consider exceptions that would permit high frequency traders \537\ and
other market makers to continue to provide the same level of liquidity
to the markets.\538\
---------------------------------------------------------------------------

    \535\ See, e.g., roundtable statement of Rosenblatt Securities;
letter from BATS (May 2009); letter from Matlock Capital (May 2009);
letter from Pink OTC; letter from Direct Edge (June 2009); letter
from Engmann Options; letter from Prof. Rosenthal; letter from
Credit Suisse (June 2009); letter from John Gilmartin, Co-CEO and
Ben Londergan, Co-CEO, Group One Trading, L.P., dated June 17, 2009
(``Group One Trading (June 2009)''); letter from Allston Trading
(June 2009); letter from Knight Capital (June 2009); letter from
STANY (June 2009); letter from AIMA; letter from Barclays (June
2009); letter from Citadel et al. (June 2009); letter from EWT (June
2009); letter from GETCO (June 2009); letter from Goldman Sachs
(June 2009); letter from ICI (June 2009); letter from NYSE Euronext
(June 2009); letter from RBC (June 2009); letter from SIFMA (June
2009); letter from STA (June 2009); letter from T.D. Pro Ex; letter
from Vanguard (June 2009); letter from Direct Edge (Sept. 2009);
letter from BATS (Sept. 2009); letter from Credit Suisse (Sept.
2009); letter from Group One Trading (Sept. 2009); letter from
Allston Trading (Sept. 2009); letter from Knight Capital (Sept.
2009); letter from STANY (Sept. 2009); letter from Citadel et al.
(Sept. 2009); letter from EWT (Sept. 2009); letter from GETCO (Sept.
2009); letter from Goldman Sachs (Sept. 2009); letter from NYSE
Euronext (Sept. 2009); letter from RBC (Sept. 2009); letter from
SIFMA (Sept. 2009); letter from William J. Brodsky, Chairman and
CEO, The Chicago Board Options Exchange, Inc., dated Sept. 21, 2009
(``CBOE (Sept. 2009)''); letter from Edward Jones; letter from Virtu
Financial.
    \536\ See, e.g., letter from SIFMA (June 2009); letter from
Knight Capital (June 2009); letter from EWT (June 2009); letter from
GETCO (June 2009); letter from Goldman Sachs (June 2009); letter
from EWT (Sept. 2009); letter from Virtu Financial; but cf. letter
from Dr. Jim DeCosta, dated Sept. 14, 2009 (``Dr. Jim DeCosta'')
(noting that there are currently few barriers to entry for market
makers and abuse can arise from small market makers, who are in need
of business, being willing to misuse a bona fide market maker
exemption in exchange for order flow).
    \537\ See letter from Bingham McCutchen.
    \538\ See, e.g., roundtable statement of Rosenblatt Securities;
letter from MFA (June 2009); see also letter from Credit Suisse
(Mar. 2009).
---------------------------------------------------------------------------

    Some commenters stated that an exception for options market makers,
in particular, would be necessary for any short sale price test
restriction, citing the important role that short selling plays in an
options market maker's ability to hedge risk and the negative impact
that a short sale price test restriction would have on options market
quality, liquidity, bid-ask spreads, quote size, and investor
costs.\539\ One commenter noted that although former Rule 10a-1 did not
contain an options market maker exception, the NASD's former bid test
contained an exception that ``allowed options market makers to provide
liquidity and depth for listed options by allowing them to hedge,'' but
that also had ``limited definitions and scope.'' \540\ Another
commenter recognized the risk of a transference effect resulting from
an options market maker exception, namely that an exception may
facilitate short selling by buying puts from or selling calls to market
makers, but stated that there was no empirical evidence showing that
the risk is more than theoretical.\541\
---------------------------------------------------------------------------

    \539\ See, e.g., roundtable statement of Rosenblatt Securities;
letter from BATS (May 2009); letter from Matlock Capital (May 2009);
letter from Direct Edge (June 2009); letter from Engmann Options;
letter from Prof. Rosenthal; letter from Credit Suisse (June 2009);
letter from Group One Trading (June 2009); letter from STANY (June
2009); letter from John Favia, Blue Capital Group LLC, dated June
19, 2009 (``Blue Capital''); letter from Goldman Sachs (June 2009);
letter from ISE (June 2009); letter from NYSE Euronext (June 2009);
letter from RBC (June 2009); letter from SIFMA (June 2009); letter
from STA (June 2009); letter from T.D. Pro Ex; letter from Boston
Options Exchange et al. (June 2009); letter from Direct Edge (Sept.
2009); letter from BATS (Sept. 2009); letter from Credit Suisse
(Sept. 2009); letter from Group One Trading (Sept. 2009); letter
from Knight Capital (Sept. 2009); letter from STANY (Sept. 2009);
letter from Goldman Sachs (Sept. 2009); letter from ISE (Sept.
2009); letter from NYSE Euronext (Sept. 2009); letter from RBC
(Sept. 2009); letter from SIFMA (Sept. 2009); letter from Boston
Options Exchange, Chicago Board Options Exchange, International
Securities Exchange, Nasdaq Options Market, Nasdaq OMX PHLX, NYSE
Amex, NYSE Arca and The Options Clearing Corporation, dated Sept.
22, 2009 (``Boston Options Exchange et al. (Sept. 2009)''); letter
from CBOE (Sept. 2009).
    \540\ Letter from CBOE (June 2009); see also letter from Boston
Options Exchange et al. (June 2009); letter from ISE (June 2009);
letter from Citadel et al. (June 2009); letter from STANY (June
2009); letter from GETCO (June 2009).
    \541\ See letter from Blue Capital; but cf. letter from John H.
Frazer, Jr., dated May 4, 2009 (``Frazer'') (stating that if options
market makers are not subject to the short sale price test
restriction, then ``short sellers will simply purchase Puts knowing
that Options Market Makers will simply sell the stock short without
restriction.'').
---------------------------------------------------------------------------

    Some commenters stated that a market maker exception should include
market makers in listed and OTC derivatives.\542\ Other commenters
stated that a market maker exception should cover block
positioners.\543\ In addition, some commenters stated that a market
maker exception should include market makers in convertibles and
warrants.\544\ Several commenters stated that an exception for market
makers in ETFs should be included in any price test restriction adopted
by the Commission.\545\
---------------------------------------------------------------------------

    \542\ See, e.g., letter from Direct Edge (June 2009); letter
from Credit Suisse (June 2009); letter from STANY (June 2009);
letter from Barclays (June 2009); letter from Goldman Sachs (June
2009); letter from ICI (June 2009); letter from NYSE Euronext (June
2009); letter from RBC (June 2009); letter from SIFMA (June 2009);
letter from ISDA; letter from Direct Edge (Sept. 2009); letter from
Credit Suisse (Sept. 2009); letter from STANY (Sept. 2009); letter
from Goldman Sachs (Sept. 2009); letter from RBC (Sept. 2009);
letter from SIFMA (Sept. 2009).
    \543\ See letter from Credit Suisse (June 2009); letter from RBC
(June 2009); letter from SIFMA (June 2009); letter from SIFMA (Sept.
2009); letter from Credit Suisse (Sept. 2009); letter from RBC
(Sept. 2009).
    \544\ See, e.g., letter from Credit Suisse (June 2009); letter
from SIFMA (June 2009); letter from Credit Suisse (Sept. 2009);
letter from Direct Edge (Sept. 2009); letter from SIFMA (Sept.
2009).
    \545\ See, e.g., letter from Credit Suisse (June 2009); letter
from Allston Trading (June 2009); letter from STANY (June 2009);
letter from Goldman Sachs (June 2009); letter from ICI (June 2009);
letter from SIFMA (June 2009); letter from SIFMA (Sept. 2009);
letter from Credit Suisse (Sept. 2009); letter from STANY (Sept.
2009); letter from Goldman Sachs (Sept. 2009); letter from Direct
Edge (Sept. 2009).
---------------------------------------------------------------------------

    In addition, some commenters stated that to not include an
exception for bona fide market making activities is inconsistent with
the Commission's short sale-related emergency orders issued in mid- to
late-2008, which included various forms of exceptions for bona fide
market making activities.\546\ Commenters also noted that since its
adoption in 2004, Regulation SHO has included an exception for bona
fide market making activities from the ``locate'' requirement of Rule
203(b)(1).\547\ Several commenters also noted that fails to deliver
resulting from certain bona fide market making activity are provided
additional time to be closed out under Regulation SHO's close-out
requirements.\548\
---------------------------------------------------------------------------

    \546\ See, e.g., letter from SIFMA (June 2009); letter from RBC
(June 2009); letter from CBOE (June 2009); letter from Boston
Options Exchange et al. (June 2009); letter from ISE (June 2009);
letter from Citadel et al. (June 2009); letter from Goldman Sachs
(June 2009); see also supra Section II.C. (discussing the
Commission's emergency orders).
    \547\ See, e.g., letter from SIFMA (June 2009); letter from CBOE
(June 2009); letter from Boston Options Exchange et al. (June 2009);
letter from Goldman Sachs (June 2009); letter from GETCO (June
2009); see also 17 CFR 242.203(b)(2)(iii).
    \548\ See, e.g., letter from Goldman Sachs (June 2009); letter
from Wolverine; letter from Boston Options Exchange et al. (June
2009); letter from GETCO (Sept. 2009); letter from Virtu Financial;
letter from Nasdaq OMX Group (Oct. 2009); see also 17 CFR
242.204(a)(3).

---------------------------------------------------------------------------

    Several commenters, however, discussed the importance of limiting a
market maker exception to bona fide market making activity and
requested that the Commission define the term strictly so as to
eliminate the possibility for gaming.\549\ Moreover, some commenters
stated that a market maker exception may not be necessary. For example,
commenters noted that equity market makers will usually sell at their
offer quote, which would not be inhibited by any price test
restriction.\550\ One commenter stated that if we were to adopt a
circuit breaker approach with the alternative uptick rule, an equity
market making exception may not be as critical because equity market
makers generally post their offers one price increment above the
national best bid.\551\ This commenter stated that ``[i]n a market
characterized by the kind of decline that would trigger a circuit
breaker, remaining above the [national best bid] will tend to be the
natural norm.'' \552\
---------------------------------------------------------------------------

    \549\ See letter from Pink OTC; letter from SIFMA (June 2009);
letter from STA (June 2009); letter from SIFMA (Sept. 2009); see
also letter from NYSE Euronext (June 2009); letter from NYSE
Euronext (Sept. 2009) (stating that the definition should contain
some obligation to the market).
    \550\ See letter from CBOE (June 2009); letter from GETCO (June
2009). Although GETCO stated that a market maker typically should
not need an exception because the market maker will be able to sell
short on the offer when providing liquidity, this commenter also
noted that market makers such as GETCO ``often employ market making
strategies that sometimes include removing liquidity on the bid as
part of the overall strategy, which may include short selling.''
GETCO stated that such strategies result in tighter spreads, more
liquidity and potentially lower costs to investors. See letter from
GETCO (June 2009).
    \551\ See letter from Direct Edge (Sept. 2009).
    \552\ Letter from Direct Edge (Sept. 2009).
---------------------------------------------------------------------------

    Other commenters stated that there should not be an exception for
market makers in any short sale price test restriction that the
Commission adopts.\553\ One commenter noted that the activities of
market makers ``are not unique in contributing to market efficiency;
all market participants, regardless of trading frequency or
professional expertise, improve market quality by their very
participation, whether or not their trading activity is arbitrage or
professional market making * * * the Commission's goal should be to
implement rules that are sufficiently focused and require few, if any,
exceptions to maintain market quality.'' \554\ In addition, as
discussed in Section III.B. above, several commenters cautioned against
the Commission adopting numerous exceptions and discussed problems that
may arise from adopting a short sale price test restriction with many
or complex exceptions, such as additional implementation difficulties,
greater compliance costs, lack of uniformity that may cause unfair
application of the rule, increased opportunities for gaming and abuse,
and, overall, a less effective rule that only applies to a limited
number of short sales.\555\
---------------------------------------------------------------------------

    \553\ See, e.g., letter from David G. Furr, dated Apr. 20, 2009;
letter from R. Skinner, dated Apr. 21, 2009; letter from Frazer;
letter from IBC; letter from Vitus Lask, dated June 20, 2009; letter
from Stephen R. Porpora, dated Sept. 10, 2009; letter from Hudson
River Trading; letter from David Furr, dated Nov. 3, 2009.
    \554\ Letter from Hudson River Trading.
    \555\ See supra note 434.
---------------------------------------------------------------------------

    At this time, we believe that including a provision to permit
broker-dealers to mark as ``short exempt'' short sale orders in
connection with market making activity in the equity or options markets
is not necessary and would not advance the goals of our adopting a
short sale price test restriction. We recognize that there are distinct
differences between options market making and market making in the
equity markets and that Rule 201 may impact these markets differently.
In addition, we recognize commenters' concerns regarding the potential
negative market impact of not including an exception for market making
activity in the equity or options markets. Due to the reasons discussed
below, however, we believe such impact, if any, would be limited. In
addition, we believe that the potential costs of not including
exceptions for equity and options market makers are justified by the
benefits provided by the Rule in preventing short selling, including
potentially manipulative or abusive short selling, from driving down
further the price of a security that has already experienced a
significant intra-day price decline.
    We believe that the potential negative market impact from not
including an equity or options market maker exception to Rule 201 will
be limited, in large part, because Rule 201 is a narrowly-tailored Rule
that will impose a short sale price test restriction only if the price
of a covered security declines by 10% or more from the covered
security's closing price as determined by the listing market for the
covered security as of the end of regular trading hours on the prior
day. In addition, once triggered, the short sale price test restriction
will apply for a limited period of time--the remainder of the day on
which the circuit breaker has been triggered and the following day.
Thus, unlike NASD's former bid test or former Rule 10a-1 (which also
did not include an exception for bona fide market making activity),
Rule 201 does not impose a short sale price test restriction that will
apply all the time to all covered securities. Nor does Rule 201 impose
a halt on short selling. Instead, Rule 201 is a targeted Rule that will
not impact trading in the majority of covered securities. As discussed
in more detail above,\556\ in response to our request for comment on an
appropriate threshold at which to trigger the proposed circuit breaker
short sale price restrictions, commenters submitted estimates of the
number of securities that would trigger a circuit breaker rule at a 10%
threshold \557\ and the estimates reflect that a 10% circuit breaker
threshold, on average, should result in a limited percentage of covered
securities triggering the threshold.\558\ In addition, following its
review of trading data, the Staff found that, during the period
covering April 9, 2001 to September 30, 2009, the price test
restrictions of Rule 201 would have, on an average day, been triggered
for approximately 4% of covered securities.\559\ The Staff also found
that for a low volatility period, covering January 1, 2004 to December
31, 2006, the 10% trigger level of Rule 201 would have, on an average
day, been triggered for approximately 1.3% of covered securities.\560\
---------------------------------------------------------------------------

    \556\ See supra Section III.A.5. (discussing the circuit breaker
trigger level).
    \557\ See, e.g., letter from Jordan & Jordan; letter from
Citadel et al. (June 2009); letter from MFA (June 2009); letter from
SIFMA (June 2009); letter from Credit Suisse (Sept. 2009).
    \558\ See supra notes 305 to 308 and accompanying text.
    \559\ See supra note 310 and accompanying text.
    \560\ See supra note 311 and accompanying text.
---------------------------------------------------------------------------

    In addition, we believe that any negative market impact due to the
lack of a bona fide market making exception for equity market makers
will be limited, if any, because as noted by some commenters, for the
most part, equity market makers sell at their offer quote.\561\ Thus,
the price test restriction of Rule 201, that requires short selling at
a price above the national best bid and only if the circuit breaker has
been triggered, is consistent with equity market making strategies
because these market makers generally post their offer quotes at a
price above the national best bid.\562\ In addition, because equity
market makers typically provide liquidity on the opposite side of the
market, if a covered security is experiencing significant downward
price pressure such that it is subject to

Rule 201, market makers will tend to be buying not selling the
security. Thus, equity market makers will continue to be able to
provide liquidity in that security.
---------------------------------------------------------------------------

    \561\ See, e.g., letter from CBOE (June 2009); letter from GETCO
(June 2009).
    \562\ See letter from Direct Edge (Sept. 2009).
---------------------------------------------------------------------------

    Although a number of commenters expressed concerns regarding the
lack of an options market maker exception from a price test
restriction, we do not believe that such an exception under Rule 201 is
necessary because, unlike with a ban on short selling, options market
makers will be able to sell short to hedge their positions even when
the restriction is in place.\563\ In addition, not all covered
securities have options traded on them (``optionable covered
securities''). As discussed above, data provided by commenters and
Staff analysis indicate that, on an average day, a limited number of
all covered securities would trigger a 10% circuit breaker level.\564\
Thus, an even more limited number of optionable covered securities
would trigger a 10% circuit breaker, thereby further reducing the need
for an options market maker exception to the Rule's requirements. To
the extent that an optionable covered security is subject to Rule 201,
we recognize this may result in a delay in an options market maker's
ability to sell short to hedge a position.\565\ Such delay, and the
resulting uncertainty options market makers may face (including as the
price of an optionable covered security approaches the circuit breaker)
regarding their ability to obtain immediate execution of their short
sale hedging transactions, may have a negative impact on the options
markets, such as the widening of options quote spreads.
---------------------------------------------------------------------------

    \563\ We note that some commenters, in stating that a short sale
price test restriction should include an options market maker
exception, provided support for their arguments by referencing the
impact of the Short Sale Ban Emergency Order that halted short
selling in the securities subject to the emergency order, rather
than imposing a short sale price test restriction that would
continue to allow short selling while the restriction is in effect.
See, e.g., letter from CBOE.
    \564\ See supra note 310 and 311 and accompanying text.
    \565\ We note that one commenter stated that ``[options market
makers] need immediacy in their hedges, which means selling at lower
than the inside offer quote.'' See letter from CBOE (June 2009).
Rule 201, if triggered, limits short selling to a price above the
current national best bid. Thus, it does not prevent short selling
at a price between the current national best bid and offer.
---------------------------------------------------------------------------

    We believe, however, that this potential negative market impact and
any resulting costs to options market makers will be limited and are
justified by the benefits of the Rule. As discussed above, we believe
these costs will be limited because, among other things, due to the
Rule's circuit breaker approach, the Rule's restrictions will not apply
to most optionable covered securities most of the time. In addition,
even when a security is experiencing excessive downward price pressure
such that the short sale price test restriction of Rule 201 has been
triggered for a particular security, we expect there will be purchasers
in the market willing to buy the security at the offer or at a price
between the current national best bid and offer. Thus, for securities
that are subject to Rule 201, there will be buying interest in the
market that will result in execution of short sale hedging
transactions.
    We have also determined not to include an options market maker
exception because we are concerned about creating an un-level playing
field between options market makers and market makers in other
derivatives that sell short to hedge their positions in the
derivative.\566\ For the reasons discussed above and below, we do not
believe that any market maker exception is necessary.
---------------------------------------------------------------------------

    \566\ We also note that, as discussed in Section III.A.1. above,
we, as well as some commenters, are concerned about the ability to
obtain a short position through the use of derivative products and
that synthetic short positions may increase as a result of the
adoption of a short sale price test restriction. We are concerned
that inclusion of an exception in Rule 201 for short sale hedging
transactions would make such an increase even more likely. See supra
Section III.A.1.
---------------------------------------------------------------------------

    We are also concerned that the inclusion of an exception for equity
or options market makers may create an opportunity for potential
misuse. Whether from misuse or proper use, if a large volume of short
selling were excepted from the short sale price test restrictions of
the Rule, such an exception could potentially undermine our goals for
adopting the Rule.\567\ We are also concerned that the inclusion of an
exception could result in significant additional surveillance and
compliance costs necessary to help to determine whether market
participants are validly claiming the applicable exception and to
prevent any misuse. In determining not to include such an exception, we
also considered these additional costs.
---------------------------------------------------------------------------

    \567\ See, e.g., Ekkehart Boehmer, Charles M. Jones and Xiaoyan
Zhang, 2009, Shackling Short Sellers: The 2008 Shorting Ban. This
study on the Short Sale Ban Emergency Order found that ``[d]uring
the shorting ban (19 Sep through 8 Oct), [NYSE-executed] short sales
are 7.72% of overall trading volume for stocks on the original ban
list, compared to 19.32% of overall trading volume over the same
time interval for the matching set of non-banned stocks.'' The
authors of the study attributed the on-going short sales in the
banned stocks to market makers selling short as part of their market
making and hedging activity, as such activity was excepted from the
Short Sale Ban Emergency Order. See id. While short sale volume
decreased in the banned stocks, based on this study's results and
its comparison of ban and non-ban stocks, approximately 40% of the
short sale trading volume would be expected to be exempt short
selling. This short selling may have occurred as a result of market
making exceptions.
---------------------------------------------------------------------------

    Although some commenters noted that the NASD's former bid test
contained exceptions for equity and options market makers, as noted
above, former Rule 10a-1, which was in place for almost seventy years,
and applied on a permanent, market-wide basis, did not contain any such
exceptions. We are not aware of any negative impact on market quality
or any significant costs to investors arising from the lack of such
exceptions. In addition, we note that although Regulation SHO currently
contains a limited exception from its locate requirement \568\ and an
additional two days to close out fails to deliver under its close-out
requirement for certain market making activity,\569\ these exceptions
relate to the ability to obtain shares in time to make delivery by
settlement date rather than to downward price pressure and potential
price manipulation resulting from short selling. Thus, although
commenters noted these exceptions as support for an exception from a
short sale price test restriction, we do not agree that the inclusion
of such exceptions to Regulation SHO's locate and close-out
requirements necessitates the inclusion of such an exception in Rule
201.
---------------------------------------------------------------------------

    \568\ See 17 CFR 242.203(b)(2)(iii).
    \569\ See 17 CFR 242.204(a)(3).
---------------------------------------------------------------------------

    Moreover, we note that we recently eliminated an exception to
Regulation SHO's close-out requirement relating to fails to deliver
resulting from options market making activity because, as we noted in
the Options Market Maker Elimination Release, a substantial level of
fails to deliver continued to persist in threshold securities, and it
appeared that a significant number of the fails were as a result of the
options market maker exception.\570\ In addition, in adopting that
amendment, we noted that although we acknowledged commenters' concerns
regarding the potential impact of the elimination of the options market
maker exception on market making risk, quote depths, spread widths, and
market liquidity, we believed that these potential effects were
justified by the benefits of requiring such fails to deliver to be
closed out within specific time-frames

rather than being allowed to persist indefinitely.\571\
---------------------------------------------------------------------------

    \570\ See Options Market Maker Elimination Release, 73 FR at
61696. In addition, as we stated in the Options Market Maker
Elimination Release, preliminary analysis by the Staff indicated
that there was a significant increase in fails to deliver in
threshold securities with options traded on them following
elimination of the grandfather exception to Regulation SHO's close-
out requirement. See id. at 61693.
    \571\ See id. at 61696. As discussed above and as noted by
several commenters to the Proposal and Re-Opening Release, since the
elimination of the options market maker exception to Regulation
SHO's close-out requirement, among other Commission actions, data
from the Staff indicates there has been a significant reduction in
fails to deliver. See supra note 119 (discussing the recent
reduction in fails to deliver).
---------------------------------------------------------------------------

    Similarly, although we recognize commenters' concerns about the
potential impact of the lack of an options market maker exception or a
general equity market maker exception on market liquidity, volatility,
spread widths, and investor costs, we believe, for the reasons
discussed, that these potential costs are justified by the benefits of
requiring that when a covered security's price is undergoing
significant downward price pressure, short selling in the security by
market makers generally is restricted. Moreover, as discussed above,
because the short sale price test restriction of Rule 201(b) will apply
to a covered security only after the security has experienced a
significant intra-day price decline, will remain in place for a limited
period of time, and will continue to permit short selling at a price
above the current national best bid (rather than, for example, halt all
short selling in that security) even when the restriction is in place,
we believe that the negative market impact, if any, when the
restriction is in place, will be limited.\572\
---------------------------------------------------------------------------

    \572\ See supra Sections III.A.3. and III.A.4. (discussing,
among other things, the market impact of the alternative uptick rule
in combination with a circuit breaker approach); see also infra
Sections X.B.1.a. and X.B.2.a. (discussing the market impact of the
alternative uptick rule and the circuit breaker approach).
---------------------------------------------------------------------------

    For the reasons discussed above, rather than provide an exception
for short selling in connection with bona fide market making activity,
whether in the equity or options markets, we have determined to limit
the extent to which market makers will be permitted to sell short
without restriction under Rule 201. We note, however, as discussed
above, Rule 201 permits broker-dealers to mark short sale orders as
``short exempt'' in connection with riskless principal transactions. We
also note that under Rule 201, a trading center's policies and
procedures will be designed to permit the execution or display of short
sale orders at the offer. As discussed above, and as noted by some
commenters, equity market makers typically will sell at their offer
quote.\573\ Thus, Rule 201 generally will not restrict short selling by
equity market makers engaged in bona fide market making activity.
Moreover, in connection with both equity and options market makers,
because most covered securities and, to an even greater extent, most
optionable covered securities, will not be subject to the short sale
price test restriction of Rule 201, these market makers will be able to
continue to provide liquidity and hedge positions, as applicable, by
selling short at or below the national best bid in most securities most
of the time. For all these reasons, at this time we do not believe it
is necessary to provide that a broker-dealer may mark an order ``short
exempt'' where the short sale order is in connection with bona fide
market making activity, whether in the equity or options markets.\574\
---------------------------------------------------------------------------

    \573\ See supra notes 550, 561, and 562 and accompanying text.
    \574\ We note, however, as discussed in more detail below, we
have instructed the Staff to assess the impact of the Rule on the
options markets and to provide a written assessment of the impact.
See infra Section VIII.
---------------------------------------------------------------------------

IV. Order Marking

    In the Proposal, we proposed amending Rule 200(g) of Regulation SHO
to add a ``short exempt'' marking requirement.\575\ Rule 200(g) of
Regulation SHO provides that a broker-dealer must mark all sell orders
of any security as ``long'' or ``short.'' \576\ As initially adopted,
Regulation SHO included an additional marking requirement of ``short
exempt'' applicable to short sale orders if the seller was ``relying on
an exception from the tick test of 17 CFR 240.10a-1, or any short sale
price test of any exchange or national securities association.'' \577\
We adopted amendments to Rule 200(g) of Regulation SHO to remove the
``short exempt'' marking requirement in conjunction with our
elimination of former Rule 10a-1.\578\
---------------------------------------------------------------------------

    \575\ See Proposal, 74 FR at 18082-18083.
    \576\ See 17 CFR 242.200(g).
    \577\ See 2004 Regulation SHO Adopting Release, 69 FR at 48030.
    \578\ See 2007 Price Test Adopting Release, 72 FR 36348.
---------------------------------------------------------------------------

    In conjunction with the adoption of Rule 201 of Regulation SHO to
add a short sale circuit breaker rule, we are amending Rule 200(g) of
Regulation SHO, substantially as proposed, to again impose a ``short
exempt'' marking requirement.\579\ Specifically, Rule 200(g), as
amended, provides that ``[a] broker or dealer must mark all sell orders
of any equity security as ``long,'' ``short,'' or ``short exempt.''
\580\ In addition, Rule 200(g)(2) provides that a sale order shall be
marked ``short exempt'' only if the provisions of paragraph (c) or (d)
of Rule 201 are met.\581\
---------------------------------------------------------------------------

    \579\ In connection with Rule 200(g), we note that we have made
one technical modification to Rule 200(g)(2) from the language in
the proposed circuit breaker with modified uptick rule.
Specifically, we have specified the subsections of Rule 201--
subsections (c) and (d)--that set forth the circumstances under
which a short sale order may be marked ``short exempt.''
    \580\ Rule 200(g).
    \581\ See Rule 200(g)(2).
---------------------------------------------------------------------------

    In response to our requests for comment, several commenters noted
that a new ``short exempt'' marking requirement would require
adjustments to front end systems, that many firms have multiple front
end systems, and that such costs would be multiplied for firms with
correspondent clearing operations because each correspondent firm can
have its own front end system.\582\ Commenters also stated that market
participants would need to make adjustments to reporting systems,
including blue sheets, OATS, and OTS reporting systems,\583\ in
addition to order entry and routing applications.\584\
---------------------------------------------------------------------------

    \582\ See letter from RBC (June 2009); letter from NSCP; see
also letter from FIF (June 2009).
    \583\ See letter from RBC (June 2009); letter from NSCP; letter
from FIF (June 2009).
    \584\ See letter from FIF (June 2009).
---------------------------------------------------------------------------

    In contrast, several commenters indicated that requiring broker-
dealers to mark all sell orders ``long,'' ``short,'' or ``short
exempt'' would provide valuable information to the Commission \585\ and
that such information would be worth the costs of requiring such
marking.\586\ One commenter indicated that the information provided by
a ``short exempt'' marking requirement would provide the Commission
with data on the extent to which exceptions are being used to
circumvent the requirements of Rule 201.\587\ In addition, with respect
to implementation periods, one commenter stated that the ``short
exempt'' marking requirement would require coding for new fields in
order records, which should be accomplished in approximately three
months.\588\
---------------------------------------------------------------------------

    \585\ See, e.g., letter from CFA; letter from STA (June 2009).
    \586\ See, e.g., letter from STA (June 2009).
    \587\ See id.
    \588\ See id.
---------------------------------------------------------------------------

    After considering the comments, we have determined to adopt the
proposed ``short exempt'' marking requirement, including the
requirement that a sale order shall be marked ``short exempt'' only if
the provisions of paragraph (c) or (d) of Rule 201 are met. The ``short
exempt'' marking requirement will provide a record that a broker-dealer
is availing itself of one of the provisions of paragraph (c) or (d) of
Rule 201. The records provided pursuant to the ``short exempt'' marking
requirements of Rule 200(g) will also aid surveillance by SROs and the
Commission for

compliance with the provisions of Rule 201. In addition, under the
policies and procedures approach required by Rule 201, the ``short
exempt'' marking requirement will indicate to a trading center whether
it must execute or display a short sale order without regard to whether
the short sale order is at a price that is less than or equal to the
current national best bid.
    We recognize that the ``short exempt'' marking requirement will
increase implementation and compliance costs, including costs related
to adjusting front-end systems, reporting systems, and order entry and
routing applications.\589\ We believe, however, that these costs are
justified by the benefit of the information that the ``short exempt''
marking requirement will provide. In addition, to allow sufficient time
to make any necessary systems changes, we are providing for a six month
implementation period for the ``short exempt'' marking requirement of
Rule 200(g) such that market participants will have to comply with this
requirement six months following the effective date of these
amendments. We believe that a six month implementation period will
provide market participants with sufficient time in which to modify
their systems and procedures in order to comply with the proposed
marking requirements. In addition, the six month implementation period
is consistent with the implementation period for Rule 201.
---------------------------------------------------------------------------

    \589\ See infra Section X.A.3. and Section X.B.4. (discussing
the benefits and costs of the ``short exempt'' order marking
requirement).
---------------------------------------------------------------------------

V. Exemptive Procedures

    Consistent with the provisions proposed, Rule 201(f) as adopted
includes provisions establishing procedures for the Commission, upon
written request or its own motion, to grant an exemption from the
Rule's provisions, either unconditionally or on specified terms and
conditions, if the Commission determines that such exemption is
necessary or appropriate in the public interest and is consistent with
the protection of investors.\590\ Pursuant to this provision, we will
consider and act upon appropriate requests for relief from the
provisions of Rule 201 and will consider the particular facts and
circumstances relevant to each such request and any appropriate
conditions to be imposed as part of the exemption.
---------------------------------------------------------------------------

    \590\ See Rule 201(f).
---------------------------------------------------------------------------

    In response to our request for comment, one commenter stated that
``it is important for the Commission to have detailed procedures for
granting exemptions,'' but that exemptions can decrease overall
compliance with the rule by encouraging other market participants to
tailor their situation to qualify for an exemption.\591\ The commenter
stated that the Commission ``must set the bar high for those seeking
exemptive relief.'' \592\
---------------------------------------------------------------------------

    \591\ Letter from STA (June 2009).
    \592\ Id.
---------------------------------------------------------------------------

    We have determined to include in Rule 201 a provision related to
granting exemptions from the Rule's provisions in order to provide
clear procedures for requests and grants of exemptions. As stated
above, we will consider requests for relief and grant exemptions from
Rule 201 if the Commission determines that an exemption is necessary or
appropriate in the public interest and is consistent with the
protection of investors, taking into account the particular facts and
circumstances relevant to each such request and any appropriate
conditions to be imposed in connection with the exemption.

VI. Overseas Transactions

    In connection with former Rule 10a-1, the Commission consistently
took the position that the rule applied to trades in securities subject
to that rule where the trade was ``agreed to'' in the U.S., but booked
overseas.\593\ In addition, in the 2004 Regulation SHO Adopting Release
we stated that any broker-dealer using the United States jurisdictional
means to effect short sales in securities traded in the United States
would be subject to Regulation SHO, regardless of whether the broker-
dealer is registered with the Commission or relying on an exemption
from registration.\594\ For example, a U.S. money manager decides to
sell a block of 500,000 shares in a covered security. The money manager
negotiates a price with a U.S. broker-dealer, who sends the order
ticket to its foreign trading desk for execution. In our view, this
trade was agreed to in the United States and occurred in the United
States as much as if the trade had been executed by the broker-dealer
at a U.S. trading desk. Consistent with these prior statements, we
stated in the Proposal that if a short sale is agreed to in the United
States, it must be effected in accordance with the requirements of the
proposed rules, unless otherwise excepted.\595\
---------------------------------------------------------------------------

    \593\ See Exchange Act Release No. 27938 (Apr. 23, 1990), 55 FR
17949 (Apr. 30, 1990) (stating that the no-action position exempting
certain index arbitrage sales from former Rule 10a-1 would not apply
to an index arbitrage position that was established in an offshore
transaction unless the holder acquired the securities from a seller
that acted in compliance with former Rule 10a-1 or other comparable
provision of foreign law). See also Exchange Act Release No. 21958
(Apr. 18, 1985), 50 FR 16302, 16306, n.48 (Apr. 25, 1985) (stating
that, ``Rule 10a-1 does not contain any exemption for short sales
effected in international markets.''). The question of whether a
particular transaction negotiated in the U.S. but nominally executed
abroad by a foreign affiliate is a domestic trade for U.S.
regulatory purposes was also addressed in the Commission's Order
concerning Wunsch Auction Systems, Inc. (WASI). The Commission
stated its belief that ``trades negotiated in the U.S. on a U.S.
exchange are domestic, not foreign trades. The fact that the trade
may be time-stamped in London for purposes of avoiding rule 390 does
not in our view affect the obligation of WASI and BT Brokerage to
maintain a complete record of such trades and report them as U.S.
trades to U.S. regulatory and self-regulatory authorities and, where
applicable, to U.S. reporting systems.'' See Exchange Act Release
No. 28899 (Feb. 20, 1991), 56 FR 8377, 8381 (Feb. 28, 1991). In what
is commonly referred to as the ``fax market,'' a U.S. broker-dealer
acting as principal for its customer negotiates and agrees to the
terms of a trade in the U.S., but transmits or faxes the terms
overseas to be ``printed'' on the books of a foreign office. This
practice of ``booking'' trades overseas was analyzed in depth in the
Division of Market Regulation's Market 2000 Report. In the Report,
the Division estimated that at that time approximately seven million
shares a day in NYSE stocks were faxed overseas, and many of these
trades were nominally ``executed'' in the London over-the-counter
market. See Division of Market Regulation, SEC, Market 2000: An
Examination of Current Equity Market Developments (Jan. 1994), Study
VII, p. 2.
    \594\ See 2004 Regulation SHO Adopting Release, 69 FR at 48014,
n.54.
    \595\ See Proposal, 74 FR at 18083-18084.
---------------------------------------------------------------------------

    In response to our request for comment, one commenter stated that
``[g]enerally speaking, the Commission has taken the position that the
provisions of Regulation SHO apply to transactions in covered
securities `agreed to' in the United States, but sent to a foreign
market for execution. Notwithstanding, there has been on-going
confusion in this area. The Commission should use this opportunity to
clarify the applicability of the restrictions (and Regulation SHO
generally) to transactions in covered securities executed on overseas
markets.'' \596\ Consistent with our prior statements, we note that
Rule 201 applies to any short sale effected using the United States
jurisdictional means, regardless of the jurisdiction in which the short
sale is executed.
---------------------------------------------------------------------------

    \596\ Letter from RBC (June 2009).
---------------------------------------------------------------------------

VII. Rule 201 Implementation Period

    In the Proposal and Re-Opening Release, we proposed a three-month
and two-month implementation period, respectively, and requested
comment regarding these implementation periods.\597\ We are adopting in
Rule 201 a six-month implementation period, such that trading centers
will have to comply with Rule 201 six months following the effective
date of Rule 201. We believe that this implementation period will
provide trading centers,

broker-dealers and other market participants with sufficient time in
which to modify their systems, policies and procedures in order to
comply with the requirements of Rule 201.
---------------------------------------------------------------------------

    \597\ See Proposal, 74 FR at 18042; Re-Opening Release, 74 FR at
42036.
---------------------------------------------------------------------------

    In response to our request for comment, commenters indicated that a
circuit breaker rule triggering the alternative uptick rule will
require an implementation period of between three and twelve
months.\598\ Several commenters noted that because the alternative
uptick rule, unlike the other proposed price tests, would not require
sequencing of bids or last sale prices, the alternative uptick rule
could be implemented more quickly than the other proposed price tests
and could be implemented within three to six months.\599\ One commenter
noted that implementation concerns with respect to a short sale price
test restriction could be minimized, provided that trading centers
``could leverage existing architecture developed to comply with the
Order Protection Rule in Reg NMS (Rule 611).'' \600\ Another commenter
noted that implementation of a circuit breaker triggering the
alternative uptick rule would be easier to implement, ``provided that
the Commission permits firms to leverage the numerous systems changes
made to facilitate compliance with Regulation NMS (including the use of
internal market data rather than consolidated data supplied by the
industry plans).'' \601\ Other commenters noted that adopting the
alternative uptick rule in conjunction with a circuit breaker, rather
than as a permanent, market-wide rule, would not add significantly to
the implementation time required.\602\
---------------------------------------------------------------------------

    \598\ See, e.g., letter from FIF (Sept. 2009); letter from
Citadel et al. (Sept. 2009); letter from Credit Suisse (Sept. 2009);
letter from Direct Edge (Sept. 2009); letter from EWT (Sept. 2009);
letter from NYSE Euronext (Sept. 2009); letter from RBC (Sept.
2009); letter from SIFMA (Sept. 2009); letter from MFA (Oct. 2009);
letter from Amer. Bankers Assoc.; see also letter from NSCP; letter
from RBC (June 2009); letter from STA (June 2009).
    \599\ See, e.g., letter from Credit Suisse (June 2009); letter
from Credit Suisse (Sept. 2009); letter from STA (Sept. 2009);
letter from FIF (Sept. 2009).
    \600\ Letter from MFA (Oct. 2009).
    \601\ Letter from Goldman Sachs (Sept. 2009).
    \602\ See, e.g., letter from Credit Suisse (Sept. 2009); letter
from Nasdaq OMX Group (Oct. 2009).
---------------------------------------------------------------------------

    Several commenters, however, did not agree that the absence of a
sequencing requirement would shorten the implementation time required
for the alternative uptick rule.\603\ In addition, several commenters
did not agree that previous implementation of Regulation NMS might
allow for quicker implementation of a price test.\604\ Other commenters
stated that adopting the alternative uptick rule in conjunction with a
circuit breaker would add to the implementation time.\605\ Some
commenters expressed concerns that allowing for certain exceptions
could affect the implementation time.\606\
---------------------------------------------------------------------------

    \603\ See, e.g., letter from Citadel et al. (Sept. 2009); letter
from NYSE Euronext (Sept. 2009); letter from RBC (Sept. 2009);
letter from SIFMA (Sept. 2009).
    \604\ See, e.g., letter from NSCP; letter from RBC (June 2009).
    \605\ See letter from Direct Edge (Sept. 2009) (stating that
adopting the alternative uptick rule with a circuit breaker would
add approximately four to six weeks to the development process);
letter from NYSE Euronext (Sept. 2009).
    \606\ See letter from Goldman Sachs (Sept. 2009); letter from
FIF (Sept. 2009).
---------------------------------------------------------------------------

    We believe that a six month implementation period is
appropriate.\607\ This implementation period, which is longer than the
implementation periods proposed in the Proposal and the Re-opening
Release, takes into consideration commenters' concerns that
implementation of a price test could be complex. We do not believe that
a longer implementation time is warranted because Rule 201 will not
require monitoring of the sequence of bids or last sale prices, unlike
other proposed price tests, and because Rule 201 will require the
implementation of policies and procedures similar to those required for
trading centers under Regulation NMS. In addition, market participants
will be able to leverage the numerous systems changes made and current
architecture developed to facilitate compliance with Regulation NMS.
These factors should reduce implementation time.
---------------------------------------------------------------------------

    \607\ We note that, in effect, market participants will have
approximately eight months from publication in the Federal Register
to implement Rule 201. Rule 201 will not become effective until
sixty days following publication in the Federal Register and the
Compliance Date for Rule 201 is six months following the Rule's
Effective Date.
---------------------------------------------------------------------------

    In addition, we believe the six month implementation period will
allow sufficient time to address any complexities implementing the
circuit breaker and the ``short exempt'' order marking
requirement.\608\ We note that broker-dealers are already familiar with
and have experience implementing a ``short exempt'' marking requirement
as Regulation SHO, as originally adopted, included such a
requirement.\609\ The ``short exempt'' marking requirement was
eliminated together with the elimination of all short sale price test
restrictions in July 2007.\610\ In addition, we note that broker-
dealers were able to make significant systems changes to de-program the
``short exempt'' marking requirement from their systems in less than 90
days from the compliance date for elimination of the requirement.\611\
Thus, we believe that a six month implementation period should be
sufficient.
---------------------------------------------------------------------------

    \608\ See supra Section III.B. (discussing the ``short exempt''
marking provisions of Rule 201) and supra Section IV. (discussing
the ``short exempt'' marking requirement of Rule 200(g)).
    \609\ See 2004 Regulation SHO Adopting Release, 69 FR 48008.
    \610\ See 2007 Price Test Adopting Release, 72 FR 36348.
    \611\ See letter from Josephine J. Tao, Assistant Director,
Division of Market Regulation, SEC, to Ira Hammerman, Senior
Managing Director and General Counsel, Securities Industry and
Financial Markets Association, dated July 2, 2007.
---------------------------------------------------------------------------

    We also believe that a six month implementation period is
appropriate for any systems changes that must be made by listing
markets and single plan processors to comply with Rule 201. As
discussed above, the single plan processors currently receive
information from listing markets regarding trading restrictions (i.e.
Regulatory Halts as defined in those plans) on individual securities
and disseminate such information. Thus, the requirements of Rule
201(b)(3) are similar to existing obligations on plan processors
pursuant to the requirements of Regulation NMS, the CTA and CQ Plans
and the Nasdaq UTP Plan. Due to this similarity, we believe that a six
month implementation period is appropriate.

VIII. Decision Not To Implement Rule 201 on a Pilot Basis

    In the Proposal, we requested comment regarding whether, before
determining whether to adopt a short sale price test restriction or
circuit breaker rule on a permanent basis, we should adopt a rule that
would apply on a pilot basis to specified securities.\612\ In response
to our request for comment, a number of commenters stated that any
price test restriction should be adopted on a pilot basis.\613\ A
number of commenters indicated that a pilot study should be conducted
prior to adoption of a price test on a permanent basis in order to
gather empirical evidence on the effectiveness and/or market impact

of a price test.\614\ Some commenters stated that adopting a price test
on a pilot basis only would limit any negative market impact to the
subset of securities subject to the price test.\615\ Another commenter
stated that a pilot study would allow the Commission to gather data on
the effects of a price test as compared to a control group not subject
to a price test.\616\ One commenter noted that a pilot study would
allow the Commission to observe the effects of a price test under
current market conditions,\617\ while another stated that the
Commission should study a price test in the context of severe market
conditions.\618\ Another commenter stated that a pilot study is
particularly important for the alternative uptick rule because it has
not been in effect in the market previously and would be more
restrictive than other proposed price tests.\619\ Other commenters
noted that a pilot study could provide data regarding the impact or
need for various exceptions to a price test.\620\ Several commenters
indicated that pilot study data should be made publicly available to
permit third parties to analyze the results of the pilot study.\621\
---------------------------------------------------------------------------

    \612\ See, e.g., Proposal, 74 FR at 18071.
    \613\ See, e.g., letter from BATS (May 2009); letter from IAG;
letter from BIO; letter from James J. Angel, PhD, CFA, Associate
Professor of Finance, McDonough School of Business, Georgetown
University, dated June 19, 2009 (``Prof. Angel (June 2009)'');
letter from Barclays (June 2009); letter from Citadel et al. (June
2009); letter from EWT (June 2009); letter from NSCP; letter from
RBC (June 2009); letter from STA (June 2009); letter from NYSE
Euronext (June 2009); letter from Knight Capital (June 2009); letter
from STANY (June 2009); letter from T. Rowe Price (June 2009);
letter from Credit Suisse (June 2009); memorandum regarding meeting
with Penson; letter from CFA; letter from Knight Capital (Sept.
2009); letter from Prof. Angel (Sept. 2009); letter from Dialectic
Capital (Sept. 2009); letter from Direct Edge (Sept. 2009); letter
from EWT (Sept. 2009); letter from NYSE Euronext (Sept. 2009);
letter from Qtrade; letter from RBC (Sept. 2009); letter from STANY
(Sept. 2009); letter from Virtu Financial.
    \614\ See, e.g., letter from BATS (May 2009); letter from BIO;
letter from Prof. Angel (June 2009); letter from Credit Suisse (June
2009); letter from Knight Capital (June 2009); letter from NSCP;
letter from RBC (June 2009); letter from STANY (June 2009);
memorandum regarding meeting with Penson; letter from CFA; letter
from Prof. Angel (Sept. 2009); letter from Dialectic Capital (Sept.
2009); letter from Direct Edge (Sept. 2009); letter from EWT (Sept.
2009); letter from Knight Capital (Sept. 2009); letter from Qtrade;
letter from RBC (Sept. 2009); letter from STANY (Sept. 2009); see
also letter from Park National (stating that a review of a price
test based on the national best bid should be conducted six months
after implementation to ensure effectiveness). We also note that a
number of commenters indicated that the Commission should gather
empirical evidence through further study, though not necessarily in
the form of a pilot study, prior to adopting a price test. See,
e.g., letter from BATS (May 2009); letter from Citadel et al. (June
2009); letter from Dialectic Capital (June 2009); letter from
Geoffrey F. Foisie, Investments Manager, Shawbrook, dated June 16,
2009; letter from Amer. Bar Assoc. (July 2009); letter from Jeffrey
W. Rubin, Chair, Committee on Federal Regulation of Securities,
American Bar Association, dated Sept. 30, 2009 (``Amer. Bar Assoc.
(Sept. 2009)''); letter from Goldman Sachs (Sept. 2009).
    \615\ See, e.g., letter from Credit Suisse (June 2009); letter
from STA (June 2009).
    \616\ See letter from Citadel et al. (June 2009).
    \617\ See letter from NYSE Euronext (June 2009).
    \618\ See letter from Virtu Financial.
    \619\ See letter from STANY (Sept. 2009).
    \620\ See, e.g., letter from T. Rowe Price (June 2009); letter
from Direct Edge (Sept. 2009); see also letter from Wells Fargo
(June 2009) (noting that additional study regarding an exception for
bona fide market making activity would be needed if the Commission
adopted a circuit breaker rule).
    \621\ See letter from BATS (May 2009); letter from STA (June
2009).
---------------------------------------------------------------------------

    In contrast, several commenters stated that the Commission should
not adopt a price test restriction on a pilot basis.\622\ Several of
these commenters expressed concerns regarding the costs to implement a
price test on a pilot basis,\623\ with some stating that such costs
would outweigh the benefits of a pilot study.\624\ One commenter stated
that a price test should be implemented as soon as possible, without a
pilot study, because a pilot study would produce little or no
benefit.\625\ Several commenters expressed support for a ``sunset''
provision allowing the Commission to more easily remove a price test
restriction if it was determined that the restriction was not meeting
the Commission's goals or was harming the market.\626\
---------------------------------------------------------------------------

    \622\ See, e.g., letter from Amer. Bankers Assoc.; letter from
SIFMA (June 2009); letter from IBC.
    \623\ See, e.g., letter from Amer. Bankers Assoc.; letter from
NYSE Euronext (June 2009); letter from SIFMA (June 2009); letter
from STA (June 2009).
    \624\ See, e.g., letter from Amer. Bankers Assoc.; letter from
SIFMA (June 2009).
    \625\ See letter from IBC.
    \626\ See, e.g., letter from SIFMA (June 2009); letter from
Dialectic Capital (June 2009). One commenter also cited easier
removal of the price test restriction as an argument for a pilot
study. See letter from STANY (June 2009).
---------------------------------------------------------------------------

    We have determined not to adopt Rule 201 on a pilot basis. We
believe that adopting the rule on a temporary pilot basis and/or only
for a subset of securities will not advance the goals of our adopting
Rule 201. For example, one goal in adopting Rule 201 is to address
erosion of investor confidence in our markets. We believe that adopting
Rule 201 on a pilot basis, such that the Rule would apply for the
duration of the pilot only, could undermine this goal because, among
other things, investors would know that the Rule is in place for a
limited period of time rather than on a permanent basis and, therefore,
may believe that any benefits that result from the Rule could be
temporary.
    In addition, we note that unlike the Pilot, which removed then-
existing short sale price test restrictions for a subset of securities,
undertaking a pilot study in connection with Rule 201 would require
market participants to undertake as much time, effort and expense as
full implementation of the new rule. As noted by one commenter, the
implementation cost would be the same whether the Rule is adopted on a
pilot or a permanent basis.\627\ We also do not believe a ``sunset''
provision would advance our goal of restoring investor confidence
because, as with a pilot, investors would know that the Rule is in
place for a limited period of time rather than on a permanent basis
and, therefore, may believe that any benefits that result from the Rule
could be temporary.
---------------------------------------------------------------------------

    \627\ See letter from STA (June 2009). We note that a number of
commenters expressed concerns regarding the implementation costs of
a price test. See infra Sections X.B.1.b. and X.B.2.b. (discussing
implementation costs).
---------------------------------------------------------------------------

    We encourage researchers, however, to provide the Commission with
their own empirical analyses regarding the impact of the Rule on the
options markets, and on market quality in general. We will, moreover,
carefully monitor the operation of the Rule to assess its impact and
effectiveness, including the Rule's impact on market quality, to
determine whether any modifications to the Rule are warranted. In
addition, we have instructed the Staff to assess the impact of the Rule
on the options markets and to provide us with a written report of their
assessment within the shortest time practicable for completing a
meaningful study, which we expect, in any event, will not exceed two
years from the Compliance Date.
    To the extent that we determine at any time that any of the current
parameters of Rule 201, such as the exceptions to the Rule, the 10%
trigger level, the duration of the price test restriction if triggered,
the basing of the trigger level on the prior day's closing price as
determined by the covered security's listing market, or changed market
conditions, result in Rule 201 not adequately addressing our concerns
or meeting our goals in adopting Rule 201, we will consider whether to
amend Rule 201, or grant relief thereunder, as appropriate at that
time.

IX. Paperwork Reduction Act

A. Background

    Certain provisions of the amendments to Regulation SHO contain new
``collection of information'' requirements within the meaning of the
Paperwork Reduction Act of 1995 (``PRA'').\628\ We submitted the
collection of information to the Office of Management and Budget
(``OMB'') for review and approval in accordance with 44 U.S.C. 3507(d)
and 5 CFR 1320.11. An agency may not conduct or sponsor, and a person
is not required to respond to, a collection of information unless it
displays a currently valid OMB control number. The title for the
collection of information is ``Rules 201 and 200(g)'' and the OMB
control number for the collection of information is 3235-0651.
---------------------------------------------------------------------------

    \628\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    We are adopting amendments to Rules 201 and 200(g) of Regulation
SHO under the Exchange Act. The amendments to Rule 201 impose a short
sale-related circuit breaker that, if triggered, will impose a short
sale price test restriction on a particular security for a limited

period of time. Specifically, Rule 201 requires that a trading center
establish, maintain, and enforce written policies and procedures
reasonably designed to prevent the execution or display of a short sale
order of a covered security at a price that is less than or equal to
the current national best bid if the price of that covered security
decreases by 10% or more from the covered security's closing price as
determined by the listing market for the covered security as of the end
of regular trading hours on the prior day.\629\ In addition, the Rule
requires that the trading center establish, maintain, and enforce
written policies and procedures reasonably designed to impose this
short sale price test restriction for the remainder of the day and the
following day when a national best bid for the covered security is
calculated and disseminated on a current and continuing basis by a plan
processor pursuant to an effective national market system plan.\630\ In
addition, we are adopting amendments to Rule 200(g) of Regulation SHO
to provide that a broker-dealer may mark certain qualifying sell orders
``short exempt.'' In particular, if the broker-dealer chooses to rely
on its own determination that it is submitting the short sale order to
the trading center at a price that is above the current national best
bid at the time of submission or to rely on an exception specified in
the Rule, it must mark the order as ``short exempt.'' \631\
---------------------------------------------------------------------------

    \629\ Rule 201(b). See also supra Section III.A.7. (discussing
the policies and procedures approach).
    \630\ Id.
    \631\ See Rules 200(g) and 200(g)(2); see also supra Section IV.
(discussing the amendments to Rule 200(g)).
---------------------------------------------------------------------------

B. Summary

    As detailed below, several provisions under the amendments to
Regulation SHO impose a new ``collection of information'' within the
meaning of the PRA.
1. Policies and Procedures Requirement Under Rule 201
    Rule 201 imposes a new ``collection of information'' within the
meaning of the PRA. Rule 201 requires that a trading center establish,
maintain, and enforce written policies and procedures reasonably
designed to prevent the execution or display of a short sale order of a
covered security at a price that is less than or equal to the current
national best bid if the price of that covered security decreases by
10% or more from the covered security's closing price as determined by
the listing market for the covered security as of the end of regular
trading hours on the prior day.\632\ In addition, the Rule requires
that the trading center establish, maintain, and enforce written
policies and procedures reasonably designed to impose this short sale
price test restriction for the remainder of the day and the following
day when a national best bid for the covered security is calculated and
disseminated on a current and continuing basis by a plan processor
pursuant to an effective national market system plan. Thus, a trading
center's policies and procedures must be reasonably designed to permit
the trading center to be able to obtain information from the single
plan processor regarding whether a covered security is subject to the
short sale price test restriction of Rule 201; if the covered security
is subject to the short sale price test restriction of Rule 201, to
determine whether or not the short sale order is priced in accordance
with the provisions of Rule 201(b); and to recognize when an order is
marked ``short exempt'' such that the trading center's policies and
procedures do not prevent the execution or display of such orders at a
price that is less than or equal to the current national best bid, even
if the covered security is subject to the short sale price test
restriction of Rule 201.\633\
---------------------------------------------------------------------------

    \632\ Rule 201(b). See also supra Section III.A.7. (discussing
the policies and procedures approach).
    \633\ Id.
---------------------------------------------------------------------------

    At a minimum, a trading center's policies and procedures must
enable a trading center to monitor, on a real-time basis, the national
best bid, so as to determine the price at which the trading center may
execute or display a short sale order. As mentioned above, a trading
center must have policies and procedures reasonably designed to permit
the execution or display of a short sale order of a covered security
marked ``short exempt'' without regard to whether the order is at a
price that is less than or equal to the current national best bid.\634\
---------------------------------------------------------------------------

    \634\ Rule 200(g)(2). The broker-dealer marking the order
``short exempt'' will have responsibility for being able to identify
on which provision of Rule 201 it was relying in marking the order
``short exempt.''
---------------------------------------------------------------------------

    A trading center must also take such steps as will be necessary to
enable it to enforce its policies and procedures effectively. A trading
center must regularly surveil to ascertain the effectiveness of the
policies and procedures required under the Rule and must take prompt
action to remedy deficiencies in such policies and procedures.\635\ The
nature and extent of the policies and procedures that a trading center
must establish to comply with these requirements will depend upon the
type, size, and nature of the trading center.
---------------------------------------------------------------------------

    \635\ This provision will reinforce the on-going maintenance and
enforcement requirements of Rule 201(b)(1) by explicitly assigning
an affirmative responsibility to trading centers to surveil to
ascertain the effectiveness of their policies and procedures. See
Rule 201(b)(2). We note that Rule 611(a)(2) of Regulation NMS
contains a similar provision for trading centers. See 17 CFR
242.611(a)(2).
---------------------------------------------------------------------------

2. Policies and Procedures Requirement Under the Broker-Dealer and
Riskless Principal Provisions
    Rule 201 contains a broker-dealer provision that requires a new
``collection of information'' under the PRA. Rule 201(c) permits a
broker-dealer submitting a short sale order for the covered security to
a trading center to mark the order ``short exempt'' if the broker-
dealer identifies the order as being at a price above the current
national best bid at the time of submission.\636\ This provision
requires a new collection of information in that a broker-dealer
marking an order ``short exempt'' under Rule 201(c) must identify a
short sale order as priced in accordance with the requirements of Rule
201(c); establish, maintain, and enforce written policies and
procedures reasonably designed to prevent the incorrect identification
of orders as being priced in accordance with the requirements of Rule
201(c); regularly surveil to ascertain the effectiveness of these
policies and procedures, and to take prompt action to remedy
deficiencies.\637\
---------------------------------------------------------------------------

    \636\ See Rule 201(c). As a result, a trading center's policies
and procedures will need to be reasonably designed to permit the
execution or display of such orders without regard to whether the
order is at a price that is less than or equal to the current
national best bid. See Rule 201(b)(1)(iii).
    \637\ See Rules 201(c)(1) and 201(c)(2).
---------------------------------------------------------------------------

    Rule 201 also contains a riskless principal provision that requires
a new ``collection of information'' under the PRA. Specifically, Rule
201(d)(6) permits a broker-dealer to mark as ``short exempt'' short
sale orders where broker-dealers are facilitating customer buy orders
or sell orders where the customer is net long, and the broker-dealer is
net short but is effecting the sale as riskless principal, provided
certain conditions are satisfied.\638\ This provision requires a new
collection of information in that it requires a broker-dealer marking
an order ``short exempt'' under this provision to have written policies
and procedures in place to assure that, at a

minimum: (i) The customer order was received prior to the offsetting
transaction; (ii) the offsetting transaction is allocated to a riskless
principal or customer account within 60 seconds of execution; and (iii)
that it has supervisory systems in place to produce records that enable
the broker-dealer to accurately and readily reconstruct, in a time-
sequenced manner, all orders on which the broker-dealer relies pursuant
to this provision.\639\
---------------------------------------------------------------------------

    \638\ See Rule 201(d)(6). As a result, a trading center's
policies and procedures will need to be reasonably designed to
permit the execution or display of such orders without regard to
whether the order is at a price that is less than or equal to the
current national best bid. See Rule 201(b)(1)(iii).
    \639\ See Rule 201(d)(6).
---------------------------------------------------------------------------

3. Marking Requirements
    While the current marking requirements in Rule 200(g) of Regulation
SHO, which require broker-dealers to mark all sell orders of any equity
security as either ``long'' or ``short,'' \640\ remain in effect, the
amendments to Rule 200(g) add a new marking requirement of ``short
exempt.'' \641\ In particular, if the broker-dealer chooses to rely on
its own determination that it is submitting the short sale order to the
trading center at a price that is above the current national best bid
at the time of submission or to rely on an exception specified in the
Rule, it must mark the order as ``short exempt.'' \642\ The new ``short
exempt'' marking requirements impose a new collection of information.
---------------------------------------------------------------------------

    \640\ 17 CFR 242.200(g).
    \641\ See Rule 200(g); see also supra Section IV. (discussing
the amendments to Rule 200(g)).
    \642\ See Rule 200(g)(2).
---------------------------------------------------------------------------

C. Use of Information

1. Policies and Procedures Requirement Under Rule 201
    The information collected under Rule 201's written policies and
procedure requirement \643\ will help ensure that the trading center
does not execute or display any impermissibly priced short sale orders,
unless an order is marked ``short exempt,'' in accordance with the
Rule's requirements. This written policies and procedures requirement
will also provide trading centers with flexibility in determining how
to comply with the requirements of Rule 201. The information collected
also will aid the Commission and SROs that regulate trading centers in
monitoring compliance with the Rule's requirements. In addition, it
will aid trading centers and broker-dealers in complying with the
Rule's requirements.
---------------------------------------------------------------------------

    \643\ See Rule 201(b).
---------------------------------------------------------------------------

2. Policies and Procedures Requirement Under the Broker-Dealer and
Riskless Principal Provisions
    The broker-dealer provision in Rule 201(c) permits a broker-dealer
submitting a short sale order for the covered security to a trading
center to mark the order ``short exempt'' if the broker-dealer
identifies the order as being at a price above the current national
best bid at the time of submission.\644\ This provision includes a
policies and procedures requirement that is designed to help prevent
incorrect identification of orders for purposes of Rule 201(c)'s
broker-dealer provision. The information collected will also enable the
Commission and SROs to examine for compliance with the requirements of
the exception.
---------------------------------------------------------------------------

    \644\ See Rule 201(c).
---------------------------------------------------------------------------

    Moreover, the information collected under the written policies and
procedures requirement in the riskless principal exception in Rule
201(d)(6) \645\ will help assure that broker-dealers comply with the
requirements of this provision. The information collected will also
enable the Commission and SROs to examine for compliance with the
requirements of the exception.
---------------------------------------------------------------------------

    \645\ See Rule 201(d)(6).
---------------------------------------------------------------------------

3. Marking Requirements
    The amendments to Rule 200(g) add a new marking requirement of
``short exempt.'' \646\ In particular, if the broker-dealer chooses to
rely on its own determination that it is submitting the short sale
order to the trading center at a price that is above the current
national best bid at the time of submission or to rely on an exception
specified in the Rule, it must mark the order as ``short exempt.''
\647\ The purpose of the information collected is to enable the
Commission and SROs to monitor whether a person entering a sell order
covered by Rule 201 is acting in accordance with one of the provisions
contained in paragraph (c) or (d) of the Rule. In particular, the
``short exempt'' marking requirement will provide a record that will
aid in surveillance for compliance with the provisions of Rule 201. It
also will provide an indication to a trading center regarding whether
or not it must execute or display a short sale order in accordance with
the Rule's provisions. In addition, it will help a trading center
determine whether its policies and procedures are reasonable and
whether its surveillance is effective.
---------------------------------------------------------------------------

    \646\ See Rule 200(g); see also supra Section IV. (discussing
the amendments to Rule 200(g)).
    \647\ See Rule 200(g)(2).
---------------------------------------------------------------------------

D. Respondents

    As discussed below, the Commission has considered each of the
following respondents for the purposes of calculating the reporting
burdens under the amendments to Rules 200(g) and 201 of Regulation SHO.
1. Policies and Procedures Requirement Under Rule 201
    Rule 201 requires each trading center to establish, maintain, and
enforce written policies and procedures reasonably designed to prevent
the execution or display of a short sale order of a covered security at
a price that is less than or equal to the current national best bid
during the period when the circuit breaker is in effect, unless an
exception applies.\648\ A ``trading center'' is defined as ``a national
securities exchange or national securities association that operates an
SRO trading facility, an alternative trading system, an exchange market
maker, an OTC market maker, or any other broker or dealer that executes
orders internally by trading as principal or crossing orders as
agent.'' \649\ Because Rule 201 applies to any trading center that
executes or displays a short sale order in a covered security, the Rule
applies to 10 registered national securities exchanges that trade
covered securities (or ``SRO trading centers''),\650\ and approximately
407 broker-dealers (including ATSs) registered with the Commission (or
``non-SRO trading centers'').\651\
---------------------------------------------------------------------------

    \648\ See Rule 201(b).
    \649\ See Rule 201(a)(9); see also 17 CFR 242.600(b)(78).
    \650\ Currently, there are 10 national securities exchanges (BX,
BATS, CBOE, CHX, ISE, Nasdaq, NSX, NYSE, NYSE Amex, and NYSE Arca)
that operate an SRO trading facility for covered securities and thus
will be subject to the Rule. The Proposal indicated that one
national securities association (FINRA) would also be subject to the
Rule. See Proposal, 74 FR at 18086, n.334. However, FINRA operates
an SRO display-only facility for covered securities, rather than an
SRO trading facility, and thus is not subject to the Rule.
    \651\ This number includes the approximately 357 firms that were
registered equity market makers or specialists at year-end 2008
(this number was derived from annual FOCUS reports and discussion
with SRO staff), as well as the 50 ATSs that operate trading systems
that trade covered securities. The Commission believes it is
reasonable to estimate that in general, firms that are block
positioners--i.e., firms that are in the business of executing
orders internally--are the same firms that are registered market
makers (for instance, they may be registered as a market maker in
one or more Nasdaq stocks and carry on a block positioner business
in exchange-listed stocks), especially given the amount of capital
necessary to carry on such a business.

---------------------------------------------------------------------------

2. Policies and Procedures Requirement Under the Broker-Dealer and
Riskless Principal Provisions
    The collection of information required in connection with the
broker-dealer provision in Rule 201(c) and in connection with the
riskless principal provision in Rule 201(d)(6) applies to all
registered brokers-dealers submitting short sale orders in reliance on
these provisions. While not all broker-dealers likely will enter sell
orders in securities covered by the amendments to Rules 200(g) and 201
in a manner that will subject them to this collection of information,
we estimate, for purposes of the PRA, that all of the approximately
5,178 \652\ registered broker-dealers will do so.
---------------------------------------------------------------------------

    \652\ This number is based on a review of 2008 FOCUS Report
filings reflecting registered broker-dealers, including introducing
broker-dealers. This number does not include broker-dealers that are
delinquent on FOCUS Report filings.
---------------------------------------------------------------------------

3. Marking Requirements
    The collection of information that is required pursuant to the
``short exempt'' marking requirements of Rule 200(g) applies to all
registered brokers-dealers submitting short sale orders marked ``short
exempt'' in accordance with the provisions contained in paragraph (c)
or (d) of Rule 201. While not all broker-dealers likely will enter sell
orders in securities covered by the amendments to Rules 200(g) and 201
in a manner that will subject them to this collection of information,
we estimate, for purposes of the PRA, that all of the approximately
5,178 \653\ registered broker-dealers will do so.
---------------------------------------------------------------------------

    \653\ Id.
---------------------------------------------------------------------------

E. Total Annual Reporting and Recordkeeping Burdens

1. Policies and Procedures Requirement Under Rule 201
    Rule 201 requires each trading center to establish, maintain, and
enforce written policies and procedures reasonably designed to prevent
the execution or display of a short sale order of a covered security at
a price that is less than or equal to the current national best bid
during the period when the circuit breaker is in effect.\654\ Thus,
trading centers must develop written policies and procedures reasonably
designed to permit the trading center to be able to obtain information
from the single plan processor regarding whether a covered security is
subject to the short sale price test restriction of Rule 201; if the
covered security is subject to the short sale price test restriction of
Rule 201, to determine whether or not the short sale order is priced in
accordance with the provisions of Rule 201(b); and to recognize when an
order is marked ``short exempt'' such that the trading center's
policies and procedures do not prevent the execution or display of such
orders at a price that is less than or equal to the current national
best bid, even if the covered security is subject to the short sale
price test restriction of Rule 201.
---------------------------------------------------------------------------

    \654\ See Rule 201(b)(1).
---------------------------------------------------------------------------

    In the Proposal, we provided estimates of the reporting and
recordkeeping burdens for trading centers under the proposed short sale
price test restrictions, both on a permanent, market-wide basis and in
conjunction with a circuit breaker.\655\ We also requested comment, in
the Proposal and the Re-Opening Release, as to whether the proposed
burden estimates were appropriate or whether such estimates should be
increased or reduced, and if so, for which entities and by how
much.\656\
---------------------------------------------------------------------------

    \655\ See Proposal, 74 FR at 18087.
    \656\ See Proposal, 74 FR at 18088; Re-Opening Release, 74 FR at
42036.
---------------------------------------------------------------------------

    One commenter provided a cost estimate, including costs for
``development man-hours'' of $500,000 per firm for implementation of a
new short sale price test restriction by trading centers, either on a
permanent, market-wide basis, or in conjunction with a circuit
breaker.\657\ One commenter stated that a new short sale price test
restriction would involve ``significant implementation costs'' and
``the generation and retention of voluminous compliance reports'' but
did not provide a specific estimate of the cost or hours that would be
involved.\658\ Several commenters expressed general concerns regarding
the time and cost that would be imposed for implementation and on-going
monitoring and surveillance of a new short sale price test restriction,
including a policies and procedures requirement, but did not provide
specific estimates of such time and cost.\659\
---------------------------------------------------------------------------

    \657\ Letter from Wolverine. Wolverine provided an estimate of
$500,000 per firm for implementation costs, which it applied to both
non-SRO trading centers and other registered broker-dealers.
    \658\ Letter from EWT (Sept. 2009).
    \659\ See, e.g., letter from RBC (June 2009); letter from STANY
(June 2009); letter from CPIC (June 2009); letter from EWT (Sept.
2009); letter from RBC (Sept. 2009). We received time estimates only
with respect to the Commission's proposed implementation time and
did not receive comments regarding estimated PRA burden hours. See
supra Section VII. (discussing comments on implementation time).
---------------------------------------------------------------------------

    We considered these comments in reviewing the burden estimates for
trading centers that we proposed with respect to the collection of
information requirements in Rule 201. We believe that the cost and time
required for implementation of Rule 201 will be lower than some
commenters' stated estimates \660\ because we believe that the
implementation and on-going monitoring and surveillance costs of the
alternative uptick rule will be lower than the implementation and on-
going monitoring and surveillance costs that would be associated with
adoption of the proposed modified uptick rule or the proposed uptick
rule. Unlike the proposed modified uptick rule and the proposed uptick
rule, which would have required sequencing of the national best bid or
last sale price (i.e., whether the current national best bid or last
sale price is above or below the previous national best bid or last
sale price), the alternative uptick rule references only the current
national best bid.
---------------------------------------------------------------------------

    \660\ We received comments expressing concerns about the
implementation and on-going monitoring and compliance costs of a
short sale price test restriction that were not specific to the
alternative uptick rule. See, e.g., letter from RBC (June 2009);
letter from STANY (June 2009); letter from CPIC (June 2009); letter
from Wolverine.
---------------------------------------------------------------------------

    A number of commenters stated that because the alternative uptick
rule would not require monitoring of the sequence of bids or last sale
prices, implementing the alternative uptick rule would be less costly
\661\ or easier than implementing the proposed modified uptick rule or
the proposed uptick rule.\662\ In addition, several commenters stated
that the alternative uptick rule would be easier to program into
trading and surveillance systems than the proposed modified uptick rule
or the proposed uptick rule.\663\ Another commenter stated, with
respect to the alternative uptick rule, that ``actual implementation
costs in terms of time and capital expenditure would be

negligible when compared to those involved in implementing either the
uptick rule or modified uptick rule.'' \664\
---------------------------------------------------------------------------

    \661\ See, e.g., letter from BATS (May 2009); letter from
Michael L. Crowl, Managing Director, Global General Counsel,
Barclays Global Investors, dated Sept. 21, 2009 (``Barclays (Sept.
2009)''); letter from BATS (Sept. 2009); letter from GETCO (Sept.
2009); letter from ICI (Sept. 2009); letter from Glen Shipway (Sept.
2009); letter from STA (Sept. 2009). In addition, several commenters
acknowledged that implementation of the alternative uptick rule will
likely be less costly, without referencing the sequencing issue.
See, e.g., letter from Atherton Lane; letter from STANY (Sept.
2009).
    \662\ See, e.g., letter from Credit Suisse (June 2009); letter
from Goldman Sachs (June 2009); letter from SIFMA (June 2009);
letter from Glen Shipway (Sept. 2009); letter from SIFMA (Sept.
2009). In addition, one commenter acknowledged that implementation
of the alternative uptick rule will likely be easier, without
referencing the sequencing issue. See letter from Allston Trading
(Sept. 2009).
    \663\ See, e.g., letter from BATS (May 2009); letter from
Goldman Sachs (June 2009); letter from Glen Shipway (Sept. 2009);
letter from ICI (Sept. 2009); see also letter from National Stock
Exchange et al.
    \664\ Letter from BATS (Sept. 2009).
---------------------------------------------------------------------------

    Several commenters indicated that implementation of the alternative
uptick rule would not be easier or less costly than implementation of
the proposed modified uptick rule or the proposed uptick rule.\665\
However, we note that some of these commenters presented concerns that
were not directly related to the alternative uptick rule \666\ or to
implementation costs or difficulties.\667\ Additionally, one commenter
did not provide the reasoning for its belief that the alternative
uptick rule would not be easier or less costly to implement.\668\
---------------------------------------------------------------------------

    \665\ See, e.g., letter from Matlock Capital (Sept. 2009);
letter from NYSE Euronext (Sept. 2009); letter from RBC (Sept.
2009); letter from Knight Capital (Sept. 2009).
    \666\ See, e.g., letter from NYSE Euronext (Sept. 2009) (stating
that implementation of the alternative uptick rule would be more
difficult on the basis that the alternative uptick rule would be
paired with a circuit breaker and attributing implementation
difficulties to the circuit breaker approach, not the alternative
uptick rule); letter from RBC (Sept. 2009) (expressing concern about
the implementation cost of any short sale price test restriction in
general).
    \667\ See, e.g., letter from Knight Capital (Sept. 2009)
(characterizing a potential increase in friction, confusion, or
inefficiency in the market as an implementation difficulty that may
arise from the alternative uptick rule).
    \668\ See letter from Matlock Capital (Sept. 2009).
---------------------------------------------------------------------------

    Several commenters indicated that their belief that other
commenters' estimates regarding the difficulty or costs of implementing
and monitoring the proposed modified uptick rule and the proposed
uptick rule were exaggerated.\669\ We recognize that some commenters'
estimates of the costs of the proposed modified uptick rule or the
proposed uptick rule may have been conservative. We also believe that
because the alternative uptick rule does not include a sequencing
requirement, the implementation and on-going monitoring and
surveillance costs of the alternative uptick rule will be less than
such costs would be with respect to the other proposed short sale price
test restrictions.
---------------------------------------------------------------------------

    \669\ See, e.g., letter from Matlock Capital (Sept. 2009);
letter from ISE (Sept. 2009); letter from Bingham McCutchen.
---------------------------------------------------------------------------

    In addition, as noted in the Proposal, while we have based our
burden estimates, in part, on the burden estimates provided in
connection with the adoption of Regulation NMS,\670\ we believe that
these estimates may be on the high end because trading centers have
already had to establish policies and procedures in connection with
that Regulation's Order Protection Rule, which could help form the
basis for the policies and procedures for Rule 201. Several commenters
agreed, stating that previous experience with the policies and
procedures required under Regulation NMS might reduce the
implementation and on-going monitoring and compliance burdens on
trading centers.\671\ In contrast, some commenters indicated that the
Commission overstated the benefit of such previous experience,\672\
because, for example, ``systems re-written and architected for Reg NMS
* * * did not include any short sale restrictions,'' \673\ or because
such systems will require modifications in order to be used in the
context of a short sale price test restriction.\674\ However, we
considered these issues when considering the impact of previous
experience with the policies and procedures requirement of Regulation
NMS's Order Protection Rule. We continue to believe that because most
trading centers already have in place systems and written policies and
procedures to comply with Regulation NMS's Order Protection Rule, most
trading centers will already be already familiar with establishing,
maintaining, and enforcing trading-related policies and procedures,
which will mitigate the burden of implementation of the policies and
procedures requirement under Rule 201. We realize, however, that the
exact nature and extent of the policies and procedures that a trading
center is required to establish likely will vary depending upon the
type, size, and nature of the trading center. Thus, our estimates take
into account different types of trading centers and we realize that
these estimates may be on the low-end for some trading centers while
they may be on the high-end for other trading centers.
---------------------------------------------------------------------------

    \670\ See Regulation NMS Adopting Release, 70 FR 37496; see also
Proposal, 74 FR at 18087.
    \671\ See, e.g., letter from EWT (Sept. 2009); letter from MFA
(Oct. 2009).
    \672\ See, e.g., letter from FIF (June 2009); letter from NSCP;
letter from RBC (June 2009).
    \673\ Letter from FIF (June 2009); see also letter from RBC
(June 2009).
    \674\ See letter from NSCP; letter from RBC (June 2009).
---------------------------------------------------------------------------

    We considered whether our estimates of the burdens associated with
the collection of information requirements for trading centers with
respect to the proposed modified uptick rule included in the Proposal
\675\ would change under the circuit breaker approach of Rule 201, but,
as discussed below, concluded that these estimates continue to
represent reasonable estimates under the circuit breaker approach in
combination with the alternative uptick rule.
---------------------------------------------------------------------------

    \675\ See Proposal, 74 FR at 18087.
---------------------------------------------------------------------------

    Despite some commenters' concerns regarding the implementation
costs of a circuit breaker rule,\676\ we believe that the circuit
breaker approach will result in largely the same implementation costs
as we estimated would be incurred if we adopted a permanent, market-
wide short sale price test restriction.\677\ As one commenter stated
``[o]nce the price test is in place, there is minimal incremental
effort required to add a Circuit Breaker that controls the application
of the price test.'' \678\ Similarly, another commenter stated that
``[t]he additional coding required to implement a circuit breaker is
minimal * * *'' \679\ We believe that there will be only minimal, if
any, implementation costs for a circuit breaker approach in addition to
the costs we estimated previously for the implementation of a
permanent, market-wide short sale price test rule because trading
centers would need to establish written policies and procedures to
implement the short sale price test restriction regardless of whether
the short sale price test restriction is adopted on a permanent,
market-wide basis or, in the case of Rule 201, adopted in conjunction
with a circuit breaker. Several other commenters agreed, stating that
the costs of the circuit breaker approach would be similar to, or only
incrementally higher than, the costs of a permanent, market-wide
approach.\680\
---------------------------------------------------------------------------

    \676\ See, e.g., letter from T. Rowe Price (June 2009); letter
from Glen Shipway (June 2009); see also letter from STANY (June
2009) (stating that costs savings of a circuit breaker approach
would be reduced if the circuit breaker triggered a short sale price
test restriction); letter from NYSE Euronext (Sept. 2009) (stating
that ``a circuit breaker approach raises significant implementation
complexities''); letter from SIFMA (June 2009) (including a survey
reflecting implementation costs of a circuit breaker triggering a
short sale price test based on the national best bid). We note that
one commenter indicated that adoption of a circuit breaker approach
would add approximately four to six weeks to the implementation time
of the alternative uptick rule. See letter from Direct Edge (Sept.
2009); see also supra Section VII. (discussing comments on
implementation time).
    \677\ See Proposal, 74 FR at 18087.
    \678\ Letter from Nasdaq OMX Group (Oct. 2009).
    \679\ Letter from Credit Suisse (Sept. 2009).
    \680\ See, e.g., letter from STA (June 2009).
---------------------------------------------------------------------------

    In addition, with respect to on-going monitoring and surveillance
costs of the circuit breaker approach, we recognize, as noted by one
commenter,\681\ that trading centers will need to continuously monitor
whether a security is subject to the provisions of Rule 201 and that
there will be costs associated with such monitoring. However, we
believe that these costs will be offset because, under the circuit
breaker approach, the alternative uptick rule is time limited and will
only apply

on a stock-by-stock basis, which will reduce our previously estimated
costs for on-going monitoring and surveillance. This is because trading
centers only need to monitor and surveil for compliance with the
alternative uptick rule during the limited period of time that the
circuit breaker is in effect with respect to a specific security. As
such, the circuit breaker approach will allow regulatory, supervisory
and compliance resources to focus on, and to address, those situations
where a specific security is experiencing significant downward price
pressure. As noted by one commenter, a circuit breaker ``is
particularly efficient in stable and rising markets because it avoids
imposing continuous monitoring and compliance costs where there is
little or no corresponding risk of abusive short selling.'' \682\
---------------------------------------------------------------------------

    \681\ See letter from Glen Shipway (June 2009).
    \682\ Letter from Nasdaq OMX Group (Oct. 2009); see also letter
from SIFMA (Sept. 2009).
---------------------------------------------------------------------------

    Further, although, under the circuit breaker approach, market
participants will need to monitor whether a stock is subject to Rule
201, we believe that familiarity with a circuit breaker approach may
help mitigate such compliance costs. As discussed in the Proposal,
currently, all stock exchanges and FINRA have rules or policies to
implement coordinated circuit breaker halts.\683\ Moreover, SROs have
rules or policies in place to coordinate individual security trading
halts corresponding to significant news events.\684\
---------------------------------------------------------------------------

    \683\ See supra note 292.
    \684\ See, e.g., FINRA Rule 6120; see also Proposal, 74 FR at
18065-18066 (discussing the background on circuit breakers).
---------------------------------------------------------------------------

    On balance, we believe that the estimates of the burdens associated
with the collection of information requirements for trading centers
included in the Proposal \685\ are appropriate with respect to Rule
201. Thus, our estimates have not changed from the Proposal, except to
the extent that total burden estimates have changed because we have
updated the estimated number of trading centers.\686\
---------------------------------------------------------------------------

    \685\ See Proposal, 74 FR at 18087.
    \686\ The Proposal indicated that there were approximately 372
non-SRO trading centers, including approximately 325 firms that were
registered equity market makers or specialists at year-end 2007
(this number was derived from annual FOCUS reports and discussion
with SRO staff), as well as 47 ATSs that operate trading systems
that trade NMS stocks. See Proposal, 74 FR at 18086. We now estimate
that there are approximately 407 non-SRO trading centers, including
approximately 357 firms that were registered equity market makers or
specialists at year-end 2008 (this number was derived from annual
FOCUS reports and discussion with SRO staff), as well as 50 ATSs
that operate trading systems that trade covered securities. See
supra note 651. We also note that the number of SRO trading centers
has changed from 11 in the Proposal to 10. See supra note 650.
---------------------------------------------------------------------------

    Although the exact nature and extent of the policies and procedures
that a trading center must establish likely will vary depending upon
the nature of the trading center (e.g., SRO vs. non-SRO, full service
broker-dealer vs. market maker), we estimate that it initially will, on
average, take an SRO trading center approximately 220 hours \687\ of
legal, compliance, information technology and business operations
personnel time,\688\ and a non-SRO trading center approximately 160
hours \689\ of legal, compliance, information technology and business
operations personnel time,\690\ to develop the required policies and
procedures.
---------------------------------------------------------------------------

    \687\ For purposes of this adopting release, we are basing our
estimates on the burden hour estimates provided in connection with
the adoption of Regulation NMS because the policies and procedures
developed in connection with that Regulation's Order Protection Rule
are in many ways similar to what a trading center will need to do to
comply with Rule 201. See Regulation NMS Adopting Release, 70 FR
37496; see also Proposal, 74 FR at 18087. We note, however, that
these estimates may be on the high end because trading centers have
already had to establish similar policies and procedures to comply
with Regulation NMS.
    \688\ Based on experience and estimates provided in connection
with Regulation NMS, we anticipate that of the 220 hours we estimate
will be spent to establish the required policies and procedures, 70
hours will be spent by legal personnel, 105 hours will be spent by
compliance personnel, 20 hours will be spent by information
technology personnel and 25 hours will be spent by business
operations personnel of the SRO trading center.
    \689\ For purposes of this adopting release, we are basing our
estimates on the burden hour estimates provided in connection with
the adoption of Regulation NMS because the policies and procedures
developed in connection with that Regulation's Order Protection Rule
are in many ways similar to what a trading center will need to do to
comply with the Rule 201. See Regulation NMS Adopting Release, 70 FR
37496; see also Proposal, 74 FR at 18087. We note, however, that
these estimates may be on the high end because trading centers have
already had to establish similar policies and procedures to comply
with Regulation NMS.
    \690\ Based on experience and the estimates provided in
connection with Regulation NMS, we anticipate that of the 160 hours
we estimate will be spent to establish policies and procedures, 37
hours will be spent by legal personnel, 77 hours will be spent by
compliance personnel, 23 hours will be spent by information
technology personnel and 23 hours will be spent by business
operations personnel of the non-SRO trading center.
---------------------------------------------------------------------------

    In addition to these estimates (of 220 hours for SRO respondents
and 160 hours for non-SRO respondents), we expect that SRO and non-SRO
respondents will incur one-time external costs for outsourced legal
services. While we recognize that the amount of legal outsourcing
utilized to help establish written policies and procedures may vary
widely from entity to entity, we estimate that on average, each trading
center will outsource 50 hours of legal time in order to establish
policies and procedures in accordance with the amendments.\691\
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    \691\ As discussed above, we base our burden estimate of 50
hours of outsourced legal time on the burden estimate used for
Regulation NMS because the policies and procedures developed in
connection with that Regulation's Order Protection Rule are in many
ways similar to what a trading center will need to do to comply with
Rule 201. See Regulation NMS Adopting Release, 70 FR 37496; see also
Proposal, 74 FR at 18087.
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    We estimate that there will be an initial one-time burden of, on
average, 220 (not including the outsourced 50 hours of legal time)
burden hours per SRO trading center or 2,200 hours,\692\ and, on
average, 160 (not including the outsourced 50 hours of legal time)
burden hours per non-SRO trading center or 65,120 hours,\693\ for a
total of 67,320 burden hours to establish the required written policies
and procedures.\694\ We estimate a cost of, on average, approximately
$8,340,000 for both SRO and non-SRO trading centers resulting from
outsourced legal work.\695\
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    \692\ The estimated 2,200 burden hours necessary for SRO trading
centers to establish policies and procedures are calculated by
multiplying 10 times 220 hours (10 x 220 hours = 2,200 hours).
    \693\ The estimated 65,120 burden hours necessary for non-SRO
trading centers to establish policies and procedures are calculated
by multiplying 407 times 160 hours (407 x 160 hours = 65,120 hours).
    \694\ See Rule 201(b).
    \695\ This figure was calculated as follows: (50 legal hours x
$400 x 10 SRO trading centers) + (50 legal hours x $400 x 407 non-
SRO trading centers) = $8,340,000. Based on industry sources, we
estimate that the average hourly rate for outsourced legal services
in the securities industry is $400.
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    Once a trading center has established the required written policies
and procedures, we estimate that, on average, it will take an SRO and
non-SRO trading center each approximately two hours per month of on-
going internal legal time and three hours of on-going internal
compliance time to ensure that its written policies and procedures are
up-to-date and remain in compliance with the amendments to Rule 201, or
a total of 60 hours annually per respondent.\696\ In addition, we
estimate that, on average, it will take an SRO and non-SRO trading
center each approximately 16 hours per month of on-going compliance
time, 8 hours per month of on-going information technology time, and 4
hours per month of on-going legal time associated with on-going
monitoring and surveillance for and enforcement of trading in

compliance with Rule 201, or a total of 336 hours annually per
respondent.\697\
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    \696\ This figure was calculated as follows: (2 legal hours x 12
months) + (3 compliance hours x 12 months) = 60 hours annually per
respondent. As discussed above, this burden estimate of 60 hours is
based on experience and what was estimated for Regulation NMS to
ensure that written policies and procedures were up-to-date and
remained in compliance. See Regulation NMS Adopting Release, 70 FR
37496; see also Proposal, 74 FR at 18087.
    \697\ This figure was calculated as follows: (16 compliance
hours x 12 months) + (8 information technology hours x 12 months) +
(4 legal hours x 12 months) = 336 hours annually per respondent. As
discussed above, this burden estimate of 336 hours is based on
experience and what was estimated for Regulation NMS regarding
similarly required on-going monitoring and surveillance for and
enforcement of trading in compliance with that regulation's policies
and procedures requirement.
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2. Policies and Procedures Requirement Under the Broker-Dealer and
Riskless Principal Provisions
    To rely on the broker-dealer provision of Rule 201(c), a broker-
dealer marking a short sale order in a covered security ``short
exempt'' under Rule 201(c) must identify the order as being at a price
above the current national best bid at the time of submission to the
trading center and must establish, maintain, and enforce written
policies and procedures that are reasonably designed to prevent the
incorrect identification of orders as being submitted to the trading
center at a permissible price.\698\ At a minimum, the broker-dealer's
policies and procedures must be reasonably designed to enable a broker-
dealer to monitor, on a real-time basis, the national best bid so as to
determine the price at which the broker-dealer may submit a short sale
order to a trading center in compliance with the requirements of Rule
201(c). In addition, a broker-dealer must take such steps as necessary
to enable it to enforce its policies and procedures effectively.\699\
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    \698\ See Rule 201(c).
    \699\ This will include the requirement that broker-dealers
regularly surveil to ascertain the effectiveness of their policies
and procedures and take prompt remedial steps. This provision is
intended to reinforce the on-going maintenance and enforcement
requirements of the provision contained in Rule 201(c)(1) by
explicitly assigning an affirmative responsibility to broker-dealers
to surveil to ascertain the effectiveness of their policies and
procedures. See Rule 201(c)(2).
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    To rely on the riskless principal provision under Rule 201(d)(6) a
broker-dealer must have written policies and procedures in place to
assure that, at a minimum: (i) The customer order was received prior to
the offsetting transaction; (ii) the offsetting transaction is
allocated to a riskless principal or customer account within 60 seconds
of execution; and (iii) that it has supervisory systems in place to
produce records that enable the broker-dealer to accurately and readily
reconstruct, in a time-sequenced manner, all orders on which the
broker-dealer relies pursuant to this provision.\700\
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    \700\ See Rule 201(d)(6).
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    In the Proposal, we provided estimates of the reporting and
recordkeeping burdens for broker-dealers to implement, monitor and
surveil on an on-going basis the policies and procedures required to
rely on the broker-dealer provision of Rule 201(c) or the riskless
principal provision under Rule 201(d)(6).\701\ We also requested
comment, in the Proposal and the Re-Opening Release, as to whether the
proposed burden estimates were appropriate or whether such estimates
should be increased or reduced, and if so, for which entities and by
how much.\702\ The following discussion of comments on the proposed
burden estimates for broker-dealers includes comments that were
discussed above with respect to the burden estimates for trading
centers \703\ because, in some cases, commenters provided comments and
estimates on the costs of establishing and monitoring policies and
procedures under the proposed short sale price tests without
distinguishing between costs that would be applicable to trading
centers as opposed to broker-dealers.
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    \701\ See Proposal, 74 FR at 18088-18089.
    \702\ See Proposal, 74 FR at 18089; Re-Opening Release, 74 FR at
42036.
    \703\ See supra Section IX.E.1. (discussing reporting and
recordkeeping burdens for trading centers).
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    One commenter provided a cost estimate, including costs for
``development man-hours'' of $500,000 per firm for implementation of
Rule 201 by broker-dealers.\704\ One commenter stated that a new short
sale price test restriction would involve ``significant implementation
costs'' and ``the generation and retention of voluminous compliance
reports'' but did not provide a specific estimate of the cost or hours
that would be involved.\705\ Several commenters expressed general
concerns regarding the time and cost that would be imposed on market
participants for implementation and on-going monitoring and
surveillance of a new short sale price test restriction, including a
policies and procedures requirement but did not provide specific
estimates of such time and cost.\706\
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    \704\ Letter from Wolverine. Wolverine provided an estimate of
$500,000 per firm for implementation costs, which it applied to both
non-SRO trading centers and other registered broker-dealers.
    \705\ Letter from EWT (Sept. 2009). EWT also did not specify
whether this comment on our estimated annual reporting and
recordkeeping burdens with respect to provisions of the proposed
rules that would require a new ``collection of information'' was
specific to the provisions applicable to trading centers or to the
provisions applicable to broker-dealers.
    \706\ See, e.g., supra note 659. These commenters' concerns
regarding implementation costs either were expressed with respect to
market participants generally or included references to obligations
that would be imposed on, or changes that would have to be made by,
broker-dealers.
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    In addition, several commenters noted that implementation and on-
going monitoring and surveillance of the requirements of the broker-
dealer provision would impose significant costs on broker-dealers, but
did not provide an estimate of such costs.\707\ Several commenters
stated that the costs of the broker-dealer provision could be
particularly burdensome for smaller broker-dealers, but did not provide
a time or cost estimate of such burdens.\708\
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    \707\ See, e.g., letter from Credit Suisse (June 2009); letter
from FIF (June 2009); letter from Lime Brokerage (June 2009); letter
from NSCP; letter from STANY (June 2009); letter from EWT (Sept.
2009).
    \708\ See, e.g., letter from Credit Suisse (June 2009); letter
from NSCP; letter from T.D. Pro Ex. We received time estimates on
the Commission's proposed implementation time, but did not receive
comments with respect to the estimated PRA burden hours. See supra
Section VII. (discussing comments on implementation time).
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    We considered these comments in reviewing the burden estimates for
broker-dealers that we proposed with respect to the collection of
information requirements in Rule 201. We believe that the cost and time
required for implementation and on-going monitoring and surveillance of
the policies and procedures required to rely on the broker-dealer
provision of Rule 201(c) will be lower than some commenters' stated
estimates \709\ because the alternative uptick rule references only the
current national best bid, unlike the proposed modified uptick rule and
the proposed uptick rule, which would have required sequencing of the
national best bid or last sale price.\710\ Because the alternative
uptick rule does not require sequencing of the national best bid, we
believe that the policies and procedures required in order to rely on
the broker-dealer provision under the alternative uptick rule, which
are similar to those required for non-SRO trading centers in complying
with paragraph (b) of Rule 201, will be easier and less costly to

implement and monitor than would be the case under the proposed
modified uptick rule or the proposed uptick rule.\711\ We note that one
of the commenters that expressed concerns about the implementation cost
of the broker-dealer provision also acknowledged that a rule ``that
would not require data centralization and sequencing would be
significantly less complex and faster to implement.'' \712\
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    \709\ We received comments expressing concerns about the
implementation and on-going monitoring and compliance costs to
broker-dealers of a short sale price test restriction that were not
specific to the alternative uptick rule. See, e.g., letter from
Credit Suisse (June 2009); letter from RBC (June 2009); letter from
STANY (June 2009); letter from CPIC (June 2009); letter from
Wolverine; letter from T.D. Pro Ex; letter from FIF (June 2009);
letter from Lime Brokerage (June 2009); letter from NSCP.
    \710\ We also note that it is possible that some smaller broker-
dealers that determine to rely on the broker-dealer provision may
determine that it is cost-effective for them to outsource certain
functions necessary to comply with Rule 201(c) to larger broker-
dealers, rather than performing such functions in house, to remain
competitive in the market. This may help mitigate costs associated
with implementing and complying with Rule 201(c). Additionally, they
may decide to purchase order management software from technology
firms. Order management software providers may integrate changes
imposed by Rules 200(g) and 201 into their products, thereby
providing another cost-effective way for smaller broker-dealers to
comply with the requirement of Rule 201(c).
    \711\ See supra notes 660 to 669 and accompanying text
(discussing comments on the impact of the alternative uptick rule on
implementation and on-going monitoring and compliance costs).
    \712\ Letter from Credit Suisse (June 2009).
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    We disagree with several commenters who stated that, although
implementation and on-going monitoring and surveillance of the
alternative uptick rule might be easier and/or less costly for trading
centers, this would not hold true for broker-dealers.\713\ One of these
commenters stated that ``in order to avoid rejection of short sale
orders under an alternative uptick rule, programming would need to be
implemented to anticipate changes in the national best bid between the
time a short sale order is entered and the time it reaches the relevant
market center.'' \714\ However, the broker-dealer provision of Rule
201(c) is designed specifically to help avoid this result. Under the
broker-dealer provision, a broker-dealer may, in accordance with the
policies and procedures required by the provision, identify the order
as being at a price that is above the current national best bid at the
time the order is submitted to the trading center and mark the order
``short exempt.'' Trading centers are required to have written policies
and procedures in place to permit the execution or display of a short
sale order of a covered security marked ``short exempt'' without regard
to whether the order is at a price that is less than or equal to the
current national best bid.\715\
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    \713\ See, e.g., letter from Citadel et al. (Sept. 2009); letter
from EWT (Sept. 2009); letter from Lime Brokerage (Sept. 2009).
    \714\ Letter from Citadel et al. (Sept. 2009).
    \715\ See Rule 201(b)(1)(iii).
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    In addition, as noted in the Proposal, while we have based our
burden estimates on the burden estimates provided in connection with
the adoption of Regulation NMS with respect to non-SRO trading centers
(which includes broker-dealers),\716\ we note that these estimates may
be on the high end for those broker-dealers that have already had to
establish policies and procedures in connection with that Regulation's
Order Protection Rule, which could help form the basis for the policies
and procedures for the broker-dealer provision of Rule 201(c), or the
riskless principal provision under Rule 201(d)(6). Several commenters
agreed, indicating that broker-dealers' previous experience with the
policies and procedures required under Regulation NMS might reduce the
implementation and on-going monitoring and compliance burdens on
broker-dealers.\717\ Some commenters stated that the Commission
overstated the benefit of such previous experience \718\ because, for
example, ``systems re-written and architected for Reg NMS * * * did not
include any short sale restrictions,'' \719\ or because such systems
will require modifications in order to be used in the context of a
short sale price test restriction.\720\ However, we considered these
issues when considering the impact of previous experience with the
policies and procedures requirement of Regulation NMS's Order
Protection Rule. We continue to believe that because broker-dealers may
already have in place systems and written policies and procedures in
connection with Regulation NMS's Order Protection Rule, those broker-
dealers will already be familiar with establishing, maintaining, and
enforcing trading-related policies and procedures, which will mitigate
the burden of implementation of the policies and procedures requirement
under the broker-dealer provision of Rule 201(c), or the riskless
principal provision under Rule 201(d)(6). We realize, however, that the
exact nature and extent of the policies and procedures that a broker-
dealer must establish likely will vary depending upon the type, size,
and nature of the broker-dealer. Thus, our estimates take into account
different types of broker-dealers and we realize that these estimates
may be on the low-end for some broker-dealers while they may be on the
high-end for other broker-dealers.
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    \716\ See supra note 670.
    \717\ See, e.g., letter from EWT (Sept. 2009); letter from MFA
(Oct. 2009).
    \718\ See, e.g., letter from FIF (June 2009); letter from NSCP;
letter from RBC (June 2009).
    \719\ Letter from FIF (June 2009); see also letter from RBC
(June 2009).
    \720\ See letter from NSCP; letter from RBC (June 2009).
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    We considered whether our estimates of the burdens associated with
the collection of information requirements for broker-dealers with
respect to the proposed modified uptick rule included in the Proposal
\721\ would change under the circuit breaker approach of Rule 201, but
concluded, as discussed below, that these estimates continue to
represent reasonable estimates under the circuit breaker approach.
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    \721\ See Proposal, 74 FR at 18088-18089.
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    As discussed previously,\722\ despite some commenters' concerns
regarding the implementation costs of a circuit breaker rule,\723\ we
believe that the circuit breaker approach will result in largely the
same implementation costs as we estimated would be incurred if we
adopted a permanent, market-wide short sale price test