(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Issuer Repurchase Rules Adopted, Fund, Short Sales Rules Proposed

The SEC adopted amendments to the issuer repurchase safe harbor rule, Exchange Act Rule 10b-18, and to related disclosure regulations. A proposed new rule and rule amendments would allow an investment adviser to serve as a subadviser to an investment company without shareholder approval, under certain conditions. The Commission also voted to proposed new rules and rule amendments and to issue an interpretive release dealing with regulation of short sales.

Issuer Repurchase Safe Harbor

The SEC voted to adopt amendments to Exchange Act Rule 10b-18. This rule provides issuers with a safe harbor from liability for manipulation if they repurchase their common stock in the open market in accordance with the rule's manner, time, price and volume conditions. According to the SEC, the proposals would reflect market developments since the rule's adoption, including 1) easing the timing condition to allow issuers that meet an average daily trading volume and public float test to stay in the market longer and qualify for the safe harbor, 2) extending the safe harbor to certain after-hours repurchases, 3) amending the pricing condition to apply a uniform price limit for all issuers, 4) increasing the volume limitation to 100 percent of average daily trading volume following a market-wide suspension, 5) modifying the block exception to either include block repurchases in applying the 25 percent average daily trading volume limitation or to allow a purchase of one block per week and 6) stating the scope of safe harbor eligibility with respect to mergers, acquisitions and similar transactions.

The SEC also amended Regulations S-K and S-B, Exchange Act Forms 10-Q, 10-K, 10-QSB, 10-KSB and 20-F and Form N-CSR under the Exchange and Investment Company Acts. These changes require periodic disclosure of all issuer repurchases of equity securities, regardless of whether the repurchases are effected in accordance with Rule 10b-18. The amendments will require issuers to disclose, among other things, the total number of shares repurchased, the average price paid per share, and the number of shares repurchased as part of a publicly announced plan or program. The changes are effective 30 days after the date of publication in the Federal Register.

Subadvisory Agreements

New Rule 15a-5 under the Investment Company Act and amendments to Form N-1A under the Securities Act and the Investment Company Act would address the issue of shareholder approval of subadvisory arrangements. Currently, the Investment Company Act prohibits an investment adviser from serving a fund unless the fund's shareholders have voted to approve the adviser. The SEC noted that recently, many funds have begun to operate as "manager of managers" funds, in which the principal investment adviser hires and supervises subadvisers to manage the fund's investments.

In such a fund, the principal adviser may change subadvisers based on their performance. According to the SEC, the ability to change subadvisers without a shareholder vote benefits shareholders by allowing the fund to quickly address poor subadviser performance. The rule would codify the relief issued by the SEC in individual exemptive orders and would make the exemption available to all such funds.

A subadvisory change would be exempt as proposed from the shareholder vote requirement if 1) hiring the subadviser would not increase management fees paid by shareholders, 2) the subadviser has an arm's length relationship with the principal adviser, 3) shareholders of the fund have authorized the fund to operate as a manager of managers fund and 4) within 90 days after hiring a new subadviser, the fund notifies shareholders of the change. A fund would also be required to disclose in its prospectus that the principal adviser can retain and discharge subadvisers without shareholder approval, subject to board approval. Comments on the proposed rule amendments will be due by January 8, 2004.

Short Sales

Described by the SEC as a "modernization" of short-sale regulation, the agency has proposed new Regulation SHO. This regulation would replace Exchange Act Rules 3b-3, 10a-1 and 10a-2.

Regulation SHO would include a uniform short sale price test applicable to exchange-listed and Nasdaq NMS securities, wherever traded, that would restrict all short sales to a price above the consolidated best bid. One proposed rule in Regulation SHO, Rule 201, would incorporate some exceptions in current Rule 10a-1 and would include additional exceptions to address situations involving locked and crossed markets, short sales executed at a volume weighted average price, broker-dealer executions of customer "long" sales on a riskless principal basis and short sales by broker-dealers to fill customer limit buy orders as required by the federal securities laws or rules of the self-regulatory organizations. A temporary Rule 202(T)would suspend, on a two-year pilot basis, the operation of the proposed bid test of Rule 201 for a select group of liquid securities.

Proposed Rule 203 of Regulation SHO would include new "locate " and delivery requirements proposed to address potentially abusive practices such as so-called naked short selling. The proposed rule would incorporate provisions of existing SRO" locate" rules into a uniform SEC rule applicable to all equity securities wherever traded. Rule 203 would also impose additional requirements on securities that have a substantial amount of failures to deliver.

Rule 200 of Regulation SHO would define the term "short sale" to allow multi-service broker-dealers to aggregate their positions by separate trading units. The proposed rule would also modify the definition of the "ownership" of a security to address security futures products and unconditional contracts to purchase securities.

The SEC also voted to propose amendments to Rule 105 of Regulation M concerning short selling prior to a public offering to eliminate the shelf offering exception. Finally, the Commission will issue an interpretive release providing all market participants with guidance regarding the use of " married put" transactions when aggregating positions under current Rule 3b-3 for determining compliance with current Rule 10a-1 and Rule 105 of Regulation M. A "married put" is the purchase of a put option for a certain number of securities at a particular price by a specified time that is made contemporaneously with the purchase of the same number of underlying securities.

The Commission will solicit comment on the proposals for a period of 60 days following their publication in the Federal Register.

¨ Release No. 34-48626 is reported at ¶87,101 and Release No. 33-8312 is reported at ¶87,102 . Release No. 34-48709 and the release adopting amendments to Rule 10b-18 and related rules and forms will be published in a forthcoming REPORT .