
Average number of threshold securities: 337.89.
Month and Year: 2007, October (Elimination of grandfather exception);
Average number of threshold securities: 367.
Month and Year: 2007, November;
Average number of threshold securities: 380.76.
Month and Year: 2007, December;
Average number of threshold securities: 395.3.
Month and Year: 2008, January;
Average number of threshold securities: 406.62.
Month and Year: 2008, February;
Average number of threshold securities: 404.
Month and Year: 2008, March;
Average number of threshold securities: 466.3.
Month and Year: 2008, April;
Average number of threshold securities: 532.41.
Month and Year: 2008, May;
Average number of threshold securities: 491.05.
Month and Year: 2008, June;
Average number of threshold securities: 503.52.
Month and Year: 2008, July (July emergency order);
Average number of threshold securities: 581.59.
Month and Year: 2008, August;
Average number of threshold securities: 500.
Month and Year: 2008, September (September emergency order);
Average number of threshold securities: 413.38.
Month and Year: 2008, October;
Average number of threshold securities: 195.41.
Month and Year: 2008, November;
Average number of threshold securities: 72.
Month and Year: 2008, December;
Average number of threshold securities: 83.91.
Sources: SEC (data); GAO (analysis).
[End of figure]
Average outstanding FTD per month in these securities also declined
from 218.5 million to 104.2 million, or 52 percent, between January
2005 and August 2006 (figure 2). However, there was greater volatility
from month to month in this figure, and the direction and magnitude of
the change are highly sensitive to the start and end points selected.
[Footnote 54] After July 2006, outstanding FTD increased considerably.
As we discuss in the text that follows, an increase in threshold
security FTD does not necessarily imply ineffectiveness since it is
difficult to determine what would have happened in the absence of
Regulation SHO.
Figure 2: Average Outstanding FTD for Threshold Securities, by Month,
from January 2005 through December 2008 (shares in millions):
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Average outstanding FTD for threshold securities: 218.47.
Month and Year: 2005, February;
Average outstanding FTD for threshold securities: 225.97.
Month and Year: 2005, March;
Average outstanding FTD for threshold securities: 196.65.
Month and Year: 2005, April;
Average outstanding FTD for threshold securities: 170.22.
Month and Year: 2005, May;
Average outstanding FTD for threshold securities: 204.32.
Month and Year: 2005, June;
Average outstanding FTD for threshold securities: 227.19.
Month and Year: 2005, July;
Average outstanding FTD for threshold securities: 153.
Month and Year: 2005, August;
Average outstanding FTD for threshold securities: 172.79.
Month and Year: 2005, September;
Average outstanding FTD for threshold securities: 171.01.
Month and Year: 2005, October;
Average outstanding FTD for threshold securities: 134.63.
Month and Year: 2005, November;
Average outstanding FTD for threshold securities: 129.04.
Month and Year: 2005, December;
Average outstanding FTD for threshold securities: 190.96.
Month and Year: 2006, January;
Average outstanding FTD for threshold securities: 162.37.
Month and Year: 2006, February;
Average outstanding FTD for threshold securities: 202.73.
Month and Year: 2006, March;
Average outstanding FTD for threshold securities: 287.81.
Month and Year: 2006, April;
Average outstanding FTD for threshold securities: 148.71.
Month and Year: 2006, May;
Average outstanding FTD for threshold securities: 200.63.
Month and Year: 2006, June;
Average outstanding FTD for threshold securities: 183.47.
Month and Year: 2006, July;
Average outstanding FTD for threshold securities: 193.75.
Month and Year: 2006, August;
Average outstanding FTD for threshold securities: 104.19.
Month and Year: 2006, September;
Average outstanding FTD for threshold securities: 126.06.
Month and Year: 2006, October;
Average outstanding FTD for threshold securities: 226.63.
Month and Year: 2006, November;
Average outstanding FTD for threshold securities: 209.43.
Month and Year: 2006, December;
Average outstanding FTD for threshold securities: 172.41.
Month and Year: 2007, January;
Average outstanding FTD for threshold securities: 122.73.
Month and Year: 2007, February;
Average outstanding FTD for threshold securities: 198.99.
Month and Year: 2007, March;
Average outstanding FTD for threshold securities: 238.55.
Month and Year: 2007, April;
Average outstanding FTD for threshold securities: 303.11.
Month and Year: 2007, May;
Average outstanding FTD for threshold securities: 246.66.
Month and Year: 2007, June;
Average outstanding FTD for threshold securities: 340.02.
Month and Year: 2007, July;
Average outstanding FTD for threshold securities: 464.02.
Month and Year: 2007, August;
Average outstanding FTD for threshold securities: 608.25.
Month and Year: 2007, September;
Average outstanding FTD for threshold securities: 417.07.
Month and Year: 2007, October (Elimination of grandfather exception);
Average outstanding FTD for threshold securities: 536.37.
Month and Year: 2007, November;
Average outstanding FTD for threshold securities: 532.97.
Month and Year: 2007, December;
Average outstanding FTD for threshold securities: 340.79.
Month and Year: 2008, January;
Average outstanding FTD for threshold securities: 310.11.
Month and Year: 2008, February;
Average outstanding FTD for threshold securities: 483.47.
Month and Year: 2008, March;
Average outstanding FTD for threshold securities: 575.49.
Month and Year: 2008, April;
Average outstanding FTD for threshold securities: 455.07.
Month and Year: 2008, May;
Average outstanding FTD for threshold securities: 446.66.
Month and Year: 2008, June;
Average outstanding FTD for threshold securities: 398.98.
Month and Year: 2008, July (July emergency order);
Average outstanding FTD for threshold securities: 939.57.
Month and Year: 2008, August;
Average outstanding FTD for threshold securities: 387.45.
Month and Year: 2008, September (September emergency order);
Average outstanding FTD for threshold securities: 428.43.
Month and Year: 2008, October;
Average outstanding FTD for threshold securities: 192.77.
Month and Year: 2008, November;
Average outstanding FTD for threshold securities: 145.65.
Month and Year: 2008, December;
Average outstanding FTD for threshold securities: 150.84.
Sources: SEC (data); GAO (analysis).
[End of figure]
We also generated the total number of new FTD, per month, in threshold
securities over the review period (figure 3). New FTD are the number of
FTD that occur each day. Total new FTD from January 2005 through August
2006 declined by about 43 percent, from 264.3 million to 151.7 million,
again subject to considerable volatility. For example, when we measured
the difference in new FTD from January 2005 through June 2006, we found
that new FTD increased 103 percent, to 535.3 million. This was largely
due to a significant increase in new FTD in June 2006.[Footnote 55]
This measure also began to increase in 2007.
Figure 3: Total New FTD for Threshold Securities, by Month, from
January 2005 through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Total new FTD for threshold securities: 264.29.
Month and Year: 2005, February;
Total new FTD for threshold securities: 198.46.
Month and Year: 2005, March;
Total new FTD for threshold securities: 179.09.
Month and Year: 2005, April;
Total new FTD for threshold securities: 196.83.
Month and Year: 2005, May;
Total new FTD for threshold securities: 230.98.
Month and Year: 2005, June;
Total new FTD for threshold securities: 312.44.
Month and Year: 2005, July;
Total new FTD for threshold securities: 339.12.
Month and Year: 2005, August;
Total new FTD for threshold securities: 234.2.
Month and Year: 2005, September;
Total new FTD for threshold securities: 217.99.
Month and Year: 2005, October;
Total new FTD for threshold securities: 211.62.
Month and Year: 2005, November;
Total new FTD for threshold securities: 192.80.
Month and Year: 2005, December;
Total new FTD for threshold securities: 250.88.
Month and Year: 2006, January;
Total new FTD for threshold securities: 251.42.
Month and Year: 2006, February;
Total new FTD for threshold securities: 389.03.
Month and Year: 2006, March;
Total new FTD for threshold securities: 387.47.
Month and Year: 2006, April;
Total new FTD for threshold securities: 178.55.
Month and Year: 2006, May;
Total new FTD for threshold securities: 220.46.
Month and Year: 2006, June;
Total new FTD for threshold securities: 535.29.
Month and Year: 2006, July;
Total new FTD for threshold securities: 158.36.
Month and Year: 2006, August;
Total new FTD for threshold securities: 151.72.
Month and Year: 2006, September;
Total new FTD for threshold securities: 226.59.
Month and Year: 2006, October;
Total new FTD for threshold securities: 286.04.
Month and Year: 2006, November;
Total new FTD for threshold securities: 330.31.
Month and Year: 2006, December;
Total new FTD for threshold securities: 115.29.
Month and Year: 2007, January;
Total new FTD for threshold securities: 169.33.
Month and Year: 2007, February;
Total new FTD for threshold securities: 443.71.
Month and Year: 2007, March;
Total new FTD for threshold securities: 394.04.
Month and Year: 2007, April;
Total new FTD for threshold securities: 830.98.
Month and Year: 2007, May;
Total new FTD for threshold securities: 980.48.
Month and Year: 2007, June;
Total new FTD for threshold securities: 1335.83.
Month and Year: 2007, July;
Total new FTD for threshold securities: 1378.14.
Month and Year: 2007, August;
Total new FTD for threshold securities: 1807.01.
Month and Year: 2007, September;
Total new FTD for threshold securities: 1206.09.
Month and Year: 2007, October (Elimination of grandfather exception);
Total new FTD for threshold securities: 1558.06.
Month and Year: 2007, November;
Total new FTD for threshold securities: 1541.71.
Month and Year: 2007, December;
Total new FTD for threshold securities: 1107.5.
Month and Year: 2008, January;
Total new FTD for threshold securities: 1080.61.
Month and Year: 2008, February;
Total new FTD for threshold securities: 1862.61.
Month and Year: 2008, March;
Total new FTD for threshold securities: 1522.58.
Month and Year: 2008, April;
Total new FTD for threshold securities: 1481.62.
Month and Year: 2008, May;
Total new FTD for threshold securities: 1056.76.
Month and Year: 2008, June;
Total new FTD for threshold securities: 1425.5.
Month and Year: 2008, July (July emergency order);
Total new FTD for threshold securities: 3346.26.
Month and Year: 2008, August;
Total new FTD for threshold securities: 846.441.
Month and Year: 2008, September (September emergency order);
Total new FTD for threshold securities: 1304.82.
Month and Year: 2008, October;
Total new FTD for threshold securities: 774.59.
Month and Year: 2008, November;
Total new FTD for threshold securities: 438.25.
Month and Year: 2008, December;
Total new FTD for threshold securities: 757.50.
Sources: SEC (data); GAO (analysis).
[End of figure]
The initial decline in threshold securities, particularly in the first
few months of 2005, may indicate that Regulation SHO had some impact on
reducing the number of threshold securities soon after the regulation
became effective. However, other market factors also may have
contributed to this initial decline. We found that the overall level of
FTD across the market appeared to have been declining since at least
April 2004 (the earliest date we could obtain FTD data), almost 8
months before the effective date of Regulation SHO's locate and
delivery requirements, and continued after the adoption and
implementation of Regulation SHO.[Footnote 56] Regulation SHO may have
accelerated this trend for the threshold securities, and it is possible
that a portion of this decline can be attributed to an early impact of
Regulation SHO through an announcement effect.[Footnote 57]
The subsequent increase in threshold securities, outstanding FTD, and
new FTD culminated in record highs for the review period in July 2008.
It is unclear whether the number of threshold securities and their FTD
would have increased further in the absence of Regulation SHO. We note
that Regulation SHO did not intend to prohibit FTD in threshold
securities. Rather, it was intended to address FTD once they had
accumulated to a substantial level and persisted for 13 consecutive
days. Moreover, SEC also intended for the locate requirement to limit
naked short selling by better ensuring that broker-dealers that effect
short sales have a source of securities they can borrow in time for
settlement. If Regulation SHO acted to curb FTD resulting from short
sales, we would generally expect to see declines in new FTD. Our data,
however, indicate overall increases in new FTD during 2007 and up until
July 2008, subject to considerable volatility.
As we have previously discussed, SEC eliminated the grandfather
exception in August 2007 after data showed that persistent FTD in some
threshold securities were due to reliance on this exception. Our data
show that despite the elimination of this exception, threshold
securities and their FTD levels continued to increase. OEA examined FTD
before and after the elimination of the grandfather exception in the
threshold securities to determine the impact of its removal. According
to OEA, FTD shifted from nonoptionable to optionable securities after
the elimination of the grandfather exception. OEA staff said that one
explanation of these results could be short sellers that previously
failed to deliver in the equity market moved to the options market,
where option market makers still had an exception to the close-out
requirement, to establish a synthetic short position.[Footnote 58] In
proposing to eliminate the options market maker exception, SEC analyzed
2006 data and found that some threshold securities were persisting on
the threshold list due to option market makers claiming an exception to
the close-out requirement. However, CBOE examiners said that by the
time SEC eliminated the options market maker exception, it was their
understanding that option market makers may have modified their hedging
strategies and stopped relying on the exception. They explained that,
since SEC began seeking comments on eliminating the exception in July
2006, options market makers had anticipated that SEC would eventually
eliminate the exception.
OEA staff said that changes in FTD may be influenced also by factors
other than Regulation SHO, such as changes in the mix of securities
being traded. For example, they noted that the mix of securities with
FTD tilted toward higher-priced stocks after the elimination of the
grandfather exception (higher-priced stocks also tend to be optionable
stocks), reflecting the financial sector and other industries
undergoing turbulence at that time. OEA and Trading and Markets staffs
said that changes in market conditions, including overall increases in
trading volume, volatility, and short interest, were also likely
factors contributing to the increase in FTD. According to these staff,
increases in trading volume and volatility are likely to correlate with
increases in FTD because the higher the volume of trades, the more
likely errors and other processing delays will occur.[Footnote 59] To
the extent that FTD are due to errors or other processing delays, we
would expect to see an increase in FTD proportional to an increase in
trading volume. In figure 4, we show that the upward trend in FTD for
NYSE, NASDAQ, and Amex threshold securities persisted even when
expressed as a percentage of market volume. Thus, increased trading
volume may not entirely explain the increase in FTD for threshold
securities.
Figure 4: New FTD for NYSE, NASDAQ, and Amex Threshold Securities as a
Percentage of Market Volume from January 2005 through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Percentage of market volume (new FTD): 0.104.
Month and Year: 2005, February;
Percentage of market volume (new FTD): 0.123.
Month and Year: 2005, March;
Percentage of market volume (new FTD): 0.128.
Month and Year: 2005, April;
Percentage of market volume (new FTD): 0.121.
Month and Year: 2005, May;
Percentage of market volume (new FTD): 0.182.
Month and Year: 2005, June;
Percentage of market volume (new FTD): 0.167.
Month and Year: 2005, July;
Percentage of market volume (new FTD): 0.074.
Month and Year: 2005, August;
Percentage of market volume (new FTD): 0.097.
Month and Year: 2005, September;
Percentage of market volume (new FTD): 0.133.
Month and Year: 2005, October;
Percentage of market volume (new FTD): 0.067.
Month and Year: 2005, November;
Percentage of market volume (new FTD): 0.075.
Month and Year: 2005, December;
Percentage of market volume (new FTD): 0.091.
Month and Year: 2006, January;
Percentage of market volume (new FTD): 0.053.
Month and Year: 2006, February;
Percentage of market volume (new FTD): 0.091.
Month and Year: 2006, March;
Percentage of market volume (new FTD): 0.095.
Month and Year: 2006, April;
Percentage of market volume (new FTD): 0.073.
Month and Year: 2006, May;
Percentage of market volume (new FTD): 0.1.
Month and Year: 2006, June;
Percentage of market volume (new FTD): 0.087.
Month and Year: 2006, July;
Percentage of market volume (new FTD): 0.113.
Month and Year: 2006, August;
Percentage of market volume (new FTD): 0.053.
Month and Year: 2006, September;
Percentage of market volume (new FTD): 0.05.
Month and Year: 2006, October;
Percentage of market volume (new FTD): 0.058.
Month and Year: 2006, November;
Percentage of market volume (new FTD): 0.062.
Month and Year: 2006, December;
Percentage of market volume (new FTD): 0.066.
Month and Year: 2007, January;
Percentage of market volume (new FTD): 0.058.
Month and Year: 2007, February;
Percentage of market volume (new FTD): 0.102.
Month and Year: 2007, March;
Percentage of market volume (new FTD): 0.174.
Month and Year: 2007, April;
Percentage of market volume (new FTD): 0.23.
Month and Year: 2007, May;
Percentage of market volume (new FTD): 0.295.
Month and Year: 2007, June;
Percentage of market volume (new FTD): 0.33.
Month and Year: 2007, July;
Percentage of market volume (new FTD): 0.309.
Month and Year: 2007, August;
Percentage of market volume (new FTD): 0.346.
Month and Year: 2007, September;
Percentage of market volume (new FTD): 0.25.
Month and Year: 2007, October (Elimination of grandfather exception);
Percentage of market volume (new FTD): 0.261.
Month and Year: 2007, November;
Percentage of market volume (new FTD): 0.306.
Month and Year: 2007, December;
Percentage of market volume (new FTD): 0.372.
Month and Year: 2008, January;
Percentage of market volume (new FTD): 0.252.
Month and Year: 2008, February;
Percentage of market volume (new FTD): 0.317.
Month and Year: 2008, March;
Percentage of market volume (new FTD): 0.376.
Month and Year: 2008, April;
Percentage of market volume (new FTD): 0.298.
Month and Year: 2008, May;
Percentage of market volume (new FTD): 0.303.
Month and Year: 2008, June;
Percentage of market volume (new FTD): 0.433.
Month and Year: 2008, July (July emergency order);
Percentage of market volume (new FTD): 0.4.
Month and Year: 2008, August;
Percentage of market volume (new FTD): 0.288.
Month and Year: 2008, September (September emergency order);
Percentage of market volume (new FTD): 0.256.
Month and Year: 2008, October;
Percentage of market volume (new FTD): 0.084.
Month and Year: 2008, November;
Percentage of market volume (new FTD): 0.008.
Month and Year: 2008, December;
Percentage of market volume (new FTD): 0.025.
Sources: SEC and FINRA (data); GAO (analysis).
[End of figure]
Figure 5 compares trends in volatility, market performance, and short
interest with the trends in FTD outstanding across NYSE, NASDAQ, and
Amex securities over the review period. The first graphic in figure 5
shows market volatility, as measured by changes in the CBOE Volatility
Index (VIX), beginning to trend upward by January 2007.[Footnote 60] We
measured market performance using the S&P 500 Total Return Index
(second graphic), and we use short interest--the total number of shares
of a security that have been sold short, but not yet covered or closed
out--as a proxy for the volume of short selling occurring in the market
(third graphic). We expected declining market performance during 2007
and 2008 to correlate with an increase in short interest as market
sentiment declined. The third graphic shows that after January 2007,
short interest highly correlated with FTD, suggesting that increased
short selling activity partially explains the rise in FTD. In
particular, the July 2008 high in FTD correlated closely with the peak
in short interest over the review period.
Figure 5: VIX; S&P 500 Total Return Index; and Outstanding FTD and
Short Interest in NYSE, NASDAQ, and Amex Securities, from April 2004
through December 2008:
[Refer to PDF for image: three line graphs]
VIX:
Month and Year: 2004, April;
Index: 17.19.
Month and Year: 2004, May;
Index: 15.5.
Month and Year: 2004, June;
Index: 114.34.
Month and Year: 2004, July;
Index: 15.32.
Month and Year: 2004, August;
Index: 15.29.
Month and Year: 2004, September;
Index: 13.34.
Month and Year: 2004, October;
Index: 16.27.
Month and Year: 2004, November;
Index: 13.24.
Month and Year: 2004, December;
Index: 13.29.
Month and Year: 2005, January (Compliance date);
Index: 12.82.
Month and Year: 2005, February;
Index: 12.08.
Month and Year: 2005, March;
Index: 14.02.
Month and Year: 2005, April;
Index: 15.31.
Month and Year: 2005, May;
Index: 13.29.
Month and Year: 2005, June;
Index: 12.04.
Month and Year: 2005, July;
Index: 11.57.
Month and Year: 2005, August;
Index: 12.6.
Month and Year: 2005, September;
Index: 11.92.
Month and Year: 2005, October;
Index: 15.32.
Month and Year: 2005, November;
Index: 12.06.
Month and Year: 2005, December;
Index: 12.07.
Month and Year: 2006, January;
Index: 12.95.
Month and Year: 2006, February;
Index: 12.34.
Month and Year: 2006, March;
Index: 11.39.
Month and Year: 2006, April;
Index: 11.59.
Month and Year: 2006, May;
Index: 16.44.
Month and Year: 2006, June;
Index: 13.08.
Month and Year: 2006, July;
Index: 14.95.
Month and Year: 2006, August;
Index: 12.31.
Month and Year: 2006, September;
Index: 11.98.
Month and Year: 2006, October;
Index: 11.1.
Month and Year: 2006, November;
Index: 10.91.
Month and Year: 2006, December;
Index: 11.56.
Month and Year: 2007, January;
Index: 10.42.
Month and Year: 2007, February;
Index: 15.42.
Month and Year: 2007, March;
Index: 14.64.
Month and Year: 2007, April;
Index: 14.22.
Month and Year: 2007, May;
Index: 13.05.
Month and Year: 2007, June;
Index: 16.23.
Month and Year: 2007, July;
Index: 23.52.
Month and Year: 2007, August;
Index: 23.38.
Month and Year: 2007, September;
Index: 18.0.
Month and Year: 2007, October (Elimination of grandfather exception);
Index: 18.53.
Month and Year: 2007, November;
Index: 22.87.
Month and Year: 2007, December;
Index: 22.5.
Month and Year: 2008, January;
Index: 26.2.
Month and Year: 2008, February;
Index: 26.54.
Month and Year: 2008, March;
Index: 25.61.
Month and Year: 2008, April;
Index: 20.79.
Month and Year: 2008, May;
Index: 17.83.
Month and Year: 2008, June;
Index: 23.95.
Month and Year: 2008, July (July emergency order);
Index: 22.94.
Month and Year: 2008, August;
Index: 29.65.
Month and Year: 2008, September (September emergency order);
Index: 39.39.
Month and Year: 2008, October;
Index: 59.89.
Month and Year: 2008, November;
Index: 55.28.
Month and Year: 2008, December;
Index: 40.0.
S&P 500 Total Return Index:
Month and Year: 2004, April;
Percentage change (year over year): 22.88.
Month and Year: 2004, May;
Percentage change (year over year): 18.33.
Month and Year: 2004, June;
Percentage change (year over year): 19.11.
Month and Year: 2004, July;
Percentage change (year over year): 13.17.
Month and Year: 2004, August;
Percentage change (year over year): 11.46.
Month and Year: 2004, September;
Percentage change (year over year): 13.87.
Month and Year: 2004, October;
Percentage change (year over year): 9.42.
Month and Year: 2004, November;
Percentage change (year over year): 12.86.
Month and Year: 2004, December;
Percentage change (year over year): 10.88.
Month and Year: 2005, January (Compliance date);
Percentage change (year over year): 6.23.
Month and Year: 2005, February;
Percentage change (year over year): 6.98.
Month and Year: 2005, March;
Percentage change (year over year): 6.69.
Month and Year: 2005, April;
Percentage change (year over year): 6.34.
Month and Year: 2005, May;
Percentage change (year over year): 8.24.
Month and Year: 2005, June;
Percentage change (year over year): 6.32.
Month and Year: 2005, July;
Percentage change (year over year): 14.05.
Month and Year: 2005, August;
Percentage change (year over year): 12.56.
Month and Year: 2005, September;
Percentage change (year over year): 12.25.
Month and Year: 2005, October;
Percentage change (year over year): 8.72.
Month and Year: 2005, November;
Percentage change (year over year): 8.44.
Month and Year: 2005, December;
Percentage change (year over year): 4.91.
Month and Year: 2006, January;
Percentage change (year over year): 10.38.
Month and Year: 2006, February;
Percentage change (year over year): 8.4.
Month and Year: 2006, March;
Percentage change (year over year): 11.73.
Month and Year: 2006, April;
Percentage change (year over year): 15.42.
Month and Year: 2006, May;
Percentage change (year over year): 8.64.
Month and Year: 2006, June;
Percentage change (year over year): 8.63.
Month and Year: 2006, July;
Percentage change (year over year): 5.38.
Month and Year: 2006, August;
Percentage change (year over year): 8.88.
Month and Year: 2006, September;
Percentage change (year over year): 10.79.
Month and Year: 2006, October;
Percentage change (year over year): 16.34.
Month and Year: 2006, November;
Percentage change (year over year): 14.23.
Month and Year: 2006, December;
Percentage change (year over year): 15.79.
Month and Year: 2007, January;
Percentage change (year over year): 14.51.
Month and Year: 2007, February;
Percentage change (year over year): 11.97.
Month and Year: 2007, March;
Percentage change (year over year): 11.83.
Month and Year: 2007, April;
Percentage change (year over year): 15.24.
Month and Year: 2007, May;
Percentage change (year over year): 22.79.
Month and Year: 2007, June;
Percentage change (year over year): 20.59.
Month and Year: 2007, July;
Percentage change (year over year): 16.13.
Month and Year: 2007, August;
Percentage change (year over year): 15.13.
Month and Year: 2007, September;
Percentage change (year over year): 16.44.
Month and Year: 2007, October (Elimination of grandfather exception);
Percentage change (year over year): 14.56.
Month and Year: 2007, November;
Percentage change (year over year): 7.72.
Month and Year: 2007, December;
Percentage change (year over year): 5.49.
Month and Year: 2008, January;
Percentage change (year over year): -2.31.
Month and Year: 2008, February;
Percentage change (year over year): -3.6.
Month and Year: 2008, March;
Percentage change (year over year): -5.08.
Month and Year: 2008, April;
Percentage change (year over year): -4.68.
Month and Year: 2008, May;
Percentage change (year over year): -6.7.
Month and Year: 2008, June;
Percentage change (year over year): -13.12.
Month and Year: 2008, July (July emergency order);
Percentage change (year over year): -11.09.
Month and Year: 2008, August;
Percentage change (year over year): -11.14.
Month and Year: 2008, September (September emergency order);
Percentage change (year over year): -21.98.
Month and Year: 2008, October;
Percentage change (year over year): -36.1.
Month and Year: 2008, November;
Percentage change (year over year): -38.09.
Month and Year: 2008, December;
Percentage change (year over year): -37.0.
Outstanding FTD and short interest in NYSE, NASDAQ, and Amex securities
(in billions):
Month and Year: 2004, April;
FTD: 5.10;
Short interest: 13.35.
Month and Year: 2004, May;
FTD: 4.89;
Short interest: 13.27.
Month and Year: 2004, June;
FTD: 5.00;
Short interest: 13.64.
Month and Year: 2004, July;
FTD: 4.43;
Short interest: 13.55.
Month and Year: 2004, August;
FTD: 4.42;
Short interest: 13.71.
Month and Year: 2004, September;
FTD: 4.22;
Short interest: 13.84.
Month and Year: 2004, October;
FTD: 4.24;
Short interest: 13.92.
Month and Year: 2004, November;
FTD: 3.88;
Short interest: 13.48.
Month and Year: 2004, December;
FTD: 5.50;
Short interest: 13.43.
Month and Year: 2005, January (Compliance date);
FTD: 3.64;
Short interest: 13.38.
Month and Year: 2005, February;
FTD: 3.18;
Short interest: 14.02.
Month and Year: 2005, March;
FTD: 3.70;
Short interest: 14.71.
Month and Year: 2005, April;
FTD: 3.15;
Short interest: 14.81.
Month and Year: 2005, May;
FTD: 3.41;
Short interest: 15.15.
Month and Year: 2005, June;
FTD: 3.36;
Short interest: 15.05.
Month and Year: 2005, July;
FTD: 2.44;
Short interest: 14.91.
Month and Year: 2005, August;
FTD: 3.23;
Short interest: 15.20.
Month and Year: 2005, September;
FTD: 2.98;
Short interest: 15.22.
Month and Year: 2005, October;
FTD: 2.66;
Short interest: 15.47.
Month and Year: 2005, November;
FTD: 2.69;
Short interest: 15.49.
Month and Year: 2005, December;
FTD: 2.99;
Short interest: 15.16.
Month and Year: 2006, January;
FTD: 2.66;
Short interest: 15.14.
Month and Year: 2006, February;
FTD: 2.74;
Short interest: 14.70.
Month and Year: 2006, March;
FTD: 3.42;
Short interest: 15.27.
Month and Year: 2006, April;
FTD: 2.80;
Short interest: 15.50.
Month and Year: 2006, May;
FTD: 3.37;
Short interest: 15.97.
Month and Year: 2006, June;
FTD: 3.08;
Short interest: 17.26.
Month and Year: 2006, July;
FTD: 3.22;
Short interest: 17.37.
Month and Year: 2006, August;
FTD: 2.74;
Short interest: 17.85.
Month and Year: 2006, September;
FTD: 2.44;
Short interest: 18.05.
Month and Year: 2006, October;
FTD: 2.53;
Short interest: 17.92.
Month and Year: 2006, November;
FTD: 2.70;
Short interest: 17.40.
Month and Year: 2006, December;
FTD: 2.75;
Short interest: 17.34.
Month and Year: 2007, January;
FTD: 2.63;
Short interest: 17.33.
Month and Year: 2007, February;
FTD: 3.21;
Short interest: 17.42.
Month and Year: 2007, March;
FTD: 5.28;
Short interest: 19.28.
Month and Year: 2007, April;
FTD: 4.14;
Short interest: 19.86.
Month and Year: 2007, May;
FTD: 4.88;
Short interest: 21.08.
Month and Year: 2007, June;
FTD: 4.96;
Short interest: 22.73.
Month and Year: 2007, July;
FTD: 4.96;
Short interest: 23.38.
Month and Year: 2007, August;
FTD: 6.91;
Short interest: 22.66.
Month and Year: 2007, September;
FTD: 3.58;
Short interest: 21.18.
Month and Year: 2007, October (Elimination of grandfather exception);
FTD: 4.53;
Short interest: 20.55.
Month and Year: 2007, November;
FTD: 5.11;
Short interest: 21.67.
Month and Year: 2007, December;
FTD: 4.88;
Short interest: 22.01.
Month and Year: 2008, January;
FTD: 5.34;
Short interest: 23.66.
Month and Year: 2008, February;
FTD: 5.10;
Short interest: 24.58.
Month and Year: 2008, March;
FTD: 6.92;
Short interest: 27.09.
Month and Year: 2008, April;
FTD: 6.38;
Short interest: 26.46.
Month and Year: 2008, May;
FTD: 6.13;
Short interest: 26.97.
Month and Year: 2008, June;
FTD: 7.33;
Short interest: 29.58.
Month and Year: 2008, July (July emergency order);
FTD: 9.75;
Short interest: 31.25.
Month and Year: 2008, August;
FTD: 6.54;
Short interest: 29.37.
Month and Year: 2008, September (September emergency order);
FTD: 8.05;
Short interest: 28.58.
Month and Year: 2008, October;
FTD: 3.64;
Short interest: 22.83.
Month and Year: 2008, November;
FTD: 1.07;
Short interest: 22.20.
Month and Year: 2008, December;
FTD: 1.24;
Short interest: 21.38.
Sources: Yahoo! Finance, Global Insight, NYSE, NASDAQ, Amex, and SEC
(data); GAO (analysis).
[End of figure]
The strong correlation between short interest and FTD suggests that the
effectiveness of the locate requirement during this period of market
turbulence may have been limited. OEA staff told us that a significant
increase in short selling may result in increased FTD as the current
processes for locating and obtaining securities may be temporarily
overwhelmed. Furthermore, they said that as short interest increases,
more securities--particularly those that are less liquid--face a
binding borrowing constraint. As a result, borrowing becomes more
difficult for more securities, potentially resulting in more FTD.
[Footnote 61] Other factors may also have contributed to the increased
number of threshold securities and FTD observed during this period. For
example, OEA staff noted the increasing presence of ETFs on the
threshold list during this period. We discuss ETFs in greater detail
later in this report. Furthermore, industry officials with whom we
spoke also said that several threshold securities had ceased trading or
were trading at very low prices, making it difficult to resolve any FTD
in those securities.
After reaching a high on July 17, 2008, the number of threshold
securities and their FTD began to decline. OEA staff pointed to the
corresponding decline in short interest as one potential factor. While
the SEC's emergency order restricting naked short selling in the
securities of 19 large financial firms was issued about the same time
(July 15, 2008), OEA staff said that they do not know to what extent
the order was responsible for the subsequent decline in threshold
securities and their FTD. Only 1 of the 19 firms that were subject to
the order was on the threshold list before the order went into effect,
and the other securities had low FTD levels. However, these staff said
that market uncertainty about whether SEC would take additional
emergency actions may have affected the amount of short selling in
which the market engaged.
OEA staff said that the September emergency orders--which eliminated
the options market makers exception, imposed stricter close-out
requirements on FTD in all equity securities, and temporarily banned
short selling in the securities of financial firms--had a significant
impact on the number of threshold securities and their FTD levels. Our
data show that the number of threshold securities continued to decline
after the September 2008 emergency orders became effective. Although
the elimination of the options market maker exception and the
provisions of the temporary rule were not fully in effect until mid-
November when compliance grace periods expired, the average number of
threshold securities declined to 72 in November--the lowest number
during our review period since the effective date of Regulation SHO.
The number of threshold securities temporarily increased to 123 by
December 31, 2008, but subsequently declined. By May 5, 2009, there
were 68 securities on the threshold list.
Similarly, outstanding FTD and total new FTD in threshold securities
also continued to decline after the September 2008 emergency order,
although these declines had slowed by the end of 2008, when the level
of outstanding FTD had declined to slightly below their January 2005
level. Total new FTD also declined, but by the end of 2008 were still
above their January 2005 level. One explanation for continued
outstanding FTD may be that the enhanced delivery requirements of the
temporary rule apply only to FTD from trades that occurred after the
September emergency order became effective on September 18, 2008.
Preexisting FTD in any equity security do not have be closed out,
unless the security enters the threshold list. In that case, the close
out provision for threshold securities applies, and the clearing broker-
dealer has 13 consecutive days to close out the FTD. As a result,
outstanding FTD may be due to new securities entering the threshold
list. We discuss characteristics of the remaining threshold securities
later in this section of our report. Furthermore, while the temporary
rule imposes close-out requirements on FTD in all equity securities, it
does not prohibit them from occurring. Levels of new FTD can continue
to fluctuate, although the overall decline since the September 2008
emergency order suggests that the close-out requirements of the
temporary rule have curbed the number of threshold securities and new
FTD in these securities.[Footnote 62]
Similar to Threshold Securities, FTD across the Market Showed a
Noticeable Decline after the 2008 Emergency Orders:
Figure 6 shows the number of equity securities across the market with
outstanding FTD and those with new FTD over the review period. As with
the threshold securities, the number of these securities began to
decline after the July order, concurrent with the decline in short
interest, and continued to decline after the implementation of the
September emergency order. As we have previously discussed, the close-
out requirements of the temporary rule applied to FTD resulting from
trades in any equity security, not just threshold securities. Most
notably, we found that the gap between securities with outstanding FTD
and those with new FTD narrowed considerably by December 2008, again
suggesting that the close-out requirements were resulting in more
prompt close outs. The overall decline in securities with new FTD also
suggests the new requirements may be having the effect of curbing new
FTD.
Figure 6: Average Daily Number of Securities with Outstanding and New
FTD for All Securities, by Month, from April 2004 through December
2008:
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Average daily number of securities, Outstanding FTD: 2,749.43;
Average daily number of securities, New FTD: 1,515.43.
Month and Year: 2004, May;
Average daily number of securities, Outstanding FTD: 2,782.15;
Average daily number of securities, New FTD: 1,546.45.
Month and Year: 2004, June;
Average daily number of securities, Outstanding FTD: 2,729.77;
Average daily number of securities, New FTD: 1,487.86.
Month and Year: 2004, July;
Average daily number of securities, Outstanding FTD: 2,747.95;
Average daily number of securities, New FTD: 1,537.81.
Month and Year: 2004, August;
Average daily number of securities, Outstanding FTD: 2,677.05;
Average daily number of securities, New FTD: 1,475.67.
Month and Year: 2004, September;
Average daily number of securities, Outstanding FTD: 2,704.81;
Average daily number of securities, New FTD: 1,480.1.
Month and Year: 2004, October;
Average daily number of securities, Outstanding FTD: 2,685.7;
Average daily number of securities, New FTD: 1,498.5.
Month and Year: 2004, November;
Average daily number of securities, Outstanding FTD: 2,703.89;
Average daily number of securities, New FTD: 1,532.78.
Month and Year: 2004, December;
Average daily number of securities, Outstanding FTD: 2,843.68;
Average daily number of securities, New FTD: 1,603.59.
Month and Year: 2005, January (Compliance date);
Average daily number of securities, Outstanding FTD: 2,631.55;
Average daily number of securities, New FTD: 1,465.95.
Month and Year: 2005, February;
Average daily number of securities, Outstanding FTD: 2,541.21;
Average daily number of securities, New FTD: 1,479.95.
Month and Year: 2005, March;
Average daily number of securities, Outstanding FTD: 2,626.09;
Average daily number of securities, New FTD: 1,512.41.
Month and Year: 2005, April;
Average daily number of securities, Outstanding FTD: 2,468.91;
Average daily number of securities, New FTD: 1,386.33.
Month and Year: 2005, May;
Average daily number of securities, Outstanding FTD: 2,406.95;
Average daily number of securities, New FTD: 1,360.81.
Month and Year: 2005, June;
Average daily number of securities, Outstanding FTD: 2,489.96;
Average daily number of securities, New FTD: 1,417.77.
Month and Year: 2005, July;
Average daily number of securities, Outstanding FTD: 2,455.2;
Average daily number of securities, New FTD: 1,367.05.
Month and Year: 2005, August;
Average daily number of securities, Outstanding FTD: 2,506.52;
Average daily number of securities, New FTD: 1,413.
Month and Year: 2005, September;
Average daily number of securities, Outstanding FTD: 2,425.05;
Average daily number of securities, New FTD: 1,370.19.
Month and Year: 2005, October;
Average daily number of securities, Outstanding FTD: 2,433.8;
Average daily number of securities, New FTD: 1,404.8.
Month and Year: 2005, November;
Average daily number of securities, Outstanding FTD: 2,359.85;
Average daily number of securities, New FTD: 1,337.2.
Month and Year: 2005, December;
Average daily number of securities, Outstanding FTD: 2,514.52;
Average daily number of securities, New FTD: 1,439.1.
Month and Year: 2006, January;
Average daily number of securities, Outstanding FTD: 2,557.3;
Average daily number of securities, New FTD: 1,479.4.
Month and Year: 2006, February;
Average daily number of securities, Outstanding FTD: 2,681.42;
Average daily number of securities, New FTD: 1,581.32.
Month and Year: 2006, March;
Average daily number of securities, Outstanding FTD: 2,657.26;
Average daily number of securities, New FTD: 1,537.57.
Month and Year: 2006, April;
Average daily number of securities, Outstanding FTD: 2,788.79;
Average daily number of securities, New FTD: 1,636.47.
Month and Year: 2006, May;
Average daily number of securities, Outstanding FTD: 2,924.59;
Average daily number of securities, New FTD: 1,732.14.
Month and Year: 2006, June;
Average daily number of securities, Outstanding FTD: 2,702.77;
Average daily number of securities, New FTD: 1,578.55.
Month and Year: 2006, July;
Average daily number of securities, Outstanding FTD: 2,617.3;
Average daily number of securities, New FTD: 1,536.45.
Month and Year: 2006, August;
Average daily number of securities, Outstanding FTD: 2,444.22;
Average daily number of securities, New FTD: 1,382.96.
Month and Year: 2006, September;
Average daily number of securities, Outstanding FTD: 2,434;
Average daily number of securities, New FTD: 1,397.95.
Month and Year: 2006, October;
Average daily number of securities, Outstanding FTD: 2,525.1;
Average daily number of securities, New FTD: 1,454.86.
Month and Year: 2006, November;
Average daily number of securities, Outstanding FTD: 2,616.14;
Average daily number of securities, New FTD: 1,539.52.
Month and Year: 2006, December;
Average daily number of securities, Outstanding FTD: 2,737.32;
Average daily number of securities, New FTD: 1,640.9.
Month and Year: 2007, January;
Average daily number of securities, Outstanding FTD: 2,524;
Average daily number of securities, New FTD: 1,463.48.
Month and Year: 2007, February;
Average daily number of securities, Outstanding FTD: 2,691.11;
Average daily number of securities, New FTD: 1,641.42.
Month and Year: 2007, March;
Average daily number of securities, Outstanding FTD: 2,823.27;
Average daily number of securities, New FTD: 1,719.05.
Month and Year: 2007, April;
Average daily number of securities, Outstanding FTD: 2,755.75;
Average daily number of securities, New FTD: 2,026.2.
Month and Year: 2007, May;
Average daily number of securities, Outstanding FTD: 3,122.91;
Average daily number of securities, New FTD: 2,409.77.
Month and Year: 2007, June;
Average daily number of securities, Outstanding FTD: 3,047.95;
Average daily number of securities, New FTD: 2,364.95.
Month and Year: 2007, July;
Average daily number of securities, Outstanding FTD: 2,976.52;
Average daily number of securities, New FTD: 2,300.38.
Month and Year: 2007, August;
Average daily number of securities, Outstanding FTD: 3,340.7;
Average daily number of securities, New FTD: 2,610.83.
Month and Year: 2007, September;
Average daily number of securities, Outstanding FTD: 2,838;
Average daily number of securities, New FTD: 2,175.37.
Month and Year: 2007, October (Elimination of grandfather exception);
Average daily number of securities, Outstanding FTD: ,853.23;
Average daily number of securities, New FTD: 2,175.55.
Month and Year: 2007, November;
Average daily number of securities, Outstanding FTD: 3,178.55;
Average daily number of securities, New FTD: 2,459.55.
Month and Year: 2007, December;
Average daily number of securities, Outstanding FTD: 3,029.6;
Average daily number of securities, New FTD: 2,339.75.
Month and Year: 2008, January;
Average daily number of securities, Outstanding FTD: 3,091.62;
Average daily number of securities, New FTD: 2,424.76.
Month and Year: 2008, February;
Average daily number of securities, Outstanding FTD: 3,113.15;
Average daily number of securities, New FTD: 2,424.4.
Month and Year: 2008, March;
Average daily number of securities, Outstanding FTD: 3,482.6;
Average daily number of securities, New FTD: 2,738.
Month and Year: 2008, April;
Average daily number of securities, Outstanding FTD: 3,163.77;
Average daily number of securities, New FTD: 2,411.91.
Month and Year: 2008, May;
Average daily number of securities, Outstanding FTD: 3,197.14;
Average daily number of securities, New FTD: 2,471.52.
Month and Year: 2008, June;
Average daily number of securities, Outstanding FTD: 3,316.86;
Average daily number of securities, New FTD: 2,543.71.
Month and Year: 2008, July (July emergency order);
Average daily number of securities, Outstanding FTD: 3,403.86;
Average daily number of securities, New FTD: 2,603.05.
Month and Year: 2008, August;
Average daily number of securities, Outstanding FTD: 3,110;
Average daily number of securities, New FTD: 2,267.62.
Month and Year: 2008, September (September emergency order);
Average daily number of securities, Outstanding FTD: 3,291.76;
Average daily number of securities, New FTD: 2,423.43.
Month and Year: 2008, October;
Average daily number of securities, Outstanding FTD: 1,775.64;
Average daily number of securities, New FTD: 1,325.27.
Month and Year: 2008, November;
Average daily number of securities, Outstanding FTD: 1,331.94;
Average daily number of securities, New FTD: 1,021.17.
Month and Year: 2008, December;
Average daily number of securities, Outstanding FTD: 1,290.86;
Average daily number of securities, New FTD: 969.68.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 7 shows the monthly average outstanding FTD for all securities,
and indicates a similar declining trend in threshold securities after
July 2008. By the end of 2008, outstanding FTD did not appear to have
declined below the earlier low point (late-2005). As we have previously
discussed, FTD existing prior to the effective date of the September
emergency order do not have to be closed out, unless the security
enters the threshold list. In addition, although the temporary rule
appeared to have curbed the number of securities with new FTD by the
end of 2008, it does not prohibit new FTD. The potential exists that
market events, such as increased trading volume or short interest,
could again lead to increased FTD. It remains to be seen whether the
stricter close-out requirements are having the effect of encouraging
improvements in locating and delivery processes that would help
mitigate increases in new FTD under such circumstances.
Figure 7: Average Outstanding FTD for All Securities, by Month, from
April 2004 through December 2008 (shares in millions):
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Average outstanding FTD for all securities: 827.1.
Month and Year: 2004, May;
Average outstanding FTD for all securities: 631.2.
Month and Year: 2004, June;
Average outstanding FTD for all securities: 613.1.
Month and Year: 2004, July;
Average outstanding FTD for all securities: 649.9.
Month and Year: 2004, August;
Average outstanding FTD for all securities: 1152.
Month and Year: 2004, September;
Average outstanding FTD for all securities: 1088.6.
Month and Year: 2004, October;
Average outstanding FTD for all securities: 853.5.
Month and Year: 2004, November;
Average outstanding FTD for all securities: 678.3.
Month and Year: 2004, December;
Average outstanding FTD for all securities: 781.3.
Month and Year: 2005, January (Compliance date);
Average outstanding FTD for all securities: 672.7.
Month and Year: 2005, February;
Average outstanding FTD for all securities: 576.5.
Month and Year: 2005, March;
Average outstanding FTD for all securities: 508.4.
Month and Year: 2005, April;
Average outstanding FTD for all securities: 524.5.
Month and Year: 2005, May;
Average outstanding FTD for all securities: 480.6.
Month and Year: 2005, June;
Average outstanding FTD for all securities: 511.9.
Month and Year: 2005, July;
Average outstanding FTD for all securities: 473.6.
Month and Year: 2005, August;
Average outstanding FTD for all securities: 422.4.
Month and Year: 2005, September;
Average outstanding FTD for all securities: 443.1.
Month and Year: 2005, October;
Average outstanding FTD for all securities: 464.4.
Month and Year: 2005, November;
Average outstanding FTD for all securities: 412.6.
Month and Year: 2005, December;
Average outstanding FTD for all securities: 533.7.
Month and Year: 2006, January;
Average outstanding FTD for all securities: 475.1.
Month and Year: 2006, February;
Average outstanding FTD for all securities: 675.4.
Month and Year: 2006, March;
Average outstanding FTD for all securities: 752.3.
Month and Year: 2006, April;
Average outstanding FTD for all securities: 518.1.
Month and Year: 2006, May;
Average outstanding FTD for all securities: 640.2.
Month and Year: 2006, June;
Average outstanding FTD for all securities: 560.5.
Month and Year: 2006, July;
Average outstanding FTD for all securities: 576.6.
Month and Year: 2006, August;
Average outstanding FTD for all securities: 550.9.
Month and Year: 2006, September;
Average outstanding FTD for all securities: 598.2.
Month and Year: 2006, October;
Average outstanding FTD for all securities: 730.4.
Month and Year: 2006, November;
Average outstanding FTD for all securities: 757.9.
Month and Year: 2006, December;
Average outstanding FTD for all securities: 640.9.
Month and Year: 2007, January;
Average outstanding FTD for all securities: 562.1.
Month and Year: 2007, February;
Average outstanding FTD for all securities: 882.1.
Month and Year: 2007, March;
Average outstanding FTD for all securities: 735.5.
Month and Year: 2007, April;
Average outstanding FTD for all securities: 775.1.
Month and Year: 2007, May;
Average outstanding FTD for all securities: 969.4.
Month and Year: 2007, June;
Average outstanding FTD for all securities: 960.2.
Month and Year: 2007, July;
Average outstanding FTD for all securities: 1074.3.
Month and Year: 2007, August;
Average outstanding FTD for all securities: 1295.5.
Month and Year: 2007, September;
Average outstanding FTD for all securities: 1084.3.
Month and Year: 2007, October (Elimination of grandfather exception);
Average outstanding FTD for all securities: 1071.3.
Month and Year: 2007, November;
Average outstanding FTD for all securities: 1070.4.
Month and Year: 2007, December;
Average outstanding FTD for all securities: 863.9.
Month and Year: 2008, January;
Average outstanding FTD for all securities: 829.3.
Month and Year: 2008, February;
Average outstanding FTD for all securities: 1009.4.
Month and Year: 2008, March;
Average outstanding FTD for all securities: 1303.0.
Month and Year: 2008, April;
Average outstanding FTD for all securities: 1017.8.
Month and Year: 2008, May;
Average outstanding FTD for all securities: 1018.3.
Month and Year: 2008, June;
Average outstanding FTD for all securities: 1071.1.
Month and Year: 2008, July (July emergency order);
Average outstanding FTD for all securities: 1573.2.
Month and Year: 2008, August;
Average outstanding FTD for all securities: 1040.7.
Month and Year: 2008, September (September emergency order);
Average outstanding FTD for all securities: 1028.1.
Month and Year: 2008, October;
Average outstanding FTD for all securities: 581.7.
Month and Year: 2008, November;
Average outstanding FTD for all securities: 497.7.
Month and Year: 2008, December;
Average outstanding FTD for all securities: 501.4.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Although the Majority of Threshold Securities Graduated from the List
in a Timely Manner, Some Securities Persisted for Extended Periods:
Our review of FTD data showed that the majority of threshold securities
"graduated" from the threshold list in a timely manner over the review
period, although most returned to the threshold list at least once.
Furthermore, until the September emergency order became effective, some
threshold securities persisted on the list for extended periods. A
majority of the threshold securities (83 percent) graduated from the
list within 22 days, the earliest we expected given the implementation
of the close-out requirement, and many graduated sooner--25 percent
within 6 days.[Footnote 63] The timely graduation of threshold
securities, in most instances, indicates that the regulation worked as
intended to reduce FTD to below the threshold level once securities
appeared on the threshold list. However, in many instances, this effect
was not permanent, as FTD in these securities eventually increased
again. From January 10, 2005, the day the first threshold list was
published, until December 31, 2008, about 21,400 securities graduated
from the threshold list. Of these securities, about 17,000, or 80
percent, returned to the threshold list at least once, and about 1,200,
or 6 percent, returned to the list more than 10 times.
In addition to showing the average monthly number of threshold
securities over the review period, figure 8 includes data on the number
of days these securities persisted on the threshold list. We found that
the average daily number of securities per month that were on the
threshold list for 22 days or less ranged from 50 percent (October
2008) to 91 percent (December 2008). However, some securities persisted
for considerably longer periods. Figure 8 also indicates the number of
securities that persisted on the list for more than 22, 30, 60, and 90
days, respectively, during the review period.
Figure 8: Average Number of Threshold Securities, by Month, and Number
of Days on the Threshold List, from January 2005 through December 2008:
[Refer to PDF for image: multiple line graph]
Month and Year: 2005, January (Compliance date);
Average number of threshold securities, all securities: 423.13.
Month and Year: 2005, February;
Average number of threshold securities, all securities: 385.16;
Average number of threshold securities, 22 days or more: 82.89;
Average number of threshold securities, 30 days or more: 23.42.
Month and Year: 2005, March;
Average number of threshold securities, all securities: 359.32;
Average number of threshold securities, 22 days or more: 137.55;
Average number of threshold securities, 30 days or more: 107.
Month and Year: 2005, April;
Average number of threshold securities, all securities: 317.57;
Average number of threshold securities, 22 days or more: 121.76;
Average number of threshold securities, 30 days or more: 96.71;
Average number of threshold securities, 60 days or more: 45.95.
Month and Year: 2005, May;
Average number of threshold securities, all securities: 296.9;
Average number of threshold securities, 22 days or more: 112.38
Average number of threshold securities, 30 days or more: 93.19
Average number of threshold securities, 60 days or more: 60.33
Average number of threshold securities, 90 days or more: 13.38
Month and Year: 2005, June;
Average number of threshold securities, all securities: 288.36;
Average number of threshold securities, 22 days or more: 103.45;
Average number of threshold securities, 30 days or more: 86.09;
Average number of threshold securities, 60 days or more: 56.18;
Average number of threshold securities, 90 days or more: 43.59.
Month and Year: 2005, July;
Average number of threshold securities, all securities: 298.6;
Average number of threshold securities, 22 days or more: 93.7;
Average number of threshold securities, 30 days or more: 76.9;
Average number of threshold securities, 60 days or more: 49.85;
Average number of threshold securities, 90 days or more: 40.75.
Month and Year: 2005, August;
Average number of threshold securities, all securities: 307.48;
Average number of threshold securities, 22 days or more: 101.61
Average number of threshold securities, 30 days or more: 77.78
Average number of threshold securities, 60 days or more: 48.48
Average number of threshold securities, 90 days or more: 40.26
Month and Year: 2005, September;
Average number of threshold securities, all securities: 289.9;
Average number of threshold securities, 22 days or more: 98.48;
Average number of threshold securities, 30 days or more: 79.95;
Average number of threshold securities, 60 days or more: 48.1;
Average number of threshold securities, 90 days or more: 37.14.
Month and Year: 2005, October;
Average number of threshold securities, all securities: 275.05;
Average number of threshold securities, 22 days or more: 91.5;
Average number of threshold securities, 30 days or more: 71.6;
Average number of threshold securities, 60 days or more: 45.65;
Average number of threshold securities, 90 days or more: 32.65.
Month and Year: 2005, November;
Average number of threshold securities, all securities: 270.6;
Average number of threshold securities, 22 days or more: 67.45;
Average number of threshold securities, 30 days or more: 53.55;
Average number of threshold securities, 60 days or more: 36.2;
Average number of threshold securities, 90 days or more: 27.7.
Month and Year: 2005, December;
Average number of threshold securities, all securities: 281.67;
Average number of threshold securities, 22 days or more: 74.71;
Average number of threshold securities, 30 days or more: 53.57;
Average number of threshold securities, 60 days or more: 30.48;
Average number of threshold securities, 90 days or more: 24.76.
Month and Year: 2006, January;
Average number of threshold securities, all securities: 274.3;
Average number of threshold securities, 22 days or more: 83.85;
Average number of threshold securities, 30 days or more: 63.6;
Average number of threshold securities, 60 days or more: 31;
Average number of threshold securities, 90 days or more: 23.1.
Month and Year: 2006, February;
Average number of threshold securities, all securities: 324.11;
Average number of threshold securities, 22 days or more: 90.16;
Average number of threshold securities, 30 days or more: 69.74;
Average number of threshold securities, 60 days or more: 39.63;
Average number of threshold securities, 90 days or more: 22.84.
Month and Year: 2006, March;
Average number of threshold securities, all securities: 324.61;
Average number of threshold securities, 22 days or more: 104.09;
Average number of threshold securities, 30 days or more: 77.74;
Average number of threshold securities, 60 days or more: 38.7;
Average number of threshold securities, 90 days or more: 26.74.
Month and Year: 2006, April;
Average number of threshold securities, all securities: 308.68;
Average number of threshold securities, 22 days or more: 90.47;
Average number of threshold securities, 30 days or more: 70.84;
Average number of threshold securities, 60 days or more: 39.26;
Average number of threshold securities, 90 days or more: 26.58.
Month and Year: 2006, May;
Average number of threshold securities, all securities: 297.5;
Average number of threshold securities, 22 days or more: 79.64;
Average number of threshold securities, 30 days or more: 60;
Average number of threshold securities, 60 days or more: 34.55;
Average number of threshold securities, 90 days or more: 22.5.
Month and Year: 2006, June;
Average number of threshold securities, all securities: 251.91;
Average number of threshold securities, 22 days or more: 70.91;
Average number of threshold securities, 30 days or more: 53.64;
Average number of threshold securities, 60 days or more: 28;
Average number of threshold securities, 90 days or more: 22.68.
Month and Year: 2006, July;
Average number of threshold securities, all securities: 254.75;
Average number of threshold securities, 22 days or more: 64.15;
Average number of threshold securities, 30 days or more: 46.15;
Average number of threshold securities, 60 days or more: 21.15;
Average number of threshold securities, 90 days or more: 15.2.
Month and Year: 2006, August;
Average number of threshold securities, all securities: 230.87;
Average number of threshold securities, 22 days or more: 61.43;
Average number of threshold securities, 30 days or more: 48.26;
Average number of threshold securities, 60 days or more: 22.22;
Average number of threshold securities, 90 days or more: 15.87.
Month and Year: 2006, September;
Average number of threshold securities, all securities: 238.95;
Average number of threshold securities, 22 days or more: 66.4;
Average number of threshold securities, 30 days or more: 47.6;
Average number of threshold securities, 60 days or more: 24.25;
Average number of threshold securities, 90 days or more: 13.75.
Month and Year: 2006, October;
Average number of threshold securities, all securities: 264.62;
Average number of threshold securities, 22 days or more: 73.62;
Average number of threshold securities, 30 days or more: 55.86;
Average number of threshold securities, 60 days or more: 26.52;
Average number of threshold securities, 90 days or more: 15.
Month and Year: 2006, November;
Average number of threshold securities, all securities: 277.05;
Average number of threshold securities, 22 days or more: 73;
Average number of threshold securities, 30 days or more: 54.86;
Average number of threshold securities, 60 days or more: 27.1;
Average number of threshold securities, 90 days or more: 16.38.
Month and Year: 2006, December;
Average number of threshold securities, all securities: 294.75;
Average number of threshold securities, 22 days or more: 72.8;
Average number of threshold securities, 30 days or more: 54.95;
Average number of threshold securities, 60 days or more: 26.65;
Average number of threshold securities, 90 days or more: 15.6.
Month and Year: 2007, January;
Average number of threshold securities, all securities: 256.45;
Average number of threshold securities, 22 days or more: 60;
Average number of threshold securities, 30 days or more: 43.5;
Average number of threshold securities, 60 days or more: 25.2;
Average number of threshold securities, 90 days or more: 15.8.
Month and Year: 2007, February;
Average number of threshold securities, all securities: 270.89;
Average number of threshold securities, 22 days or more: 51.68;
Average number of threshold securities, 30 days or more: 35.89;
Average number of threshold securities, 60 days or more: 17.05;
Average number of threshold securities, 90 days or more: 13.26.
Month and Year: 2007, March;
Average number of threshold securities, all securities: 311.05;
Average number of threshold securities, 22 days or more: 75.55;
Average number of threshold securities, 30 days or more: 51.86;
Average number of threshold securities, 60 days or more: 18.86;
Average number of threshold securities, 90 days or more: 13.14.
Month and Year: 2007, April;
Average number of threshold securities, all securities: 317.6;
Average number of threshold securities, 22 days or more: 87.15;
Average number of threshold securities, 30 days or more: 62.05;
Average number of threshold securities, 60 days or more: 22.85;
Average number of threshold securities, 90 days or more: 12.3.
Month and Year: 2007, May;
Average number of threshold securities, all securities: 361.18;
Average number of threshold securities, 22 days or more: 89.41;
Average number of threshold securities, 30 days or more: 68.41;
Average number of threshold securities, 60 days or more: 31.77;
Average number of threshold securities, 90 days or more: 13.95.
Month and Year: 2007, June;
Average number of threshold securities, all securities: 373.05;
Average number of threshold securities, 22 days or more: 110.19;
Average number of threshold securities, 30 days or more: 83;
Average number of threshold securities, 60 days or more: 44.05;
Average number of threshold securities, 90 days or more: 22.86.
Month and Year: 2007, July;
Average number of threshold securities, all securities: 415.95;
Average number of threshold securities, 22 days or more: 125.38;
Average number of threshold securities, 30 days or more: 95.86;
Average number of threshold securities, 60 days or more: 46.52;
Average number of threshold securities, 90 days or more: 27.62.
Month and Year: 2007, August;
Average number of threshold securities, all securities: 459.52;
Average number of threshold securities, 22 days or more: 134.52;
Average number of threshold securities, 30 days or more: 103.17;
Average number of threshold securities, 60 days or more: 49.87;
Average number of threshold securities, 90 days or more: 28.52.
Month and Year: 2007, September;
Average number of threshold securities, all securities: 337.89;
Average number of threshold securities, 22 days or more: 122.47;
Average number of threshold securities, 30 days or more: 95.21;
Average number of threshold securities, 60 days or more: 49.84;
Average number of threshold securities, 90 days or more: 32.84.
Month and Year: 2007, October (Elimination of grandfather exception);
Average number of threshold securities, all securities: 367;
Average number of threshold securities, 22 days or more: 129.41;
Average number of threshold securities, 30 days or more: 103.73;
Average number of threshold securities, 60 days or more: 57.09;
Average number of threshold securities, 90 days or more: 35.73.
Month and Year: 2007, November;
Average number of threshold securities, all securities: 380.76;
Average number of threshold securities, 22 days or more: 117.29;
Average number of threshold securities, 30 days or more: 94.48;
Average number of threshold securities, 60 days or more: 55.48;
Average number of threshold securities, 90 days or more: 36.86.
Month and Year: 2007, December;
Average number of threshold securities, all securities: 395.3;
Average number of threshold securities, 22 days or more: 108.85;
Average number of threshold securities, 30 days or more: 84.75;
Average number of threshold securities, 60 days or more: 51.2;
Average number of threshold securities, 90 days or more: 37.55;
Month and Year: 2008, January;
Average number of threshold securities, all securities: 406.62;
Average number of threshold securities, 22 days or more: 116.33;
Average number of threshold securities, 30 days or more: 87.76;
Average number of threshold securities, 60 days or more: 49.67;
Average number of threshold securities, 90 days or more: 32.14.
Month and Year: 2008, February;
Average number of threshold securities, all securities: 404;
Average number of threshold securities, 22 days or more: 127.7;
Average number of threshold securities, 30 days or more: 98.35;
Average number of threshold securities, 60 days or more: 51.75;
Average number of threshold securities, 90 days or more: 34.35.
Month and Year: 2008, March;
Average number of threshold securities, all securities: 466.3;
Average number of threshold securities, 22 days or more: 147.2;
Average number of threshold securities, 30 days or more: 118.3;
Average number of threshold securities, 60 days or more: 59.1;
Average number of threshold securities, 90 days or more: 33.85.
Month and Year: 2008, April;
Average number of threshold securities, all securities: 532.41;
Average number of threshold securities, 22 days or more: 179.59;
Average number of threshold securities, 30 days or more: 132.45;
Average number of threshold securities, 60 days or more: 74.41;
Average number of threshold securities, 90 days or more: 44.05.
Month and Year: 2008, May;
Average number of threshold securities, all securities: 491.05;
Average number of threshold securities, 22 days or more: 212.9;
Average number of threshold securities, 30 days or more: 177.62;
Average number of threshold securities, 60 days or more: 81.67;
Average number of threshold securities, 90 days or more: 54.
Month and Year: 2008, June;
Average number of threshold securities, all securities: 503.52;
Average number of threshold securities, 22 days or more: 201.62;
Average number of threshold securities, 30 days or more: 169.67;
Average number of threshold securities, 60 days or more: 104;
Average number of threshold securities, 90 days or more: 59.86.
Month and Year: 2008, July (July emergency order);
Average number of threshold securities, all securities: 581.59;
Average number of threshold securities, 22 days or more: 184.23;
Average number of threshold securities, 30 days or more: 152.73;
Average number of threshold securities, 60 days or more: 92.55;
Average number of threshold securities, 90 days or more: 59.05.
Month and Year: 2008, August;
Average number of threshold securities, all securities: 500;
Average number of threshold securities, 22 days or more: 223.67;
Average number of threshold securities, 30 days or more: 166.33;
Average number of threshold securities, 60 days or more: 88.24;
Average number of threshold securities, 90 days or more: 63.05.
Month and Year: 2008, September (September emergency order);
Average number of threshold securities, all securities: 413.38;
Average number of threshold securities, 22 days or more: 186.14;
Average number of threshold securities, 30 days or more: 164.29;
Average number of threshold securities, 60 days or more: 88.71;
Average number of threshold securities, 90 days or more: 61.
Month and Year: 2008, October;
Average number of threshold securities, all securities: 195.41;
Average number of threshold securities, 22 days or more: 97.68;
Average number of threshold securities, 30 days or more: 84.77;
Average number of threshold securities, 60 days or more: 66.5;
Average number of threshold securities, 90 days or more: 43.09.
Month and Year: 2008, November;
Average number of threshold securities, all securities: 72;
Average number of threshold securities, 22 days or more: 12.06;
Average number of threshold securities, 30 days or more: 9.72;
Average number of threshold securities, 60 days or more: 6.17;
Average number of threshold securities, 90 days or more: 4.39.
Month and Year: 2008, December;
Average number of threshold securities, all securities: 83.91;
Average number of threshold securities, 22 days or more: 7.27;
Average number of threshold securities, 30 days or more: 4.86;
Average number of threshold securities, 60 days or more: 2.27;
Average number of threshold securities, 90 days or more: 0.73.
Sources: SEC (data); GAO (analysis).
[End of figure]
Securities legitimately could have persisted on the threshold list
during the review period for several reasons:
* FTD in these securities could have been exempt from the close-out
requirement under the former grandfather and option market maker
exceptions, at least until these exceptions were eliminated. FTD in
these securities also could have fallen under the third exception from
the Regulation SHO delivery requirement if they resulted from long
sales of formerly restricted securities. As we have previously
discussed, Regulation SHO allows owners of formerly restricted
securities 35 days to complete processing of these securities and
deliver them to their clearing broker-dealer.
* Clearing broker-dealers may have closed out their FTD in compliance
with Regulation SHO, but as old FTD were cleared up, new ones were
created that kept the security on the threshold list.
* Clearing broker-dealers may have been unable to close out their FTD
after 13 consecutive settlement days, because, for example, of a lack
of liquidity in a specific security. In that case, until the relevant
clearing broker-dealer was able to obtain securities and close out its
FTD, it would be required to preborrow, or arrange to preborrow,
securities before effecting additional short sales.
Examination and enforcement staff at FINRA and SEC told us that until
they conduct an examination or inquiry into persistent FTD in a
threshold security, they do not know whether they were legitimate
(e.g., based on an exception) or whether the firm violated Regulation
SHO's delivery requirements in those securities.[Footnote 64]
We reviewed securities that persisted for more than 90 days over the
review period and found they comprised about 300 unique securities.
Table 1 shows the number of securities that persisted on the threshold
list for more than 90 days, by the number of days. The table reflects a
total of 365 because some securities appeared on the list more than
once. We found 1 security that persisted on the threshold list for more
than 700 consecutive days. For those securities that returned to the
threshold list more than once, we found that the total number of days
they could persist on the list could be greater. For example, 1
security that returned to the threshold list 5 times persisted for a
total of 862 days.
Table 1: Number of Securities on the Threshold List for More Than 90
Consecutive Settlement Days, from January 2005 through December 2008:
Number of securities appearing on the threshold list for more than 90
days:
Number of consecutive settlement days: 90-100: 59;
Number of consecutive settlement days: 101-200: 229;
Number of consecutive settlement days: 201-300: 44;
Number of consecutive settlement days: 301-400: 23;
Number of consecutive settlement days: 401-500: 7;
Number of consecutive settlement days: 501-600: 2;
Number of consecutive settlement days: 601-700: 0;
Number of consecutive settlement days: 701-800: 1.
Sources: SEC (data); GAO (analysis).
[End of table]
The September emergency order appeared to significantly reduce the
ability of securities to persist for extended periods. From May 2005,
the first month that a security could be on the threshold list for more
than 90 days, through September 2008, the average daily number of
securities persisting for more than 90 days ranged from a low of 12 per
month (April 2007) to a high of 63 per month (August 2008). Our data
showed that the number of such securities did not begin to decline
significantly from their record high until after the September order
became effective. By the end of 2008, no securities on the threshold
list had persisted for more than 90 days.
ETFs Accounted for Half of the Remaining Threshold Securities at the
End of 2008:
The percentage of ETFs on the threshold list increased over the review
period (figure 9) as the number of these products trading in the
financial markets also grew.[Footnote 65] By December 2008, about 50
percent of the securities remaining on the threshold list were ETFs.
Trading and Markets and OEA staffs said that, at this time, they do not
believe ETFs are persistently failing due to manipulation, and noted
that ETFs are characteristically less prone to manipulation than common
stock since the ETF price is based generally on large baskets of
underlying securities.[Footnote 66]
Instead, Trading and Markets, OEA, and FINRA staffs believe that
structural characteristics associated with ETFs make them more likely
to experience FTD. This is primarily because ETFs can only be created
and redeemed in large blocks of shares (e.g., 50,000) called creation
units.[Footnote 67] For example, OEA staff said that, given the costs
associated with creating and redeeming units, broker-dealers may have
little incentive to create additional units until the number of FTD is
at least as great as the creation unit size. As a result, ETFs are more
prone to inclusion on the threshold list than other securities. OEA
staff said that because many ETFs have a low number of total shares
outstanding, FTD in ETFs can easily trigger the 10,000 share FTD and
0.5 percent of total shares outstanding criterion for becoming a
threshold security. In addition, the creation unit size may far exceed
the 10,000 share FTD trigger level for becoming a threshold security.
FINRA staff told us that when newly listed ETFs begin trading, there is
uncertainty in the marketplace regarding the level of demand. If demand
for the specific ETF exceeds contemporaneous sell-side supply, FINRA
staff said that market makers will short sell the ETF pursuant to
existing exemptions, causing FTD. However, these staff said that the
resulting FTD are typically short term and resolved through the
issuance of additional creation units.
Trading and Markets and OEA staffs said that they are continuing to
review ETFs to further understand the reasons for FTD in the products,
and to monitor any potential changes to ETF products for manipulation
or other concerns.
Figure 9: ETFs as a Percentage of Threshold Securities, by Month, from
January 2005 through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Percentage of threshold securities (ETF): 7.72.
Month and Year: 2005, February;
Percentage of threshold securities (ETF): 5.62.
Month and Year: 2005, March;
Percentage of threshold securities (ETF): 7.36.
Month and Year: 2005, April;
Percentage of threshold securities (ETF): 8.08.
Month and Year: 2005, May;
Percentage of threshold securities (ETF): 9.56.
Month and Year: 2005, June;
Percentage of threshold securities (ETF): 6.72.
Month and Year: 2005, July;
Percentage of threshold securities (ETF): 6.17.
Month and Year: 2005, August;
Percentage of threshold securities (ETF): 7.64.
Month and Year: 2005, September;
Percentage of threshold securities (ETF): 6.48.
Month and Year: 2005, October;
Percentage of threshold securities (ETF): 8.33.
Month and Year: 2005, November;
Percentage of threshold securities (ETF): 9.79.
Month and Year: 2005, December;
Percentage of threshold securities (ETF): 9.16.
Month and Year: 2006, January;
Percentage of threshold securities (ETF): 9.52.
Month and Year: 2006, February;
Percentage of threshold securities (ETF): 10.51.
Month and Year: 2006, March;
Percentage of threshold securities (ETF): 10.47.
Month and Year: 2006, April;
Percentage of threshold securities (ETF): 8.65.
Month and Year: 2006, May;
Percentage of threshold securities (ETF): 9.44.
Month and Year: 2006, June;
Percentage of threshold securities (ETF): 9.56.
Month and Year: 2006, July;
Percentage of threshold securities (ETF): 10.83.
Month and Year: 2006, August;
Percentage of threshold securities (ETF): 12.76.
Month and Year: 2006, September;
Percentage of threshold securities (ETF): 15.46.
Month and Year: 2006, October;
Percentage of threshold securities (ETF): 18.78.
Month and Year: 2006, November;
Percentage of threshold securities (ETF): 15.82.
Month and Year: 2006, December;
Percentage of threshold securities (ETF): 15.71.
Month and Year: 2007, January;
Percentage of threshold securities (ETF): 17.63.
Month and Year: 2007, February;
Percentage of threshold securities (ETF): 16.33.
Month and Year: 2007, March;
Percentage of threshold securities (ETF): 16.98.
Month and Year: 2007, April;
Percentage of threshold securities (ETF): 13.96.
Month and Year: 2007, May;
Percentage of threshold securities (ETF): 16.52.
Month and Year: 2007, June;
Percentage of threshold securities (ETF): 20.81.
Month and Year: 2007, July;
Percentage of threshold securities (ETF): 20.30.
Month and Year: 2007, August;
Percentage of threshold securities (ETF): 16.29.
Month and Year: 2007, September;
Percentage of threshold securities (ETF): 19.69.
Month and Year: 2007, October (Elimination of grandfather exception);
Percentage of threshold securities (ETF): 19.51.
Month and Year: 2007, November;
Percentage of threshold securities (ETF): 20.16.
Month and Year: 2007, December;
Percentage of threshold securities (ETF): 24.50.
Month and Year: 2008, January;
Percentage of threshold securities (ETF): 23.71.
Month and Year: 2008, February;
Percentage of threshold securities (ETF): 24.14.
Month and Year: 2008, March;
Percentage of threshold securities (ETF): 22.17.
Month and Year: 2008, April;
Percentage of threshold securities (ETF): 19.31.
Month and Year: 2008, May;
Percentage of threshold securities (ETF): 20.25.
Month and Year: 2008, June;
Percentage of threshold securities (ETF): 24.10.
Month and Year: 2008, July (July emergency order);
Percentage of threshold securities (ETF): 20.35.
Month and Year: 2008, August;
Percentage of threshold securities (ETF): 19.42.
Month and Year: 2008, September (September emergency order);
Percentage of threshold securities (ETF): 21.68.
Month and Year: 2008, October;
Percentage of threshold securities (ETF): 17.12.
Month and Year: 2008, November;
Percentage of threshold securities (ETF): 34.89.
Month and Year: 2008, December;
Percentage of threshold securities (ETF): 50.92.
Sources: SEC, Bloomberg, Yahoo! Finance, MSN Money, and Morningstar
(data); GAO (analysis).
[End of figure]
Some Commenters Contend a Preborrow Requirement Is Needed to Address
FTD and Market Manipulation, While SEC Is Still Considering Whether It
Would Be Appropriate:
Some market participants and others (commenters) expressed concern that
under the current locate requirement, broker-dealers with available
shares may provide more locates than they have shares available.
[Footnote 68] Furthermore, they said that the current close-out
requirements do not address manipulation that can occur within the 3-
day settlement period. To mitigate this potential, these commenters
advocate requiring short sellers to first borrow securities before
effecting their short sales. Trading and Markets and FINRA staffs
agreed that market manipulation within the T+3 settlement period is
possible. Meanwhile, Trading and Markets staff said that they are still
considering whether a preborrow requirement is an appropriate
regulatory response.
Some Commenters Believe That the Current Locate and Close-out
Requirements Are Not Sufficient to Prevent FTD and Market Manipulation:
Some commenters believe that the current locate requirement is not
sufficient to curb FTD resulting from short sales or prevent
manipulative trading. As we have previously discussed, Regulation SHO
allows broker-dealers to rely on industry easy-to-borrow lists, instead
of directly contacting the source of the securities. According to OCIE
and FINRA staffs and industry officials, the industry generally relies
on these lists, to satisfy the locate requirement when effecting short-
sales in securities considered widely available.[Footnote 69] For
securities that are not on an easy-to-borrow list, the customer or the
broker-dealer typically calls the securities lending department of the
broker-dealer to determine the availability of the securities for
borrowing.[Footnote 70] However, Regulation SHO does not require the
entity on which a broker-dealer relied as a source of available
securities to have the securities available on settlement date. Some
commenters have expressed concern that unless SEC requires broker-
dealers to borrow securities prior to effecting short sales, or at
least requires sources of securities to set aside securities as they
are providing locates, broker-dealers could provide more locates than
they could fill, which could lead to FTD if they are not able to obtain
sufficient shares for delivery from another source on settlement day.
One securities lending consultant with whom we spoke said that the
process of providing locates for hard-to-borrow stocks generally is
informal, with locates at times provided verbally. This consultant said
that such informal conversations can result in the securities not being
available on settlement day if the parties misunderstand the type and
amount of securities available. Another consultant in financial
services said that because broker-dealers could rely on telephone
calls, they may not actually check whether the source was valid.
Although the temporary rule requires most FTD resulting from short
sales to be closed out on T+4, several commenters expressed concern
that market manipulation could occur within the T+4 time frame. These
commenters said that under the current locate and close-out
requirements, a trader could still naked short sell a security and
cover the sales with purchase orders prior to settlement day. Because
the trader does not have to incur the cost of borrowing shares, these
commenters said that the trader could naked short sell without limit--
thus, flooding the market with sell orders to potentially depress the
price of the security and realize greater profits. To mitigate this
type of market manipulation, the commenters recommended that SEC
require broker-dealers to preborrow securities prior to effecting a
short sale on behalf of a customer, which they said would eliminate the
potential for manipulative short selling within the 3-day settlement
period and more generally provide greater assurance that short sales do
not result in FTD.
Although Regulatory Staff Said That Overlocating Is Unlikely,
Inconsistent Industry Practices in Managing Easy-to-Borrow Lists Could
Raise Concerns:
Trading and Markets staff said that they have not conducted any
empirical studies to assess the effectiveness of the locate requirement
for reducing FTD. However, they and industry officials said that
overlocating is unlikely to occur because only an estimated 5 percent
to 10 percent of locates result in the actual borrowing and delivery of
shares. For example, many customers choose not to proceed with the
short sale order after obtaining or requesting a locate.[Footnote 71]
Industry officials noted that there is a key difference between a
locate, which occurs prior to the short sale being effected, and a
borrow, which occurs at settlement. Because broker-dealers settle
transactions in each security on a net basis, these officials and the
regulators said that the actual settlement obligation is often less
than the number of shares sold short, making borrowing unnecessary or
necessary only in limited quantities.
Industry officials told us that as a result of the standardization of
the locate requirement under Regulation SHO, they have developed
policies and procedures that help them to better manage their
securities lending operations. More specifically, these officials said
that the locate requirement, and the new T+4 close-out requirement for
FTD resulting from short sales, has resulted in increased and improved
communication with customers prior to effecting a short sale. For
example, some industry officials said that as a result of the locate
requirement of Regulation SHO, they are denying customers' requests to
effect short sales in hard-to-borrow securities because a source of
available and sufficient securities cannot be located. They said that
the customer has a vested interest in making sure that the broker-
dealer can deliver the securities in time for settlement. If securities
cannot be borrowed and delivered in time for settlement, the broker-
dealer will be required to close out the FTD under the temporary rule,
thus increasing the chance that the customer may be bought-in at a loss
or will be required to close out its short position earlier than
desired.[Footnote 72] Industry officials said that, consequently, when
customers call the securities lending department to obtain a locate for
hard-to-borrow securities, the customer and staff from the securities
lending department are more likely to discuss the availability of the
security, the cost to borrow it, and the length of time it can be
borrowed. Furthermore, industry officials said that broker-dealers also
are motivated to manage their inventory effectively to avoid FTD, which
otherwise trigger the close-out obligations of the temporary rule.
To better understand industry practices regarding locates, we reviewed
several broker-dealer examinations conducted by OCIE that focused on
Regulation SHO compliance. We found that four of the five broker-
dealers that were examined either generated their own easy-to-borrow
lists or used the easy-to-borrow lists of other broker-dealers with
which they had stock borrow arrangements, to determine whether a
security was widely available for borrowing prior to effecting a short
sale.[Footnote 73] We found that some of these firms decremented their
easy-to-borrow lists as they provided locates, or practiced some other
form of inventory management to help ensure that they did not provide
locates for more securities than they could fill at settlement date.
Others, however, did not follow these practices. We note that without
such practices in place, it is unclear how these firms could ensure
that they are not providing locates in excess of their available supply
of securities and thereby limiting the potential for FTD. As we have
previously discussed, Regulation SHO does not require firms to
decrement their easy-to-borrow lists as they provide locates to their
customers or traders, nor does it include definitive criteria regarding
what constitutes an easy-to-borrow security other than a reasonableness
requirement. Without such criteria, it is unclear how SEC could ensure
that firms prepare these lists in a consistent manner and contain an
appropriate range of securities that are available for borrowing.
Regulators and Industry Officials Said That the Current Locate and
Close-out Requirements Make Manipulative Naked Short Selling More
Difficult:
Although short sellers and broker-dealers could still potentially
collude to effect a manipulative short selling scheme, Trading and
Markets and FINRA staffs said that under the current locate and close-
out requirements, it is less likely traders would effect short sales
resulting in persistent FTD. FINRA staff said that this is because the
locate and close-out requirements mandate the broker-dealer to settle
the trade or to resolve the FTD created when the trade was not settled
on time. Customers, on the other hand, do not have any role in the
settlement of trades. For example, these staffs said that it would not
be very likely that a retail customer, who generally relies on the same
broker-dealer to obtain a locate, execute, and settle a trade, could
implement a manipulative naked short selling scheme.[Footnote 74] To do
so, FINRA staff said that the broker-dealer would in all likelihood
have to collude with the customer and agree to allow a short sale to be
effected without a locate being obtained, fail to deliver securities,
and keep the FTD open while the customer attempted to fraudulently
drive down the price of the security.
Industry officials told us that the customers who are allowed to
provide their own locates to executing brokers and arrange for
securities to be delivered to the clearing broker-dealer for settlement
generally are institutional investors, such as hedge funds. They said
that institutional investors may choose to execute and settle the trade
with one broker-dealer, or they may choose to execute the trade with
one broker-dealer and settle it with another broker-dealer (a prime
brokerage arrangement), where the clearing broker-dealer is called a
prime broker. When a customer uses a prime broker to clear and settle
his trades, the executing broker remains responsible for obtaining a
locate, marking the trade long or short, and executing the trade. The
prime broker is responsible for delivering securities in time for
settlement, whether or not it relies on the customer's source of
securities. Therefore, according to FINRA and industry officials,
manipulative naked short selling is likely to occur only to the extent
that the prime broker agrees to fail to deliver securities on time and
keep FTD open. According to industry officials, prime brokers will only
look to the customer's source of a locate for delivery if the prime
broker cannot otherwise obtain the necessary shares for delivery.
Both Trading and Markets and FINRA staffs said that the preborrow
penalty specified in Regulation SHO and the temporary rule provides the
clearing broker-dealer with a strong financial incentive to close out
FTD as required by the rules. However, before SEC issued the temporary
rule in September 2008, Regulation SHO's close-out requirement applied
only to threshold securities (and only after the FTD had been open for
13 consecutive days). Furthermore, FTD in nonthreshold securities never
had to be closed out. As a result, under Regulation SHO, FTD resulting
from naked short sales could persist for many days. Under the temporary
rule, subject to certain exceptions, if a clearing firm is unable to
close out FTD resulting from a short sale on the morning of T+4 in any
security, or, for FTD resulting from long sales or bona fide market
making on T+6, the clearing firm cannot execute additional short sales
in that security for any of its customers or its proprietary account,
unless it first preborrows (or arranges to borrow) the security. The
temporary rule allows the clearing firm to avoid the preborrow penalty
to the extent that it can identify any introducing broker-dealer(s)
that have contributed to the FTD, by allocating the close-out and
preborrow obligations to those broker-dealers. Industry officials and
FINRA staff told us that clearing broker-dealers generally do not
allocate FTD in this manner.[Footnote 75] Instead, they told us that
clearing broker-dealers may choose to finance the costs of closing out
FTD, or preborrow the securities if they cannot, and allocate those
costs among their customers. Several clearing broker-dealers told us
that they allocate these costs to their customers with open short
positions.[Footnote 76]
Hedge fund officials with whom we spoke said that FTD create friction
with prime brokers because the hedge funds rely on the prime brokers to
obtain and deliver shares on time. They said that resolving FTD is
costly and time-consuming because traders must spend time with the
hedge fund's operations group to reconcile the trade. To the extent
that the prime broker cannot identify the customer responsible for the
FTD, hedge fund officials said that at times they have been allocated
the costs of closing out FTD for which they believe they were not
responsible. These officials said that if a hedge fund identifies
settlement failures at a particular prime broker, it typically will
reduce its activity at that prime broker or stop using it altogether.
Regulators Acknowledge the Potential for Intrasettlement Manipulation,
and Are Continuing to Assess Whether a Preborrow Requirement Would Be
Appropriate:
Trading and Markets and FINRA staffs acknowledged the potential for
market manipulation within the T+4 time frame. FINRA officials
explained that a fraudulent short selling scheme could occur even in
situations where market participants or customers are fully compliant
with the locate rule and no FTD develop on settlement day. In such
intraday manipulations, the customer or market participant, after
having made a valid locate, engages in a pattern of short selling
activity during a concentrated period of time, with the specific intent
of driving down the price of a stock for a specific period. The
customer or market participant then purchases shares after the price
decline occurs to cover its short position for a profit. Because the
purchase and sale activity nets out to zero, no FTD develop on
settlement day as a result of this activity.
Trading and Markets and FINRA staffs said that those securities that
are most vulnerable to such short selling abuse would be thinly traded,
highly illiquid, and have a relatively low number of total shares
outstanding. They said that securities that have many total shares
outstanding and are very liquid are more difficult to manipulate,
because the trader would have to effect very large and numerous short
sale orders to create downward pressure on the price. FINRA staff said
that a marketwide preborrow requirement would likely increase the
overall costs of short selling, including the costs to effect an
intraday market manipulation, but it would not necessarily eliminate
this type of misconduct.
Trading and Markets staff also told us that the costs of a marketwide
preborrow requirement to address FTD, manipulative naked short selling,
or market manipulation occurring within the T+4 time frame might
outweigh any potential benefits, especially considering that the vast
majority of trades settle on time. After the July emergency order, OEA
staff conducted an analysis of the impact of the order to understand
the potential economic trade-offs of a preborrow requirement. To
address these questions, OEA examined how various measures hypothesized
to be affected by the order evolved over time for the securities of the
19 financial firms subject to the order.[Footnote 77] OEA then compared
the experience of these securities with that of two control samples
that were not subject to the order: one control sample consisted of
other financial securities, and the other sample consisted of large
nonfinancial securities. OEA's results suggested that imposing a
preborrow requirement may have had the intended effect of reducing FTD,
but also may have resulted in significant costs to short sellers.
[Footnote 78]
First, OEA found that short selling declined more for the securities in
the July emergency order than for securities in the two control groups-
-by almost 9 percent of volume. Second, OEA's analysis showed large,
but temporary, initial increases in securities lending rates, as
measured by rebate rates, followed by rates still higher than before
the order.[Footnote 79] The rebate rate reflects the portion of
interest the lender earns on the borrower's collateral that the lender
agrees to pay the borrower. The lower the rebate rate, the higher the
securities lending rate.[Footnote 80] OEA found that rebate rates for
these securities over the review period declined by 1.56 percent, from
1.8 percent to 0.24 percent. However, OEA found that the rebate rates
dropped significantly in the first day of the July order, on average
below negative 1 percent. Rates recovered to above zero before the end
of the order, but were still well below their preorder levels by the
end of the review period.[Footnote 81]
OEA also found that significant reductions in FTD were associated with
the emergency order--the level of FTD in the securities of the 19 firms
declined from 2.8 million to 1.0 million during the order, or about 64
percent. New FTD in these securities declined by about 78 percent, from
an average of 1.8 million shares per day to 0.4 million shares per day.
OEA concluded that the order appeared to have been effective at
reducing and preventing FTD, but it noted that the success came with
significant trade-offs, most notably a large increase in lending fees
and a large decline in short sales. OEA also noted that the securities
included in the order had relatively large market capitalization,
traded in a liquid market, and tended to be easy to borrow.
Consequently, OEA cautioned that the results may not be fully
indicative of how a preborrow requirement might affect markets if
applied on a broader scale. Specifically, OEA said that similar
requirements imposed on smaller, more illiquid, or hard-to-borrow
securities might cause a significantly larger disruption to short
selling and to liquidity.
Trading and Markets staff said that they had received feedback from the
industry on the impact of the temporary preborrow requirement. The
industry commented that the order had a number of unintended
consequences, including forcing shares to be borrowed even when they
are not needed for delivery, thereby decreasing the liquidity of the
securities lending market and resulting in the supply of borrowable
shares being allocated to large broker-dealers, leaving smaller broker-
dealers in certain situations with less ability to borrow shares to
effect short sales. Furthermore, the industry commented that the order
impacted the efficient use of capital because firms were forced to
commit their own capital to preborrow securities. More specifically,
according to an industry trade association, several of its broker-
dealer members reported a reduction in the loan liquidity in some of
the securities of the 19 firms, ranging from an estimated 10 percent to
85 percent, depending on the security. Instead of borrowing securities
on a net basis when they were required for the settlement date, the
preborrow requirement caused broker-dealers to borrow gross volumes of
securities when the securities were located, resulting in significant
overborrowing. According to the industry trade association, some firms
reported additional balance sheet costs related to financing
preborrows, which affected such firms' efficient use of capital. The
size of such increases to balance sheet costs varied, with high-end
costs of close to $2 billion per day to preborrow securities. These
firms reported that increases to balance sheet costs were lower for
firms that were arranging to borrow (i.e., hold) rather than to
actually preborrow securities prior to effecting the short sales.
[Footnote 82]
As the Commission considers whether to finalize the temporary rule,
Trading and Markets staff said that they are continuing to evaluate the
appropriateness of a preborrow requirement for addressing FTD and
market manipulation related to naked short selling. Separately, SEC is
currently considering other measures that are intended to address
abusive short selling concerns. In April 2009, SEC voted to propose two
approaches to restrictions on short selling. One approach would apply
on a marketwide and permanent basis (short sale price restrictions),
while the other approach would apply only to a particular security
during severe market declines in that security (circuit breaker
restrictions).[Footnote 83] SEC is currently seeking public comments on
these two approaches.
Regulators Have Categorized Noncompliance with Regulation SHO as
Nonsystemic, but the Regulation Presents Some Compliance Challenges:
After SEC implemented Regulation SHO, SEC and the SROs took steps to
enforce its requirements--first by conducting a joint sweep
examination, and later by conducting routine and other compliance
examinations and regular surveillances of FTD data. While these
examinations have found a significant number of firms with Regulation
SHO compliance deficiencies, OCIE and SRO staffs told us these
deficiencies generally were not indicative of systemic problems or
attempts to manipulate a security. However, broker-dealers are facing
challenges in complying with Regulation SHO's requirement to determine
whether the locates they obtain prior to effecting a short sale are
reasonable sources for securities needed at settlement.
Although SEC and the SROs Found Noncompliance with Regulation SHO, They
Characterized It as Technical and Brought Few Enforcement Actions:
SEC and SRO examinations have found that most Regulation SHO
deficiencies by broker-dealers and options market makers appear to be
nonsystemic deficiencies. As of April 1, 2009, two SROs have brought
several compliance actions. Within months of Regulation SHO's
compliance date and in coordination with Trading and Markets, OCIE,
NYSE, and the former NASD conducted a coordinated sweep examination of
19 clearing broker-dealers that execute and clear short-sale
transactions.[Footnote 84] The 19 firms were selected from NASD-and
NYSE-generated lists of firms that had aged FTD in threshold
securities. The purpose of the sweep examination was to determine
whether firms were in compliance with Regulation SHO's locate, close-
out, or order-marking requirements, along with other Regulation SHO
requirements.[Footnote 85] Examiners also reviewed the adequacy of the
firms' written supervisory procedures for ensuring compliance with
these requirements. These joint sweep examinations found deficiencies
with Regulation SHO requirements at all 19 broker-dealers.
OCIE and SRO examiners told us that they generally did not find
evidence that these deficiencies were part of a deliberate problem or
part of attempts to manipulate a security. For example, deficiencies
related to the close-out requirement generally involved limited
instances with a majority of the firms having failed to deliver in only
one or two securities. As a result of the sweep examination, NYSE
brought formal enforcement actions against four of its members.
According to examiners who had participated in the examinations of
these firms, NYSE brought these enforcement actions because it believed
that the firms had been given adequate time before Regulation SHO went
into effect to develop processes and procedures for compliance with the
requirements. OCIE also found that the most serious finding was that
most of the firms did not have adequate written supervisory procedures
to ensure compliance with Regulation SHO.
Although OCIE does not conduct routine examinations of SRO member firms
for Regulation SHO compliance, OCIE officials stated that between
January 2005 and October 2008, OCIE conducted approximately 90 cause or
broker-dealer oversight examinations that included a review of the
firm's compliance with Regulation SHO.[Footnote 86] Of these
examinations, 41 had Regulation SHO-related findings. We reviewed 12 of
the 41 examinations with Regulation SHO findings and found that the
findings reported were similar to those of the 2005 sweep examination.
[Footnote 87] For example, examiners generally found deficiencies in
marking trades or performing an appropriate locate prior to effecting a
short sale in some firms. To assist OCIE in their examinations, we
found that OEA conducted multiple analyses using NSCC-provided FTD and
threshold list data to analyze data on particular firms. Most recently,
as part of a sweep examination, OCIE stated that it has initiated 4
examinations to assess compliance with the October 2008 rule changes.
To date, SEC has not charged violations of Regulation SHO in any
enforcement actions.[Footnote 88] However, according to SEC Enforcement
staff, Regulation SHO is largely enforced by the SROs because of the
regulation's focus on broker-dealer operations.
After the initial 2005 sweep examinations were completed, the SROs
continued to monitor the industry for compliance with Regulation SHO
through routine examinations and electronic surveillance. FINRA
continued to monitor firms for Regulation SHO compliance by
incorporating an assessment of Regulation SHO compliance into three of
its routine examination programs: the Risk Oversight and Operational
Regulation Program, which focuses on clearing firms; the Sales Practice
Examination Program, which focuses on introducing firms; and the
Trading and Market Surveillance Program, which complements existing
automated surveillance.[Footnote 89]
We reviewed the examination modules for each of the three FINRA
programs. To assess compliance with the locate and order-marking
requirements, the modules direct examiners to use various methods to
select samples of trades for review. For the selected sample, examiners
are directed to review a firm's supporting documentation--such as
locate logs, trade blotters, position records, and FTD ledgers.
[Footnote 90] Similarly, to assess whether a clearing broker-dealer
appropriately closed out FTD in threshold securities, examiners are
directed to select and analyze a sample of FTD from the firm's FTD
ledgers. We found that FINRA had taken steps to update the examination
modules to reflect the stricter close-out requirements of the temporary
rule.
According to FINRA data, between January 1, 2005, and December 31,
2008, FINRA conducted 1,124 routine examinations of its members through
the 3 programs. Of these examinations, 302 contained Regulation SHO
deficiencies. FINRA staff stated that they have not detected any
particular trends or patterns in the types of violations that would
indicate systemic abuse, and do not consider the deficiencies found in
these examinations to be egregious. For example, staff found in 1
examination that locates were not performed for 4 trades out of a
sample of 60 trades. In another example, examiners sampled 10 short
sale transactions and found 1 instance where the amount sold short
exceeded the amount located by 1,000 shares.
In addition to its examination programs, FINRA also uses automated
surveillance to identify firms with close-out obligations for all
threshold securities within a specified period. Specifically, we found
that FINRA runs quarterly reports using FTD data obtained from NSCC to
identify all threshold securities for that quarter and those clearing
firms with potential close-out obligations in those securities--that
is, aged FTD in threshold securities. FINRA staff then contact these
firms to determine why the potential close-out obligation has not been
met, and to determine whether there are any violations of Regulation
SHO or whether the aged FTD were due to legal exceptions. Since the
adoption of the temporary rule, FINRA staff stated that FINRA has
updated its surveillances to monitor for FTD in all securities, and
that it runs the surveillance on a bimonthly basis. FINRA then selects
firms identified by this surveillance to contact to determine why the
potential close-out obligation has not been met and to determine
whether there are any violations of Regulation SHO.
CBOE also monitors its membership for compliance with Regulation SHO
through its member firm examinations and surveillances. Between January
1, 2005, and December 31, 2008, CBOE conducted 326 examinations that
included a review of Regulation SHO requirements. Of these
examinations, 152 contained some level of apparent Regulation SHO
violations (i.e., 140 marking violations, 65 locate violations, and 26
close-out violations).[Footnote 91] Due to their nature, the majority
of these violations were resolved through nonformal disciplinary
action. CBOE also participated in a 2006 sweep examination that focused
on the options market maker exception to the close-out requirement for
aged FTD in threshold securities that were open for 13 consecutive
days. CBOE staff also have developed surveillance to help detect
noncompliance with the close-out requirements of Regulation SHO.
Moreover, beginning in early 2005, SRO staff identified multiple
traders that appeared to be using an illegal trading strategy to
inappropriately avoid the close-out requirement of Regulation SHO.
These traders were identified through SRO surveillance and complaints
that the SRO received. As a result of FINRA's surveillances and
investigations, which were conducted on behalf of the American Stock
Exchange (Amex), the exchange brought two formal disciplinary actions
for violations of Regulation SHO against two options traders.[Footnote
92] Amex alleged that the options traders improperly used the market
maker exception to engage in naked short selling without first
obtaining a locate, and circumvented the delivery obligation through
various trading schemes. CBOE has also initiated 26 investigations
against member firms for similar apparent activity. As of February 19,
2009, 7 cases have been presented to the CBOE's Business Conduct
Committee. CBOE and FINRA staffs stated that since the above Amex
actions regarding two traders became public, this type of activity
appears to have ceased.
In Part Because SEC Has Not Finalized Guidance, the Industry Has
Experienced Some Challenges in Complying with the Locate Requirement:
Regulation SHO requires broker-dealers to demonstrate that the sources
on which they rely for locates are reasonable--that is, the broker-
dealer does not have reason to believe that the source will be unable
to deliver shares in time for settlement. Firms are also required to
have procedures or systems in place to determine whether it is
reasonable to rely on customer assurances or an easy-to-borrow list.
However, in both the initial sweep examinations and subsequent
oversight and sweep examinations, OCIE has found that some firms do not
have procedures or systems in place to monitor whether the locate
source was reasonable. According to OCIE examinations, some broker-
dealers are not monitoring to determine whether locates are resulting
in FTD because firms do not expect that the source from which the firm
obtained the locate will be the source from which the firm will obtain
shares for settlement. As a result, it may be difficult for broker-
dealers and regulators to determine whether a locate source is
reasonable because the source that provided the locate for past trades
may or may not have been the source from which the clearing broker-
dealer attempted to obtain shares for settlement.
According to SEC and SRO staffs and industry officials the source used
to borrow shares and make delivery can differ from the locate source
for several reasons. The clearing broker-dealer may simply decide to
use a source other than the source used to obtain the locate. For
example, a broker-dealer may decide to use shares from its own
inventory instead of going to the source of its locate, or the locate
source provided by the customer. In addition, the netting process of
the clearance and settlement system may result in a broker-dealer not
being required to deliver any shares or only a portion of the total
sold short, thus eliminating the need to borrow securities or reducing
the amount required and potentially eliminating the need to borrow from
the source used to obtain a locate for a specific trade. The source
used to borrow shares also may be different than the locate source
because securities that are available on trade date may not be
available on the settlement date from that locate source, when
borrowing is effected to settle the short sale. Conversely, a source
that may not be able to provide a locate on trade date may have the
securities available to be loaned on the settlement date.
We also found that executing broker-dealers may not always have the
information necessary to make a determination that the locate source
provided by the customer is reasonable. According to FINRA staff and
industry officials, this is most common in prime brokerage transactions
where the customer delivers the securities to the prime broker rather
than to the executing broker for settlement of sell orders. As we have
previously discussed, Regulation SHO requires the executing broker-
dealer to locate shares available for borrowing prior to effecting a
short sale. An executing broker may fulfill this requirement by relying
on a customer's representation that it has obtained the locate from
another source. However, because Regulation SHO does not obligate the
clearing firm--in this case, the prime broker--to provide trade
settlement information to the executing broker, the executing broker
may not know if, at settlement, the prime broker was unable to borrow
shares to delivery, and thus may not have the information necessary to
determine whether it can rely on that customer's locates for future
short sale transactions.
Industry, Trading and Markets, and FINRA staffs said that this
information gap in Regulation SHO could be addressed by clarifying the
responsibilities of the prime broker and executing broker to ensure
compliance with Regulation SHO. In March 2007, Trading and Markets and
industry representatives helped provide this clarification by drafting
revisions to the Prime Broker Letter issued by SEC staff in 1994.
According to the industry officials working with Trading and Markets,
these revisions are intended to enhance communications between the
prime broker and executing broker and to help ensure that the customer
is providing accurate information to the executing broker. Furthermore,
these revisions would provide the executing broker with the information
necessary to make a determination of whether a customer's assurance is
reasonable.
As of April 2, 2009, Trading and Markets has not yet finalized the
revised Prime Broker Letter to make it effective. Trading and Markets
staff said that because SEC still is evaluating comments on the
temporary rule and it remains subject to modification, they cannot sign
the letter. According to these staff, the draft letter reflects
Regulation SHO as adopted, and officials need to review the letter to
determine whether any adjustments are necessary to reflect the
provisions of the temporary rule, if it is adopted as final. The letter
was revised in March 2007, prior to the issuance of the temporary rule
in September 2008, and the information gap has existed since Regulation
SHO became effective in January 2005.
Without access to the information from prime brokers that would allow
them to establish whether customer-provided locates are resulting in
FTD, executing broker-dealers may not be able to achieve compliance
with Regulation SHO. In addition, this information gap may create the
perception that prime brokerage customers--typically, hedge funds or
large investors--are allowed to circumvent Regulation SHO and naked
short sell. SEC has said on several occasions that the perception that
FTD may be indicative of manipulative naked short selling can damage
investor confidence and the stability of the market. By completing its
review and finalizing the revised 1994 Prime Broker Letter, SEC can
ensure that this information gap is closed, and that the parties
responsible for executing and clearing and settling trades (1)
establish the communication processes necessary to comply with
Regulation SHO and (2) make the appropriate determinations about
customer-provided locates.
Regulators Use Complaint Information, Surveillance, and Examinations to
Identify Potential Manipulative Short Selling, but It Is Difficult to
Prove Manipulation:
Regulation SHO compliance violations do not necessarily indicate that
manipulative naked short selling has occurred. If examiners identify
indications of potential manipulative trading, OCIE or FINRA can pursue
further investigation or refer the case to their respective Enforcement
divisions for further investigation. For example, we reviewed one OCIE
examination where possible Regulation SHO violations led to such a
referral. As we have previously discussed, regulators have found
Regulation SHO deficiencies to be nonsystemic and not indicative of
abuse or attempts to manipulate individual securities. SRO staff stated
that Regulation SHO is effective from an examination and enforcement
perspective because it specifically identifies the parties responsible
for obtaining a locate or closing out FTD and identifies when each of
these responsibilities is to be completed. Furthermore, because
Regulation SHO was designed to curb manipulation facilitated by naked
short selling and address large and persistent FTD by imposing
operational requirements on regulated entities, the SROs are able to
bring regulatory actions against their members for Regulation SHO
violations.
SEC and the SROs rely on complaints, tips, and electronic market
surveillance, among other things, to identify suspicious trading
activity, including potential instances of manipulative naked short
selling.[Footnote 93] Enforcement staff stated that while it is not
difficult to determine whether there are FTD in a security, they have
found through their experiences and discussions with the SROs that FTD
are not a proxy for manipulative conduct and do not provide regulators
with much information regarding possible manipulation. For example, a
FTD could occur, but that information alone does not tell a regulator
whether there was intent to fail to deliver or whether an appropriate
locate was conducted. Also, as we have previously discussed, FTD may
result from long or short sales. To determine if a trader was
successful in manipulating the market through naked short selling,
regulators must unwind FTD and trading activity, which requires
considerable analysis of trading data and other supporting
documentation, such as e-mails, and reliance on large amounts of
circumstantial evidence. Furthermore, according to Enforcement and
FINRA staffs, manipulation investigations, including manipulative naked
short selling, are complex matters and the standard of proof,
especially proving intent, to prevail in an enforcement action is high.
Enforcement stated that quantifying the amount of manipulative
activity, including manipulative naked short selling, that occurs in
the market is difficult.
According to FINRA, most market manipulation is identified through
activities of the market surveillance divisions at the SROs that review
market activity for aberrant price and volume movement in the security
that can suggest manipulation. The SROs have established electronic
surveillance systems that generate an alert if a security's price or
volume of shares traded, among other things, moves outside of set
parameters. These price and volume movements can indicate a number of
illegal trading practices, including manipulative naked short selling.
A significant factor in determining whether an aberrant movement was a
case of potential manipulative naked short selling is if a FTD appears
at NSCC 3 days after the aberrant movements. SRO staff review thousands
of alerts annually to identify those that are most likely to involve
fraud or warrant further investigation on the basis of a variety of
factors, such as profit potential and news related to the security. In
the course of a full investigation, the SROs gather information from
their member broker-dealers, including the names of individuals and
organizations that were active in trading during the time in
question.[Footnote 94] When an SRO finds evidence of illegal trading
involving its members, it can conduct disciplinary hearings and impose
penalties ranging from disciplinary letters to fines to expulsion from
trading and SRO membership. Because the SROs do not have jurisdiction
over entities and individuals that are not part of their membership,
they refer suspicious trading on the part of nonmembers, including
customers, directly to SEC Enforcement.
SEC Is Considering Finalizing the Temporary Rule by July 2009, but
Implementation Issues and Inconsistent and Untimely Provision of
Guidance Concern the Industry:
Industry officials said that the stricter close-out requirements
imposed through the September emergency order and the temporary rule
have resulted in several unintended negative consequences on security
prices and securities lending.[Footnote 95] Trading and Markets staff
said they are reviewing these concerns to determine whether any changes
to the requirements are warranted before the Commission considers
finalizing the rule by July 2009. The industry also has experienced
operational issues in implementing Regulation SHO and the temporary
rule, but Trading and Markets responsiveness to industry requests for
guidance on these issues has been mixed.
Although Generally Supportive of SEC's Efforts to Prevent Abusive Naked
Short Selling, Industry Officials Said That New Close-out Requirements
Have Raised Operational Issues:
According to several comment letters submitted to SEC on the temporary
rule, the industry generally supported the fundamental tenets of the
temporary rule, including a compressed mandatory close-out obligation
for all equity securities. However, industry commenters cited several
negative consequences that resulted from the temporary rule, noting
that it potentially contributed to market volatility and price spikes
at market open and to instability in the securities lending market.
Industry commenters said that the requirement that broker-dealers close
out FTD by the opening of trading on T+4 (for short sales) or T+6 (for
long sales or bona fide market maker sales) inadvertently contributes
to increased market volatility and price spikes at market open. For
example, a large industry group's comment letter referenced 40
instances in which these close-out requirements potentially created
significant but temporary upward pressure on the price of certain hard-
to-borrow optionable securities at the opening of trading. According to
this letter, the price of these securities opened trading at least 15
percent above the previous night's closing price, but prices receded
back to approximately the previous night's closing price within 30
minutes.
Industry officials also said that the new close-out requirements are
having a negative impact on the efficient operation of the securities
lending market, leading potentially to reduced inventory of shares
available for borrowing, increased borrowing costs, and reduced
liquidity. According to an industry group comment letter, when a
security that is out on loan is sold, the lending agent will first
attempt to reallocate the loan by identifying other customers with
shares available for lending. If that effort is not successful, the
lending agent must recall the loaned shares from the borrower. The
comment letter continues by explaining that the recall is typically
done through a written notice and takes place 1 or 2 days after the
trade, with the majority of the notices issued 2 days after the trade.
The borrower then has 3 full days to return the securities--in effect,
until the end of T+5. According to the comment letter, when the lending
agent receives the shares late on T+5, it returns the shares to the
lender or its agent, which must then deliver the shares for settlement.
In many cases, the ultimate delivery of shares will not be processed
until the morning of T+6. Under the temporary rule, FTD resulting from
long sales--which include the sale of securities out on loan--are
required to close out by the opening of trading on T+6. According to
some comment letters and industry officials, this requirement leaves
little or no time for securities lenders to deliver recalled shares in
time to avoid being bought in at the opening of trading on T+6.
Furthermore, two large industry trade groups commented that most
current broker-dealer and clearing firm systems are unable to
differentiate between FTD that resulted from long sales versus FTD that
resulted from short sales, with one stating that any differentiation
requires extensive manual processing that typically cannot be completed
by the opening of trading on T+4. As a result, some industry comment
letters and officials stated that some broker-dealers are closing out
all FTD on T+4, regardless of whether they are the result of a long or
short sale, which further increases securities lenders' risk of being
bought-in and causes some lenders to exit or reduce their participation
in the market.
To resolve these concerns, several industry officials recommended that
SEC require broker-dealers to close out all FTD, regardless of whether
they result from long or short sales, by the close of trading on T+6.
These commenters said that doing so would allow for those FTD that
occur for processing reasons to be cleared up without the need to
borrow and deliver or buy-in FTD. Furthermore, they said closing out
all FTD by the close of trading on T+6 also would eliminate the need
for broker-dealers to engage in complex; time-consuming; and, at times,
imperfect processes in an effort to determine whether a FTD was due to
a long or short sale, because all FTD would be treated the same.
Several industry officials with whom we spoke also stated that it may
not be possible to build systems capable of differentiating between FTD
that resulted from long sales versus FTD that resulted from short sales
prior to the opening of trading on T+4. However, because they are
unsure about what the requirements will be after the rule is finalized,
industry officials told us they are not yet attempting to build these
systems.
Some industry commenters also recommended that SEC change the close-out
requirement to allow clearing broker-dealers to close out their FTD
throughout trading on the required close-out day, instead of only in
the morning at market open. According to one industry comment letter
from a large industry trade group, as a practical matter, transactions
effected at market open to close out FTD are no different than those
effected later in the trading session because both types are part of
the same clearance and settlement cycle. As such, the group said that
this change would allow clearing broker-dealers to close out FTD as
currently intended by the temporary rule, but eliminate the volatility
and price spikes associated with all FTD being required to close out
prior to or at the opening of trading.
Although SEC and FINRA acknowledge that the industry may be required to
make system changes to comply with the requirements of the temporary
rule, they believe the industry is capable of accomplishing these
system changes necessary for compliance. According to OCIE staff,
during a recent sweep examination of prime brokers they found that one
broker had already developed the capability of tracking its FTD back to
the trade that caused the FTD and then identifying whether that trade
was marked long or short. Examiners conducting these sweep examinations
also stated that the prime brokers they reviewed are able to identify
the customers that are failing to deliver to the prime brokers, and
that determining whether a trade was marked as long or short would most
likely not require much additional effort. However, they did note that
each firm probably will have a different infrastructure with which to
work so each firm's implementation of the requirements may be unique.
Trading and Markets staff also said that while they are considering all
of the comment letters and proposed amendments to the rule, any change
to extend the current T+4 buy-in date for FTD resulting from short
sales expands the time frame in which manipulative naked short selling
could occur, potentially undermining the Commission's policy objective
of curbing this type of abuse.
Trading and Markets Responses to Industry Requests for Guidance Were
Sometimes Inconsistent during Regulation SHO and the Emergency Orders
or Were Not Timely:
SROs and industry officials noted that SEC staff were responsive to
some requests for implementation guidance regarding Regulation SHO and
the recent emergency orders; however, in some instances where complex
issues have arisen or the application of the rules to a particular
scenario was unclear, industry officials and staff from one SRO with
whom we spoke said that other requests went unanswered or experienced
lengthy delays. Staff from one SRO said that Trading and Markets has
issued numerous guidance and interpretive products and continuously
updated these products. Trading and Markets can provide interpretive
guidance to the SROs and industry through a number of publications,
such as exemptive orders, no-action letters, compliance guides, staff
legal bulletins, and answers to frequently asked questions. However,
Trading and Markets staff do not have a formal (i.e., written) process
to determine when requests from industry and SROs merit a formal
response. Instead, staff have discretion to determine when SRO and
industry request merit such a response. Staff from another SRO noted
that SEC worked with them to approve an appropriate methodology to use
to assess Regulation SHO exemption determinations. SRO staff told us
that because the SROs do not have the authority to independently issue
interpretative guidance on SEC rules, they must obtain this guidance
from SEC for their own and members' consideration when necessary. The
SRO staff cited an occasion when they attempted to put guidance in a
compliance circular that used SRO interpretations to answer specific
questions it or its membership had regarding Regulation SHO. This SRO
was delayed in providing the guidance to its members because of the
time that passed before SEC provided feedback on whether the SRO's
interpretations were correct. In this example, the SRO submitted a list
of technical operational questions, ranging from basic questions about
the close-out requirement to hypothetical situations that were
described to elicit the meaning of certain phrases to Trading and
Markets. Although communication took place between the SRO and SEC, an
extended period of time passed between the initial document being
submitted to Trading and Markets and the SRO providing answers to its
members. The SRO also stated that in some instances in which it had
asked for guidance, Trading and Markets told the SRO that the
regulation was clear and no additional guidance was necessary.
Industry officials with whom we spoke also stated that the SEC staff's
responses to their requests for implementation guidance, particularly
for recent emergency orders, have been inconsistent. Several market
participants said that because Regulation SHO was enacted after a
lengthy comment period and firms were given many months to put systems
and policies and procedures in place, many of the potential
implementation issues were discovered and resolved prior to the
regulation being enforced. However, the July and September emergency
orders and the temporary rule were made effective the day they were
issued, or soon thereafter, with little or no advanced warning.
According to some industry officials, these orders required system
changes, some on a global basis, and numerous implementation issues
arose. Industry officials said that, in some cases, they were able to
work quickly with Trading and Markets to resolve these issues. For
example, 3 days after the July emergency order restricting short
selling securities of certain financial firms, SEC amended the order to
exempt bona fide market making from the requirement. Nevertheless,
industry officials stated that, in other situations, SEC was not
responsive to their requests for guidance. For example, industry
officials stated that due to the rushed nature of the September
emergency order and the temporary rule, there was a lot of uncertainty
and confusion related to the scope and application of the new
requirements. Although some issues were addressed promptly, other
industry requests for clarification or additional guidance remained
unresolved.
Trading and Markets staff stated that they did not believe issuing
formal guidance was appropriate for some of the requests for
interpretive guidance on Regulation SHO, because they felt the
regulation was clear or that the request was more for a change of rule
that would require going back to the Commission than an interpretation.
Trading and Markets staff also told us that they did not want to
provide answers to some of the requests that asked for guidance in
specific circumstances, because they felt such requests were attempts
to find loopholes in Regulation SHO, rather than attempts at
compliance. These staff stated that because the temporary rule is set
to expire on July 31, 2009, they are focused on reviewing and analyzing
the written comments received to provide a recommendation to the
Commission about the final form of the rule. They also said that
providing the industry with guidance on a rule the Commission is still
attempting to finalize would be difficult, and that the staff do not
have a process by which implementation issues that arise from temporary
rules can be readily addressed. Furthermore, responding to some of the
implementation issues could have potentially required changes to the
temporary rule, something that Trading and Markets is not authorized to
do.
By the time that the Commission takes final action on the temporary
rule, it will have been in effect for 10 months, during which time the
industry may have been inconsistently implementing its requirements.
Trading and Markets' varied and, at times, untimely responsiveness to
industry and SRO requests for interpretive guidance on Regulation SHO
and the emergency orders conflict with the goals articulated in SEC's
current Strategic Plan.[Footnote 96] The plan states that SEC should
write regulations that are clearly written, flexible, and relevant and
do not impose unnecessary financial or reporting burdens. One potential
measure for monitoring progress the plan outlines is the length of time
to respond to no-action letters, exemptive applications, and
interpretive requests. The Strategic Plan also states that as part of
its efforts to ensure compliance with federal securities laws, SEC
should work to enhance its interpretive guidance process to meet the
needs of the staff, the public, and other external stakeholders.
Without timely and clear interpretive guidance from SEC, SROs may be
unable to effectively enforce SEC rules and regulations, and SEC cannot
ensure the consistent implementation of the rules and regulations.
Conclusions:
FTD may undermine the confidence of investors, making them reluctant to
commit capital to an issuer that they believe to be subject to such
manipulative conduct. While our review of FTD data showed that the
majority of securities graduated from the threshold list in a timely
manner, we also found that about 80 percent of threshold securities
returned to the list, and some securities persisted for considerable
periods of time. We recognize that there are legitimate reasons why a
security could persist on the threshold list, but the cause for
extended FTD in any individual security only can be assessed through
regulatory scrutiny and generally is not apparent to the investing
public, which may have concerns that securities on the threshold list
are the target of manipulative naked short selling.
With the requirements of the temporary rule, SEC has made progress in
facilitating the goal that all sellers of securities should promptly
deliver, or arrange for delivery of, securities to the respective
buyer, and that all buyers of securities have a right to expect prompt
delivery of securities purchased. Of the threshold securities remaining
in December 2008, about 50 percent were ETFs. SEC and SRO staffs have
begun assessing the reasons for FTD in these securities, and they
believe structural characteristics in the creation and redemption of
these securities are a critical factor. While these staff said their
assessments do not currently lead them to believe that these securities
are vulnerable to manipulative naked short selling, continued scrutiny
of these products should help SEC confirm this assessment and determine
whether Commission action is needed to address the causes for FTD in
these products.
Although Trading and Markets staff are continuing to study the effects
of the temporary rule, they and FINRA staff believe that the locate and
close-out requirements of Regulation SHO, and particularly the enhanced
close-out requirements of the temporary rule, have made it less likely
for traders to effect short sales that result in persistent FTD. While
we agree that the close-out requirements of the temporary rule likely
have reduced the opportunity to create persistent FTD and, thus, the
incentive to engage in manipulative naked short selling, some potential
for this illegal conduct still may exist. In response to an alternate
suggestion to implement a marketwide preborrow requirement, Trading and
Markets and FINRA staffs said such a requirement might be costly to the
industry because FTD represent a very small percentage of the dollar
value of trades and only a small group of securities would likely be
the target of any manipulative scheme. However, Enforcement and FINRA
staffs said that market manipulation is difficult to detect and
successfully prosecute, and the potential damage to an individual
company could be severe. For these reasons, an important element of
continued evaluation of the effects of the temporary rule will be a
careful evaluation of whether the T+4 close-out requirement is
sufficient to protect the most vulnerable firms from market
manipulation.
Another potentially important aspect of any SEC determination regarding
whether to continue to rely on the current locate and close-out
requirements for mitigating manipulative short selling will be an
evaluation of the effectiveness of the current locate requirement in
reducing FTD and the potential for market manipulation, with a
particular focus on the reliability of easy-to-borrow lists--that is,
these lists must represent securities that are available for borrowing.
Regulation SHO lacks specific criteria regarding what constitutes an
easy-to-borrow security, but SEC found that a few firms have not
followed industry best practices, which call for decrementing their
inventory as locates are provided. We note that unless firms follow
such best practices, it is not clear how they can ensure that they are
providing locates only on their available supply of securities and
limiting the potential for FTD. However, because following industry
practice is voluntary, the magnitude of firms overlocating or including
securities that are not easy to borrow on the list is currently
unclear.
Our review also found that the industry currently faces challenges in
complying with Regulation SHO's requirement to assess whether locates
provided by customers are reasonable and not resulting in FTD,
particularly in the context of prime brokerage. Regulation SHO
currently does not provide executing brokers with access to information
from prime brokers that would allow them to establish whether customer-
provided locates are resulting in FTD. Although SEC worked with the
industry to revise the 1994 Prime Broker Letter in 2007, it has not
completed its review of the letter, citing its need to wait until the
Commission determines whether to finalize the temporary rule. By
finalizing the revised Prime Broker Letter, SEC would provide the means
by which executing brokers could evaluate customer-provided locates to
determine whether they are reasonable and thus comply with the locate
requirement. Moreover, finalized guidance would help alleviate investor
concerns that such conduct could occur.
In implementing the new close-out requirements though emergency order
and extending them through a temporary rule, SEC imposed requirements
on the industry without first providing for the usual comment period.
In their comment letters, market participants generally supported the
fundamental tenets of the temporary rule, including a compressed
maximum close-out obligation for all equity securities; however, they
also have identified several operational issues and negative
consequences caused by the implementation of the temporary rule.
According to Trading and Markets staff, they had been unable to respond
to some of these issues raised by the industry because the requirements
were issued as a temporary rule and certain changes would require a
rule change approved by the Commission. Furthermore, Trading and
Markets staff said that it would be difficult to provide guidance to
the industry about other issues until the Commission determines whether
to finalize the temporary rule, which potentially will not occur until
July 2009. We recognize that Trading and Markets staff currently may
have limited ability to resolve issues arising from the implementation
of a temporary rule without obtaining input or authorization from the
Commission. Without a formal process in place that would give Trading
and Markets staff a basis upon which to address implementation issues
that arise in connection with interim final temporary rules in a timely
manner, staff are unable to respond adequately to concerns of industry
participants affected by the rule. Moreover, while providing formal
responses to all requests for interpretive guidance may not be
appropriate, establishing a formal process would provide a basis for
consistently addressing matters relating to compliance with SEC
regulations. Doing so also would help prevent negative impacts from
temporary rules in the periods before expiry or finalizations.
Furthermore, providing timely answers to SRO and industry requests is
important for SROs and industry to help ensure consistent
implementation of SEC rules and regulations.
Recommendations for Executive Action:
To address the current information gap in Regulation SHO for prime
brokerage arrangements and mitigate the impact of any unintended
consequences caused by SEC rules, as well as ensure consistent
implementation of SEC rules by the industry, we recommend that the
Chairman of the Securities and Exchange Commission take the following
two steps:
* finalize, in an expedited manner upon finalization of the temporary
rule, the revised 1994 Prime Broker Letter and:
* develop a process that allows Commission staff to raise and resolve
implementation issues that arise from SEC regulations, including
interim final temporary rules, in a timely manner.
Agency Comments and Our Evaluation:
We provided a draft of the report to the Chairman of the Securities and
Exchange Commission for her review and comment. We also provided
relevant portions of the report to FINRA and CBOE for their review and
comment. We received technical comments from SEC, FINRA, and CBOE, that
were incorporated, where appropriate. SEC provided written comments
that we reprinted in appendix IV.
In its written comments, SEC stated that regarding our first
recommendation, it will consider the need to clarify the communications
between prime broker-dealers and executing broker-dealers that would
facilitate Regulation SHO compliance in connection with its
consideration of further action on the temporary rule. We encourage SEC
to take the steps necessary to clarify this communication. In doing so,
SEC would provide the means by which executing brokers could evaluate
customer-provided locates to determine whether they are reasonable and
facilitate compliance with the locate requirement. Moreover, finalized
guidance would help alleviate investor concerns that such relationships
could be exploited to engage in manipulative naked short selling.
Regarding our second recommendation, SEC noted that it regularly
provides guidance to the industry and outlines that routine rulemaking
provides a time for comments prior to the adoption of the final rule.
It also noted that, unlike routine rulemaking, when SEC promulgates a
rule or regulation as an interim final temporary rule, the rule is
adopted and in effect during the comment period. SEC stated that it is
committed to engaging in a deliberative process to develop meaningful
regulation of short selling and providing interpretive guidance to the
industry to facilitate implementation, as appropriate. SEC also stated
that it will evaluate whether there are additional steps that it can
take, consistent with the Administrative Procedure Act, to address
implementation issues raised by industry. Again, we encourage SEC to
take the steps necessary to determine what additional steps can be
taken to address implementation issues raised by the industry and SROs,
especially regarding interim temporary final rules, which can be in
effect for significant periods of time. While providing formal
responses to all requests for interpretive guidance may not be
appropriate, establishing a formal internal process consistent with the
Administrative Procedure Act to facilitate providing timely answers to
SRO and industry requests would help ensure effective administration of
SEC rules and regulations. Furthermore, a formal process would help
reduce the chances of negative consequences of temporary rules
occurring during the periods before expiry or finalizations.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution until 30 days from the report
date. At that time, we will send copies to interested congressional
committees, the Chairman of the Securities and Exchange Commission, and
other interested parties. The report also will be available at no
charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-8678 or williamso@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs can be found
on the last page of this report. Key contributors to this report are
listed in appendix V.
Signed by:
Orice M. Williams:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Scope and Methodology:
To provide an overview of the actions that the Securities and Exchange
Commission (SEC) has taken to address manipulative naked short selling
and failures to deliver (FTD), including Regulation SHO and the recent
emergency orders--and the factors SEC considered in taking these
actions, we reviewed Regulation SHO; the recent July and September 2008
emergency orders, including associated amendments; and the interim
final temporary rule (temporary rule) and interviewed staff from SEC's
Division of Trading and Markets (Trading and Markets). We also obtained
copies of related rules issued by the former NASD.
To discuss the potential impact of Regulation SHO on FTD in threshold
and nonthreshold securities using trend analysis, we obtained (through
SEC) FTD data that the National Securities Clearing Corporation (NSCC)
generated from April 1, 2004, to December 31, 2008.[Footnote 97] We
chose to obtain data going back to April 1, 2004, because we wanted to
identify any trends in FTD prior to the effective date of Regulation
SHO in January 2005, and because April 1, 2004, was the earliest date
SEC began receiving FTD data from NSCC. We also obtained the daily
lists of threshold securities published by the equities self-regulatory
organizations (SRO) from January 10, 2005 (the date the first threshold
list was published), through December 31, 2008.
From these data, we generated a number of graphics to illustrate trends
in threshold securities, including the number of threshold securities
and the level of outstanding and new FTD in these securities, both
across the market and by individual markets. We generated other
descriptive statistics from the data on threshold securities, such as
the number of securities that had persisted for more than 90 days on
the threshold list over this period. In addition, we generated graphics
illustrating trends in FTD in all equity securities across the market
and, by individual market, from April 1, 2004, through December 31,
2008. In performing our analyses, we conducted a data reliability
assessment of the NSCC data. To do so, we reviewed a 2005 SEC Office of
Compliance Inspections and Examinations (OCIE) examination that, in
part, assessed NSCC's processes for generating reports that are used to
provide daily FTD data to SEC and the equities SROs. We also employed
our own data reliability tests by taking a random sampling of trading
dates and verifying that the listing of threshold securities provided
to us by SEC matched those published by the New York Stock Exchange
(NYSE), NASDAQ, and the American Stock Exchange (Amex). In addition, we
reviewed these data for missing values and outliers as well as for the
accuracy of pricing information. We determined that these data were
reliable for our purposes. As part of our work, we also obtained and
reviewed multiple studies of the same data conducted by SEC's Office of
Economic Analysis (OEA).
We also compared total new FTD in threshold securities listed on the
NYSE, NASDAQ, and Amex with consolidated trading volume on those
exchanges. We obtained consolidated trading volume data for all three
exchanges from the Financial Industry Regulatory Authority (FINRA). In
addition, we compared trends in FTD in these markets with trends in
volatility, as measured by the Chicago Board Options Exchange (CBOE)
Volatility Index (VIX); market performance, as measured by the S&P 500
Total Return Index; and short interest. We obtained the VIX from Yahoo!
Finance, the S&P 500 Total Return Index from Global Insight, and short
interest from the midmonth short interest press releases from the three
major exchanges. We did not conduct an assessment of the reliability of
these measures. However, these sources are widely used in both finance
and economics and are considered credible for the purposes in which we
used them. In addition, these measures are used solely for descriptive
purposes and not for the purpose of making recommendations or drawing
conclusions about causality. We also identified the percentage of
threshold securities in our review period that were exchange-traded
funds (ETF). To identify these securities, we downloaded lists of ETFs
from four separate sources--including Morningstar, Yahoo! Finance, MSN
Money, and Bloomberg--and compared these lists to identify any
differences. We found that differences between the sources amounted to
less than 3 percent of ETFs appearing on each respective list. To have
the most comprehensive list, we included ETFs that appear on at least
three of these four sources. We have determined that these data were
reliable for our purpose, which was to provide descriptive information.
To discuss regulatory, industry, and other market participant views on
the effectiveness of Regulation SHO and the recent emergency orders in
curbing the potential for manipulative naked short selling, we reviewed
and analyzed the requirements of Regulation SHO, the recent emergency
orders, the temporary rule, and comment letters submitted to SEC. We
also reviewed the results from an OEA study on the impact of the
temporary preborrow requirement on the market in the July emergency
order. While we found the results were based on a reasonable
methodology, we note that is difficult to draw strong conclusions given
a number of limitations, including the temporary nature of the
emergency order. We also reviewed two private sector studies to better
understand market trends during and after the implementation of the
July emergency order. We did not evaluate or validate their findings
because these private sector studies were reviewed primarily to provide
additional descriptive information beyond the OEA study, and because
neither conducted a rigorous causal investigation. In general, the
inclusion of the OEA and private sector studies is purely for research
purposes and does not imply that we deem them definitive. Furthermore,
we obtained and reviewed comment letters submitted to SEC about
Regulation SHO, the emergency orders, and the temporary rule. Finally,
we conducted interviews with staffs from OEA, Trading and Markets,
OCIE, SEC's Division of Enforcement, and FINRA; broker-dealers and two
trade associations representing broker-dealers; securities lenders and
a trade association representing securities lenders, securities lending
consultants; an issuer and a trade association representing issuers; an
investor; legal and subject area experts; and other market observers.
To analyze SEC and SRO efforts to enforce industry compliance with
Regulation SHO and to detect manipulative naked short selling, we
reviewed a 2005 joint sweep examination that OCIE, NYSE, and the former
NASD conducted. We obtained data from FINRA and CBOE on the number of
Regulation SHO-related examinations that they conducted during calendar
years 2005 through 2008, and the number of these examinations that
resulted in Regulation SHO deficiencies. We conducted a data
reliability assessment of the FINRA and CBOE data and determined they
were reliable for our purpose. We also reviewed FINRA data on the
periodic surveillance sweeps of FTD data that the authority conducted
during this period to monitor its members for potential Regulation SHO
violations. We obtained data from OCIE on the oversight and cause
examinations conducted from January 1, 2005, through September 30,
2008, that reviewed for Regulation SHO compliance. We conducted a data
reliability assessment of these data and determined they were reliable
for our purpose. From these data, we selected and reviewed 12 OCIE
broker-dealer oversight or cause examination reports and 11 FINRA
examination reports that resulted in findings of Regulation SHO
deficiencies. We also reviewed a 2006 sweep examination conducted by
CBOE of its options market makers, FINRA examination guidance, and the
revised 1994 Prime Broker Letter. We conducted interviews with staffs
from OCIE, Enforcement, FINRA, CBOE, and NYSE, and with broker-dealers
and a trade association representing broker-dealers.
To discuss industry experience regarding the implementation of the new
and enhanced close-out requirements, we reviewed industry comment
letters submitted to SEC, documentation related to SRO requests to SEC
for guidance, and the 2004-2009 Strategic Plan. We also interviewed
broker-dealers and a trade association representing broker-dealers;
securities lenders and a trade association representing securities
lenders; securities lending consultants; and staff from Trading and
Markets and an SRO.
We conducted this performance audit from March 2008 through May 2009 in
accordance with generally accepted government auditing standards. Those
standards require that we plan and perform the audit to obtain
sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objectives. We believe that
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
[End of section]
Appendix II: Clearing Agencies Settle Equity Securities Trades through
a 3-Day Settlement Cycle and Continuous Net Settlement:
According to the Depository Trust and Clearing Corporation (DTCC), most
broker-to-broker equities securities trades in the United States are
cleared and settled through its clearing agency subsidiaries, NSCC and
the Depository Trust Company (DTC). As a clearing corporation, NSCC
provides clearing and settlement, risk management, central counterparty
services, and guarantee of trade completion in the event of a
participant's default. As the central security depository and custodian
in the United States, DTC acts as a custodian for the majority of
securities issues and transfers ownership, in book-entry form, during
settlement.
Due to the volume and value of trading in today's markets, NSCC nets
trades and payments among its participants, using its Continuous Net
Settlement System (CNS System). The CNS System is a book-entry
accounting system in which each NSCC participant's daily purchases and
sales of securities, based on trade date, are automatically netted into
one long position (right to receive) or one short position (obligation
to deliver) for each securities issue purchased or sold.[Footnote 98]
The participant's corresponding payment obligations are similarly
netted into one obligation to pay or one obligation to receive money.
[Footnote 99] For each participant with a short position on settlement
date, NSCC instructs the securities depository designated by the
participant--typically, DTC--to deliver securities from the
participant's account at the depository to NSCC's account. NSCC then
instructs the depository to deliver those securities from NSCC's
account to participants with net long positions in the security. NSCC
provides participants with multiple daily reports that detail their net
long and short positions in each security. One example of such a report
is the CNS Accounting Summary, which provides NSCC participants with
its prior day's positions, settling trades during the day, closing
positions, and the market value of its positions. Any unfulfilled net
long or short position in a settlement cycle is carried forward to
succeeding settlement cycles.
Figures 10 and 11 illustrate the CNS process. Figure 10 illustrates a
series of transactions between multiple brokers and the resulting CNS
position.
Figure 10: Trading Day Transactions and Broker CNS Positions:
[Refer to PDF for image: illustration]
Trading day:
Broker A:
Trade occurs: 10,000 shares sold to Broker B;
End of trading day CNS System records: Long position of 9,000 shares;
Broker B:
Trade occurs: 5,000 shares sold to Broker C;
Trade occurs: 2,000 shares sold to Broker D;
End of trading day CNS System records: Long position of 3,000 shares;
Broker C:
End of trading day CNS System records: Long position of 5,000 shares;
Broker D:
Trade occurs: 1,000 shares sold to Broker A;
End of trading day CNS System records: Long position of 5,000 shares.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 11 illustrates the transactions that occur on settlement day and
the resulting CNS positions. This example assumes that the brokers
shown in the graphic executed no other trades in the XYZ Company's
security.
Figure 11: Settlement Day and Broker CNS Positions:
[Refer to PDF for image: illustration]
Settlement Day (T+3):
Broker A:
9,000 shares to NSCC;
End of trading day CNS System records: Flat position of 0 shares;
Broker B:
3,000 shares from NSCC;
Trade occurs: 2,000 shares sold to Broker D;
End of trading day CNS System records: Flat position of 0 shares;
Broker C:
5,000 shares from NSCC;
End of trading day CNS System records: Flat position of 0 shares;
Broker D:
1,000 shares from NSCC;
End of trading day CNS System records: Flat position of 0 shares.
Sources: SEC (data); GAO (analysis).
[End of figure]
If a participant fails to deliver the total number of securities that
it owes NSCC on a particular settlement date, NSCC may be unable to
meet its delivery obligations, resulting in a failures to receive (FTR)
for participants who have net long positions. NSCC uses the automated
Stock Borrow Program (SBP) to borrow shares to meet as many of its
delivery obligations as possible. This program allows participants to
instruct NSCC on the specific securities from their DTC account that
are available for borrowing to cover NSCC's CNS delivery shortfalls.
Any shares that NSCC borrows are debited from the lending participant's
DTC account; delivered to NSCC; and, subsequently, delivered to a NSCC
participant with a net long position. NSCC creates a right to receive
(net long) position for the lender in the CNS System to show that it is
owed securities. Until the securities are returned, the lending
participant no longer has ownership rights in them and, therefore,
cannot relend them. Additionally, any delivery made using the SBP does
not relieve the participant that fails to deliver from its delivery
obligation to NSCC.
Participants with a FTR position not filled through the SBP have three
options for receiving the securities they are owed. First, the
participant can choose to wait for the CNS System to allocate the
securities that it is owed through the normal course of business.
[Footnote 100] Second, the participant can request that NSCC give its
FTR priority in the CNS System. This allows the participant's FTR
position to be filled with any securities NSCC receives after all buy-
in requests are fulfilled, but before CNS begins allocating received
shares to other participants with net long positions in the
security.[Footnote 101] Third, the participant can initiate a buy-in.
[Footnote 102] This process requires the participant to file paperwork
with NSCC directing the corporation to request a net short participant
to deliver securities to NSCC and for NSCC to deliver those securities
to the net long participant. If the position remains unfilled, NSCC
instructs the member to buy-in the unfilled position. NSCC has no
authority under SEC rules to force a buy-in. DTCC officials explained
to us that approximately 6,000 notices of intention to buy-in are filed
each day, with approximately 20 notices resulting in execution.
According to these officials, relatively few such notices are executed
because FTD are generally resolved in the normal course of business.
Trade clearance and settlement in the United States operate on a
standard 3-day settlement cycle. On trade date (T), trade details are
transmitted to NSCC for processing. According to DTCC, an estimated
99.9 percent of equity transactions are transmitted to the clearing
agency as "locked-in," meaning that the security exchange has already
compared the buyer's account with the seller's account of the trade
details (e.g., share quantity, price, and security) and has determined
that they match. On the first day following the trade date (T+1), NSCC
assumes the role of central counterparty by taking on the buyer's
credit risk and the seller's delivery risk. On the second day (T+2),
NSCC provides summaries of all compared trades to its participant
broker-dealers, including information on the net positions of each
security due or owed for settlement. On the third day (T+3), securities
are delivered and payments of money are made to the respective parties
through NSCC and DTC. Figure 12 summarizes the clearance and settlement
process for equity securities trades in the United States.
Figure 12: Clearance and Settlement Process for Equity Securities
Trades in the United States:
[Refer to PDF for image: illustration]
Trade day:
* Buyer: Customer A purchases 100 shares of stock at $10 a share
through Broker A;
* Broker A: Trade occurs at the Exchange and trade data is sent via
computer to NSCC;
* Seller: Customer B directs Broker B to sell 100 shares at $10 a
share.
Trade day + 1:
* NSCC reports the confirmation of the trade with Broker A;
* NSCC reports the confirmation of the trade with Broker B.
Trade day + 2:
NSCC reports the settlement position to Broker A;
NSCC reports the settlement position to Broker B.
Trade day + 3:
* Equity share settlement: DTC is instructed by NSCC to conduct
settlement via book entry. Settlement occurs when DTC deducts 100
shares from the seller’s account (Broker B) and places them in NSCC’s
account: NSCC then transfers the 100 shares to the net buyer (Broker
A);
* Money settlement: Payment is performed through settlement banks over
Fedwire. NSCC requests payment from Broker A via its settlement bank.
Broker A’s buyer’s settlement bank pays $1,000 to NSCC’s settlement
bank. Broker B’s seller’s settlement bank receives $1,000 from NSCC’s
settlement bank.
Sources: NSCC (data), GAO (analysis), and Art Explosion (images).
[End of figure]
[End of section]
Appendix III: Additional Trend Data on FTD in Threshold Securities, and
All Equity Securities:
SEC has taken several actions in recent years that were intended to
address FTD and manipulative naked short selling. In August 2004, SEC
adopted Regulation SHO, which was intended to address large and
persistent FTD and curb the potential for manipulative naked short
selling.[Footnote 103] Among other things, Regulation SHO imposed
delivery requirements on broker-dealers for equity securities in which
a substantial amount of FTD had occurred, which the regulation
designated as "threshold securities." Regulation SHO required broker-
dealers that have FTD in these securities lasting for 10 consecutive
days to "close out" the FTD by purchasing securities of like kind and
quantity in the market by the beginning of regular trading hours, the
next morning (T+14), with some exceptions.[Footnote 104] In July 2008,
SEC issued an emergency order (July emergency order) to temporarily
restrict naked short selling and FTD in the publicly traded securities
of 19 large financial firms, with limited exceptions. In September
2008, SEC took more comprehensive action to curb the potential for
manipulative naked short selling when it issued another emergency order
(September emergency order) that temporarily enhanced close-out
requirements on the sale of all equity securities. The September
emergency order required broker-dealers to deliver securities resulting
from short sales in any equity security (not just threshold securities)
by the settlement date (T+3), or, if they have FTD on the settlement
date, to take action to purchase or borrow securities to close out the
FTD by the beginning of regular trading hours the next morning (T+4),
with limited exceptions.[Footnote 105] Broker dealers that can show
that the FTD resulted from a long sale were allowed until the beginning
of regular trading hours on T+6 to close out the FTD.[Footnote 106]
Upon expiration of the emergency order, SEC extended this temporary
requirement until July 31, 2009, as part of the interim final temporary
rule (temporary rule).
Figures 13 through 24 illustrate the trends in threshold securities and
their FTD between the effective date of Regulation SHO in January 2005
through December 2008, by the market on which these securities were
trading. These markets include the New York Stock Exchange (NYSE),
NASDAQ, and the American Stock Exchange (Amex). We have also generated
trends for threshold securities trading on NYSE Arca, the Over-The-
Counter Bulletin Board (OTCBB), and Pink Quote under the "Other
Securities" category. We also generated trends in FTD in all securities
(both threshold and nonthreshold), by market, over the review period
(figures 25 through 36).
Figure 13: Average Number of NYSE-listed Threshold Securities, per
Month, by Number of Days on the Threshold List, from January 2005
through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Average number of NYSE-listed threshold securities: 72.94.
Month and Year: 2005, February;
Average number of NYSE-listed threshold securities: 57.58.
Month and Year: 2005, March;
Average number of NYSE-listed threshold securities: 56.73.
Month and Year: 2005, April;
Average number of NYSE-listed threshold securities: 47.1.
Month and Year: 2005, May;
Average number of NYSE-listed threshold securities: 49.67.
Month and Year: 2005, June;
Average number of NYSE-listed threshold securities: 52.23.
Month and Year: 2005, July;
Average number of NYSE-listed threshold securities: 46.6.
Month and Year: 2005, August;
Average number of NYSE-listed threshold securities: 40.61.
Month and Year: 2005, September;
Average number of NYSE-listed threshold securities: 33.9.
Month and Year: 2005, October;
Average number of NYSE-listed threshold securities: 35.85.
Month and Year: 2005, November;
Average number of NYSE-listed threshold securities: 38.5.
Month and Year: 2005, December;
Average number of NYSE-listed threshold securities: 42.52.
Month and Year: 2006, January;
Average number of NYSE-listed threshold securities: 37.2.
Month and Year: 2006, February;
Average number of NYSE-listed threshold securities: 41.58.
Month and Year: 2006, March;
Average number of NYSE-listed threshold securities: 47.96.
Month and Year: 2006, April;
Average number of NYSE-listed threshold securities: 42.89.
Month and Year: 2006, May;
Average number of NYSE-listed threshold securities: 51.14.
Month and Year: 2006, June;
Average number of NYSE-listed threshold securities: 48.23.
Month and Year: 2006, July;
Average number of NYSE-listed threshold securities: 48.7.
Month and Year: 2006, August;
Average number of NYSE-listed threshold securities: 40.35.
Month and Year: 2006, September;
Average number of NYSE-listed threshold securities: 40.45.
Month and Year: 2006, October;
Average number of NYSE-listed threshold securities: 43.1.
Month and Year: 2006, November;
Average number of NYSE-listed threshold securities: 52.29.
Month and Year: 2006, December;
Average number of NYSE-listed threshold securities: 54.35.
Month and Year: 2007, January;
Average number of NYSE-listed threshold securities: 41.2.
Month and Year: 2007, February;
Average number of NYSE-listed threshold securities: 50.0.
Month and Year: 2007, March;
Average number of NYSE-listed threshold securities: 51.82.
Month and Year: 2007, April;
Average number of NYSE-listed threshold securities: 66.65.
Month and Year: 2007, May;
Average number of NYSE-listed threshold securities: 66.86.
Month and Year: 2007, June;
Average number of NYSE-listed threshold securities: 70.71.
Month and Year: 2007, July;
Average number of NYSE-listed threshold securities: 85.05.
Month and Year: 2007, August;
Average number of NYSE-listed threshold securities: 102.43.
Month and Year: 2007, September;
Average number of NYSE-listed threshold securities: 74.0.
Month and Year: 2007, October (Elimination of grandfather exception);
Average number of NYSE-listed threshold securities: 73.59.
Month and Year: 2007, November;
Average number of NYSE-listed threshold securities: 82.29.
Month and Year: 2007, December;
Average number of NYSE-listed threshold securities: 75.75.
Month and Year: 2008, January;
Average number of NYSE-listed threshold securities: 79.76.
Month and Year: 2008, February;
Average number of NYSE-listed threshold securities: 74.7.
Month and Year: 2008, March;
Average number of NYSE-listed threshold securities: 87.85.
Month and Year: 2008, April;
Average number of NYSE-listed threshold securities: 105.41.
Month and Year: 2008, May;
Average number of NYSE-listed threshold securities: 95.19.
Month and Year: 2008, June;
Average number of NYSE-listed threshold securities: 97.14.
Month and Year: 2008, July (July emergency order);
Average number of NYSE-listed threshold securities: 121.41.
Month and Year: 2008, August;
Average number of NYSE-listed threshold securities: 110.1.
Month and Year: 2008, September (September emergency order);
Average number of NYSE-listed threshold securities: 91.43.
Month and Year: 2008, October;
Average number of NYSE-listed threshold securities: 44.45.
Month and Year: 2008, November;
Average number of NYSE-listed threshold securities: 6.11.
Month and Year: 2008, December;
Average number of NYSE-listed threshold securities: 3.32.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 14: Average Number of NASDAQ-listed Threshold Securities, per
Month, by Number of Days on the Threshold List, from January 2005
through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Average number of NASDAQ-listed threshold securities: 106.06.
Month and Year: 2005, February;
Average number of NASDAQ-listed threshold securities: 103.21.
Month and Year: 2005, March;
Average number of NASDAQ-listed threshold securities: 94.77.
Month and Year: 2005, April;
Average number of NASDAQ-listed threshold securities: 84.67.
Month and Year: 2005, May;
Average number of NASDAQ-listed threshold securities: 84.71.
Month and Year: 2005, June;
Average number of NASDAQ-listed threshold securities: 89.09.
Month and Year: 2005, July;
Average number of NASDAQ-listed threshold securities: 92.55.
Month and Year: 2005, August;
Average number of NASDAQ-listed threshold securities: 88.96.
Month and Year: 2005, September;
Average number of NASDAQ-listed threshold securities: 82.43.
Month and Year: 2005, October;
Average number of NASDAQ-listed threshold securities: 76.1.
Month and Year: 2005, November;
Average number of NASDAQ-listed threshold securities: 69.0.
Month and Year: 2005, December;
Average number of NASDAQ-listed threshold securities: 64.1.
Month and Year: 2006, January;
Average number of NASDAQ-listed threshold securities: 73.05.
Month and Year: 2006, February;
Average number of NASDAQ-listed threshold securities: 89.42.
Month and Year: 2006, March;
Average number of NASDAQ-listed threshold securities: 79.96.
Month and Year: 2006, April;
Average number of NASDAQ-listed threshold securities: 86.58.
Month and Year: 2006, May;
Average number of NASDAQ-listed threshold securities: 82.27.
Month and Year: 2006, June;
Average number of NASDAQ-listed threshold securities: 72.18.
Month and Year: 2006, July;
Average number of NASDAQ-listed threshold securities: 81.45.
Month and Year: 2006, August;
Average number of NASDAQ-listed threshold securities: 68.39.
Month and Year: 2006, September;
Average number of NASDAQ-listed threshold securities: 66.4.
Month and Year: 2006, October;
Average number of NASDAQ-listed threshold securities: 67.57.
Month and Year: 2006, November;
Average number of NASDAQ-listed threshold securities: 68.24.
Month and Year: 2006, December;
Average number of NASDAQ-listed threshold securities: 79.9.
Month and Year: 2007, January;
Average number of NASDAQ-listed threshold securities: 63.35.
Month and Year: 2007, February;
Average number of NASDAQ-listed threshold securities: 65.21.
Month and Year: 2007, March;
Average number of NASDAQ-listed threshold securities: 79.68.
Month and Year: 2007, April;
Average number of NASDAQ-listed threshold securities: 83.2.
Month and Year: 2007, May;
Average number of NASDAQ-listed threshold securities: 98.41.
Month and Year: 2007, June;
Average number of NASDAQ-listed threshold securities: 94.62.
Month and Year: 2007, July;
Average number of NASDAQ-listed threshold securities: 111.33.
Month and Year: 2007, August;
Average number of NASDAQ-listed threshold securities: 131.13.
Month and Year: 2007, September;
Average number of NASDAQ-listed threshold securities: 71.53.
Month and Year: 2007, October (Elimination of grandfather exception);
Average number of NASDAQ-listed threshold securities: 86.73.
Month and Year: 2007, November;
Average number of NASDAQ-listed threshold securities: 94.29.
Month and Year: 2007, December;
Average number of NASDAQ-listed threshold securities: 95.8.
Month and Year: 2008, January;
Average number of NASDAQ-listed threshold securities: 91.95.
Month and Year: 2008, February;
Average number of NASDAQ-listed threshold securities: 103.5.
Month and Year: 2008, March;
Average number of NASDAQ-listed threshold securities: 126.85.
Month and Year: 2008, April;
Average number of NASDAQ-listed threshold securities: 161.23.
Month and Year: 2008, May;
Average number of NASDAQ-listed threshold securities: 149.19.
Month and Year: 2008, June;
Average number of NASDAQ-listed threshold securities: 153.29.
Month and Year: 2008, July (July emergency order);
Average number of NASDAQ-listed threshold securities: 207.18.
Month and Year: 2008, August;
Average number of NASDAQ-listed threshold securities: 171.19.
Month and Year: 2008, September (September emergency order);
Average number of NASDAQ-listed threshold securities: 139.29.
Month and Year: 2008, October;
Average number of NASDAQ-listed threshold securities: 68.68.
Month and Year: 2008, November;
Average number of NASDAQ-listed threshold securities: 9.11.
Month and Year: 2008, December;
Average number of NASDAQ-listed threshold securities: 6.68.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 15: Average Number of Amex-listed Threshold Securities, per
Month, by Number of Days on the Threshold List, from January 2005
through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Average number of Amex-listed threshold securities: 77.12.
Month and Year: 2005, February;
Average number of Amex-listed threshold securities: 55.36.
Month and Year: 2005, March;
Average number of Amex-listed threshold securities: 59.68.
Month and Year: 2005, April;
Average number of Amex-listed threshold securities: 58.0.
Month and Year: 2005, May;
Average number of Amex-listed threshold securities: 47.95.
Month and Year: 2005, June;
Average number of Amex-listed threshold securities: 41.54.
Month and Year: 2005, July;
Average number of Amex-listed threshold securities: 41.75.
Month and Year: 2005, August;
Average number of Amex-listed threshold securities: 44.52.
Month and Year: 2005, September;
Average number of Amex-listed threshold securities: 48.33.
Month and Year: 2005, October;
Average number of Amex-listed threshold securities: 47.95.
Month and Year: 2005, November;
Average number of Amex-listed threshold securities: 53.25.
Month and Year: 2005, December;
Average number of Amex-listed threshold securities: 55.52.
Month and Year: 2006, January;
Average number of Amex-listed threshold securities: 58.55.
Month and Year: 2006, February;
Average number of Amex-listed threshold securities: 64.57.
Month and Year: 2006, March;
Average number of Amex-listed threshold securities: 60.26.
Month and Year: 2006, April;
Average number of Amex-listed threshold securities: 48.0.
Month and Year: 2006, May;
Average number of Amex-listed threshold securities: 51.77.
Month and Year: 2006, June;
Average number of Amex-listed threshold securities: 45.5.
Month and Year: 2006, July;
Average number of Amex-listed threshold securities: 51.5.
Month and Year: 2006, August;
Average number of Amex-listed threshold securities: 46.42.
Month and Year: 2006, September;
Average number of Amex-listed threshold securities: 49.85.
Month and Year: 2006, October;
Average number of Amex-listed threshold securities: 67.28.
Month and Year: 2006, November;
Average number of Amex-listed threshold securities: 59.61.
Month and Year: 2006, December;
Average number of Amex-listed threshold securities: 64.05.
Month and Year: 2007, January;
Average number of Amex-listed threshold securities: 60.7.
Month and Year: 2007, February;
Average number of Amex-listed threshold securities: 59.36.
Month and Year: 2007, March;
Average number of Amex-listed threshold securities: 71.0.
Month and Year: 2007, April;
Average number of Amex-listed threshold securities: 62.45.
Month and Year: 2007, May;
Average number of Amex-listed threshold securities: 76.86.
Month and Year: 2007, June;
Average number of Amex-listed threshold securities: 91.71.
Month and Year: 2007, July;
Average number of Amex-listed threshold securities: 99.52.
Month and Year: 2007, August;
Average number of Amex-listed threshold securities: 103.0.
Month and Year: 2007, September;
Average number of Amex-listed threshold securities: 76.05.
Month and Year: 2007, October (Elimination of grandfather exception);
Average number of Amex-listed threshold securities: 83.31.
Month and Year: 2007, November;
Average number of Amex-listed threshold securities: 81.80.
Month and Year: 2007, December;
Average number of Amex-listed threshold securities: 101.85.
Month and Year: 2008, January;
Average number of Amex-listed threshold securities: 103.19.
Month and Year: 2008, February;
Average number of Amex-listed threshold securities: 95.65.
Month and Year: 2008, March;
Average number of Amex-listed threshold securities: 100.85.
Month and Year: 2008, April;
Average number of Amex-listed threshold securities: 94.77.
Month and Year: 2008, May;
Average number of Amex-listed threshold securities: 91.19.
Month and Year: 2008, June;
Average number of Amex-listed threshold securities: 104.61.
Month and Year: 2008, July (July emergency order);
Average number of Amex-listed threshold securities: 112.90.
Month and Year: 2008, August;
Average number of Amex-listed threshold securities: 91.14.
Month and Year: 2008, September (September emergency order);
Average number of Amex-listed threshold securities: 73.0.
Month and Year: 2008, October;
Average number of Amex-listed threshold securities: 28.90.
Month and Year: 2008, November;
Average number of Amex-listed threshold securities: 6.47.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 16: Average Number of Other Securities, per Month, by Number of
Days on the Threshold List, from January 2005 through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Average number of other threshold securities: 167.
Month and Year: 2005, February;
Average number of other threshold securities: 169.
Month and Year: 2005, March;
Average number of other threshold securities: 148.1.
Month and Year: 2005, April;
Average number of other threshold securities: 127.8.
Month and Year: 2005, May;
Average number of other threshold securities: 114.6.
Month and Year: 2005, June;
Average number of other threshold securities: 105.5.
Month and Year: 2005, July;
Average number of other threshold securities: 117.7.
Month and Year: 2005, August;
Average number of other threshold securities: 133.4.
Month and Year: 2005, September;
Average number of other threshold securities: 125.2.
Month and Year: 2005, October;
Average number of other threshold securities: 115.2.
Month and Year: 2005, November;
Average number of other threshold securities: 109.9.
Month and Year: 2005, December;
Average number of other threshold securities: 119.5.
Month and Year: 2006, January;
Average number of other threshold securities: 105.5.
Month and Year: 2006, February;
Average number of other threshold securities: 128.5.
Month and Year: 2006, March;
Average number of other threshold securities: 136.4.
Month and Year: 2006, April;
Average number of other threshold securities: 131.2.
Month and Year: 2006, May;
Average number of other threshold securities: 112.3.
Month and Year: 2006, June;
Average number of other threshold securities: 86.0.
Month and Year: 2006, July;
Average number of other threshold securities: 73.1.
Month and Year: 2006, August;
Average number of other threshold securities: 75.7.
Month and Year: 2006, September;
Average number of other threshold securities: 82.2.
Month and Year: 2006, October;
Average number of other threshold securities: 86.7.
Month and Year: 2006, November;
Average number of other threshold securities: 96.9.
Month and Year: 2006, December;
Average number of other threshold securities: 96.4.
Month and Year: 2007, January;
Average number of other threshold securities: 91.2.
Month and Year: 2007, February;
Average number of other threshold securities: 96.3.
Month and Year: 2007, March;
Average number of other threshold securities: 108.5.
Month and Year: 2007, April;
Average number of other threshold securities: 105.3.
Month and Year: 2007, May;
Average number of other threshold securities: 119.0.
Month and Year: 2007, June;
Average number of other threshold securities: 116.0.
Month and Year: 2007, July;
Average number of other threshold securities: 120.0.
Month and Year: 2007, August;
Average number of other threshold securities: 122.9.
Month and Year: 2007, September;
Average number of other threshold securities: 116.3.
Month and Year: 2007, October (Elimination of grandfather exception);
Average number of other threshold securities: 123.3.
Month and Year: 2007, November;
Average number of other threshold securities: 122.3.
Month and Year: 2007, December;
Average number of other threshold securities: 121.9.
Month and Year: 2008, January;
Average number of other threshold securities: 131.7.
Month and Year: 2008, February;
Average number of other threshold securities: 130.2.
Month and Year: 2008, March;
Average number of other threshold securities: 150.8.
Month and Year: 2008, April;
Average number of other threshold securities: 171.0.
Month and Year: 2008, May;
Average number of other threshold securities: 155.5.
Month and Year: 2008, June;
Average number of other threshold securities: 148.5.
Month and Year: 2008, July (July emergency order);
Average number of other threshold securities: 140.1.
Month and Year: 2008, August;
Average number of other threshold securities: 127.6.
Month and Year: 2008, September (September emergency order);
Average number of other threshold securities: 109.7.
Month and Year: 2008, October;
Average number of other threshold securities: 53.4.
Month and Year: 2008, November;
Average number of other threshold securities: 50.6.
Month and Year: 2008, December;
Average number of other threshold securities: 71.7.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 17: Average Outstanding FTD, per Month, for NYSE-listed
Threshold Securities, from January 2005 through December 2008 (in
millions):
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Average outstanding FTD for NYSE-listed threshold securities: 31.9.
Month and Year: 2005, February;
Average outstanding FTD for NYSE-listed threshold securities: 20.8.
Month and Year: 2005, March;
Average outstanding FTD for NYSE-listed threshold securities: 21.7.
Month and Year: 2005, April;
Average outstanding FTD for NYSE-listed threshold securities: 22.8.
Month and Year: 2005, May;
Average outstanding FTD for NYSE-listed threshold securities: 31.9.
Month and Year: 2005, June;
Average outstanding FTD for NYSE-listed threshold securities: 17.9.
Month and Year: 2005, July;
Average outstanding FTD for NYSE-listed threshold securities: 11.2.
Month and Year: 2005, August;
Average outstanding FTD for NYSE-listed threshold securities: 19.6.
Month and Year: 2005, September;
Average outstanding FTD for NYSE-listed threshold securities: 17.6.
Month and Year: 2005, October;
Average outstanding FTD for NYSE-listed threshold securities: 17.1.
Month and Year: 2005, November;
Average outstanding FTD for NYSE-listed threshold securities: 14.2.
Month and Year: 2005, December;
Average outstanding FTD for NYSE-listed threshold securities: 14.5.
Month and Year: 2006, January;
Average outstanding FTD for NYSE-listed threshold securities: 11.9.
Month and Year: 2006, February;
Average outstanding FTD for NYSE-listed threshold securities: 14.7.
Month and Year: 2006, March;
Average outstanding FTD for NYSE-listed threshold securities: 16.5.
Month and Year: 2006, April;
Average outstanding FTD for NYSE-listed threshold securities: 15.5.
Month and Year: 2006, May;
Average outstanding FTD for NYSE-listed threshold securities: 15.5.
Month and Year: 2006, June;
Average outstanding FTD for NYSE-listed threshold securities: 14.9.
Month and Year: 2006, July;
Average outstanding FTD for NYSE-listed threshold securities: 20.8.
Month and Year: 2006, August;
Average outstanding FTD for NYSE-listed threshold securities: 11.8.
Month and Year: 2006, September;
Average outstanding FTD for NYSE-listed threshold securities: 11.6.
Month and Year: 2006, October;
Average outstanding FTD for NYSE-listed threshold securities: 12.9.
Month and Year: 2006, November;
Average outstanding FTD for NYSE-listed threshold securities: 15.3.
Month and Year: 2006, December;
Average outstanding FTD for NYSE-listed threshold securities: 18.1.
Month and Year: 2007, January;
Average outstanding FTD for NYSE-listed threshold securities: 19.3.
Month and Year: 2007, February;
Average outstanding FTD for NYSE-listed threshold securities: 31.8.
Month and Year: 2007, March;
Average outstanding FTD for NYSE-listed threshold securities: 48.1.
Month and Year: 2007, April;
Average outstanding FTD for NYSE-listed threshold securities: 37.2.
Month and Year: 2007, May;
Average outstanding FTD for NYSE-listed threshold securities: 23.6.
Month and Year: 2007, June;
Average outstanding FTD for NYSE-listed threshold securities: 25.9.
Month and Year: 2007, July;
Average outstanding FTD for NYSE-listed threshold securities: 35.1.
Month and Year: 2007, August;
Average outstanding FTD for NYSE-listed threshold securities: 57.2.
Month and Year: 2007, September;
Average outstanding FTD for NYSE-listed threshold securities: 38.0.
Month and Year: 2007, October (Elimination of grandfather exception);
Average outstanding FTD for NYSE-listed threshold securities: 36.4.
Month and Year: 2007, November;
Average outstanding FTD for NYSE-listed threshold securities: 44.5.
Month and Year: 2007, December;
Average outstanding FTD for NYSE-listed threshold securities: 54.9.
Month and Year: 2008, January;
Average outstanding FTD for NYSE-listed threshold securities: 52.7.
Month and Year: 2008, February;
Average outstanding FTD for NYSE-listed threshold securities: 50.5.
Month and Year: 2008, March;
Average outstanding FTD for NYSE-listed threshold securities: 61.4.
Month and Year: 2008, April;
Average outstanding FTD for NYSE-listed threshold securities: 67.4.
Month and Year: 2008, May;
Average outstanding FTD for NYSE-listed threshold securities: 48.2.
Month and Year: 2008, June;
Average outstanding FTD for NYSE-listed threshold securities: 53.2.
Month and Year: 2008, July (July emergency order);
Average outstanding FTD for NYSE-listed threshold securities: 93.8.
Month and Year: 2008, August;
Average outstanding FTD for NYSE-listed threshold securities: 75.2.
Month and Year: 2008, September (September emergency order);
Average outstanding FTD for NYSE-listed threshold securities: 90.9.
Month and Year: 2008, October;
Average outstanding FTD for NYSE-listed threshold securities: 24.8.
Month and Year: 2008, November;
Average outstanding FTD for NYSE-listed threshold securities: 1.3.
Month and Year: 2008, December;
Average outstanding FTD for NYSE-listed threshold securities: 5.8.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 18: Average Outstanding FTD, per Month, for NASDAQ-listed
Threshold Securities, from January 2005 through December 2008 (in
millions):
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Average outstanding FTD for NASDAQ-listed threshold securities: 46.7.
Month and Year: 2005, February;
Average outstanding FTD for NASDAQ-listed threshold securities: 35.0.
Month and Year: 2005, March;
Average outstanding FTD for NASDAQ-listed threshold securities: 27.9.
Month and Year: 2005, April;
Average outstanding FTD for NASDAQ-listed threshold securities: 25.8.
Month and Year: 2005, May;
Average outstanding FTD for NASDAQ-listed threshold securities: 28.5.
Month and Year: 2005, June;
Average outstanding FTD for NASDAQ-listed threshold securities: 25.8.
Month and Year: 2005, July;
Average outstanding FTD for NASDAQ-listed threshold securities: 24.1.
Month and Year: 2005, August;
Average outstanding FTD for NASDAQ-listed threshold securities: 23.0.
Month and Year: 2005, September;
Average outstanding FTD for NASDAQ-listed threshold securities: 26.2.
Month and Year: 2005, October;
Average outstanding FTD for NASDAQ-listed threshold securities: 18.8.
Month and Year: 2005, November;
Average outstanding FTD for NASDAQ-listed threshold securities: 21.2.
Month and Year: 2005, December;
Average outstanding FTD for NASDAQ-listed threshold securities: 22.2.
Month and Year: 2006, January;
Average outstanding FTD for NASDAQ-listed threshold securities: 24.0.
Month and Year: 2006, February;
Average outstanding FTD for NASDAQ-listed threshold securities: 30.7.
Month and Year: 2006, March;
Average outstanding FTD for NASDAQ-listed threshold securities: 31.4.
Month and Year: 2006, April;
Average outstanding FTD for NASDAQ-listed threshold securities: 29.2.
Month and Year: 2006, May;
Average outstanding FTD for NASDAQ-listed threshold securities: 24.2.
Month and Year: 2006, June;
Average outstanding FTD for NASDAQ-listed threshold securities: 24.6.
Month and Year: 2006, July;
Average outstanding FTD for NASDAQ-listed threshold securities: 28.3
Month and Year: 2006, August;
Average outstanding FTD for NASDAQ-listed threshold securities: 23.1.
Month and Year: 2006, September;
Average outstanding FTD for NASDAQ-listed threshold securities: 21.1.
Month and Year: 2006, October;
Average outstanding FTD for NASDAQ-listed threshold securities: 19.2.
Month and Year: 2006, November;
Average outstanding FTD for NASDAQ-listed threshold securities: 24.7.
Month and Year: 2006, December;
Average outstanding FTD for NASDAQ-listed threshold securities: 26.6.
Month and Year: 2007, January;
Average outstanding FTD for NASDAQ-listed threshold securities: 22.8.
Month and Year: 2007, February;
Average outstanding FTD for NASDAQ-listed threshold securities: 28.7.
Month and Year: 2007, March;
Average outstanding FTD for NASDAQ-listed threshold securities: 45.0.
Month and Year: 2007, April;
Average outstanding FTD for NASDAQ-listed threshold securities: 56.1.
Month and Year: 2007, May;
Average outstanding FTD for NASDAQ-listed threshold securities: 66.3.
Month and Year: 2007, June;
Average outstanding FTD for NASDAQ-listed threshold securities: 4.9.
Month and Year: 2007, July;
Average outstanding FTD for NASDAQ-listed threshold securities: 62.8.
Month and Year: 2007, August;
Average outstanding FTD for NASDAQ-listed threshold securities: 63.8.
Month and Year: 2007, September;
Average outstanding FTD for NASDAQ-listed threshold securities: 34.0.
Month and Year: 2007, October (Elimination of grandfather exception);
Average outstanding FTD for NASDAQ-listed threshold securities: 39.4.
Month and Year: 2007, November;
Average outstanding FTD for NASDAQ-listed threshold securities: 45.3.
Month and Year: 2007, December;
Average outstanding FTD for NASDAQ-listed threshold securities: 50.7.
Month and Year: 2008, January;
Average outstanding FTD for NASDAQ-listed threshold securities: 49.2.
Month and Year: 2008, February;
Average outstanding FTD for NASDAQ-listed threshold securities: 54.9.
Month and Year: 2008, March;
Average outstanding FTD for NASDAQ-listed threshold securities: 72.9.
Month and Year: 2008, April;
Average outstanding FTD for NASDAQ-listed threshold securities: 80.2.
Month and Year: 2008, May;
Average outstanding FTD for NASDAQ-listed threshold securities: 78.6.
Month and Year: 2008, June;
Average outstanding FTD for NASDAQ-listed threshold securities: 91.0.
Month and Year: 2008, July (July emergency order);
Average outstanding FTD for NASDAQ-listed threshold securities: 120.7.
Month and Year: 2008, August;
Average outstanding FTD for NASDAQ-listed threshold securities: 89.3.
Month and Year: 2008, September (September emergency order);
Average outstanding FTD for NASDAQ-listed threshold securities: 72.9.
Month and Year: 2008, October;
Average outstanding FTD for NASDAQ-listed threshold securities: 25.7.
Month and Year: 2008, November;
Average outstanding FTD for NASDAQ-listed threshold securities: 1.8.
Month and Year: 2008, December;
Average outstanding FTD for NASDAQ-listed threshold securities: 2.5.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 19: Average Outstanding FTD, per Month, for Amex-listed
Threshold Securities, from January 2005 through December 2008 (in
millions):
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Average outstanding FTD for Amex-listed threshold securities: 18.3.
Month and Year: 2005, February;
Average outstanding FTD for Amex-listed threshold securities: 17.8.
Month and Year: 2005, March;
Average outstanding FTD for Amex-listed threshold securities: 16.8.
Month and Year: 2005, April;
Average outstanding FTD for Amex-listed threshold securities: 12.9.
Month and Year: 2005, May;
Average outstanding FTD for Amex-listed threshold securities: 12.9.
Month and Year: 2005, June;
Average outstanding FTD for Amex-listed threshold securities: 11.9.
Month and Year: 2005, July;
Average outstanding FTD for Amex-listed threshold securities: 4.2.
Month and Year: 2005, August;
Average outstanding FTD for Amex-listed threshold securities: 7.1.
Month and Year: 2005, September;
Average outstanding FTD for Amex-listed threshold securities: 13.7.
Month and Year: 2005, October;
Average outstanding FTD for Amex-listed threshold securities: 7.8.
Month and Year: 2005, November;
Average outstanding FTD for Amex-listed threshold securities: 8.3.
Month and Year: 2005, December;
Average outstanding FTD for Amex-listed threshold securities: 10.7.
Month and Year: 2006, January;
Average outstanding FTD for Amex-listed threshold securities: 9.2.
Month and Year: 2006, February;
Average outstanding FTD for Amex-listed threshold securities: 11.7.
Month and Year: 2006, March;
Average outstanding FTD for Amex-listed threshold securities: 9.6.
Month and Year: 2006, April;
Average outstanding FTD for Amex-listed threshold securities: 9.7.
Month and Year: 2006, May;
Average outstanding FTD for Amex-listed threshold securities: 17.2.
Month and Year: 2006, June;
Average outstanding FTD for Amex-listed threshold securities: 7.5.
Month and Year: 2006, July;
Average outstanding FTD for Amex-listed threshold securities: 9.1.
Month and Year: 2006, August;
Average outstanding FTD for Amex-listed threshold securities: 5.9.
Month and Year: 2006, September;
Average outstanding FTD for Amex-listed threshold securities: 7.5.
Month and Year: 2006, October;
Average outstanding FTD for Amex-listed threshold securities: 7.0.
Month and Year: 2006, November;
Average outstanding FTD for Amex-listed threshold securities: 5.7.
Month and Year: 2006, December;
Average outstanding FTD for Amex-listed threshold securities: 6.8.
Month and Year: 2007, January;
Average outstanding FTD for Amex-listed threshold securities: 5.3.
Month and Year: 2007, February;
Average outstanding FTD for Amex-listed threshold securities: 7.9.
Month and Year: 2007, March;
Average outstanding FTD for Amex-listed threshold securities: 18.2.
Month and Year: 2007, April;
Average outstanding FTD for Amex-listed threshold securities: 8.4.
Month and Year: 2007, May;
Average outstanding FTD for Amex-listed threshold securities: 12.5.
Month and Year: 2007, June;
Average outstanding FTD for Amex-listed threshold securities: 17.1.
Month and Year: 2007, July;
Average outstanding FTD for Amex-listed threshold securities: 19.1.
Month and Year: 2007, August;
Average outstanding FTD for Amex-listed threshold securities: 23.4.
Month and Year: 2007, September;
Average outstanding FTD for Amex-listed threshold securities: 14.6.
Month and Year: 2007, October (Elimination of grandfather exception);
Average outstanding FTD for Amex-listed threshold securities: 20.2.
Month and Year: 2007, November;
Average outstanding FTD for Amex-listed threshold securities: 25.1.
Month and Year: 2007, December;
Average outstanding FTD for Amex-listed threshold securities: 19.1.
Month and Year: 2008, January;
Average outstanding FTD for Amex-listed threshold securities: 16.1.
Month and Year: 2008, February;
Average outstanding FTD for Amex-listed threshold securities: 19.9.
Month and Year: 2008, March;
Average outstanding FTD for Amex-listed threshold securities: 21.1.
Month and Year: 2008, April;
Average outstanding FTD for Amex-listed threshold securities: 17.2.
Month and Year: 2008, May;
Average outstanding FTD for Amex-listed threshold securities: 22.1.
Month and Year: 2008, June;
Average outstanding FTD for Amex-listed threshold securities: 35.0.
Month and Year: 2008, July (July emergency order);
Average outstanding FTD for Amex-listed threshold securities: 45.1.
Month and Year: 2008, August;
Average outstanding FTD for Amex-listed threshold securities: 29.1.
Month and Year: 2008, September (September emergency order);
Average outstanding FTD for Amex-listed threshold securities: 19.1.
Month and Year: 2008, October;
Average outstanding FTD for Amex-listed threshold securities: 5.3.
Month and Year: 2008, November;
Average outstanding FTD for Amex-listed threshold securities: 0.9.
Month and Year: 2008, December;
Average outstanding FTD for Amex-listed threshold securities: 1.4.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 20: Average Outstanding FTD, per Month, for Other Threshold
Securities, from January 2005 through December 2008 (in millions):
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Average outstanding FTD for other threshold securities: 121.6.
Month and Year: 2005, February;
Average outstanding FTD for other threshold securities: 152.3.
Month and Year: 2005, March;
Average outstanding FTD for other threshold securities: 130.3.
Month and Year: 2005, April;
Average outstanding FTD for other threshold securities: 108.8.
Month and Year: 2005, May;
Average outstanding FTD for other threshold securities: 131.1.
Month and Year: 2005, June;
Average outstanding FTD for other threshold securities: 171.5.
Month and Year: 2005, July;
Average outstanding FTD for other threshold securities: 113.5.
Month and Year: 2005, August;
Average outstanding FTD for other threshold securities: 123.0.
Month and Year: 2005, September;
Average outstanding FTD for other threshold securities: 113.5.
Month and Year: 2005, October;
Average outstanding FTD for other threshold securities: 91.1.
Month and Year: 2005, November;
Average outstanding FTD for other threshold securities: 85.3.
Month and Year: 2005, December;
Average outstanding FTD for other threshold securities: 143.6.
Month and Year: 2006, January;
Average outstanding FTD for other threshold securities: 117.3.
Month and Year: 2006, February;
Average outstanding FTD for other threshold securities: 145.5.
Month and Year: 2006, March;
Average outstanding FTD for other threshold securities: 230.3.
Month and Year: 2006, April;
Average outstanding FTD for other threshold securities: 94.4.
Month and Year: 2006, May;
Average outstanding FTD for other threshold securities: 143.7.
Month and Year: 2006, June;
Average outstanding FTD for other threshold securities: 136.4.
Month and Year: 2006, July;
Average outstanding FTD for other threshold securities: 135.6.
Month and Year: 2006, August;
Average outstanding FTD for other threshold securities: 63.3.
Month and Year: 2006, September;
Average outstanding FTD for other threshold securities: 85.9.
Month and Year: 2006, October;
Average outstanding FTD for other threshold securities: 187.5.
Month and Year: 2006, November;
Average outstanding FTD for other threshold securities: 163.6.
Month and Year: 2006, December;
Average outstanding FTD for other threshold securities: 120.9.
Month and Year: 2007, January;
Average outstanding FTD for other threshold securities: 75.4.
Month and Year: 2007, February;
Average outstanding FTD for other threshold securities: 130.4.
Month and Year: 2007, March;
Average outstanding FTD for other threshold securities: 126.2.
Month and Year: 2007, April;
Average outstanding FTD for other threshold securities: 201.7.
Month and Year: 2007, May;
Average outstanding FTD for other threshold securities: 144.2.
Month and Year: 2007, June;
Average outstanding FTD for other threshold securities: 232.2.
Month and Year: 2007, July;
Average outstanding FTD for other threshold securities: 347.0.
Month and Year: 2007, August;
Average outstanding FTD for other threshold securities: 463.8.
Month and Year: 2007, September;
Average outstanding FTD for other threshold securities: 330.5.
Month and Year: 2007, October (Elimination of grandfather exception);
Average outstanding FTD for other threshold securities: 440.4.
Month and Year: 2007, November;
Average outstanding FTD for other threshold securities: 418.1.
Month and Year: 2007, December;
Average outstanding FTD for other threshold securities: 216.2.
Month and Year: 2008, January;
Average outstanding FTD for other threshold securities: 192.1.
Month and Year: 2008, February;
Average outstanding FTD for other threshold securities: 358.2.
Month and Year: 2008, March;
Average outstanding FTD for other threshold securities: 4200.1.
Month and Year: 2008, April;
Average outstanding FTD for other threshold securities: 290.3.
Month and Year: 2008, May;
Average outstanding FTD for other threshold securities: 297.8.
Month and Year: 2008, June;
Average outstanding FTD for other threshold securities: 219.8.
Month and Year: 2008, July (July emergency order);
Average outstanding FTD for other threshold securities: 680.0.
Month and Year: 2008, August;
Average outstanding FTD for other threshold securities: 202.9.
Month and Year: 2008, September (September emergency order);
Average outstanding FTD for other threshold securities: 245.6.
Month and Year: 2008, October;
Average outstanding FTD for other threshold securities: 137.0.
Month and Year: 2008, November;
Average outstanding FTD for other threshold securities: 141.7.
Month and Year: 2008, December;
Average outstanding FTD for other threshold securities: 141.2.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 21: Total New FTD, per Month, for NYSE-listed Threshold
Securities, from January 2005 through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Total new FTD for NYSE-listed threshold securities: 22.2.
Month and Year: 2005, February;
Total new FTD for NYSE-listed threshold securities: 19.2.
Month and Year: 2005, March;
Total new FTD for NYSE-listed threshold securities: 22.4.
Month and Year: 2005, April;
Total new FTD for NYSE-listed threshold securities: 27.3.
Month and Year: 2005, May;
Total new FTD for NYSE-listed threshold securities: 43.2.
Month and Year: 2005, June;
Total new FTD for NYSE-listed threshold securities: 31.1.
Month and Year: 2005, July;
Total new FTD for NYSE-listed threshold securities: 13.7.
Month and Year: 2005, August;
Total new FTD for NYSE-listed threshold securities: 28.1.
Month and Year: 2005, September;
Total new FTD for NYSE-listed threshold securities: 28.5.
Month and Year: 2005, October;
Total new FTD for NYSE-listed threshold securities: 14.9.
Month and Year: 2005, November;
Total new FTD for NYSE-listed threshold securities: 13.3.
Month and Year: 2005, December;
Total new FTD for NYSE-listed threshold securities: 19.1.
Month and Year: 2006, January;
Total new FTD for NYSE-listed threshold securities: 11.7.
Month and Year: 2006, February;
Total new FTD for NYSE-listed threshold securities: 14.9.
Month and Year: 2006, March;
Total new FTD for NYSE-listed threshold securities: 15.7.
Month and Year: 2006, April;
Total new FTD for NYSE-listed threshold securities: 14.7.
Month and Year: 2006, May;
Total new FTD for NYSE-listed threshold securities: 23.0.
Month and Year: 2006, June;
Total new FTD for NYSE-listed threshold securities: 20.6.
Month and Year: 2006, July;
Total new FTD for NYSE-listed threshold securities: 30.7.
Month and Year: 2006, August;
Total new FTD for NYSE-listed threshold securities: 11.0.
Month and Year: 2006, September;
Total new FTD for NYSE-listed threshold securities: 13.9.
Month and Year: 2006, October;
Total new FTD for NYSE-listed threshold securities: 17.0.
Month and Year: 2006, November;
Total new FTD for NYSE-listed threshold securities: 23.1.
Month and Year: 2006, December;
Total new FTD for NYSE-listed threshold securities: 17.6.
Month and Year: 2007, January;
Total new FTD for NYSE-listed threshold securities: 17.9.
Month and Year: 2007, February;
Total new FTD for NYSE-listed threshold securities: 27.7.
Month and Year: 2007, March;
Total new FTD for NYSE-listed threshold securities: 50.8.
Month and Year: 2007, April;
Total new FTD for NYSE-listed threshold securities: 80.7.
Month and Year: 2007, May;
Total new FTD for NYSE-listed threshold securities: 68.3.
Month and Year: 2007, June;
Total new FTD for NYSE-listed threshold securities: 84.1.
Month and Year: 2007, July;
Total new FTD for NYSE-listed threshold securities: 112.2.
Month and Year: 2007, August;
Total new FTD for NYSE-listed threshold securities: 245.1.
Month and Year: 2007, September;
Total new FTD for NYSE-listed threshold securities: 111.5.
Month and Year: 2007, October (Elimination of grandfather exception);
Total new FTD for NYSE-listed threshold securities: 120.4.
Month and Year: 2007, November;
Total new FTD for NYSE-listed threshold securities: 163.9.
Month and Year: 2007, December;
Total new FTD for NYSE-listed threshold securities: 192.3.
Month and Year: 2008, January;
Total new FTD for NYSE-listed threshold securities: 215.1.
Month and Year: 2008, February;
Total new FTD for NYSE-listed threshold securities: 173.5.
Month and Year: 2008, March;
Total new FTD for NYSE-listed threshold securities: 239.8.
Month and Year: 2008, April;
Total new FTD for NYSE-listed threshold securities: 186.6.
Month and Year: 2008, May;
Total new FTD for NYSE-listed threshold securities: 124.1.
Month and Year: 2008, June;
Total new FTD for NYSE-listed threshold securities: 184.6.
Month and Year: 2008, July (July emergency order);
Total new FTD for NYSE-listed threshold securities: 366.5.
Month and Year: 2008, August;
Total new FTD for NYSE-listed threshold securities: 183.5.
Month and Year: 2008, September (September emergency order);
Total new FTD for NYSE-listed threshold securities: 299.1.
Month and Year: 2008, October;
Total new FTD for NYSE-listed threshold securities: 136.3.
Month and Year: 2008, November;
Total new FTD for NYSE-listed threshold securities: 7.7.
Month and Year: 2008, December;
Total new FTD for NYSE-listed threshold securities: 38.8.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 22: Total New FTD, per Month, for NASDAQ-listed Threshold
Securities, from January 2005 through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Total new FTD for NASDAQ-listed threshold securities: 50.0.
Month and Year: 2005, February;
Total new FTD for NASDAQ-listed threshold securities: 52.6.
Month and Year: 2005, March;
Total new FTD for NASDAQ-listed threshold securities: 44.1.
Month and Year: 2005, April;
Total new FTD for NASDAQ-listed threshold securities: 35.3.
Month and Year: 2005, May;
Total new FTD for NASDAQ-listed threshold securities: 52.8.
Month and Year: 2005, June;
Total new FTD for NASDAQ-listed threshold securities: 45.9.
Month and Year: 2005, July;
Total new FTD for NASDAQ-listed threshold securities: 30.0.
Month and Year: 2005, August;
Total new FTD for NASDAQ-listed threshold securities: 26.2.
Month and Year: 2005, September;
Total new FTD for NASDAQ-listed threshold securities: 27.2.
Month and Year: 2005, October;
Total new FTD for NASDAQ-listed threshold securities: 22.4.
Month and Year: 2005, November;
Total new FTD for NASDAQ-listed threshold securities: 28.9.
Month and Year: 2005, December;
Total new FTD for NASDAQ-listed threshold securities: 35.1.
Month and Year: 2006, January;
Total new FTD for NASDAQ-listed threshold securities: 26.8.
Month and Year: 2006, February;
Total new FTD for NASDAQ-listed threshold securities: 27.7.
Month and Year: 2006, March;
Total new FTD for NASDAQ-listed threshold securities: 49.4.
Month and Year: 2006, April;
Total new FTD for NASDAQ-listed threshold securities: 27.2.
Month and Year: 2006, May;
Total new FTD for NASDAQ-listed threshold securities: 27.4.
Month and Year: 2006, June;
Total new FTD for NASDAQ-listed threshold securities: 37.8.
Month and Year: 2006, July;
Total new FTD for NASDAQ-listed threshold securities: 26.2.
Month and Year: 2006, August;
Total new FTD for NASDAQ-listed threshold securities: 24.0.
Month and Year: 2006, September;
Total new FTD for NASDAQ-listed threshold securities: 20.9.
Month and Year: 2006, October;
Total new FTD for NASDAQ-listed threshold securities: 26.4.
Month and Year: 2006, November;
Total new FTD for NASDAQ-listed threshold securities: 31.5.
Month and Year: 2006, December;
Total new FTD for NASDAQ-listed threshold securities: 30.2.
Month and Year: 2007, January;
Total new FTD for NASDAQ-listed threshold securities: 28.9.
Month and Year: 2007, February;
Total new FTD for NASDAQ-listed threshold securities: 51.3.
Month and Year: 2007, March;
Total new FTD for NASDAQ-listed threshold securities: 92.7.
Month and Year: 2007, April;
Total new FTD for NASDAQ-listed threshold securities: 134.9.
Month and Year: 2007, May;
Total new FTD for NASDAQ-listed threshold securities: 234.3.
Month and Year: 2007, June;
Total new FTD for NASDAQ-listed threshold securities: 209.3.
Month and Year: 2007, July;
Total new FTD for NASDAQ-listed threshold securities: 160.2.
Month and Year: 2007, August;
Total new FTD for NASDAQ-listed threshold securities: 203.7.
Month and Year: 2007, September;
Total new FTD for NASDAQ-listed threshold securities: 83.9.
Month and Year: 2007, October (Elimination of grandfather exception);
Total new FTD for NASDAQ-listed threshold securities: 130.2.
Month and Year: 2007, November;
Total new FTD for NASDAQ-listed threshold securities: 133.6.
Month and Year: 2007, December;
Total new FTD for NASDAQ-listed threshold securities: 145.5.
Month and Year: 2008, January;
Total new FTD for NASDAQ-listed threshold securities: 170.5.
Month and Year: 2008, February;
Total new FTD for NASDAQ-listed threshold securities: 169.4.
Month and Year: 2008, March;
Total new FTD for NASDAQ-listed threshold securities: 249.5.
Month and Year: 2008, April;
Total new FTD for NASDAQ-listed threshold securities: 190.2.
Month and Year: 2008, May;
Total new FTD for NASDAQ-listed threshold securities: 212.8.
Month and Year: 2008, June;
Total new FTD for NASDAQ-listed threshold securities: 324.4.
Month and Year: 2008, July (July emergency order);
Total new FTD for NASDAQ-listed threshold securities: 353.9.
Month and Year: 2008, August;
Total new FTD for NASDAQ-listed threshold securities: 178.0.
Month and Year: 2008, September (September emergency order);
Total new FTD for NASDAQ-listed threshold securities: 165.5.
Month and Year: 2008, October;
Total new FTD for NASDAQ-listed threshold securities: 64.4.
Month and Year: 2008, November;
Total new FTD for NASDAQ-listed threshold securities: 5.9.
Month and Year: 2008, December;
Total new FTD for NASDAQ-listed threshold securities: 8.1.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 23: Total New FTD, per Month, for Amex-listed Threshold
Securities, from January 2005 through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Total new FTD for Amex-listed threshold securities: 19.6.
Month and Year: 2005, February;
Total new FTD for Amex-listed threshold securities: 21.2.
Month and Year: 2005, March;
Total new FTD for Amex-listed threshold securities: 52.1.
Month and Year: 2005, April;
Total new FTD for Amex-listed threshold securities: 44.2.
Month and Year: 2005, May;
Total new FTD for Amex-listed threshold securities: 50.4.
Month and Year: 2005, June;
Total new FTD for Amex-listed threshold securities: 64.4.
Month and Year: 2005, July;
Total new FTD for Amex-listed threshold securities: 12.9.
Month and Year: 2005, August;
Total new FTD for Amex-listed threshold securities: 27.4.
Month and Year: 2005, September;
Total new FTD for Amex-listed threshold securities: 60.4.
Month and Year: 2005, October;
Total new FTD for Amex-listed threshold securities: 27.2.
Month and Year: 2005, November;
Total new FTD for Amex-listed threshold securities: 24.3.
Month and Year: 2005, December;
Total new FTD for Amex-listed threshold securities: 22.9.
Month and Year: 2006, January;
Total new FTD for Amex-listed threshold securities: 15.3.
Month and Year: 2006, February;
Total new FTD for Amex-listed threshold securities: 37.8.
Month and Year: 2006, March;
Total new FTD for Amex-listed threshold securities: 38.7.
Month and Year: 2006, April;
Total new FTD for Amex-listed threshold securities: 25.9.
Month and Year: 2006, May;
Total new FTD for Amex-listed threshold securities: 62.8.
Month and Year: 2006, June;
Total new FTD for Amex-listed threshold securities: 39.3.
Month and Year: 2006, July;
Total new FTD for Amex-listed threshold securities: 49.4.
Month and Year: 2006, August;
Total new FTD for Amex-listed threshold securities: 17.0.
Month and Year: 2006, September;
Total new FTD for Amex-listed threshold securities: 13.6.
Month and Year: 2006, October;
Total new FTD for Amex-listed threshold securities: 19.6.
Month and Year: 2006, November;
Total new FTD for Amex-listed threshold securities: 10.6.
Month and Year: 2006, December;
Total new FTD for Amex-listed threshold securities: 13.2.
Month and Year: 2007, January;
Total new FTD for Amex-listed threshold securities: 17.5.
Month and Year: 2007, February;
Total new FTD for Amex-listed threshold securities: 26.1.
Month and Year: 2007, March;
Total new FTD for Amex-listed threshold securities: 75.3.
Month and Year: 2007, April;
Total new FTD for Amex-listed threshold securities: 32.9.
Month and Year: 2007, May;
Total new FTD for Amex-listed threshold securities: 62.7.
Month and Year: 2007, June;
Total new FTD for Amex-listed threshold securities: 119.9.
Month and Year: 2007, July;
Total new FTD for Amex-listed threshold securities: 141.4.
Month and Year: 2007, August;
Total new FTD for Amex-listed threshold securities: 141.7.
Month and Year: 2007, September;
Total new FTD for Amex-listed threshold securities: 74.2.
Month and Year: 2007, October (Elimination of grandfather exception);
Total new FTD for Amex-listed threshold securities: 119.7.
Month and Year: 2007, November;
Total new FTD for Amex-listed threshold securities: 181.7.
Month and Year: 2007, December;
Total new FTD for Amex-listed threshold securities: 97.1.
Month and Year: 2008, January;
Total new FTD for Amex-listed threshold securities: 83.6.
Month and Year: 2008, February;
Total new FTD for Amex-listed threshold securities: 114.6.
Month and Year: 2008, March;
Total new FTD for Amex-listed threshold securities: 130.9.
Month and Year: 2008, April;
Total new FTD for Amex-listed threshold securities: 66.8.
Month and Year: 2008, May;
Total new FTD for Amex-listed threshold securities: 95.1.
Month and Year: 2008, June;
Total new FTD for Amex-listed threshold securities: 224.2.
Month and Year: 2008, July (July emergency order);
Total new FTD for Amex-listed threshold securities: 127.7.
Month and Year: 2008, August;
Total new FTD for Amex-listed threshold securities: 85.3.
Month and Year: 2008, September (September emergency order);
Total new FTD for Amex-listed threshold securities: 144.3.
Month and Year: 2008, October;
Total new FTD for Amex-listed threshold securities: 35.2.
Month and Year: 2008, November;
Total new FTD for Amex-listed threshold securities: 3.8.
Month and Year: 2008, December;
Total new FTD for Amex-listed threshold securities: 0.2.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 24: Total New FTD, per Month, for Other Threshold Securities,
from January 2005 through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2005, January (Compliance date);
Total new FTD for other threshold securities: 172.5.
Month and Year: 2005, February;
Total new FTD for other threshold securities: 101.5.
Month and Year: 2005, March;
Total new FTD for other threshold securities: 60.4.
Month and Year: 2005, April;
Total new FTD for other threshold securities: 90.1
Month and Year: 2005, May;
Total new FTD for other threshold securities: 84.5.
Month and Year: 2005, June;
Total new FTD for other threshold securities: 171.0.
Month and Year: 2005, July;
Total new FTD for other threshold securities: 282.6.
Month and Year: 2005, August;
Total new FTD for other threshold securities: 152.5.
Month and Year: 2005, September;
Total new FTD for other threshold securities: 101.9.
Month and Year: 2005, October;
Total new FTD for other threshold securities: 147.2.
Month and Year: 2005, November;
Total new FTD for other threshold securities: 126.4.
Month and Year: 2005, December;
Total new FTD for other threshold securities: 173.9.
Month and Year: 2006, January;
Total new FTD for other threshold securities: 197.6.
Month and Year: 2006, February;
Total new FTD for other threshold securities: 308.6.
Month and Year: 2006, March;
Total new FTD for other threshold securities: 283.7.
Month and Year: 2006, April;
Total new FTD for other threshold securities: 110.8.
Month and Year: 2006, May;
Total new FTD for other threshold securities: 107.1.
Month and Year: 2006, June;
Total new FTD for other threshold securities: 437.6.
Month and Year: 2006, July;
Total new FTD for other threshold securities: 52.2.
Month and Year: 2006, August;
Total new FTD for other threshold securities: 99.7.
Month and Year: 2006, September;
Total new FTD for other threshold securities: 178.3.
Month and Year: 2006, October;
Total new FTD for other threshold securities: 223.1.
Month and Year: 2006, November;
Total new FTD for other threshold securities: 265.2.
Month and Year: 2006, December;
Total new FTD for other threshold securities: 54.3.
Month and Year: 2007, January;
Total new FTD for other threshold securities: 105.0.
Month and Year: 2007, February;
Total new FTD for other threshold securities: 338.6.
Month and Year: 2007, March;
Total new FTD for other threshold securities: 175.3.
Month and Year: 2007, April;
Total new FTD for other threshold securities: 582.5.
Month and Year: 2007, May;
Total new FTD for other threshold securities: 615.0.
Month and Year: 2007, June;
Total new FTD for other threshold securities: 922.5.
Month and Year: 2007, July;
Total new FTD for other threshold securities: 964.3.
Month and Year: 2007, August;
Total new FTD for other threshold securities: 1216.6.
Month and Year: 2007, September;
Total new FTD for other threshold securities: 936.5.
Month and Year: 2007, October (Elimination of grandfather exception);
Total new FTD for other threshold securities: 1187.8.
Month and Year: 2007, November;
Total new FTD for other threshold securities: 10.62.5.
Month and Year: 2007, December;
Total new FTD for other threshold securities: 672.6.
Month and Year: 2008, January;
Total new FTD for other threshold securities: 611.1.
Month and Year: 2008, February;
Total new FTD for other threshold securities: 1405.1.
Month and Year: 2008, March;
Total new FTD for other threshold securities: 902.4.
Month and Year: 2008, April;
Total new FTD for other threshold securities: 1038.0.
Month and Year: 2008, May;
Total new FTD for other threshold securities: 625.7.
Month and Year: 2008, June;
Total new FTD for other threshold securities: 692.4.
Month and Year: 2008, July (July emergency order);
Total new FTD for other threshold securities: 2498.1.
Month and Year: 2008, August;
Total new FTD for other threshold securities: 399.5.
Month and Year: 2008, September (September emergency order);
Total new FTD for other threshold securities: 695.9.
Month and Year: 2008, October;
Total new FTD for other threshold securities: 538.8.
Month and Year: 2008, November;
Total new FTD for other threshold securities: 421.3.
Month and Year: 2008, December;
Total new FTD for other threshold securities: 710.5.
Sources: SEC (data); GAO (analysis).
[End of figure]
Figure 25: Average Daily Number of Securities with Outstanding and New
FTD, per Month, for NYSE-listed Securities, from April 2004 through
December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Average daily number of securities, outstanding FTD: 339.1;
Average daily number of securities, new FTD: 446.1.
Month and Year: 2004, May;
Average daily number of securities, outstanding FTD: 421.6;
Average daily number of securities, new FTD: 545.5.
Month and Year: 2004, June;
Average daily number of securities, outstanding FTD: 404.2;
Average daily number of securities, new FTD: 524.9.
Month and Year: 2004, July;
Average daily number of securities, outstanding FTD: 440.3;
Average daily number of securities, new FTD: 562.2.
Month and Year: 2004, August;
Average daily number of securities, outstanding FTD: 450.9;
Average daily number of securities, new FTD: 578.8.
Month and Year: 2004, September;
Average daily number of securities, outstanding FTD: 443.1;
Average daily number of securities, new FTD: 570.9.
Month and Year: 2004, October;
Average daily number of securities, outstanding FTD: 409.6;
Average daily number of securities, new FTD: 532.8.
Month and Year: 2004, November;
Average daily number of securities, outstanding FTD: 407.0;
Average daily number of securities, new FTD: 525.7.
Month and Year: 2004, December;
Average daily number of securities, outstanding FTD: 424.2;
Average daily number of securities, new FTD: 560.0.
Month and Year: 2005, January (Compliance date);
Average daily number of securities, outstanding FTD: 381.2;
Average daily number of securities, new FTD: 510.1.
Month and Year: 2005, February;
Average daily number of securities, outstanding FTD: 385.4;
Average daily number of securities, new FTD: 502.9.
Month and Year: 2005, March;
Average daily number of securities, outstanding FTD: 399.4;
Average daily number of securities, new FTD: 521.9.
Month and Year: 2005, April;
Average daily number of securities, outstanding FTD: 360.8;
Average daily number of securities, new FTD: 487.3.
Month and Year: 2005, May;
Average daily number of securities, outstanding FTD: 362.1;
Average daily number of securities, new FTD: 480.8.
Month and Year: 2005, June;
Average daily number of securities, outstanding FTD: 405.0;
Average daily number of securities, new FTD: 539.7.
Month and Year: 2005, July;
Average daily number of securities, outstanding FTD: 365.9;
Average daily number of securities, new FTD: 503.0.
Month and Year: 2005, August;
Average daily number of securities, outstanding FTD: 376.2;
Average daily number of securities, new FTD: 510.7.
Month and Year: 2005, September;
Average daily number of securities, outstanding FTD: 367.2;
Average daily number of securities, new FTD: 486.0.
Month and Year: 2005, October;
Average daily number of securities, outstanding FTD: 376.2;
Average daily number of securities, new FTD: 480.3.
Month and Year: 2005, November;
Average daily number of securities, outstanding FTD: 357.9;
Average daily number of securities, new FTD: 457.6.
Month and Year: 2005, December;
Average daily number of securities, outstanding FTD: 369.1;
Average daily number of securities, new FTD: 470.1.
Month and Year: 2006, January;
Average daily number of securities, outstanding FTD: 355.6;
Average daily number of securities, new FTD: 448.9.
Month and Year: 2006, February;
Average daily number of securities, outstanding FTD: 385.5;
Average daily number of securities, new FTD: 485.0.
Month and Year: 2006, March;
Average daily number of securities, outstanding FTD: 352.0;
Average daily number of securities, new FTD: 454.3.
Month and Year: 2006, April;
Average daily number of securities, outstanding FTD: 371.8;
Average daily number of securities, new FTD: 471.7.
Month and Year: 2006, May;
Average daily number of securities, outstanding FTD: 411.0;
Average daily number of securities, new FTD: 517.5.
Month and Year: 2006, June;
Average daily number of securities, outstanding FTD: 427.4;
Average daily number of securities, new FTD: 546.9.
Month and Year: 2006, July;
Average daily number of securities, outstanding FTD: 401.7;
Average daily number of securities, new FTD: 509.
Month and Year: 2006, August;
Average daily number of securities, outstanding FTD: 354.5;
Average daily number of securities, new FTD: 455.9.
Month and Year: 2006, September;
Average daily number of securities, outstanding FTD: 345.9;
Average daily number of securities, new FTD: 441.6.
Month and Year: 2006, October;
Average daily number of securities, outstanding FTD: 363.2;
Average daily number of securities, new FTD: 464.2.
Month and Year: 2006, November;
Average daily number of securities, outstanding FTD: 396.2;
Average daily number of securities, new FTD: 513.0.
Month and Year: 2006, December;
Average daily number of securities, outstanding FTD: 417.9;
Average daily number of securities, new FTD: 529.6.
Month and Year: 2007, January;
Average daily number of securities, outstanding FTD: 373.9;
Average daily number of securities, new FTD: 473.7.
Month and Year: 2007, February;
Average daily number of securities, outstanding FTD: 432.8;
Average daily number of securities, new FTD: 535.3.
Month and Year: 2007, March;
Average daily number of securities, outstanding FTD: 458.6;
Average daily number of securities, new FTD: 570.2.
Month and Year: 2007, April;
Average daily number of securities, outstanding FTD: 476.3;
Average daily number of securities, new FTD: 530.1.
Month and Year: 2007, May;
Average daily number of securities, outstanding FTD: 583.5;
Average daily number of securities, new FTD: 630.3.
Month and Year: 2007, June;
Average daily number of securities, outstanding FTD: 601.4;
Average daily number of securities, new FTD: 642.5.
Month and Year: 2007, July;
Average daily number of securities, outstanding FTD: 598.3;
Average daily number of securities, new FTD: 636.7.
Month and Year: 2007, August;
Average daily number of securities, outstanding FTD: 733.5;
Average daily number of securities, new FTD: 777.1.
Month and Year: 2007, September;
Average daily number of securities, outstanding FTD: 601.1;
Average daily number of securities, new FTD: 640.1.
Month and Year: 2007, October (Elimination of grandfather exception);
Average daily number of securities, outstanding FTD: 538;
Average daily number of securities, new FTD: 569.7.
Month and Year: 2007, November;
Average daily number of securities, outstanding FTD: 644.3;
Average daily number of securities, new FTD: 676.5.
Month and Year: 2007, December;
Average daily number of securities, outstanding FTD: 594.7;
Average daily number of securities, new FTD: 624.8.
Month and Year: 2008, January;
Average daily number of securities, outstanding FTD: 637.0;
Average daily number of securities, new FTD: 666.0.
Month and Year: 2008, February;
Average daily number of securities, outstanding FTD: 636.2;
Average daily number of securities, new FTD: 667.5.
Month and Year: 2008, March;
Average daily number of securities, outstanding FTD: 765;
Average daily number of securities, new FTD: 796.2.
Month and Year: 2008, April;
Average daily number of securities, outstanding FTD: 628.2;
Average daily number of securities, new FTD: 659.7.
Month and Year: 2008, May;
Average daily number of securities, outstanding FTD: 645.7;
Average daily number of securities, new FTD: 672.5.
Month and Year: 2008, June;
Average daily number of securities, outstanding FTD: 700;
Average daily number of securities, new FTD: 733.3.
Month and Year: 2008, July (July emergency order);
Average daily number of securities, outstanding FTD: 737.9;
Average daily number of securities, new FTD: 771.2.
Month and Year: 2008, August;
Average daily number of securities, outstanding FTD: 626.5;
Average daily number of securities, new FTD: 659.
Month and Year: 2008, September (September emergency order);
Average daily number of securities, outstanding FTD: 766.4;
Average daily number of securities, new FTD: 812.0.
Month and Year: 2008, October;
Average daily number of securities, outstanding FTD: 416;
Average daily number of securities, new FTD: 452.2.
Month and Year: 2008, November;
Average daily number of securities, outstanding FTD: 305.7;
Average daily number of securities, new FTD: 317.2.
Month and Year: 2008, December;
Average daily number of securities, outstanding FTD: 249.0;
Average daily number of securities, new FTD: 257.9.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 26: Average Daily Number of Securities with Outstanding and New
FTD, per Month, for NASDAQ-listed Securities, from April 2004 through
December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Average daily number of securities, outstanding FTD: 466.7;
Average daily number of securities, new FTD: 630.9.
Month and Year: 2004, May;
Average daily number of securities, outstanding FTD: 506.4;
Average daily number of securities, new FTD: 667.8.
Month and Year: 2004, June;
Average daily number of securities, outstanding FTD: 510.2;
Average daily number of securities, new FTD: 683.8.
Month and Year: 2004, July;
Average daily number of securities, outstanding FTD: 542.2;
Average daily number of securities, new FTD: 716.6.
Month and Year: 2004, August;
Average daily number of securities, outstanding FTD: 491.8;
Average daily number of securities, new FTD: 655.4.
Month and Year: 2004, September;
Average daily number of securities, outstanding FTD: 460.9;
Average daily number of securities, new FTD: 630.4.
Month and Year: 2004, October;
Average daily number of securities, outstanding FTD: 452.7;
Average daily number of securities, new FTD: 602.6.
Month and Year: 2004, November;
Average daily number of securities, outstanding FTD: 456.1;
Average daily number of securities, new FTD: 601.8.
Month and Year: 2004, December;
Average daily number of securities, outstanding FTD: 490.3;
Average daily number of securities, new FTD: 660.1.
Month and Year: 2005, January (Compliance date);
Average daily number of securities, outstanding FTD: 460.0;
Average daily number of securities, new FTD: 637.9.
Month and Year: 2005, February;
Average daily number of securities, outstanding FTD: 447.9;
Average daily number of securities, new FTD: 606.7.
Month and Year: 2005, March;
Average daily number of securities, outstanding FTD: 460.6;
Average daily number of securities, new FTD: 625.1.
Month and Year: 2005, April;
Average daily number of securities, outstanding FTD: 434.0;
Average daily number of securities, new FTD: 596.4.
Month and Year: 2005, May;
Average daily number of securities, outstanding FTD: 428;
Average daily number of securities, new FTD: 576.1.
Month and Year: 2005, June;
Average daily number of securities, outstanding FTD: 454.9;
Average daily number of securities, new FTD: 597.6.
Month and Year: 2005, July;
Average daily number of securities, outstanding FTD: 425.6;
Average daily number of securities, new FTD: 575.9.
Month and Year: 2005, August;
Average daily number of securities, outstanding FTD: 430.1;
Average daily number of securities, new FTD: 582.2.
Month and Year: 2005, September;
Average daily number of securities, outstanding FTD: 407;
Average daily number of securities, new FTD: 542.4.
Month and Year: 2005, October;
Average daily number of securities, outstanding FTD: 433.9;
Average daily number of securities, new FTD: 557.6.
Month and Year: 2005, November;
Average daily number of securities, outstanding FTD: 391.0;
Average daily number of securities, new FTD: 508.2.
Month and Year: 2005, December;
Average daily number of securities, outstanding FTD: 420.7;
Average daily number of securities, new FTD: 536.6.
Month and Year: 2006, January;
Average daily number of securities, outstanding FTD: 402.7;
Average daily number of securities, new FTD: 519.6.
Month and Year: 2006, February;
Average daily number of securities, outstanding FTD: 423.3;
Average daily number of securities, new FTD: 554.2.
Month and Year: 2006, March;
Average daily number of securities, outstanding FTD: 418.4;
Average daily number of securities, new FTD: 542.6.
Month and Year: 2006, April;
Average daily number of securities, outstanding FTD: 426.5;
Average daily number of securities, new FTD: 548.6.
Month and Year: 2006, May;
Average daily number of securities, outstanding FTD: 491.0;
Average daily number of securities, new FTD: 632.5.
Month and Year: 2006, June;
Average daily number of securities, outstanding FTD: 487.6;
Average daily number of securities, new FTD: 627.
Month and Year: 2006, July;
Average daily number of securities, outstanding FTD: 498.8;
Average daily number of securities, new FTD: 648.4.
Month and Year: 2006, August;
Average daily number of securities, outstanding FTD: 419.6;
Average daily number of securities, new FTD: 555.1.
Month and Year: 2006, September;
Average daily number of securities, outstanding FTD: 414.5;
Average daily number of securities, new FTD: 542.0.
Month and Year: 2006, October;
Average daily number of securities, outstanding FTD: 427.6;
Average daily number of securities, new FTD: 554.8.
Month and Year: 2006, November;
Average daily number of securities, outstanding FTD: 439.5;
Average daily number of securities, new FTD: 557.7.
Month and Year: 2006, December;
Average daily number of securities, outstanding FTD: 460.3;
Average daily number of securities, new FTD: 591.6.
Month and Year: 2007, January;
Average daily number of securities, outstanding FTD: 414.7
Average daily number of securities, new FTD: 537.7.
Month and Year: 2007, February;
Average daily number of securities, outstanding FTD: 466.5;
Average daily number of securities, new FTD: 579.0.
Month and Year: 2007, March;
Average daily number of securities, outstanding FTD: 516.1;
Average daily number of securities, new FTD: 643.1.
Month and Year: 2007, April;
Average daily number of securities, outstanding FTD: 526.5;
Average daily number of securities, new FTD: 583.4.
Month and Year: 2007, May;
Average daily number of securities, outstanding FTD: 664.0;
Average daily number of securities, new FTD: 709.3.
Month and Year: 2007, June;
Average daily number of securities, outstanding FTD: 682.0;
Average daily number of securities, new FTD: 730.3.
Month and Year: 2007, July;
Average daily number of securities, outstanding FTD: 655.9;
Average daily number of securities, new FTD: 702.3.
Month and Year: 2007, August;
Average daily number of securities, outstanding FTD: 788.6;
Average daily number of securities, new FTD: 839.4.
Month and Year: 2007, September;
Average daily number of securities, outstanding FTD: 566.5;
Average daily number of securities, new FTD: 612.2.
Month and Year: 2007, October (Elimination of grandfather exception);
Average daily number of securities, outstanding FTD: 548.6;
Average daily number of securities, new FTD: 598.7.
Month and Year: 2007, November;
Average daily number of securities, outstanding FTD: 628.1;
Average daily number of securities, new FTD: 675.5.
Month and Year: 2007, December;
Average daily number of securities, outstanding FTD: 617.2;
Average daily number of securities, new FTD: 666.9.
Month and Year: 2008, January;
Average daily number of securities, outstanding FTD: 682.7;
Average daily number of securities, new FTD: 733.7.
Month and Year: 2008, February;
Average daily number of securities, outstanding FTD: 660.6;
Average daily number of securities, new FTD: 713.2.
Month and Year: 2008, March;
Average daily number of securities, outstanding FTD: 786.8;
Average daily number of securities, new FTD: 845.4.
Month and Year: 2008, April;
Average daily number of securities, outstanding FTD: 653.8;
Average daily number of securities, new FTD: 709.5.
Month and Year: 2008, May;
Average daily number of securities, outstanding FTD: 686.5;
Average daily number of securities, new FTD: 737.0.
Month and Year: 2008, June;
Average daily number of securities, outstanding FTD: 730.8;
Average daily number of securities, new FTD: 782.1.
Month and Year: 2008, July (July emergency order);
Average daily number of securities, outstanding FTD: 776.1;
Average daily number of securities, new FTD: 833.9.
Month and Year: 2008, August;
Average daily number of securities, outstanding FTD: 645.6;
Average daily number of securities, new FTD: 703.0.
Month and Year: 2008, September (September emergency order);
Average daily number of securities, outstanding FTD: 703.4;
Average daily number of securities, new FTD: 775.9.
Month and Year: 2008, October;
Average daily number of securities, outstanding FTD: 338.7;
Average daily number of securities, new FTD: 402.7.
Month and Year: 2008, November;
Average daily number of securities, outstanding FTD: 203.1;
Average daily number of securities, new FTD: 221.6.
Month and Year: 2008, December;
Average daily number of securities, outstanding FTD: 180.2;
Average daily number of securities, new FTD: 196.9.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 27: Average Daily Number of Securities with Outstanding and New
FTD, per Month, for Amex-listed Securities, from April 2004 through
December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Average daily number of securities, outstanding FTD: 129.3;
Average daily number of securities, new FTD: 231.6.
Month and Year: 2004, May;
Average daily number of securities, outstanding FTD: 129.6;
Average daily number of securities, new FTD: 233.8.
Month and Year: 2004, June;
Average daily number of securities, outstanding FTD: 123.2;
Average daily number of securities, new FTD: 230.6.
Month and Year: 2004, July;
Average daily number of securities, outstanding FTD: 112.5;
Average daily number of securities, new FTD: 213.8.
Month and Year: 2004, August;
Average daily number of securities, outstanding FTD: 106.3;
Average daily number of securities, new FTD: 215.4.
Month and Year: 2004, September;
Average daily number of securities, outstanding FTD: 115.5;
Average daily number of securities, new FTD: 226.4.
Month and Year: 2004, October;
Average daily number of securities, outstanding FTD: 118.8;
Average daily number of securities, new FTD: 228.1.
Month and Year: 2004, November;
Average daily number of securities, outstanding FTD: 129.7;
Average daily number of securities, new FTD: 233.6.
Month and Year: 2004, December;
Average daily number of securities, outstanding FTD: 133.8;
Average daily number of securities, new FTD: 246.3.
Month and Year: 2005, January (Compliance date);
Average daily number of securities, outstanding FTD: 117.7;
Average daily number of securities, new FTD: 216.7.
Month and Year: 2005, February;
Average daily number of securities, outstanding FTD: 114.2;
Average daily number of securities, new FTD: 204.2.
Month and Year: 2005, March;
Average daily number of securities, outstanding FTD: 124.5;
Average daily number of securities, new FTD: 218.3.
Month and Year: 2005, April;
Average daily number of securities, outstanding FTD: 113.6;
Average daily number of securities, new FTD: 203.0.
Month and Year: 2005, May;
Average daily number of securities, outstanding FTD: 111.7;
Average daily number of securities, new FTD: 197.7.
Month and Year: 2005, June;
Average daily number of securities, outstanding FTD: 110.9;
Average daily number of securities, new FTD: 195.4.
Month and Year: 2005, July;
Average daily number of securities, outstanding FTD: 106.1;
Average daily number of securities, new FTD: 190.6.
Month and Year: 2005, August;
Average daily number of securities, outstanding FTD: 114.3;
Average daily number of securities, new FTD: 196.1.
Month and Year: 2005, September;
Average daily number of securities, outstanding FTD: 112.8;
Average daily number of securities, new FTD: 190.8.
Month and Year: 2005, October;
Average daily number of securities, outstanding FTD: 123.7;
Average daily number of securities, new FTD: 209.
Month and Year: 2005, November;
Average daily number of securities, outstanding FTD: 125.2;
Average daily number of securities, new FTD: 210.4.
Month and Year: 2005, December;
Average daily number of securities, outstanding FTD: 125.7;
Average daily number of securities, new FTD: 210.8.
Month and Year: 2006, January;
Average daily number of securities, outstanding FTD: 133.6;
Average daily number of securities, new FTD: 217.3.
Month and Year: 2006, February;
Average daily number of securities, outstanding FTD: 139.7;
Average daily number of securities, new FTD: 225.1.
Month and Year: 2006, March;
Average daily number of securities, outstanding FTD: 133.7;
Average daily number of securities, new FTD: 216.2.
Month and Year: 2006, April;
Average daily number of securities, outstanding FTD: 141.9;
Average daily number of securities, new FTD: 220.2.
Month and Year: 2006, May;
Average daily number of securities, outstanding FTD: 149.1;
Average daily number of securities, new FTD: 230.7.
Month and Year: 2006, June;
Average daily number of securities, outstanding FTD: 124.1;
Average daily number of securities, new FTD: 199.
Month and Year: 2006, July;
Average daily number of securities, outstanding FTD: 134.4;
Average daily number of securities, new FTD: 218.5.
Month and Year: 2006, August;
Average daily number of securities, outstanding FTD: 130.9;
Average daily number of securities, new FTD: 213.8.
Month and Year: 2006, September;
Average daily number of securities, outstanding FTD: 140.8;
Average daily number of securities, new FTD: 223.8.
Month and Year: 2006, October;
Average daily number of securities, outstanding FTD: 144;
Average daily number of securities, new FTD: 243.5.
Month and Year: 2006, November;
Average daily number of securities, outstanding FTD: 139.8;
Average daily number of securities, new FTD: 238.2.
Month and Year: 2006, December;
Average daily number of securities, outstanding FTD: 151.9;
Average daily number of securities, new FTD: 250.1.
Month and Year: 2007, January;
Average daily number of securities, outstanding FTD: 137.1;
Average daily number of securities, new FTD: 236.1.
Month and Year: 2007, February;
Average daily number of securities, outstanding FTD: 149.1;
Average daily number of securities, new FTD: 241.4.
Month and Year: 2007, March;
Average daily number of securities, outstanding FTD: 154.6;
Average daily number of securities, new FTD: 245.
Month and Year: 2007, April;
Average daily number of securities, outstanding FTD: 190.2;
Average daily number of securities, new FTD: 239.7.
Month and Year: 2007, May;
Average daily number of securities, outstanding FTD: 225.7;
Average daily number of securities, new FTD: 269.5.
Month and Year: 2007, June;
Average daily number of securities, outstanding FTD: 224.1;
Average daily number of securities, new FTD: 274.1.
Month and Year: 2007, July;
Average daily number of securities, outstanding FTD: 221.8;
Average daily number of securities, new FTD: 266.2.
Month and Year: 2007, August;
Average daily number of securities, outstanding FTD: 234.6;
Average daily number of securities, new FTD: 278.5.
Month and Year: 2007, September;
Average daily number of securities, outstanding FTD: 206.0;
Average daily number of securities, new FTD: 246.4.
Month and Year: 2007, October (Elimination of grandfather exception);
Average daily number of securities, outstanding FTD: 206.8;
Average daily number of securities, new FTD: 248.8.
Month and Year: 2007, November;
Average daily number of securities, outstanding FTD: 231.5;
Average daily number of securities, new FTD: 276.1.
Month and Year: 2007, December;
Average daily number of securities, outstanding FTD: 242.5;
Average daily number of securities, new FTD: 285.0.
Month and Year: 2008, January;
Average daily number of securities, outstanding FTD: 242.3;
Average daily number of securities, new FTD: 280.9.
Month and Year: 2008, February;
Average daily number of securities, outstanding FTD: 233.5;
Average daily number of securities, new FTD: 269.5.
Month and Year: 2008, March;
Average daily number of securities, outstanding FTD: 240.4;
Average daily number of securities, new FTD: 279.1.
Month and Year: 2008, April;
Average daily number of securities, outstanding FTD: 223.4;
Average daily number of securities, new FTD: 266.3.
Month and Year: 2008, May;
Average daily number of securities, outstanding FTD: 234.2;
Average daily number of securities, new FTD: 277.
Month and Year: 2008, June;
Average daily number of securities, outstanding FTD: 235.3;
Average daily number of securities, new FTD: 276.0.
Month and Year: 2008, July (July emergency order);
Average daily number of securities, outstanding FTD: 239.5;
Average daily number of securities, new FTD: 279.7.
Month and Year: 2008, August;
Average daily number of securities, outstanding FTD: 211.7;
Average daily number of securities, new FTD: 248.3.
Month and Year: 2008, September (September emergency order);
Average daily number of securities, outstanding FTD: 205.0;
Average daily number of securities, new FTD: 243.2.
Month and Year: 2008, October;
Average daily number of securities, outstanding FTD: 120.1;
Average daily number of securities, new FTD: 142.5.
Month and Year: 2008, November;
Average daily number of securities, outstanding FTD: 66.7;
Average daily number of securities, new FTD: 75.7.
Month and Year: 2008, December;
Average daily number of securities, outstanding FTD: 59.6;
Average daily number of securities, new FTD: 69.3.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 28: Average Daily Number of Securities with Outstanding and New
FTD, per Month, for Other Securities, from April 2004 through December
2008:
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Average daily number of securities, outstanding FTD: 580.1;
Average daily number of securities, new FTD: 1440.7.
Month and Year: 2004, May;
Average daily number of securities, outstanding FTD: 488.4;
Average daily number of securities, new FTD: 1335.0.
Month and Year: 2004, June;
Average daily number of securities, outstanding FTD: 450.1;
Average daily number of securities, new FTD: 1290.3.
Month and Year: 2004, July;
Average daily number of securities, outstanding FTD: 442.6;
Average daily number of securities, new FTD: 1255.2.
Month and Year: 2004, August;
Average daily number of securities, outstanding FTD: 426.6;
Average daily number of securities, new FTD: 1227.3.
Month and Year: 2004, September;
Average daily number of securities, outstanding FTD: 460.4;
Average daily number of securities, new FTD: 1276.9.
Month and Year: 2004, October;
Average daily number of securities, outstanding FTD: 517.3;
Average daily number of securities, new FTD: 1322.2.
Month and Year: 2004, November;
Average daily number of securities, outstanding FTD: 539.8;
Average daily number of securities, new FTD: 1342.7.
Month and Year: 2004, December;
Average daily number of securities, outstanding FTD: 555.1;
Average daily number of securities, new FTD: 1377.0.
Month and Year: 2005, January (Compliance date);
Average daily number of securities, outstanding FTD: 506.9;
Average daily number of securities, new FTD: 1266.8.
Month and Year: 2005, February;
Average daily number of securities, outstanding FTD: 530.2;
Average daily number of securities, new FTD: 1225.2.
Month and Year: 2005, March;
Average daily number of securities, outstanding FTD: 527.7;
Average daily number of securities, new FTD: 1260.6.
Month and Year: 2005, April;
Average daily number of securities, outstanding FTD: 477.7;
Average daily number of securities, new FTD: 1182.
Month and Year: 2005, May;
Average daily number of securities, outstanding FTD: 458.9;
Average daily number of securities, new FTD: 1152.2.
Month and Year: 2005, June;
Average daily number of securities, outstanding FTD: 446.8;
Average daily number of securities, new FTD: 1157.1.
Month and Year: 2005, July;
Average daily number of securities, outstanding FTD: 469.4;
Average daily number of securities, new FTD: 1185.6.
Month and Year: 2005, August;
Average daily number of securities, outstanding FTD: 492.2;
Average daily number of securities, new FTD: 1217.3.
Month and Year: 2005, September;
Average daily number of securities, outstanding FTD: 483.1;
Average daily number of securities, new FTD: 1205.7.
Month and Year: 2005, October;
Average daily number of securities, outstanding FTD: 470.9;
Average daily number of securities, new FTD: 1186.8.
Month and Year: 2005, November;
Average daily number of securities, outstanding FTD: 462.9;
Average daily number of securities, new FTD: 1183.6.
Month and Year: 2005, December;
Average daily number of securities, outstanding FTD: 523.3;
Average daily number of securities, new FTD: 1296.8.
Month and Year: 2006, January;
Average daily number of securities, outstanding FTD: 587.3;
Average daily number of securities, new FTD: 1371.4.
Month and Year: 2006, February;
Average daily number of securities, outstanding FTD: 632.6;
Average daily number of securities, new FTD: 1417.1.
Month and Year: 2006, March;
Average daily number of securities, outstanding FTD: 633.3;
Average daily number of securities, new FTD: 1444.
Month and Year: 2006, April;
Average daily number of securities, outstanding FTD: 696.1;
Average daily number of securities, new FTD: 1548.0.
Month and Year: 2006, May;
Average daily number of securities, outstanding FTD: 680.9;
Average daily number of securities, new FTD: 1543.6.
Month and Year: 2006, June;
Average daily number of securities, outstanding FTD: 539.3;
Average daily number of securities, new FTD: 1329.8.
Month and Year: 2006, July;
Average daily number of securities, outstanding FTD: 501.4;
Average daily number of securities, new FTD: 1241.3.
Month and Year: 2006, August;
Average daily number of securities, outstanding FTD: 477.8;
Average daily number of securities, new FTD: 1219.3.
Month and Year: 2006, September;
Average daily number of securities, outstanding FTD: 496.7;
Average daily number of securities, new FTD: 1226.5.
Month and Year: 2006, October;
Average daily number of securities, outstanding FTD: 519.9;
Average daily number of securities, new FTD: 1262.4.
Month and Year: 2006, November;
Average daily number of securities, outstanding FTD: 563.9;
Average daily number of securities, new FTD: 1307.1.
Month and Year: 2006, December;
Average daily number of securities, outstanding FTD: 610.6;
Average daily number of securities, new FTD: 1365.8.
Month and Year: 2007, January;
Average daily number of securities, outstanding FTD: 537.6;
Average daily number of securities, new FTD: 1276.3.
Month and Year: 2007, February;
Average daily number of securities, outstanding FTD: 592.8;
Average daily number of securities, new FTD: 1335.2.
Month and Year: 2007, March;
Average daily number of securities, outstanding FTD: 589.5;
Average daily number of securities, new FTD: 1364.86.
Month and Year: 2007, April;
Average daily number of securities, outstanding FTD: 833.1;
Average daily number of securities, new FTD: 1402.5.
Month and Year: 2007, May;
Average daily number of securities, outstanding FTD: 936.4;
Average daily number of securities, new FTD: 1513.6.
Month and Year: 2007, June;
Average daily number of securities, outstanding FTD: 857.2;
Average daily number of securities, new FTD: 1400.9.
Month and Year: 2007, July;
Average daily number of securities, outstanding FTD: 824.3;
Average daily number of securities, new FTD: 1371.1.
Month and Year: 2007, August;
Average daily number of securities, outstanding FTD: 853.9;
Average daily number of securities, new FTD: 1445.5.
Month and Year: 2007, September;
Average daily number of securities, outstanding FTD: 801.6;
Average daily number of securities, new FTD: 1339.2.
Month and Year: 2007, October (Elimination of grandfather exception);
Average daily number of securities, outstanding FTD: 882;
Average daily number of securities, new FTD: 1435.9.
Month and Year: 2007, November;
Average daily number of securities, outstanding FTD: 955.5;
Average daily number of securities, new FTD: 1550.4.
Month and Year: 2007, December;
Average daily number of securities, outstanding FTD: 885.3;
Average daily number of securities, new FTD: 1452.8.
Month and Year: 2008, January;
Average daily number of securities, outstanding FTD: 862.5;
Average daily number of securities, new FTD: 1410.9.
Month and Year: 2008, February;
Average daily number of securities, outstanding FTD: 894.1;
Average daily number of securities, new FTD: 1462.8.
Month and Year: 2008, March;
Average daily number of securities, outstanding FTD: 945.7;
Average daily number of securities, new FTD: 1561.8.
Month and Year: 2008, April;
Average daily number of securities, outstanding FTD: 906.3;
Average daily number of securities, new FTD: 1528.1.
Month and Year: 2008, May;
Average daily number of securities, outstanding FTD: 905.0;
Average daily number of securities, new FTD: 1510.4.
Month and Year: 2008, June;
Average daily number of securities, outstanding FTD: 877.5;
Average daily number of securities, new FTD: 1525.2.
Month and Year: 2008, July (July emergency order);
Average daily number of securities, outstanding FTD: 849.5;
Average daily number of securities, new FTD: 1518.9.
Month and Year: 2008, August;
Average daily number of securities, outstanding FTD: 783.6;
Average daily number of securities, new FTD: 1499.6.
Month and Year: 2008, September (September emergency order);
Average daily number of securities, outstanding FTD: 748.4;
Average daily number of securities, new FTD: 1460.5.
Month and Year: 2008, October;
Average daily number of securities, outstanding FTD: 450.4;
Average daily number of securities, new FTD: 778.1.
Month and Year: 2008, November;
Average daily number of securities, outstanding FTD: 445.5;
Average daily number of securities, new FTD: 717.2.
Month and Year: 2008, December;
Average daily number of securities, outstanding FTD: 480.7;
Average daily number of securities, new FTD: 766.6.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 29: Total New FTD, per Month, for All NYSE-listed Securities,
from April 2004 through December 2008 (in millions):
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Total new FTD for all NYSE-listed securities: 228.4.
Month and Year: 2004, May;
Total new FTD for all NYSE-listed securities: 294.5.
Month and Year: 2004, June;
Total new FTD for all NYSE-listed securities: 293.7.
Month and Year: 2004, July;
Total new FTD for all NYSE-listed securities: 317.8.
Month and Year: 2004, August;
Total new FTD for all NYSE-listed securities: 341.0.
Month and Year: 2004, September;
Total new FTD for all NYSE-listed securities: 273.0.
Month and Year: 2004, October;
Total new FTD for all NYSE-listed securities: 324.0.
Month and Year: 2004, November;
Total new FTD for all NYSE-listed securities: 286.7.
Month and Year: 2004, December;
Total new FTD for all NYSE-listed securities: 348.4.
Month and Year: 2005, January (Compliance date);
Total new FTD for all NYSE-listed securities: 253.4.
Month and Year: 2005, February;
Total new FTD for all NYSE-listed securities: 282.8.
Month and Year: 2005, March;
Total new FTD for all NYSE-listed securities: 342.2.
Month and Year: 2005, April;
Total new FTD for all NYSE-listed securities: 274.9.
Month and Year: 2005, May;
Total new FTD for all NYSE-listed securities: 303.1.
Month and Year: 2005, June;
Total new FTD for all NYSE-listed securities: 333.1.
Month and Year: 2005, July;
Total new FTD for all NYSE-listed securities: 219.4.
Month and Year: 2005, August;
Total new FTD for all NYSE-listed securities: 300.5.
Month and Year: 2005, September;
Total new FTD for all NYSE-listed securities: 288.9.
Month and Year: 2005, October;
Total new FTD for all NYSE-listed securities: 270.7.
Month and Year: 2005, November;
Total new FTD for all NYSE-listed securities: 360.1.
Month and Year: 2005, December;
Total new FTD for all NYSE-listed securities: 367.4.
Month and Year: 2006, January;
Total new FTD for all NYSE-listed securities: 392.0.
Month and Year: 2006, February;
Total new FTD for all NYSE-listed securities: 280.9.
Month and Year: 2006, March;
Total new FTD for all NYSE-listed securities: 321.2.
Month and Year: 2006, April;
Total new FTD for all NYSE-listed securities: 284.9.
Month and Year: 2006, May;
Total new FTD for all NYSE-listed securities: 378.6.
Month and Year: 2006, June;
Total new FTD for all NYSE-listed securities: 395.0.
Month and Year: 2006, July;
Total new FTD for all NYSE-listed securities: 314.7.
Month and Year: 2006, August;
Total new FTD for all NYSE-listed securities: 283.3.
Month and Year: 2006, September;
Total new FTD for all NYSE-listed securities: 236.6.
Month and Year: 2006, October;
Total new FTD for all NYSE-listed securities: 326.8.
Month and Year: 2006, November;
Total new FTD for all NYSE-listed securities: 315.0.
Month and Year: 2006, December;
Total new FTD for all NYSE-listed securities: 337.1.
Month and Year: 2007, January;
Total new FTD for all NYSE-listed securities: 306.4.
Month and Year: 2007, February;
Total new FTD for all NYSE-listed securities: 376.5.
Month and Year: 2007, March;
Total new FTD for all NYSE-listed securities: 510.8.
Month and Year: 2007, April;
Total new FTD for all NYSE-listed securities: 522.5.
Month and Year: 2007, May;
Total new FTD for all NYSE-listed securities: 624.9.
Month and Year: 2007, June;
Total new FTD for all NYSE-listed securities: 699.9.
Month and Year: 2007, July;
Total new FTD for all NYSE-listed securities: 764.6.
Month and Year: 2007, August;
Total new FTD for all NYSE-listed securities: 1218.7.
Month and Year: 2007, September;
Total new FTD for all NYSE-listed securities: 638.8.
Month and Year: 2007, October (Elimination of grandfather exception);
Total new FTD for all NYSE-listed securities: 706.9.
Month and Year: 2007, November;
Total new FTD for all NYSE-listed securities: 868.8.
Month and Year: 2007, December;
Total new FTD for all NYSE-listed securities: 792.6.
Month and Year: 2008, January;
Total new FTD for all NYSE-listed securities: 970.2.
Month and Year: 2008, February;
Total new FTD for all NYSE-listed securities: 706.7.
Month and Year: 2008, March;
Total new FTD for all NYSE-listed securities: 1159.0.
Month and Year: 2008, April;
Total new FTD for all NYSE-listed securities: 821.5.
Month and Year: 2008, May;
Total new FTD for all NYSE-listed securities: 751.5.
Month and Year: 2008, June;
Total new FTD for all NYSE-listed securities: 1069.3.
Month and Year: 2008, July (July emergency order);
Total new FTD for all NYSE-listed securities: 1359.1.
Month and Year: 2008, August;
Total new FTD for all NYSE-listed securities: 810.4.
Month and Year: 2008, September (September emergency order);
Total new FTD for all NYSE-listed securities: 1405.4.
Month and Year: 2008, October;
Total new FTD for all NYSE-listed securities: 925.1.
Month and Year: 2008, November;
Total new FTD for all NYSE-listed securities: 432.1.
Month and Year: 2008, December;
Total new FTD for all NYSE-listed securities: 457.7.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 30: Total New FTD, per Month, for All NASDAQ-listed Securities,
from April 2004 through December 2008 (in millions):
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Total new FTD for all NASDAQ-listed securities: 287.1.
Month and Year: 2004, May;
Total new FTD for all NASDAQ-listed securities: 313.8.
Month and Year: 2004, June;
Total new FTD for all NASDAQ-listed securities: 317.4.
Month and Year: 2004, July;
Total new FTD for all NASDAQ-listed securities: 314.
Month and Year: 2004, August;
Total new FTD for all NASDAQ-listed securities: 285.7.
Month and Year: 2004, September;
Total new FTD for all NASDAQ-listed securities: 249.0.
Month and Year: 2004, October;
Total new FTD for all NASDAQ-listed securities: 271.7.
Month and Year: 2004, November;
Total new FTD for all NASDAQ-listed securities: 290.0.
Month and Year: 2004, December;
Total new FTD for all NASDAQ-listed securities: 389.7.
Month and Year: 2005, January (Compliance date);
Total new FTD for all NASDAQ-listed securities: 278.9.
Month and Year: 2005, February;
Total new FTD for all NASDAQ-listed securities: 272.7.
Month and Year: 2005, March;
Total new FTD for all NASDAQ-listed securities: 317.7.
Month and Year: 2005, April;
Total new FTD for all NASDAQ-listed securities: 255.5.
Month and Year: 2005, May;
Total new FTD for all NASDAQ-listed securities: 273.8.
Month and Year: 2005, June;
Total new FTD for all NASDAQ-listed securities: 374.7.
Month and Year: 2005, July;
Total new FTD for all NASDAQ-listed securities: 250.8.
Month and Year: 2005, August;
Total new FTD for all NASDAQ-listed securities: 292.4.
Month and Year: 2005, September;
Total new FTD for all NASDAQ-listed securities: 265.2.
Month and Year: 2005, October;
Total new FTD for all NASDAQ-listed securities: 270.8.
Month and Year: 2005, November;
Total new FTD for all NASDAQ-listed securities: 281.6.
Month and Year: 2005, December;
Total new FTD for all NASDAQ-listed securities: 310.8.
Month and Year: 2006, January;
Total new FTD for all NASDAQ-listed securities: 261.4.
Month and Year: 2006, February;
Total new FTD for all NASDAQ-listed securities: 263.9.
Month and Year: 2006, March;
Total new FTD for all NASDAQ-listed securities: 361.9.
Month and Year: 2006, April;
Total new FTD for all NASDAQ-listed securities: 280.2.
Month and Year: 2006, May;
Total new FTD for all NASDAQ-listed securities: 349.7.
Month and Year: 2006, June;
Total new FTD for all NASDAQ-listed securities: 329.6.
Month and Year: 2006, July;
Total new FTD for all NASDAQ-listed securities: 446.6.
Month and Year: 2006, August;
Total new FTD for all NASDAQ-listed securities: 277.3.
Month and Year: 2006, September;
Total new FTD for all NASDAQ-listed securities: 301.7.
Month and Year: 2006, October;
Total new FTD for all NASDAQ-listed securities: 317.9.
Month and Year: 2006, November;
Total new FTD for all NASDAQ-listed securities: 296.7.
Month and Year: 2006, December;
Total new FTD for all NASDAQ-listed securities: 299.3.
Month and Year: 2007, January;
Total new FTD for all NASDAQ-listed securities: 306.3.
Month and Year: 2007, February;
Total new FTD for all NASDAQ-listed securities: 359.3.
Month and Year: 2007, March;
Total new FTD for all NASDAQ-listed securities: 424.4.
Month and Year: 2007, April;
Total new FTD for all NASDAQ-listed securities: 532.
Month and Year: 2007, May;
Total new FTD for all NASDAQ-listed securities: 763.5.
Month and Year: 2007, June;
Total new FTD for all NASDAQ-listed securities: 762.2.
Month and Year: 2007, July;
Total new FTD for all NASDAQ-listed securities: 682.3.
Month and Year: 2007, August;
Total new FTD for all NASDAQ-listed securities: 919.9.
Month and Year: 2007, September;
Total new FTD for all NASDAQ-listed securities: 419.0.
Month and Year: 2007, October (Elimination of grandfather exception);
Total new FTD for all NASDAQ-listed securities: 567.9.
Month and Year: 2007, November;
Total new FTD for all NASDAQ-listed securities: 665.0.
Month and Year: 2007, December;
Total new FTD for all NASDAQ-listed securities: 594.3.
Month and Year: 2008, January;
Total new FTD for all NASDAQ-listed securities: 703.2.
Month and Year: 2008, February;
Total new FTD for all NASDAQ-listed securities: 639.1.
Month and Year: 2008, March;
Total new FTD for all NASDAQ-listed securities: 971.7.
Month and Year: 2008, April;
Total new FTD for all NASDAQ-listed securities: 676.8.
Month and Year: 2008, May;
Total new FTD for all NASDAQ-listed securities: 726.5.
Month and Year: 2008, June;
Total new FTD for all NASDAQ-listed securities: 855.7.
Month and Year: 2008, July (July emergency order);
Total new FTD for all NASDAQ-listed securities: 949.5.
Month and Year: 2008, August;
Total new FTD for all NASDAQ-listed securities: 552.0.
Month and Year: 2008, September (September emergency order);
Total new FTD for all NASDAQ-listed securities: 714.8.
Month and Year: 2008, October;
Total new FTD for all NASDAQ-listed securities: 424.6.
Month and Year: 2008, November;
Total new FTD for all NASDAQ-listed securities: 213.0.
Month and Year: 2008, December;
Total new FTD for all NASDAQ-listed securities: 194.4.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 31: Total New FTD, per Month, for All Amex-listed Securities,
from April 2004 through December 2008:
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Total new FTD for all Amex-listed securities: 152.8.
Month and Year: 2004, May;
Total new FTD for all Amex-listed securities: 162.0.
Month and Year: 2004, June;
Total new FTD for all Amex-listed securities: 168.1.
Month and Year: 2004, July;
Total new FTD for all Amex-listed securities: 100.6.
Month and Year: 2004, August;
Total new FTD for all Amex-listed securities: 119.4.
Month and Year: 2004, September;
Total new FTD for all Amex-listed securities: 119.8.
Month and Year: 2004, October;
Total new FTD for all Amex-listed securities: 87.3.
Month and Year: 2004, November;
Total new FTD for all Amex-listed securities: 99.2.
Month and Year: 2004, December;
Total new FTD for all Amex-listed securities: 140.7.
Month and Year: 2005, January (Compliance date);
Total new FTD for all Amex-listed securities: 110.2.
Month and Year: 2005, February;
Total new FTD for all Amex-listed securities: 108.9.
Month and Year: 2005, March;
Total new FTD for all Amex-listed securities: 196.0.
Month and Year: 2005, April;
Total new FTD for all Amex-listed securities: 133.5.
Month and Year: 2005, May;
Total new FTD for all Amex-listed securities: 152.3.
Month and Year: 2005, June;
Total new FTD for all Amex-listed securities: 183.8.
Month and Year: 2005, July;
Total new FTD for all Amex-listed securities: 102.8.
Month and Year: 2005, August;
Total new FTD for all Amex-listed securities: 142.4.
Month and Year: 2005, September;
Total new FTD for all Amex-listed securities: 177.3.
Month and Year: 2005, October;
Total new FTD for all Amex-listed securities: 158.9.
Month and Year: 2005, November;
Total new FTD for all Amex-listed securities: 150.6.
Month and Year: 2005, December;
Total new FTD for all Amex-listed securities: 164.9.
Month and Year: 2006, January;
Total new FTD for all Amex-listed securities: 139.1.
Month and Year: 2006, February;
Total new FTD for all Amex-listed securities: 137.5.
Month and Year: 2006, March;
Total new FTD for all Amex-listed securities: 188.6.
Month and Year: 2006, April;
Total new FTD for all Amex-listed securities: 141.8.
Month and Year: 2006, May;
Total new FTD for all Amex-listed securities: 214.0.
Month and Year: 2006, June;
Total new FTD for all Amex-listed securities: 150.8.
Month and Year: 2006, July;
Total new FTD for all Amex-listed securities: 169.1.
Month and Year: 2006, August;
Total new FTD for all Amex-listed securities: 97.2.
Month and Year: 2006, September;
Total new FTD for all Amex-listed securities: 149.6.
Month and Year: 2006, October;
Total new FTD for all Amex-listed securities: 106.8.
Month and Year: 2006, November;
Total new FTD for all Amex-listed securities: 92.9.
Month and Year: 2006, December;
Total new FTD for all Amex-listed securities: 138.6.
Month and Year: 2007, January;
Total new FTD for all Amex-listed securities: 110.4.
Month and Year: 2007, February;
Total new FTD for all Amex-listed securities: 141.8.
Month and Year: 2007, March;
Total new FTD for all Amex-listed securities: 223.1.
Month and Year: 2007, April;
Total new FTD for all Amex-listed securities: 199.1.
Month and Year: 2007, May;
Total new FTD for all Amex-listed securities: 279.5.
Month and Year: 2007, June;
Total new FTD for all Amex-listed securities: 401.4.
Month and Year: 2007, July;
Total new FTD for all Amex-listed securities: 339.9.
Month and Year: 2007, August;
Total new FTD for all Amex-listed securities: 318.7.
Month and Year: 2007, September;
Total new FTD for all Amex-listed securities: 218.5.
Month and Year: 2007, October (Elimination of grandfather exception);
Total new FTD for all Amex-listed securities: 326.5.
Month and Year: 2007, November;
Total new FTD for all Amex-listed securities: 402.7.
Month and Year: 2007, December;
Total new FTD for all Amex-listed securities: 276.5.
Month and Year: 2008, January;
Total new FTD for all Amex-listed securities: 259.4.
Month and Year: 2008, February;
Total new FTD for all Amex-listed securities: 319.2.
Month and Year: 2008, March;
Total new FTD for all Amex-listed securities: 377.7.
Month and Year: 2008, April;
Total new FTD for all Amex-listed securities: 214.0.
Month and Year: 2008, May;
Total new FTD for all Amex-listed securities: 306.4.
Month and Year: 2008, June;
Total new FTD for all Amex-listed securities: 478.0.
Month and Year: 2008, July (July emergency order);
Total new FTD for all Amex-listed securities: 329.7.
Month and Year: 2008, August;
Total new FTD for all Amex-listed securities: 239.6.
Month and Year: 2008, September (September emergency order);
Total new FTD for all Amex-listed securities: 485.1.
Month and Year: 2008, October;
Total new FTD for all Amex-listed securities: 196.
Month and Year: 2008, November;
Total new FTD for all Amex-listed securities: 63.3.
Month and Year: 2008, December;
Total new FTD for all Amex-listed securities: 73.9.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 32: Total New FTD, per Month, for All Other Securities, from
April 2004 through December 2008 (in millions):
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Total new FTD for all other securities: 1220.9.
Month and Year: 2004, May;
Total new FTD for all other securities: 798.6.
Month and Year: 2004, June;
Total new FTD for all other securities: 1178.9.
Month and Year: 2004, July;
Total new FTD for all other securities: 1065.7.
Month and Year: 2004, August;
Total new FTD for all other securities: 1120.4.
Month and Year: 2004, September;
Total new FTD for all other securities: 2448.0.
Month and Year: 2004, October;
Total new FTD for all other securities: 1957.2.
Month and Year: 2004, November;
Total new FTD for all other securities: 909.7.
Month and Year: 2004, December;
Total new FTD for all other securities: 1229.9.
Month and Year: 2005, January (Compliance date);
Total new FTD for all other securities: 1124.2.
Month and Year: 2005, February;
Total new FTD for all other securities: 913.2.
Month and Year: 2005, March;
Total new FTD for all other securities: 894.0.
Month and Year: 2005, April;
Total new FTD for all other securities: 1223.8.
Month and Year: 2005, May;
Total new FTD for all other securities: 786.1.
Month and Year: 2005, June;
Total new FTD for all other securities: 956.3.
Month and Year: 2005, July;
Total new FTD for all other securities: 1111.8.
Month and Year: 2005, August;
Total new FTD for all other securities: 964.6.
Month and Year: 2005, September;
Total new FTD for all other securities: 916.6.
Month and Year: 2005, October;
Total new FTD for all other securities: 1950.4.
Month and Year: 2005, November;
Total new FTD for all other securities: 905.0.
Month and Year: 2005, December;
Total new FTD for all other securities: 1193.2.
Month and Year: 2006, January;
Total new FTD for all other securities: 1402.8.
Month and Year: 2006, February;
Total new FTD for all other securities: 1473.3.
Month and Year: 2006, March;
Total new FTD for all other securities: 1878.7.
Month and Year: 2006, April;
Total new FTD for all other securities: 1538.7.
Month and Year: 2006, May;
Total new FTD for all other securities: 1955.0.
Month and Year: 2006, June;
Total new FTD for all other securities: 2147.7.
Month and Year: 2006, July;
Total new FTD for all other securities: 1333.1.
Month and Year: 2006, August;
Total new FTD for all other securities: 1572.1.
Month and Year: 2006, September;
Total new FTD for all other securities: 1497.4.
Month and Year: 2006, October;
Total new FTD for all other securities: 1257.1.
Month and Year: 2006, November;
Total new FTD for all other securities: 1899.5.
Month and Year: 2006, December;
Total new FTD for all other securities: 1348.2.
Month and Year: 2007, January;
Total new FTD for all other securities: 1551.1.
Month and Year: 2007, February;
Total new FTD for all other securities: 2648.7.
Month and Year: 2007, March;
Total new FTD for all other securities: 2326.4.
Month and Year: 2007, April;
Total new FTD for all other securities: 3529.4.
Month and Year: 2007, May;
Total new FTD for all other securities: 4953.2.
Month and Year: 2007, June;
Total new FTD for all other securities: 4594.3.
Month and Year: 2007, July;
Total new FTD for all other securities: 4252.
Month and Year: 2007, August;
Total new FTD for all other securities: 4443.4.
Month and Year: 2007, September;
Total new FTD for all other securities: 4570.0.
Month and Year: 2007, October (Elimination of grandfather exception);
Total new FTD for all other securities: 3790.5.
Month and Year: 2007, November;
Total new FTD for all other securities: 3882.8.
Month and Year: 2007, December;
Total new FTD for all other securities: 3044.6.
Month and Year: 2008, January;
Total new FTD for all other securities: 3322.1.
Month and Year: 2008, February;
Total new FTD for all other securities: 3847.1.
Month and Year: 2008, March;
Total new FTD for all other securities: 4319.2.
Month and Year: 2008, April;
Total new FTD for all other securities: 3655.6.
Month and Year: 2008, May;
Total new FTD for all other securities: 4427.9.
Month and Year: 2008, June;
Total new FTD for all other securities: 4265.9.
Month and Year: 2008, July (July emergency order);
Total new FTD for all other securities: 5253.1.
Month and Year: 2008, August;
Total new FTD for all other securities: 3481.
Month and Year: 2008, September (September emergency order);
Total new FTD for all other securities: 2777.1.
Month and Year: 2008, October;
Total new FTD for all other securities: 2246.9.
Month and Year: 2008, November;
Total new FTD for all other securities: 2368.9.
Month and Year: 2008, December;
Total new FTD for all other securities: 3362.4.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 33: Average Outstanding FTD, per Month, for All NYSE-listed
Securities, from April 2004 through December 2008 (in millions):
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Average outstanding FTD for all NYSE-listed securities: 56.2.
Month and Year: 2004, May;
Average outstanding FTD for all NYSE-listed securities: 67.5.
Month and Year: 2004, June;
Average outstanding FTD for all NYSE-listed securities: 79.4.
Month and Year: 2004, July;
Average outstanding FTD for all NYSE-listed securities: 76.8.
Month and Year: 2004, August;
Average outstanding FTD for all NYSE-listed securities: 85.5.
Month and Year: 2004, September;
Average outstanding FTD for all NYSE-listed securities: 79.6.
Month and Year: 2004, October;
Average outstanding FTD for all NYSE-listed securities: 88.6.
Month and Year: 2004, November;
Average outstanding FTD for all NYSE-listed securities: 81.8.
Month and Year: 2004, December;
Average outstanding FTD for all NYSE-listed securities: 80.6.
Month and Year: 2005, January (Compliance date);
Average outstanding FTD for all NYSE-listed securities: 60.9.
Month and Year: 2005, February;
Average outstanding FTD for all NYSE-listed securities: 55.4.
Month and Year: 2005, March;
Average outstanding FTD for all NYSE-listed securities: 58.8.
Month and Year: 2005, April;
Average outstanding FTD for all NYSE-listed securities: 56.3.
Month and Year: 2005, May;
Average outstanding FTD for all NYSE-listed securities: 65.0.
Month and Year: 2005, June;
Average outstanding FTD for all NYSE-listed securities: 54.1.
Month and Year: 2005, July;
Average outstanding FTD for all NYSE-listed securities: 41.9.
Month and Year: 2005, August;
Average outstanding FTD for all NYSE-listed securities: 52.5.
Month and Year: 2005, September;
Average outstanding FTD for all NYSE-listed securities: 46.8.
Month and Year: 2005, October;
Average outstanding FTD for all NYSE-listed securities: 48.9.
Month and Year: 2005, November;
Average outstanding FTD for all NYSE-listed securities: 51.4.
Month and Year: 2005, December;
Average outstanding FTD for all NYSE-listed securities: 55.6.
Month and Year: 2006, January;
Average outstanding FTD for all NYSE-listed securities: 46.3.
Month and Year: 2006, February;
Average outstanding FTD for all NYSE-listed securities: 47.5.
Month and Year: 2006, March;
Average outstanding FTD for all NYSE-listed securities: 48.7.
Month and Year: 2006, April;
Average outstanding FTD for all NYSE-listed securities: 49.1.
Month and Year: 2006, May;
Average outstanding FTD for all NYSE-listed securities: 52.7.
Month and Year: 2006, June;
Average outstanding FTD for all NYSE-listed securities: 54.3.
Month and Year: 2006, July;
Average outstanding FTD for all NYSE-listed securities: 55.1.
Month and Year: 2006, August;
Average outstanding FTD for all NYSE-listed securities: 40.6.
Month and Year: 2006, September;
Average outstanding FTD for all NYSE-listed securities: 37.5.
Month and Year: 2006, October;
Average outstanding FTD for all NYSE-listed securities: 43.3.
Month and Year: 2006, November;
Average outstanding FTD for all NYSE-listed securities: 48.4.
Month and Year: 2006, December;
Average outstanding FTD for all NYSE-listed securities: 53.1.
Month and Year: 2007, January;
Average outstanding FTD for all NYSE-listed securities: 47.4.
Month and Year: 2007, February;
Average outstanding FTD for all NYSE-listed securities: 73.1.
Month and Year: 2007, March;
Average outstanding FTD for all NYSE-listed securities: 105.2.
Month and Year: 2007, April;
Average outstanding FTD for all NYSE-listed securities: 80.5.
Month and Year: 2007, May;
Average outstanding FTD for all NYSE-listed securities: 70.0.
Month and Year: 2007, June;
Average outstanding FTD for all NYSE-listed securities: 75.0.
Month and Year: 2007, July;
Average outstanding FTD for all NYSE-listed securities: 86.7.
Month and Year: 2007, August;
Average outstanding FTD for all NYSE-listed securities: 131.9.
Month and Year: 2007, September;
Average outstanding FTD for all NYSE-listed securities: 87.8.
Month and Year: 2007, October (Elimination of grandfather exception);
Average outstanding FTD for all NYSE-listed securities: 86.1.
Month and Year: 2007, November;
Average outstanding FTD for all NYSE-listed securities: 109.4.
Month and Year: 2007, December;
Average outstanding FTD for all NYSE-listed securities: 108.4.
Month and Year: 2008, January;
Average outstanding FTD for all NYSE-listed securities: 118.3.
Month and Year: 2008, February;
Average outstanding FTD for all NYSE-listed securities: 103.3.
Month and Year: 2008, March;
Average outstanding FTD for all NYSE-listed securities: 147.8.
Month and Year: 2008, April;
Average outstanding FTD for all NYSE-listed securities: 125.3.
Month and Year: 2008, May;
Average outstanding FTD for all NYSE-listed securities: 110.0.
Month and Year: 2008, June;
Average outstanding FTD for all NYSE-listed securities: 134.5.
Month and Year: 2008, July (July emergency order);
Average outstanding FTD for all NYSE-listed securities: 183.2.
Month and Year: 2008, August;
Average outstanding FTD for all NYSE-listed securities: 139.0.
Month and Year: 2008, September (September emergency order);
Average outstanding FTD for all NYSE-listed securities: 199.7.
Month and Year: 2008, October;
Average outstanding FTD for all NYSE-listed securities: 86.4.
Month and Year: 2008, November;
Average outstanding FTD for all NYSE-listed securities: 34.2.
Month and Year: 2008, December;
Average outstanding FTD for all NYSE-listed securities: 32.3.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 34: Average Outstanding FTD, per Month, for All NASDAQ-listed
Securities, from April 2004 through December 2008 (in millions):
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Average outstanding FTD for all NASDAQ-listed securities: 118.7.
Month and Year: 2004, May;
Average outstanding FTD for all NASDAQ-listed securities: 112.5.
Month and Year: 2004, June;
Average outstanding FTD for all NASDAQ-listed securities: 83.5.
Month and Year: 2004, July;
Average outstanding FTD for all NASDAQ-listed securities: 88.4.
Month and Year: 2004, August;
Average outstanding FTD for all NASDAQ-listed securities: 81.7.
Month and Year: 2004, September;
Average outstanding FTD for all NASDAQ-listed securities: 77.0.
Month and Year: 2004, October;
Average outstanding FTD for all NASDAQ-listed securities: 83.3.
Month and Year: 2004, November;
Average outstanding FTD for all NASDAQ-listed securities: 96.5.
Month and Year: 2004, December;
Average outstanding FTD for all NASDAQ-listed securities: 127.8.
Month and Year: 2005, January (Compliance date);
Average outstanding FTD for all NASDAQ-listed securities: 87.4.
Month and Year: 2005, February;
Average outstanding FTD for all NASDAQ-listed securities: 75.0.
Month and Year: 2005, March;
Average outstanding FTD for all NASDAQ-listed securities: 72.2.
Month and Year: 2005, April;
Average outstanding FTD for all NASDAQ-listed securities: 64.4.
Month and Year: 2005, May;
Average outstanding FTD for all NASDAQ-listed securities: 66.9.
Month and Year: 2005, June;
Average outstanding FTD for all NASDAQ-listed securities: 71.7.
Month and Year: 2005, July;
Average outstanding FTD for all NASDAQ-listed securities: 62.5.
Month and Year: 2005, August;
Average outstanding FTD for all NASDAQ-listed securities: 63.9.
Month and Year: 2005, September;
Average outstanding FTD for all NASDAQ-listed securities: 65.0.
Month and Year: 2005, October;
Average outstanding FTD for all NASDAQ-listed securities: 57.3.
Month and Year: 2005, November;
Average outstanding FTD for all NASDAQ-listed securities: 56.0.
Month and Year: 2005, December;
Average outstanding FTD for all NASDAQ-listed securities: 59.4.
Month and Year: 2006, January;
Average outstanding FTD for all NASDAQ-listed securities: 59.5.
Month and Year: 2006, February;
Average outstanding FTD for all NASDAQ-listed securities: 67.8.
Month and Year: 2006, March;
Average outstanding FTD for all NASDAQ-listed securities: 71.3.
Month and Year: 2006, April;
Average outstanding FTD for all NASDAQ-listed securities: 70.4.
Month and Year: 2006, May;
Average outstanding FTD for all NASDAQ-listed securities: 64.8.
Month and Year: 2006, June;
Average outstanding FTD for all NASDAQ-listed securities: 62.4.
Month and Year: 2006, July;
Average outstanding FTD for all NASDAQ-listed securities: 78.9.
Month and Year: 2006, August;
Average outstanding FTD for all NASDAQ-listed securities: 58.6.
Month and Year: 2006, September;
Average outstanding FTD for all NASDAQ-listed securities: 57.5.
Month and Year: 2006, October;
Average outstanding FTD for all NASDAQ-listed securities: 57.2.
Month and Year: 2006, November;
Average outstanding FTD for all NASDAQ-listed securities: 61.1.
Month and Year: 2006, December;
Average outstanding FTD for all NASDAQ-listed securities: 67.2.
Month and Year: 2007, January;
Average outstanding FTD for all NASDAQ-listed securities: 59.1.
Month and Year: 2007, February;
Average outstanding FTD for all NASDAQ-listed securities: 71.
Month and Year: 2007, March;
Average outstanding FTD for all NASDAQ-listed securities: 91.4.
Month and Year: 2007, April;
Average outstanding FTD for all NASDAQ-listed securities: 98.8.
Month and Year: 2007, May;
Average outstanding FTD for all NASDAQ-listed securities: 118.3.
Month and Year: 2007, June;
Average outstanding FTD for all NASDAQ-listed securities: 119.0.
Month and Year: 2007, July;
Average outstanding FTD for all NASDAQ-listed securities: 110.8.
Month and Year: 2007, August;
Average outstanding FTD for all NASDAQ-listed securities: 127.2.
Month and Year: 2007, September;
Average outstanding FTD for all NASDAQ-listed securities: 70.1.
Month and Year: 2007, October (Elimination of grandfather exception);
Average outstanding FTD for all NASDAQ-listed securities: 79.2.
Month and Year: 2007, November;
Average outstanding FTD for all NASDAQ-listed securities: 96.7.
Month and Year: 2007, December;
Average outstanding FTD for all NASDAQ-listed securities: 97.9.
Month and Year: 2008, January;
Average outstanding FTD for all NASDAQ-listed securities: 101.9.
Month and Year: 2008, February;
Average outstanding FTD for all NASDAQ-listed securities: 110.2.
Month and Year: 2008, March;
Average outstanding FTD for all NASDAQ-listed securities: 152.5.
Month and Year: 2008, April;
Average outstanding FTD for all NASDAQ-listed securities: 132.3.
Month and Year: 2008, May;
Average outstanding FTD for all NASDAQ-listed securities: 137.5.
Month and Year: 2008, June;
Average outstanding FTD for all NASDAQ-listed securities: 154.6.
Month and Year: 2008, July (July emergency order);
Average outstanding FTD for all NASDAQ-listed securities: 187.7.
Month and Year: 2008, August;
Average outstanding FTD for all NASDAQ-listed securities: 135.2.
Month and Year: 2008, September (September emergency order);
Average outstanding FTD for all NASDAQ-listed securities: 131.2.
Month and Year: 2008, October;
Average outstanding FTD for all NASDAQ-listed securities: 58.1.
Month and Year: 2008, November;
Average outstanding FTD for all NASDAQ-listed securities: 18.8.
Month and Year: 2008, December;
Average outstanding FTD for all NASDAQ-listed securities: 15.8.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 35: Average Outstanding FTD, per Month, for All Amex-listed
Securities, from April 2004 through December 2008 (in millions):
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Average outstanding FTD for all Amex-listed securities: 67.9.
Month and Year: 2004, May;
Average outstanding FTD for all Amex-listed securities: 64.6.
Month and Year: 2004, June;
Average outstanding FTD for all Amex-listed securities: 64.3.
Month and Year: 2004, July;
Average outstanding FTD for all Amex-listed securities: 45.9.
Month and Year: 2004, August;
Average outstanding FTD for all Amex-listed securities: 43.6.
Month and Year: 2004, September;
Average outstanding FTD for all Amex-listed securities: 44.3.
Month and Year: 2004, October;
Average outstanding FTD for all Amex-listed securities: 40.2.
Month and Year: 2004, November;
Average outstanding FTD for all Amex-listed securities: 37.6.
Month and Year: 2004, December;
Average outstanding FTD for all Amex-listed securities: 41.5.
Month and Year: 2005, January (Compliance date);
Average outstanding FTD for all Amex-listed securities: 33.9.
Month and Year: 2005, February;
Average outstanding FTD for all Amex-listed securities: 34.1.
Month and Year: 2005, March;
Average outstanding FTD for all Amex-listed securities: 37.4.
Month and Year: 2005, April;
Average outstanding FTD for all Amex-listed securities: 29.3.
Month and Year: 2005, May;
Average outstanding FTD for all Amex-listed securities: 30.7.
Month and Year: 2005, June;
Average outstanding FTD for all Amex-listed securities: 27.2.
Month and Year: 2005, July;
Average outstanding FTD for all Amex-listed securities: 17.7.
Month and Year: 2005, August;
Average outstanding FTD for all Amex-listed securities: 24.4.
Month and Year: 2005, September;
Average outstanding FTD for all Amex-listed securities: 30.4.
Month and Year: 2005, October;
Average outstanding FTD for all Amex-listed securities: 27.0.
Month and Year: 2005, November;
Average outstanding FTD for all Amex-listed securities: 27.4.
Month and Year: 2005, December;
Average outstanding FTD for all Amex-listed securities: 27.7.
Month and Year: 2006, January;
Average outstanding FTD for all Amex-listed securities: 27.3.
Month and Year: 2006, February;
Average outstanding FTD for all Amex-listed securities: 29.2.
Month and Year: 2006, March;
Average outstanding FTD for all Amex-listed securities: 28.6.
Month and Year: 2006, April;
Average outstanding FTD for all Amex-listed securities: 27.9.
Month and Year: 2006, May;
Average outstanding FTD for all Amex-listed securities: 35.7.
Month and Year: 2006, June;
Average outstanding FTD for all Amex-listed securities: 23.3.
Month and Year: 2006, July;
Average outstanding FTD for all Amex-listed securities: 27.2.
Month and Year: 2006, August;
Average outstanding FTD for all Amex-listed securities: 19.9.
Month and Year: 2006, September;
Average outstanding FTD for all Amex-listed securities: 27.0.
Month and Year: 2006, October;
Average outstanding FTD for all Amex-listed securities: 20.2.
Month and Year: 2006, November;
Average outstanding FTD for all Amex-listed securities: 19.3.
Month and Year: 2006, December;
Average outstanding FTD for all Amex-listed securities: 24.6.
Month and Year: 2007, January;
Average outstanding FTD for all Amex-listed securities: 18.8.
Month and Year: 2007, February;
Average outstanding FTD for all Amex-listed securities: 24.9.
Month and Year: 2007, March;
Average outstanding FTD for all Amex-listed securities: 43.4.
Month and Year: 2007, April;
Average outstanding FTD for all Amex-listed securities: 27.8.
Month and Year: 2007, May;
Average outstanding FTD for all Amex-listed securities: 33.6.
Month and Year: 2007, June;
Average outstanding FTD for all Amex-listed securities: 42.4.
Month and Year: 2007, July;
Average outstanding FTD for all Amex-listed securities: 38.7.
Month and Year: 2007, August;
Average outstanding FTD for all Amex-listed securities: 41.3.
Month and Year: 2007, September;
Average outstanding FTD for all Amex-listed securities: 30.6.
Month and Year: 2007, October (Elimination of grandfather exception);
Average outstanding FTD for all Amex-listed securities: 40.6.
Month and Year: 2007, November;
Average outstanding FTD for all Amex-listed securities: 49.3.
Month and Year: 2007, December;
Average outstanding FTD for all Amex-listed securities: 37.9.
Month and Year: 2008, January;
Average outstanding FTD for all Amex-listed securities: 34.3.
Month and Year: 2008, February;
Average outstanding FTD for all Amex-listed securities: 41.5.
Month and Year: 2008, March;
Average outstanding FTD for all Amex-listed securities: 45.7.
Month and Year: 2008, April;
Average outstanding FTD for all Amex-listed securities: 32.4.
Month and Year: 2008, May;
Average outstanding FTD for all Amex-listed securities: 44.4.
Month and Year: 2008, June;
Average outstanding FTD for all Amex-listed securities: 59.9.
Month and Year: 2008, July (July emergency order);
Average outstanding FTD for all Amex-listed securities: 72.4.
Month and Year: 2008, August;
Average outstanding FTD for all Amex-listed securities: 37.2.
Month and Year: 2008, September (September emergency order);
Average outstanding FTD for all Amex-listed securities: 52.3.
Month and Year: 2008, October;
Average outstanding FTD for all Amex-listed securities: 20.9.
Month and Year: 2008, November;
Average outstanding FTD for all Amex-listed securities: 6.5.
Month and Year: 2008, December;
Average outstanding FTD for all Amex-listed securities: 8.3.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
Figure 36: Average Outstanding FTD, per Month, for All Other
Securities, from April 2004 through December 2008 (in millions):
[Refer to PDF for image: line graph]
Month and Year: 2004, April;
Average outstanding FTD for all other securities: 584.1.
Month and Year: 2004, May;
Average outstanding FTD for all other securities: 386.4.
Month and Year: 2004, June;
Average outstanding FTD for all other securities: 385.7.
Month and Year: 2004, July;
Average outstanding FTD for all other securities: 438.7.
Month and Year: 2004, August;
Average outstanding FTD for all other securities: 941.1.
Month and Year: 2004, September;
Average outstanding FTD for all other securities: 887.5.
Month and Year: 2004, October;
Average outstanding FTD for all other securities: 641.2.
Month and Year: 2004, November;
Average outstanding FTD for all other securities: 462.2.
Month and Year: 2004, December;
Average outstanding FTD for all other securities: 531.2.
Month and Year: 2005, January (Compliance date);
Average outstanding FTD for all other securities: 490.3.
Month and Year: 2005, February;
Average outstanding FTD for all other securities: 408.8.
Month and Year: 2005, March;
Average outstanding FTD for all other securities: 339.8.
Month and Year: 2005, April;
Average outstanding FTD for all other securities: 374.3.
Month and Year: 2005, May;
Average outstanding FTD for all other securities: 318.0.
Month and Year: 2005, June;
Average outstanding FTD for all other securities: 358.7.
Month and Year: 2005, July;
Average outstanding FTD for all other securities: 351.4.
Month and Year: 2005, August;
Average outstanding FTD for all other securities: 281.5.
Month and Year: 2005, September;
Average outstanding FTD for all other securities: 300.7.
Month and Year: 2005, October;
Average outstanding FTD for all other securities: 331.0.
Month and Year: 2005, November;
Average outstanding FTD for all other securities: 277.6.
Month and Year: 2005, December;
Average outstanding FTD for all other securities: 390.8.
Month and Year: 2006, January;
Average outstanding FTD for all other securities: 341.8.
Month and Year: 2006, February;
Average outstanding FTD for all other securities: 530.8.
Month and Year: 2006, March;
Average outstanding FTD for all other securities: 603.5.
Month and Year: 2006, April;
Average outstanding FTD for all other securities: 370.5.
Month and Year: 2006, May;
Average outstanding FTD for all other securities: 486.8.
Month and Year: 2006, June;
Average outstanding FTD for all other securities: 420.4.
Month and Year: 2006, July;
Average outstanding FTD for all other securities: 415.2.
Month and Year: 2006, August;
Average outstanding FTD for all other securities: 431.6.
Month and Year: 2006, September;
Average outstanding FTD for all other securities: 476.0.
Month and Year: 2006, October;
Average outstanding FTD for all other securities: 609.5.
Month and Year: 2006, November;
Average outstanding FTD for all other securities: 628.9.
Month and Year: 2006, December;
Average outstanding FTD for all other securities: 495.8.
Month and Year: 2007, January;
Average outstanding FTD for all other securities: 436.7.
Month and Year: 2007, February;
Average outstanding FTD for all other securities: 712.9.
Month and Year: 2007, March;
Average outstanding FTD for all other securities: 495.3.
Month and Year: 2007, April;
Average outstanding FTD for all other securities: 567.9.
Month and Year: 2007, May;
Average outstanding FTD for all other securities: 747.3.
Month and Year: 2007, June;
Average outstanding FTD for all other securities: 723.6.
Month and Year: 2007, July;
Average outstanding FTD for all other securities: 837.8.
Month and Year: 2007, August;
Average outstanding FTD for all other securities: 994.8.
Month and Year: 2007, September;
Average outstanding FTD for all other securities: 895.6.
Month and Year: 2007, October (Elimination of grandfather exception);
Average outstanding FTD for all other securities: 865.3.
Month and Year: 2007, November;
Average outstanding FTD for all other securities: 814.8.
Month and Year: 2007, December;
Average outstanding FTD for all other securities: 619.5.
Month and Year: 2008, January;
Average outstanding FTD for all other securities: 574.6.
Month and Year: 2008, February;
Average outstanding FTD for all other securities: 754.2.
Month and Year: 2008, March;
Average outstanding FTD for all other securities: 956.7.
Month and Year: 2008, April;
Average outstanding FTD for all other securities: 727.6.
Month and Year: 2008, May;
Average outstanding FTD for all other securities: 726.1.
Month and Year: 2008, June;
Average outstanding FTD for all other securities: 722.0.
Month and Year: 2008, July (July emergency order);
Average outstanding FTD for all other securities: 1129.8.
Month and Year: 2008, August;
Average outstanding FTD for all other securities: 729.0.
Month and Year: 2008, September (September emergency order);
Average outstanding FTD for all other securities: 644.7.
Month and Year: 2008, October;
Average outstanding FTD for all other securities: 416.1.
Month and Year: 2008, November;
Average outstanding FTD for all other securities: 438.1.
Month and Year: 2008, December;
Average outstanding FTD for all other securities: 444.9.
Sources: SEC (data); GAO (analysis).
Note: Prior to September 16, 2008, SEC received FTD data on equity
securities with aggregate FTD of 10,000 or more. After this date, SEC
began receiving data on all FTD in every equity security. For a
consistent comparison, our sample includes securities with aggregate
FTD of 10,000 or more for the entire review period.
[End of figure]
[End of section]
Appendix IV: Comments from the Securities and Exchange Commission:
The Chairman:
United States Securities And Exchange Commission:
Washington, D.C. 20549:
April 30, 2009:
Ms. Orice Williams:
Director:
Financial Markets and Community Investments:
U.S. Government Accountability Office:
441 G Street, NW:
Washington, DC 20548:
Dear Ms. Williams:
Thank you for providing us with the opportunity to respond to the draft
report prepared by the Government Accountability Office entitled
Regulation SHO: Recent Actions Appear to Have Immediately Reduced
Failures to Deliver but More Industry Guidance is Needed, dated May
2009 ("Report"). As part of its mission to protect investors, maintain
fair, orderly. and efficient markets, and facilitate capital formation,
the Securities and Exchange Commission ("Commission") has been focused
on improving market confidence and reducing the potential for
manipulative short selling by reducing fails to deliver ("FTDs")
through focused and proactive measures, including adoption of
Regulation SHO. As the Report notes, our actions have successfully
reduced FTDs across the market in all securities.
I appreciate the GAO's recommendation to provide guidance for prime
brokerage arrangements in light of Regulation SHO. As the Report
observes, Commission staff has been working with industry to develop
guidance on the information flow between prime broker-dealers and
executing broker-dealers regarding customer representations pertaining
to a sale of securities. In connection with consideration of further
action on Rule 204T, I anticipate that the Commission will consider the
need to clarify the communications between prime broker-dealers and
executing broker-dealers that would facilitate Regulation SHO
compliance.
The GAO also recommends that the Commission develop a process for
addressing operational issues that arise from implementing Commission
regulations, such as interim final temporary rules. I note that the
staff regularly provides guidance to the industry. For instance. the
staff published (on the Commission Internet Web site) numerous
responses to frequently asked questions ("FAQ") concerning Regulation
SHO beginning in 2005, as well as a number of interpretations of the
September 2008 emergency orders.
During a routine rulemaking, pursuant to the Administrative Procedure
Act ("APA"), the Commission proposes a rule, solicits comments, which
often reflect the industry's operational concerns, and addresses the
comments in connection with adoption of a final rule. Unlike routine
rulemaking, interim final temporary rules are unique and are generally
adopted in exigent circumstances such as the market downturn that
occurred in the fall of 2008. Following adoption of an interim final
temporary rule, the Commission solicits comment, but the rule is in
effect during the comment period.
During the comment process for interim final temporary Rule 204T, the
industry raised a number of operational issues. The Commission and
staff are in the process of evaluating these comments with a view
towards considering further action in this area over the next several
months, prior to expiration of the interim final temporary rule. The
staff has kept the industry apprised of this approach.
We are committed to engaging in a deliberative process to develop
meaningful regulation of short selling, while also providing
interpretive guidance to the industry to facilitate implementation, as
appropriate. As noted in the Report, in some instances, Commission
staff may be unable to provide requested guidance sought by market
participants - for example, in cases in which requested relief may lead
to the use of strategies that would circumvent rules, or undermine the
purposes for such rules. Going forward, we will evaluate whether there
are additional steps that we can take, consistent with the APA, to
address implementation issues raised by industry.
The Commission is committed to maintaining fair, orderly, and efficient
markets. I greatly appreciate the GAO's review and recommendations
provided with an eye towards helping us to achieve these goals. If you
have any questions, please feel free to contact me at (202) 551-2100,
or contact the Deputy Director for the Division of Trading and Markets,
James Brigagliano, at (202) 551-5700. [Footnote 108]
Sincerely,
Signed by:
Mary L. Schapiro:
Chairman:
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Orice M. Williams, (202) 512-8678 or williamso@gao.gov:
Staff Acknowledgments:
In addition to the contact named above, Karen Tremba (Assistant
Director), Lawrance Evans, Stefanie Jonkman, Matthew Keeler, Marc
Molino, Carl Ramirez, Barbara Roesmann, Jeremy Schwartz, and Paul
Thompson made key contributions to this report.
[End of section]
Footnotes:
[1] We use the term "days" in this report when referring to settlement
days, or those business days on which deliveries of securities and
payments of money may be made through the facilities of a registered
clearing agency.
[2] According to DTCC, its subsidiaries settle most broker-to-broker
equity securities trades in the U.S. equity markets. This report does
not address those trades that are cleared and settled outside of the
clearing agency (ex-clearing).
[3] A "short sale" is the sale of a security that the seller does not
own or any sale that is consummated by the delivery of a security
borrowed by, or for the account of, the seller. In general, short
selling is used to profit from an expected downward price movement,
provide liquidity in response to unanticipated demand, or hedge the
risk of a long position (i.e., ownership) in the same or related
security.
[4] See 69 Fed. Reg. 48008 (Aug. 6, 2004). Regulation SHO was adopted
to update short sale regulation in light of numerous market
developments since short sale regulation was first adopted in 1938.
[5] Regulation SHO defines a "threshold security" as an equity security
where, for 5 consecutive settlement days, (1) there are aggregate FTD
at a registered clearing agency of 10,000 shares or more, (2) the level
of FTD is equal to at least one-half of 1 percent of the issuer's total
shares or more, and (3) the security is included on a list published by
self-regulatory organizations. To be removed from the threshold list,
the level of FTD in a security must not exceed the threshold for 5
consecutive settlement days. See 17 C.F.R. § 242.203.
[6] Specifically, the close-out requirement is triggered when the FTD
(which occurs on T+3) persists for 10 consecutive days, or until T+13.
Broker-dealers must close out the FTD by the next morning, or by T+14.
[7] Trading and Markets was known as the Division of Market Regulation
until November 2007.
[8] 73 Fed. Reg. 42379 (July 21, 2008).
[9] 73 Fed. Reg. 54875 (Sept. 23, 2008).
[10] A "long sale" is one in which the seller owns the securities that
were sold.
[11] 73 Fed. Reg. 61706 (Oct. 17, 2008).
[12] We found that the overall number of securities across the market
with FTD and the level of these FTD appeared to have been declining
since at least April 2004--the earliest date we could obtain FTD data-
-and 8 months before the effective date of the regulation's locate and
delivery requirements and continued after their implementation.
Regulation SHO may have accelerated this trend with respect to
threshold securities.
[13] "Short interest" refers to the total number of shares of a
security that has been sold short, but not covered or closed out, and
often is used as a proxy for the volume of short selling.
[14] The number of securities with FTD across the market declined
significantly after the implementation of the July and September
emergency orders that applied the close-out requirements to FTD in all
securities.
[15] The persistence of some securities on the threshold list over the
review period did not necessarily signify that violations of the close-
out provision or manipulative naked short selling were occurring, since
securities legitimately could persist for several reasons. For example,
FTD in these securities could have been exempt from the close-out rule
while the former grandfather and options market maker exceptions were
in effect. Additionally, participants could have closed out their FTD
in compliance with the close-out requirements of Regulation SHO, but
other participants may have created new FTD at the same time, thus
keeping the security on the threshold list.
[16] ETF are similar to index funds in that they primarily invest in
the securities of companies that are included in a selected market
index, but the shares of the ETF are traded on a stock exchange. ETF do
not sell individual shares directly to investors and only issue their
shares in large blocks known as creation units.
[17] These commenters represented the views of some issuers, an
industry trade association of small broker-dealers, and a securities
lending consultant that we either spoke with or whose written comments
to SEC we reviewed.
[18] These industry officials represented the views of several broker-
dealers and a large industry trade association with whom we spoke.
[19] Most equity trades in the United States are settled on a
continuous net basis, meaning that all of a broker-dealer's sales and
purchases of a security are netted daily so that the firm either makes
a delivery of securities on settlement day, or receives securities on a
settlement day. If a broker-dealer effected more purchases than sales
of a security on a particular trading day, it would stand to receive
securities on settlement day. See appendix II for additional
information on the clearance and settlement process.
[20] "Prime brokerage" is a system developed by full-service broker-
dealers to facilitate the clearance and settlement of securities trades
for substantial retail and institutional investors that are active
market participants. Prime brokerage involves three distinct parties:
the prime broker, the executing broker, and the customer. The prime
broker is a registered broker-dealer that clears and finances the
customer trades executed by one or more other registered broker-dealers
(the executing broker) at the behest of the customer.
[21] See 1994 SEC No-Act. LEXIS 466 (Jan. 25, 1994). SEC staff issued
the letter to clarify the obligations and responsibilities under the
Exchange Act of each of the parties involved in prime brokerage.
[22] Although short selling serves useful market purposes and the vast
majority of short sales are legal, short selling also may be used to
illegally manipulate the prices of securities. Generally speaking, it
is prohibited for any person to engage in a series of transactions to
create actual or apparent active trading in a security or to depress
the price of a security for the purpose of inducing the purchase or
sale of the security by others. One example of a manipulative trading
strategy using short selling is the "bear raid," in which an equity
security is sold short in an effort to drive down the price of the
security by creating an imbalance of sell-side interest. Furthermore,
unrestricted short selling can exacerbate a declining market in a
security by increasing pressure from the sell-side, eliminating bids,
and causing a further reduction in the price of a security by creating
an appearance that the security price is falling for fundamental
reasons.
[23] A "specialist" is a member of a stock exchange, such as the New
York Stock Exchange, that performs several functions. Specialists must
make a market in the security they trade by displaying their best bid
and ask prices to the market during trading hours.
[24] An "OTC security" is a security that is not traded on a formal
stock exchange, but instead is traded by broker-dealers that negotiate
directly with one another over computer networks and by telephone. In
general, a security is traded OTC because the company that issued it is
small, making it unable to meet exchange listing requirements. New and
small companies are considered to be more vulnerable to manipulative
naked short selling than large companies, because they have a small
number of total shares outstanding and it is relatively easier to drive
down the price by flooding the market with naked short sales. Also, new
companies may not have had the time to establish a reputation for
themselves in the capital markets, potentially making it easier for
manipulative naked short sellers to use rumors to increase the downward
pressure on the security.
[25] See appendix II for additional information on the CNS System and
the T+3 settlement cycle.
[26] An individual or entity not certain about whether a particular
product, service, or action would constitute a violation of the federal
securities law also may request a no-action letter from SEC staff. Most
no-action letters describe the request; analyze the particular facts
and circumstances involved; discuss applicable laws and rules; and, if
the staff grant the request for no action, conclude that the SEC staff
would not recommend that the Commission take enforcement action against
the requester on the basis of the facts and representations described
in the individual's or entity's original letter. SEC staff sometimes
respond in the form of a no-action letter to requests for clarification
of the legality of certain activities.
[27] See 69 Fed. Reg. 48008, 48014-48017 (Aug. 6, 2004). In addition to
establishing uniform locate and delivery requirements, Regulation SHO
also suspended Commission and SRO short sale price tests in a group of
securities as part of a pilot program to evaluate the overall
effectiveness and necessity of such restrictions for limiting short
sale abuses. These price tests generally allowed an exchange-listed
security to be sold short only at a price above the immediately
preceding reported price or at the last sale price if it was higher
than the last differently reported price. SEC eliminated the price
tests in June 2007 after considering the results of the pilot program.
[28] Before the adoption of Regulation SHO, SROs had rules requiring
their members to locate borrowable stock before effecting short sales.
For example, the New York Stock Exchange required its member to make a
"diligent effort" to borrow the necessary securities to make delivery.
NASD rules required its members to make an "affirmative determination"
that the member could borrow the securities or otherwise provide for
delivery of the securities by settlement date. SEC stated that one of
the reasons it proposed Regulation SHO was to provide uniform locate
requirements.
[29] Regulation SHO requires that the information used to generate
these lists must be less than 24 hours old, and be readily available so
that it would be unlikely that a FTD would occur. SEC stated that
repeated FTD in securities that are included on an easy-to-borrow list
would indicate that reliance on such lists would not satisfy the
reasonable grounds standard.
[30] Regulation SHO does not define bona fide market making activities.
However, in the adopting release, SEC provided some examples that would
indicate that a market maker is not engaged in bona fide market making.
For example, SEC said that bona fide market making does not include
activity related to speculative selling strategies or investment
purposes of the broker-dealer and disproportionate to the usual market
making patterns or practices of the broker-dealer in that security. See
69 Fed. Reg. at 48015. SEC later described factors that would
characterize bona fide market making, such as whether the market maker
incurred any economic or market risk with respect to the securities
(e.g., by putting the market maker's own capital at risk to provide
continuous two-sided quotes in markets). However, SEC said that
determining whether a market maker is engaged in bona fide market
making would depend on the facts and circumstances of the particular
activity. See SEC Exchange Act Release No. 34-58775 (October 2008).
[31] The "no fault" qualification is described in the original
Regulation SHO Federal Register release. See 69 Fed. Reg. at 48015.
[33] Clearing broker-dealers are responsible for ensuring delivery and
receipt of funds and securities from the clearing agency. Some broker-
dealers act as both executing and clearing broker-dealers.
[33] 69 Fed. Reg. at 48016.
[34] The close-out requirements apply to reporting securities, those
registered with SEC under the Securities Act of 1933. Effective in July
2006, SEC approved a NASD rule that applied substantially similar close-
out requirements to nonreporting OTC securities. Similar to Regulation
SHO, NASD rule 3210 also required clearing firms to close out all FTD
in nonreporting threshold securities that have existed for 13
consecutive days. Because regulators do not have accurate information
about the total outstanding shares issued in nonreporting securities,
NASD defined them as any equity security that is not a reporting
security, and for 5 consecutive settlement days, has (1) aggregate FTD
of 10,000 shares or more and (2) a reported last sale during normal
market hours on that settlement day that would value the aggregate FTD
at $50,000 or more. NASDAQ includes nonreporting threshold securities
in the daily threshold lists it publishes on behalf of FINRA.
[35] The grandfather exception applied in the following two situations:
(1) FTD occurring before January 3, 2005, Regulation SHO's effective
date, and (2) FTD established on or after January 3, 2005, but prior to
the security appearing on a threshold securities list. See 69 Fed. Reg.
at 48018.
[36] "Short squeeze" refers to the pressure on short sellers to cover
their positions as a result of sharp price increases or difficulty in
borrowing the security the sellers are short. The rush by short sellers
to cover their positions produces additional upward pressure on the
price of the security, which then can cause an even greater squeeze.
[37] 69 Fed. Reg. at 48018-48019.
[38] 69 Fed. Reg. at 48012 n. 26.
[39] See 72 Fed. Reg. 45544 (Aug. 14, 2007). The amendment became
effective on October 15, 2007.
[40] 72 Fed. Reg. at 45545-45548.
[41] 73 Fed. Reg. 42379 (July 21, 2008).
[42] SEC issued the amendment in response to implementation issues
raised by the industry. The amendment also excepted sales of restricted
securities from the preborrow and delivery requirements. See 73 Fed.
Reg. 42837 (July 23, 2008).
[43] According to the July emergency order, during the week of March
10, 2008, rumors spread about liquidity problems at Bear Stearns that
eroded investor confidence in the firm. As the price of Bear Stearns'
securities fell, its counterparties became concerned, and a crisis of
confidence occurred late in the week. In particular, counterparties to
Bear Stearns were unwilling to make secured funding available to Bear
Stearns on customary terms.
[44] In April 2008, SEC charged a trader with securities fraud and
market manipulation for intentionally disseminating a false rumor
concerning the Blackstone Group's acquisition of Alliance Data Systems
Corp.
[45] Trading and Markets staff told us that Treasury Department and
Federal Reserve officials had held high-level talks with the former SEC
Chairman to develop a coordinated federal response to the various
crises in the marketplace. In January 2009, the former Chairman
resigned, and the new Chairman was sworn in.
[46] 73 Fed. Reg. 54875 (Sept. 23, 2008).
[47] 73 Fed. Reg. 61706 (Oct. 17, 2008).
[48] 73 Fed. Reg. 61666 (Oct. 17, 2008).
[49] SEC Exchange Act Release No. 58775 (Oct. 14, 2008).
[50] According to a review conducted by several SROs in May through
July, 2006, options market makers claimed 598 exceptions covering 58
threshold securities, for a total of 11,759,799 FTD.
[51] 73 Fed. Reg. 61690 (Oct. 17, 2008).
[52] 73 Fed. Reg. 55169 (Sept. 24, 2008). SEC later amended the order
to provide that the SROs select the financial institutions covered by
the order.
[53] Because Regulation SHO created a class of securities designated as
threshold securities, our trend analysis is restricted to the period
after its implementation in January 2005. On the other hand, OEA
applied the rule to historical data and generated an unofficial
threshold list for the April 1, 2004, through December 31, 2004,
period. In comparing this period with the January 1, 2005, through May
1, 2006, period, OEA found that the average daily number of securities
on the threshold list declined 38 percent. This approach has certain
limitations. For example, if the 189 days that make up the prerule
period is abnormal, we could attribute changes to Regulation SHO that
merely reflect a return to normalcy. Additional data prior to April 1,
2004, and a methodology that controls for existing trends in the data
and a potential "regression to the mean" effect would provide a more
valid assessment of the effectiveness of Regulation SHO in curbing
large and persistent FTD. Moreover, neither the OEA methodology nor the
trend analysis that we employ for threshold securities controls for
other important factors that can also influence FTD, such as volume,
volatility, or short interest.
[54] See appendix III for FTD trends in threshold securities by
individual market.
[55] The new FTDs during the month were related to 2 OTC securities
that accounted for 409 million shares of the total. Without these 2
securities, new FTD would have totaled 126 million shares, a decrease
of 94 million from May 2006.
[56] Given that we had some marketwide FTD data predating Regulation
SHO, we also conducted an econometric analysis to assess the impact of
Regulation SHO on new FTD, outstanding FTD, and fail positions by
controlling for factors thought to influence FTD, including trading
volume, volatility, market performance, and short interest. We did not
find any evidence that the regulation had a significant impact on any
of these measures until SEC implemented the September emergency order
and related temporary rule in 2008.
[57] SEC adopted Regulation SHO in August 2004, which effectively
provides an announcement date, although it is difficult to know whether
short sellers would react by beginning to adhere to the new rules early
or by aggressively taking advantage of the temporary opportunities
under the less restrictive regime. For this reason and the concerns
that we have previously discussed, the April 2004 through December 2004
period may not provide an ideal baseline to judge the effectiveness of
the rule.
[58] According to the Forbes Financial Glossary, a synthetic is a
customized hybrid instrument created by blending an underlying price on
a cash instrument with the price of a derivative instrument. For
example, a synthetic stock can be created by purchasing a call option
and simultaneously selling a put option on the same stock. A synthetic
short position benefits from the decline of a security's price in the
same way that directly selling the stock short would benefit.
Additionally, the options market maker typically will sell the stock
(long or short, depending on the market maker's position) to hedge the
long synthetic position it established in the trade with the short
seller.
[59] FTD data generated by NSCC include FTD resulting from long and
short sales, but do not distinguish between the two types of sales.
Therefore, we cannot determine the cause of FTD from these data.
[60] VIX is a key measure of market expectations of near-term
volatility conveyed by S&P 500 stock index option prices.
[61] We found evidence of a positive and statistically significant
relationship between short interest and failed positions, as well as
new FTD, even after controlling for a number of other important
factors.
[62] Post-December 2008 data were not available at the time of our
analysis.
[63] For participants with open FTD in threshold securities, the close-
out process must start no later than the beginning of trading on T+14.
A closeout begun on T+14 will affect FTD on T+17. For a threshold
security to graduate from the threshold list, the level of FTD must be
below the trigger level for that security for 5 consecutive days. Thus,
for those participants waiting until T+14 to close out their FTD, the
earliest we would expect to see securities graduating from the list
would be T+22. Participants may also choose to close out their FTD
earlier. In that case, the earliest securities could graduate from the
threshold list would be 6 days, because Regulation SHO requires that
securities remain on the threshold list until their FTD levels are
below the threshold trigger for 5 consecutive trading days.
[64] In 2007, the SROs identified multiple options traders that were
using an illegal options trading strategy to avoid the close-out
requirement of Regulation SHO in threshold stocks. We discuss these
cases in greater detail later in this report.
[65] According to data compiled by the Investment Company Institute and
the Strategic Insight Simfund, the number of ETFs trading at year-end
grew from 204 in 2005 to 728 in 2008.
[66] The underlying basket of securities generally reflects the
contents of the ETF's portfolio and is equal in value to the aggregate
net asset value (NAV) of the ETF shares in the creation unit. According
to SEC, the ability of financial institutions to purchase and redeem
creation units at each day's NAV creates arbitrage opportunities that
may help keep the market price of ETF shares near the NAV per share of
the ETF. For example, if ETF shares begin trading on national
securities exchanges at a price below the fund's NAV per share,
financial institutions can purchase ETF shares in secondary market
transactions and, after accumulating enough shares to comprise a
creation unit, redeem them from the ETF in exchange for the more
valuable securities in the ETF's redemption basket. Those purchases
create greater market demand for the ETF shares and, thus, tend to
drive up the market price of the shares to a level closer to the NAV.
Conversely, if the market price for ETF shares exceeds the NAV per
share of the ETF itself, a financial institution can deposit a basket
of securities in exchange for the more valuable creation unit of ETF
shares, and then sell the individual shares in the market to realize
its profit. These sales would increase the supply of ETF shares in the
secondary market and, thus, would tend to drive down the price of the
ETF shares to a level closer to the NAV of the ETF share.
[67] Financial institutions buy creation units with a basket of
securities that generally mirrors the ETF's portfolio. After purchasing
a creation unit, the institution often splits it up and sells the
individual shares on a secondary market. This permits retail investors
to purchase and trade the individual shares instead of creation units.
ETF shares are not redeemable from the ETF except in creation units.
The financial institution acquires (through purchases on national
securities exchanges, principal transactions, or private transactions)
the number of ETF shares that comprise a creation unit, and redeems the
creation unit from the ETF in exchange for a "redemption basket" of
securities and other assets.
[68] These commenters represented the views of some issuers, an
industry trade association of small broker-dealers, and a securities
lending consultant that we either spoke with or whose written comments
to SEC we reviewed.
[69] As we have previously discussed, Regulation SHO provides an
exception to the locate requirement for market makers engaged in bona
fide market making. SEC staff do not know the percentage of short sales
that are effected by market makers.
[70] Examinations that we reviewed confirmed these practices.
[71] The securities lending consultant told us that because it costs
nothing to locate shares, a large amount of locating occurs with the
knowledge that borrowing and actual short selling will not take place.
[72] A buy-in occurs when the seller does not deliver the securities on
time and the buyer is forced to obtain the securities elsewhere (e.g.,
by purchasing them in the open market). The costs of conducting the buy-
in, including any transaction costs and difference in the price of the
security, can be passed to the seller.
[73] The fifth firm used a proprietary system to assist in complying
with the short sale locate requirement. This system also required users
to call the securities lending desk if the system identified the
security as hard to borrow.
[74] Industry officials told us that they do not accept customer-
provided locates from retail investors.
[75] Officials from several clearing broker-dealers told us that they
generally are not able to link a FTD on a particular day for a
particular security to an individual trade. As we have previously
discussed, clearing broker-dealers settle their trades in individual
securities on a net basis. If the clearing broker-dealer does not
deliver sufficient securities to NSCC and FTD result, these officials
said that they could not identify the particular trade responsible,
particularly if the security is a liquid security and there have been
many trades that day. These officials noted one exception--generally
they can identify an individual trade responsible for FTD if securities
are very illiquid. For example, they said that if a particular security
had four trades on a particular day, they could more easily determine
how the FTD occurred.
[76] An "open short position" refers to a short seller that has
executed a short sale, but has not yet purchased securities in the open
market to return the borrowed securities used to settle the trade.
Until the borrowed securities are returned, the short seller is said to
have an open short position.
[77] The emergency order was announced on July 15, 2008; became
effective on July 21, 2008; and, after an extension, expired on August
12, 2008. OEA compared the changes in selected market statistics from
the period when the order was in effect to a prior period. OEA defined
the preorder period from June 12, 2008, to July 11, 2008; the
transition period (the week when the order was announced) from July 14,
2008, to July 18, 2008; and the postorder period from July 21, 2008, to
August 12, 2008.
[78] Some caution should be used in interpreting these results because
the July emergency order was in effect for only 17 days. Moreover,
because the special treatment these 19 financial firms received may
have been perceived as adverse information, it is difficult to conclude
that it was the temporary rules and not investor reaction to perceived
differences that caused security lending rates to rise for the 19
firms. Therefore, it is not clear whether the results would be the same
if all firms were subject to similar restrictions.
[79] OEA found that securities lending rates over the review period
increased around the time that the order went into effect for all
groups examined, but the change was only statistically significant for
the securities listed in the order.
[80] In a loan contract, the borrower agrees to put up cash collateral
of 102 percent to 105 percent of the value of the shares borrowed. The
lender agrees to pay the borrower a portion of the interest earned on
the collateral. The lender keeps the rest of the interest as payment
for supplying the loan. The payment from the lender to the borrower is
called a "rebate," and the rate agreed upon is the "rebate rate." In
general, the more the lender keeps, the lower the rebate rate.
Therefore, lower rebate rates mean higher security lending rates.
[81] The following two studies in the private sector also reviewed the
impact of the July emergency order on the securities lending market:
Spitalfields Advisors, "A Review of the Securities and Exchange
Commission's (SEC) Emergency Order Concerning "Naked" Short Selling"
(August 2008); and Sungard Astec Analytics, "Analysis of the Effect of
the SEC's Special Order on the Securities Lending Market" (Aug. 14,
2008). These studies also found that borrowing costs increased in the
securities of the 19 firms subject to the order, and that many firms
overborrowed securities to ensure the prompt settlement of short sales.
[82] While borrowing increased significantly for the securities of the
19 financial firms, it appeared to be temporary. One research firm
specializing in securities lending reported that two-thirds of the
securities borrowed after the rule was announced were returned to their
original owners by August 12, 2008. According to the firm's report, the
increase in securities on loan indicated that the borrowing was a
"precautionary measure to guard against overly stringent
interpretations of the rule, a possible lack of exemption for market
makers, and a potential dearth of shares within a market governed by a
new paradigm." See Analysis of the Effect of the SEC's Special Order.
[83] See SEC Press Release 2009-76.
[84] In July 2007, NASD (which regulated the OTC market for exchange-
listed and non-exchange-listed securities and provided regulatory
services to markets, such as Amex and NASDAQ) merged with the member
regulation, enforcement, and arbitration functions of NYSE to form
FINRA.
[85] The order-marking requirement states that broker-dealers are to
mark the sale of each security correctly as either long or short.
Examiners test compliance with this requirement to ensure that broker-
dealers are not mismarking trades to evade compliance with other
provisions of Regulation SHO, such as the locate requirement, or other
SEC rules.
[86] According to OCIE officials, approximately half of these 90
examinations were broker-dealer oversight examinations and half were
cause. Of the cause examinations, none were originated to review
Regulation SHO, but in many instances examiners included a review after
preliminary examination work revealed concerns.
[87] We chose examinations for review on the basis of the general
business model of the broker-dealer, the perceived size of the broker-
dealer, and the year in which the examination took place.
[88] However, SEC has charged other violations in settled matters where
the conduct was similar to that prohibited by Regulation SHO. In the
Matter of Sandell Asset Management Corp., et al., Securities Act
Release No. 8857, October 10, 2007, and in the Matter of Goldman Sachs
Execution & Clearing, L.P., Securities Exchange Act Release No. 55464,
March 14, 2007. Neither of these administrative proceedings were the
result of examination findings.
[89] FINRA conducts the Risk Oversight and Operational Regulation
Program, the Sales Practice Examination Program, and the Trading and
Market Surveillance Program examinations of member firms every 1, 2, or
4 years, depending on FINRA's risk assessment of the member firm.
Larger firms that cover a significant share of the marketplace and
firms that have other high-risk attributes, such as a prior enforcement
action or serious deficiencies, are considered high risk and examined
every year. FINRA's Market Regulation Short Sale Section conducts
automated surveillance to assess member compliance with FINRA's monthly
short position reporting and to detect potentially abusive practices
associated with short sales. The effectiveness of this surveillance
depends on whether members are accurately marking their sale orders.
[90] FINRA's uses various methods for selecting a sample of trades for
review. For example, the Trading and Market Surveillance Program had
developed a sampling process that selects trades that may be indicative
of Regulation SHO violations.
[91] CBOE officials stated that member firm examinations are conducted
every year for the largest clearing firms and for those firms that
conduct business with public customers. The remaining members are
examined up to every other year. The total number of violations exceeds
the number of examinations with Regulation SHO findings because some
examinations contained more than one type of violation.
[92] Disciplinary Panel, American Stock Exchange LLC, Case No. 07-174
(Brian A. Arenstein and ALA Trading LLC) and Case No. 07-71 (Scott H.
Arenstein and SBA Trading LLC). According to the findings of Amex, each
options trader utilized the market maker exemption to impermissibly
engage in naked short selling by failing to locate securities to borrow
and then engaged in a series of close-out transactions designed to
circumvent Regulation SHO delivery obligations in such securities by
creating the appearance of a bona fide repurchase of the securities the
trader initially had sold short. In both proceedings, it was found that
as a result of this trading activity, each trader was able to maintain
impermissible naked short positions in a number of Regulation SHO
threshold securities for a virtually unlimited period of time.
[93] For a detailed description of how the SROs and SEC investigate
potential market manipulation cases and of the process that SEC uses to
respond to complaints, see GAO, Securities and Exchange Commission:
Opportunities Exist to Improve Oversight of Self-Regulatory
Organizations, [hyperlink, http://www.gao.gov/products/GAO-08-33]
(Washington, D.C.: Nov. 15, 2007). The SEC Inspector General also
recently issued a report on SEC's process for responding to
manipulative naked short selling complaints and referrals. See SEC,
Office of Audits, Practices Related to Naked Short Selling Complaints
and Referrals. Report No. 450 (Mar. 18, 2009).
[94] The SROs gather this information through a variety of processes,
including "bluesheeting." When bluesheeting a broker-dealer, the SROs
request detailed information about trades performed by the firm and its
client, including the security's name, the date traded, price, and
transaction size. The questionnaires that the SROs use originally were
printed on blue paper, hence, the name blue sheets. Today, due to the
high volume of trades, this information is provided electronically.
[95] These industry officials represented the views of several broker-
dealers and a large industry trade association with whom we spoke.
[96] SEC, 2004-2009 Strategic Plan.
[97] A threshold security is an equity security where, for 5
consecutive settlement days, (1) aggregate FTD at a registered clearing
agency constitute 10,000 shares or more; (2) the level of FTD is equal
to at least one-half of 1 percent of the issuer's total shares or more;
and (3) the security is included on a list published by the SROs. To be
removed from the threshold list, the level of FTD in a security must
not exceed the threshold for 5 consecutive settlement days.
[98] CNS positions do not represent ownership. Only DTC account
positions represent ownership.
[99] According to NSCC, the CNS System reduces the value of securities
and payments that need to be exchanged by an average of 98 percent each
day.
[100] The fact that a participant fails to receive securities that it
purchased on behalf of a retail customer does not mean that the
customer's purchase is not completed until the participant's FTR is
cured. Under Article 8 of the Uniform Commercial Code, a securities
broker-dealer may credit a customer's account with a security even
though that security has not yet been delivered to the broker-dealer's
account at DTC by NSCC. In that event, the customer receives what is
defined under the code as a "securities entitlement," which requires
the broker-dealer to treat the person for whom the account is
maintained as entitled to exercise the rights that comprise the
security.
[101] NSCC employs an algorithm to allocate shares to participants with
net short positions. The algorithm is based on priority groups in
descending order, the age of position within priority groups, and
random numbers within age groups.
[102] A buy-in occurs when the seller does not deliver the securities
on time, and the buyer is forced to obtain the securities elsewhere
(e.g., by purchasing them in the open market). The costs of conducting
the buy-in, including any transaction costs and difference in the price
of the security, generally are passed to the seller.
[103] 69 Fed. Reg. 48008 (Aug. 6, 2004).
[104] For example, SEC stated that the close-out requirement did not
apply to any FTD that were established prior to the security becoming a
threshold security. SEC termed this exception the grandfather
exception. However, after later considering data showing that
substantial and persistent FTD in a small number of threshold
securities were not being closed out due to reliance on the grandfather
exception, SEC amended Regulation SHO in August 2007 to eliminate the
exception.
[105] 73 Fed. Reg. 54875 (Sept. 23, 2008).
[106] A "long sale" is the sale of securities in which the seller owns
the securities that were sold.
[107] OTCBB is a regulated electronic trading service that shows real-
time quotes, last-sale prices, and volume information for over the
counter (OTC) equity securities. Pink OTC Markets, Inc., operates Pink
Quote (formerly known as Pink Sheets), an electronic quotation system
that displays quotes from many broker-dealers for many OTC securities.
Broker-dealers use Pink Quote to publish their bid and ask prices of
OTC stocks. There are no listing requirements for a company to start
trading on OTCBB or Pink Quote.
[108] Commission staff is separately providing technical comments on
the Report to GAO staff.
[End of section]
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