[Federal Register Volume 60, Number 5 (Monday, January 9, 1995)]
[Notices]
[Pages 2417-2418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-383]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35176; File No. SR-Phlx-94-55]
Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;
Notice of Filing of a Proposed Rule Change Relating to Implementation
of a Three-Day Settlement Standard
December 29, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 14, 1994, the
Philadelphia Stock Exchange, Inc. (``PHLX'') filed with the Securities
and Exchange Commission (``Commission'') a proposed rule change as
described in Items I, II, and III below, which items have been prepared
primarily by the PHLX. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
\1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The purpose of this proposed rule change is to amend PHLX's rules
to accommodate a three business day settlement standard for securities
transactions.
II. Self-Regulatory Organization's Statements Regarding the Proposed
Rule Change
In its filing with the Commission, the PHLX included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The PHLX has prepared summaries, set forth in sections
(A), (B), and (C) below, of the most significant aspects of such
statements.
A. Self-Regulatory Organization's Statement of the Purpose of and
Statutory Basis for the Proposed Rule Change
In October 1993 the Commission adopted Rule 15c6-1 under the Act.
The rule which will become effective June 7, 1995.\2\ Rule 15c6-1 will
establish three business days following the trade date (``T+3'') as the
standard settlement time frame for most broker-dealer transactions. In
the release adopting Rule 15c6-1, the Commission concluded that a T+3
settlement cycle, as compared to the current five-day settlement cycle
(``T+5''), will reduce credit and liquidity risks and increase
efficiency in broker-dealer and clearing agency operations.
\2\Securities Exchange Act Release Nos. 33023 (October 6, 1993),
58 FR 52891 [order adopting Rule 15c6-1] and 34952 (November 9,
1994), 59 FR 59137 [order changing the effective date of Rule 15c6-
1].
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The PHLX has identified those rules which require amendment to
provide for operations by members within a T+3 settlement cycle. The
rules are described below.
Rule 113(b) defines ``regular way'' dealings in stock as requiring
delivery on the fifth business day following the day of the
contract.\3\ ``Fifth'' will be changed to ``third.'' Similarly, the
language in Rule 113(c) defining a seller's option dealing will be
changed from requiring delivery in not less than six days to in not
less than four days.
\3\As proposed, the rule will include in a T+3 environment
transaction in securities exempted under Rule 15c6-1(b)(2).
Specifically, under the proposal, securities sold pursuant to a firm
commitment offering registered under the Securities Act of 1933 must
settle within three business days.
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Rule 114(b) defines ``regular way'' dealings in bonds (except
convertible bonds and United States government securities) as requiring
delivery on the fifth business day following the day of the contract.
``Fifth'' will be changed to ``third.'' Rule 114 also provides that for
bonds sold for delayed delivery, delivery is due on the seventh day
following contract day. ``Seventh'' will be changed to ``fifth.''
Similarly, the language in Rule 114(c) defining a seller's option
dealing will be changed from requiring delivery in not less than eight
days to in not less than four days.
Rule 115(b) defines ``regular way'' to require dealings in
convertible bonds to require delivery on the fifth business day
following the day of the contract. ``Fifth'' will be changed to
``third.'' Similarly, the language in Rule 115(b) defining seller's
option dealing will be changed from requiring delivery in not less than
six days to in not less than four days.
Rule 117 (a) and (b) require notice of early delivery of securities
sold pursuant to seller's option or regular way delayed delivery to be
submitted before 4:00 p.m. at least one day prior to delivery and may
not be given until the fifth business day after the date of
[[Page 2418]] the contract. ``Fifth'' will be changed to ``third.''
Rule 291 requires, unless otherwise agreed, securities loaned to be
delivered on the fifth business day following the day of the loan.
``Fifth'' will be changed to ``third.'' Rule 294 will be amended to
change the return date for securities loaned from the fifth full
business day following the date the notice is given to the third full
business day.
Rule 362 will require the contract price of bonds dealt in ``and
interest'' and made ``regular way delayed delivery'' to include
interest computed only up to but not including the third business day
rather than the fifth business day following the day of the contract.
Rule 371(a) states that with ``delayed delivery'' contracts in bonds
dealt in ``and interest'' made prior to the fifth business day
preceding the interest payment date for delivery on or after the
interest payment date, there will be a cash adjustment for coupons
paid. The rule will be changed to prior to the third business day
preceding the interest payment date. Similarly, Rule 371(b) will
require that ``seller's option'' contracts in bonds dealt in ``and
interest'' made prior to the third business day, instead of the fifth
business day, preceding the interest payment date for delivery on or
after the payment date will have a cash adjustment for coupons paid.
Rule 431 states that transactions (except those made for ``cash'')
shall be ex-dividend or ex-rights on the fourth business day preceding
the record date. This will be changed to the second business day. With
regard to a record date on other than a business day, the transaction
shall be ex-dividend or ex-rights on the third preceding business day
rather than on the fifth preceding business day. Rule 432 prescribes
when ex-warrant trading will begin. The ex-warrant period will be
changed from the fourth business day preceding date of expiration of
warrants to the second business day. When warrant expiration occurs on
a day other than a business day, the ex-warrant period will be changed
from fifth business day preceding expiration date to third business
day.
Rule 823 requires that all transactions effected on the PHLX will
be settled pursuant to the ``five day delivery plan'' which requires
regular way transactions to settle on the fifth business day after the
transaction date. The proposed rule change will change all references
from five to three.\4\
\4\Rule 823 also demonstrates the ``five day delivery plan'' by
stating that a transaction that occurs on Monday will settle on the
Monday of the following week. This language will be changed to be
consistent with the ``three day delivery plan.''
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Rule 825(b) provides that the ex-dividend date for transactions in
stock for which there exists a transfer facility in Philadelphia is the
fourth business day preceding the record date. The reference to fourth
business day will be changed to second business day. In the event the
record date is not a business day, the ex-dividend date will be changed
from the fifth preceding business day to the third preceding business
day. Rule 825(c) establishes the equivalent ex-dividend record date for
those stocks with transfer facilities outside Philadelphia. For these
stocks, the ex-dividend date will be the second business day, instead
of the fourth business day, preceding the equivalent Philadelphia
record date.
The PHLX's implementation of these rule changes will be consistent
with the June 1995 conversion schedule which the Stock Clearing
Corporation of Philadelphia and National Securities Clearing
Corporation have developed for industry use. The schedule is as
follows:
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Settlement
Trade date cycle Settlement date
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June 2 Friday......................... 5 Day June 9 Friday.
June 5 Monday......................... 4 Day June 9 Friday.
June 6 Tuesday........................ 4 Day June 12 Monday.
June 7 Wednesday...................... 3 Day June 12 Monday.
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If the Commission determines to alter the exemptions currently
provided in Rule 15c6-1, the PHLX may need to submit additional rule
amendments. It is intended that the proposed rule change will become
effective the same date as Commission Rule 15c6-1.
The proposed rule change is consistent with Section 6(b)(5) of the
Act in that it protects investors and the public interest by reducing
the risk to clearing corporations, their members, and public investors
which is inherent in settling securities transactions. This is
accomplished by reducing the time period for settlement of most
securities transactions which will correspondingly decrease the number
of unsettled trades in the clearance and settlement system at any given
time.
The proposed change also is consistent with Commission Rule 15c6-1
which will require brokers or dealers to settle most securities
transactions no later than the third business day after the date of the
contract unless otherwise expressly agreed to by the parties at the
time of the transaction.
B. Self-Regulatory Organization's Statement on Burden on Competition
The PHLX does not believe that the proposed rule change will impose
any inappropriate burden on competition.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days or such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the PHLX consents, the Commission will:
(A) By order approve such proposed rule change or
(B) Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any person, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Section, 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of such filing also will be available
for inspection and copying at the principal office of the PHLX. All
submissions should refer to File No. SR-Phlx-94-55 and should be
submitted by January 30, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-383 Filed 1-6-95; 8:45 am]
BILLING CODE 8010-01-M
