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Last night, the Senate voted 74 to 25 in favor of Emergency Economic Stabilization Act of 2008, seeking to create an offer that members of the House can’t refuse when the bill goes up for a vote there by Friday. Here is a Summary and Section-by-Section Analysis of the 451-page bill. As noted in this NY Times article, some of the “sweeteners” added to the Senate bill have nothing to do with the credit crisis or the bailout, including $150 billion in tax breaks for individuals and businesses and legislation requiring insurers to afford parity between mental health conditions and other health problems. The Senate also adopted a temporary increase in the FDIC’s limit on insured bank deposits, raising the ceiling from $100,000 to $250,000.

As Mark Borges noted last night in his CompensationStandards.com blog, the only substantive change to the corporate governance and executive compensation provisions of the House bill was in Section 111, where the limits on compensation that Secretary of the Treasury must adopt to exclude incentives for encouraging executives to take unnecessary and excessive risks now applies to “senior executive officers,” rather than just “executive officers.” As Mark notes, this change is consistent with the application of the other two standards in Section 111 and thus limits all of these provisions to the “named executive officer” group. Apparently, the Senate did not see the need to add any real teeth to the executive compensation and corporate governance provisions of the bill, perhaps because any changes along those lines might not have improved the bill’s success in the House.

Now the market will be on pins and needles until the House acts. After the market’s swoon on Monday, it seems much less likely that constituents will be beating down members’ doors opposing the plan. At this point, whether there will be enough support to pass the bill in the House is anyone’s guess.

SEC Extends Emergency Orders

The SEC announced that it has extended its short sale emergency orders, as well as the emergency order loosening the timing and volume conditions on issuer repurchases in Exchange Act Rule 10b-18. The SEC also announced that the Form SH filing requirement for Exchange Act Section 13(f) filers is also extended, and will become a permanent requirement under interim final rules that the SEC plans to adopt. Based on the language of the press release, it doesn’t appear that information filed on Form SH (under the emergency order at least) will be made public. What the SEC plans to do with the information on short positions obtained on Form SH remains a mystery, and the fact that the information is not being made public seems a little at odds with the SEC’s “full disclosure” mission.

The SEC stated in a press release that the orders are being extended to “allow time for completion of work on the anticipated passage of legislation,” referring to the Congressional efforts to pass a bailout plan. The order banning short selling in “financial” companies is extended until 11:59 p.m. eastern time on the third business day after enactment of the legislation, but in any case no later than October 17th. The order requiring the filing Form SH will be extended until October 17th, but the requirement will remain in place after the expiration of the order under to-be-adopted interim final rules. The relaxed Rule 10b-18 conditions will be extended through October 17th.

The emergency order specifically directed at naked short selling – through Rule 204T, the repeal of the options market maker exception from short selling close-out provisions in Reg. SHO, and Exchange Act Rule 10b-21 – has been extended through October 17th. The SEC also adopted the Staff’s guidance on the application of the initial order. It appears from the press release that the SEC plans to adopt interim final rules to implement this order on a permanent basis as well.

It seems odd that the outright short sale ban on shares of financial companies is now tied to the legislative efforts in Congress. That approach seems to pin a lot of hope on the fact that just the enactment of the legislation (no matter how the legislation comes out) will restore order and calm to the markets. For those companies who are not on the list of companies subject to the ban but who have seen their competitors added to the list, it makes it tougher to judge whether they should contact the exchange to get added, since there is now significant uncertainty as to how long the order will actually remain in effect. In any event, this much is assured: when the ban is lifted, people will go right back to shorting companies with bad assets, bad management and little prospect for success.

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– Dave Lynn