NASD members must make an affirmative determination for all short sales prior to executing the sale (absent an exemption), including short positions not carried overnight.


January 18, 2000

 

Michael T. Dorsey
Senior Vice President and General Counsel
Knight Securities, L.P.
525 Washington Boulevard
Jersey City, N.J. 07310

 

Re: Rule 3370(b)(2)(B)

 

Dear Mr. Dorsey:

 

This letter responds to your request for NASD Regulation, Inc. ("NASD Regulation") to reconsider its interpretive position under National Association of Securities Dealers, Inc. ("NASD") Rule 3370(b)(2)(B) with respect to the timing of the affirmative determinations members must make to effect proprietary short sales. The long-standing position of NASD Regulation on this issue is that firms must make an affirmative determination for all short sales prior to executing the sale (absent an exemption).1 You have asked NASD Regulation to consider altering this interpretation and require firms to make an affirmative determination only when they will carry short positions overnight.

 

NASD Regulation has carefully considered your request, but has determined to retain the current interpretation. I have enclosed a copy of a recently-issued Notice to Members wherein NASD Regulation reiterates, and states the rationale for, this position.2

 

I hope this letter is responsive to your inquiry. Please note that the opinions expressed in this letter are staff opinions only and have not been reviewed or endorsed by the Board of Directors of NASD Regulation. This letter responds only to the issues you have raised based on the facts as you have described them in your letter, and does not necessarily address any other rule or interpretation of the NASD or all the possible regulatory and legal issues involved.

 

Please do not hesitate to contact me should you have any further questions about this issue.

 

Sincerely yours, 

 

 

 

Mary N. Revell
Associate General Counsel

 

Enclosure

 

cc: Gary Liebowitz
District 9B




 

1 See Reminder of Affirmative Determination Requirements, NASD Regulation Regulatory & Compliance Alert, Vol 12.1 (March 1998), at 36.

 

2 NASD Notice to Members 99-98 (NASD Regulation Reiterates That Members Must Comply With All Short Sale Rules When Receiving Orders Through Electronic Order Systems Or The Internet And Reiterates The Operation Of The Affirmative Determination Rule)(December 1999).