NASD Notice to Members 04-52 - July 2004

Guidance on the Requirements for Availability of the Bona Fide Fully Arbitraged Exemption

Executive Summary

There has been discussion in the financial press about the listing of securities on foreign markets without a company's knowledge or authorization. Some reports have suggested that the purpose behind such listings is to avoid the requirements of Rule 3370 (affirmative determination requirements) through the use of the arbitrage exemption available under subparagraphs (b)(2)(B) and (b)(5)(B) of Rule 3370. Without commenting on listing activity occurring in non-U.S. markets, NASD is taking this opportunity to remind member firms of their affirmative determination obligations for both member and non-member proprietary short sale transactions and under what circumstances the bona fide fully arbitraged exemption is available.

 

Questions regarding this Notice may be directed to the Legal Section, Market Regulation, at (240) 386-5126; or the Office of General Counsel, Regulatory Policy and Oversight, at (202) 728-8071.