On February 9, the Securities and Exchange Commission withdrew a no-action letter that was issued on November 28, 2012 (Old Letter), and issued a new one in its place (New Letter). The New Letter is identical to the Old Letter except that it: (1) expands the equity securities of a foreign issuer that may be treated as having a “ready market” from ones that are listed on the FTSE World Index to securities listed for trading on a foreign securities exchange located within a country that is recognized on the FTSE World Index if they have been trading for at least 90 days; and (2) it alters footnote 5. Per the New Letter, the SEC is continuing to grant no-action relief, stating that it will not recommend enforcement action if a broker-dealer treats an equity security of a foreign issuer as having a ready market under paragraph (c)(11) of the Net Capital Rule (and subject to the haircuts under paragraph (c)(2)(vi)(J)), if the following conditions are met:
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the security is listed for trading on a foreign securities exchange located within a country that is recognized on the FTSE World Index and the security has been trading on that exchange for at least the previous 90 days;
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daily quotations for both bid and ask or last sale prices for the security provided by the foreign securities exchange on which the security is traded are continuously available to broker-dealers in the United States through an electronic quotation system;
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the median daily trading volume (calculated over the preceding 20-business-day period) of the foreign equity security on the foreign securities exchange on which the security is traded is either at least 100,000 shares or $500,000; and
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the aggregate unrestricted market capitalization in shares of such security exceeds $500 million over each of the preceding 10 business days.
The Old Letter, however, required that the median daily trading volume (calculated over the preceding 20-business-day period) of the foreign equity security on the foreign securities exchange on which the security is traded be at least 100,000 shares or $500,000. In addition, footnote 5 stated that “shares purchased by the computing broker-dealer during the preceding 20-business-day period are to be excluded when determining the median trading volume.” The SEC has become aware that footnote 5 creates an operational burden on the computing broker-dealers and revised it in the New Letter to say the “trading volume calculations must be based upon bona fide transactions.”
To read the New Letter, click here.
