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SEC Adopts Interim Final Temporary Rule Enhancing Delivery Requirements on Sales of All Equity Securities to Protect Against Naked Short Selling Abuses and Adopts New Anti Fraud-Rule

 

Rule 204T of Regulation SHO

On October 14, 2008, the U.S. Securities and Exchange Commission ("SEC") adopted temporary Rule 204T of Regulation SHO (PDF) as an interim final temporary rule ("Interim Rule"). This Interim Rule extends until July 31, 2009, the requirements of the SEC's September 17, 2008 Emergency Order (PDF) (the "Order") requiring the delivery of equities sold long or short on settlement date.

 

What this means for you

In compliance with the terms of the Interim Rule, any fail to deliver position must be closed out by the opening of trading on T+4. While Credit Suisse will use its best efforts to minimize the impact of any fails, we may be required to purchase shares from another source to cover your position should you not deliver the necessary shares by settlement. Should the fail continue to exist past the opening of trading on T+4, the Interim Rule requires that shares be pre-borrowed prior to Credit Suisse accepting any short sales in that security from any client until the fail to deliver position is closed out. In such case, clients will be required to obtain a pre-borrow from Credit Suisse's Stock Loan Department prior to entering a short sale with us.

 

Rule 10b-21 Short Selling Anti-Fraud Rule

On October 14, 2008, the SEC adopted Rule 10b-21 (PDF) effective October 17, 2008 which targets fraudulent sellers. The new rule makes clear that those who misrepresent their intention or ability to deliver securities in time for settlement are violating the law when they fail to deliver.

SEC Adopts Final Rule Enhancing Delivery Requirements on Sales of All Equity Securities to Protect Against Naked Short Selling Abuses 
 

Rule 204 of Regulation SHO

On July 28, 2009, the Securities and Exchange Commission ("SEC") adopted Rule 204 of Regulation SHO (PDF). This Rule extends permanently the requirements of the Rule 204T requiring the delivery of equities sold long or short on settlement date.

 

What this means for you

In compliance with the terms of the Rule, any fail to deliver position must be closed out by the opening of trading on T+4. While Credit Suisse will use its best efforts to minimize the impact of any fails, we may be required to purchase shares from another source to cover your position should you not deliver the necessary shares by settlement. Should the fail continue to exist past the opening of trading on T+4, the Rule requires that shares be pre-borrowed prior to Credit Suisse accepting any short sales in that security from any client until the fail to deliver position is closed out. In such case, clients will be required to obtain a pre-borrow from Credit Suisse’s Stock Loan Department prior to entering a short sale with us.

TRADING / MARKET COMMENTARY: The information provided herein (the "Material") is being provided for informational purposes only and is directed exclusively for the institutional clients of Credit Suisse Securities (Canada), Inc. ("Credit Suisse"). No part of this material may be reproduced or retransmitted in any manner without the prior written permission of Credit Suisse

 

The Material has been prepared by individual trading or sales personnel of Credit Suisse; the Material has not been prepared by the research department of Credit Suisse. The most recent publications by the research department of Credit Suisse may be accessed using the following link. The Material includes the observations and views of individual trading or sales personnel. These observations and views may be different from, or inconsistent with, the observations and views of Credit Suisse research department analysts, other Credit Suisse trading or sales personnel, or the proprietary positions of Credit Suisse. The observations and views may be changed by the trading or sales personnel at any time without notice. The information set forth in the Material has been obtained from or based upon sources believed by the trading or sales personnel to be reliable, but Credit Suisse does not represent, warrant or guarantee that this material is accurate, complete or suitable for any purpose or any particular investor and it should not be used as a basis for investment decisions. It is not to be relied upon or used in substitution for the exercise of independent judgment. Credit Suisse accepts no liability for losses arising from the use of the Material, including losses or damages arising out of errors, omissions or changes in market factors. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, expressed or implied is made regarding future performance.

 

The Material is not intended to provide a sufficient basis on which to make an investment decision and does not take into account the individual situation or circumstances of any client. The Material is not intended to be an offer or solicitation to purchase or sell any security or other financial instrument or to employ a specific investment strategy. Credit Suisse does not provide, and nothing contained herein should be construed as, investment, tax, accounting or legal advice; a client of Credit Suisse should consult such investment, tax, accounting, and legal advisors as it deem necessary or appropriate prior to taking any investment decision based on the Material or for an explanation of its contents. Additional disclosures are provided at the following link.

 

Credit Suisse is an investment dealer registered in each province and territory of Canada, a member of the Investment Industry Regulation Organization of Canada, and a participant on The Toronto Stock Exchange, the Montreal Exchange and all other Canadian securities marketplaces required under applicable laws, rules and regulations. Credit Suisse is a subsidiary of Credit Suisse AG. Credit Suisse is not a chartered bank, trust company or depository institution, and is not licensed or regulated under the Bank Act (Canada). Credit Suisse is a member of the Canadian Investor Protection Fund ("CIPF"). Clients’ accounts at Credit Suisse are protected by CIPF within specified limits. A brochure describing the nature and limits of coverage is available upon request. Credit Suisse may, from time to time, participate or invest in transactions with issuers of securities that participate in the markets referred to herein, perform services for or solicit business from such issuers, and/or have a position or effect transactions in the securities or derivatives thereof.

The shares of Huuuge, Inc. are considered equity securities of a domestic issuer for purposes of Regulation S ("Regulation S") under the U.S. Securities Act of 1933 (the "Securities Act"). The shares were initially offered and sold pursuant to the exemptions provided by Category 3 of Regulation S and Rule 144A under the Securities Act ("Rule 144A"). The Huuuge, Inc. shares are therefore subject to the following restrictions:

 

  • Offering restrictions (as defined in Regulation S) have been implemented;
  • Any offer or sale, if made prior to the expiration of a one-year distribution compliance period which commenced on 23 February 2021, is made pursuant to the following conditions:
    • The purchaser of the shares (other than a distributor) certifies that it is not a U.S. person or that it is a qualified institutional buyer (as defined in Rule 144A) and is not acquiring the shares for the account or benefit of any U.S. person other than a qualified institutional buyer or is a U.S. person who purchased shares in a transaction that did not otherwise require registration under the Securities Act;
    • The purchaser of the shares agrees to resell such shares only in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act or pursuant to an another available exemption from registration; and agrees not to engage in hedging transactions with regard to such shares unless in compliance with the Securities Act;
    • The shares contain a legend or other procedures are implemented to notify the broker and investor community to the effect that transfer is prohibited except in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act or pursuant to an available exemption from registration; and that hedging transactions involving those shares may not be conducted unless in compliance with the Securities Act; and
    • The issuer is required, either by contract  or a provision in its bylaws, articles, charter  or comparable document, to refuse to register any transfer of the shares not made in accordance with the provisions of Regulation S, pursuant to registration under the Securities Act or pursuant to an available exemption from registration.

 

Equity securities of domestic issuers are deemed to be restricted securities as defined in Rule 144 under the Securities Act. Resales of Huuuge, Inc. shares by a non-U.S. purchaser must be made in accordance with Regulation S, the registration requirements of the Securities Act or an exemption therefrom. Huuuge, Inc. shares will continue to be deemed to be restricted securities, notwithstanding that they were acquired in a resale transaction made pursuant to Regulation S.

 

In order to comply with the foregoing, the purchasers of the shares are required to make the representations set out in Exhibit 15 to the WSE Detailed Exchange Trading Rules. The legend applicable to trading in shares subject to aforementioned securities laws restrictions appears in Exhibit 14 to the WSE Detailed Exchange Trading Rules, a link to which appears below:

 

https://www.gpw.pl/pub/GPW/files/PDF/regulacje/SZOG_en.pdf