SEC New Rules

["Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>]

It is going to be a wild week.  Mutual funds can borrow from banks to
meet redemption.  What is the collateral shares never recover before the
loan is due?
The SEC might as well introduce a rule that prices cannot fall.

Henry C.K. Liu

Financial Times     09/14 20:20
 SEC Adopts Temporary Rules for Stock-Market Opening (Update2)
 By Neil Roland, Judy Mathewson, and Vicky Stamas

Washington, Sept. 14 (Bloomberg) -- The Securities and Exchange
Commission
adopted temporary rules that seek to keep stocks from plummeting when
U.S.
markets open Monday after a terrorist attack on
New York wiped out four days of trading.

The five-day emergency rules let public companies repurchase stock
without
following limits on how many shares they can buy or restrictions
forbidding
buybacks at the beginning or end of a trading day. The SEC, which
polices U.S.
stock and bond markets, for the first time used congressionally granted
emergency authority to temporarily change its normal rules to respond to
a
crisis.

``This will make it easier for companies to buy at a tense time when
there are
concerns that the markets may decline,'' said Stuart Kaswell, general
counsel
for the Securities Industry Association, a brokerage trade group.

The SEC, under new Chairman Harvey Pitt, acted to help get U.S. markets
back on
their feet after devastation in New York's financial district, where
bond broker
Cantor Fitzgerald LP lost around 700 workers and Morgan Stanley Dean
Witter &
Co. lost 22 floors of offices when the World Trade Center's landmark
110-story
towers collapsed.

Using for the first time its emergency authority to temporarily change
rules,
the SEC's rule package also would let mutual funds borrow money from
affiliated
banks so that, if mutual fund investors rush to redeem shares, fund
companies
can pay them without being forced to sell stock.

Avoiding `Downdraft'

`They're worried that people are going to come in after this terrible
national
catastrophe and all want to sell everything,'' said Marianne Smythe,
former head
of the SEC's investment management division and a
lawyer at the Wilmer, Cutler & Pickering firm. ``If you can borrow the
money''
to pay for fund remptions, ``then you are not going to have to go into
the
marketplace and sell securities and just add to the downdraft.''

The SEC's action suspended for next week restrictions that limit company
stock
buybacks to 25 percent of a day's small trades. It also exempts
companies from a
rule saying that a company buyback can't be the first reported trade of
the day
and can't occur during the last 30 minutes of trading.

Some of the changes are aimed at solving technical or administrative
issues,
such as making sure accountants aren't charged with auditor independence

violations if they help clients put back together records lost after two

hijacked airliners were flown by terrorists into the World Trade
Center's
towers. Independence rules normally forbid auditors from helping to
prepare
company records they will later audit.

Repurchases Demonstrate Confidence

Under the changes, companies for five days also can repurchase shares
without
running afoul of accounting rules that could force a large write-off if
buybacks
occur close to the time of a stock-swap merger.

Having companies prepared to buy their own stock can help demonstrate
confidence
in a company and markets and can provide a ready buyer to bolster a
stock's
price if sell orders surge, experts said.

``Repurchases can be a source of liquidity for the market,'' SEC General
Counsel
David Becker said. ``We want to prevent a situation where there are
serious
order imbalances.''

Becker said he doesn't expect stocks to fall dramatically Monday, though
he said
companies have told the SEC that they find the temporary rules
``extremely
useful.'' He also said he doesn't expect the SEC to extend the rules
beyond next
week.

``What you're seeing is a quiet, responsible response to an
extraordinarily
staggering national tragedy which hit the financial community with
particular
force,'' said Joel Seligman, dean of the Washington University law
school in St.
Louis.

Other Changes

The rules also would let brokerages calculate net capital without
considering
the four days the market was closed; let mutual funds borrow from and
lend to
``related parties,'' and relax a requirement for in-person
meetings of mutual fund boards.

The SEC's unprecedented action follows moves by Congress, in 1990 and
1996, that
gave the agency power to ``summarily'' take emergency action  to
``maintain or
restore fair and orderly securities markets'' and to grant exemptions
from SEC
rules.

``This is like a magic wand-type of provision,'' Seligman said. ``You
can do
anything you want, with very few restrictions.''

Unless trading systems fail during a Saturday test, the New York Stock
Exchange,
the Nasdaq Stock Market, and other U.S. markets are set to be back in
business
Monday at 9:30 a.m. Trading floors have been quiet since terrorists on
Tuesday
flattened the twin 110-story World Trade Center towers and forced the
evacuation
of Manhattan's financial district.

In public comments this week, Pitt talked about easing repurchase
restrictions
as a way to provide stability in the markets.

Buyback Flexibility

`We're pleased to see that flexibility'' created by the SEC action on
buyback
rules, said Joseph A. White, chief financial officer at Insituform
Technologies
Inc. ``That should give more reassurance to the market.''

Chesterfield, Missouri-based Insituform, which repairs tunnels and
pipelines,
added 1 million shares to its existing 1.5 million-share repurchase
authorization in a bid to soothe investors, White said.

Cisco Systems Inc., the largest maker of computer-networking equipment,
yesterday said its board had authorized the repurchase of as much as $3
billion
of stock over the next two years.

At least 20 U.S. companies followed today with announcements about new,
expanded, or continued buybacks.

H&R Block Inc., the world's largest tax preparer, today said the company
had new
authority to buy back 15 million common shares, on top of a 12
million-share
buyback authorized last year. Kansas City-based H&R Block said the
repurchase
wasn't prompted by this week's catastrophe, though it acknowledges that
it may
prove helpful on Monday.

Pressure on Stock

``The timing could not have been better,'' said investor relations
director Mark
Barnett. ``As a result of this authorization we're in an excellent
position to
support our shareholders in the event we would see a lot of  pressure on
our
stock.''

Traders saw a demonstration of a buyback's impact a day after trading
was halted
on Oct. 27, 1997, when the Dow Jones Industrial Average fell 554 points.

International Business Machines announced a $3.5 billion buyback
authorization
on Oct. 28, and the Dow Index rose 337 points that day.

Shaw Group Inc., a Baton Rouge, Louisiana-based power-plant builder,
issued a
statement saying it may buy back as much as $100 million of  stock ``to
demonstrate our confidence in this country's financial markets.''

 HCC Insurance Holdings Inc., a property and casualty insurer that
expects some
claims related to the World Trade Center's destruction, also said it's
ready to
repurchase 3 million shares, just in case.

``We've done it on a defensive basis so that if something negative
should happen
in our stock, we'll be able to maintain orderly trading,'' said Stephen
L. Way,
chairman and chief executive. ``I really don't think it is going to
happen this
time, but if it does, we'll be ready to go.''




SEC Takes Action To Facilitate Reopening of Fair and Orderly  Equities
Markets

                FOR IMMEDIATE RELEASE

                2001-91

Washington, D.C., September 14, 2001 ? The Commission today announced
that it has taken the following steps to facilitate the planned
reopening of U.S. equities markets on Monday, September 17, 2001. These
markets are the world's strongest and most vibrant, in spite of the
heinous acts of last       Tuesday.

The Commission has used, for the first time, its emergency powers to
ease certain regulatory restrictions temporarily. The key actions are
the following:

Public companies may repurchase their own securities without meeting the
volume and timing restrictions that ordinarily would apply.

Public companies that repurchase their shares will not have adverse
accounting consequences.

Brokerage firms may calculate net capital without considering the days
the market was closed.

Mutual funds may borrow from and lend to related parties.

In order to facilitate mutual fund board meetings, the Commission has
relaxed requirements for in-person meetings.

 Accounting firms may provide bookkeeping services to and help recover
records for clients with offices in and around the World Trade Center,
without violating auditor independence rules.

Copies of the orders and interpretive release are available on the
Commission's website, at www.sec.gov.

The SEC has placed additional information for investors and market
participants on its website, and established information telephone lines
for  each. Investors can e-mail questions to the SEC staff at
help@xxxxxxxx     The toll-free investor telephone number is
1-800-SEC-0330. Firms seeking  additional relief under the Financial
Responsibility Rules should call the SEC staff at 202-942-7891,
202-942-7892 or 202-942-7893. All other firm inquiries should be
directed to 202-942-0069.

The Commission will monitor the situation. Investors should be assured
that U.S. markets will function effectively and fairly, and that market
and investor protections are squarely in place. Market participants
should be assured that the Commission and its staff will be available to
respond to issues raised by the extraordinary circumstances of this
week.

Regulatory and Interpretive Releases


Emergency Order: Issuer Repurchase of Securities

Mutual Fund Exemptive Order

Interpretive Release on Auditor Assistance to Clients




http://www.sec.gov/news/headlines/marketreopen.htm