[Federal Register Volume 60, Number 228 (Tuesday, November 28, 1995)]
[Notices]
[Pages 58695-58697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28932]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36496; File No. SR-NASD-95-50]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by National Association of Securities Dealers, Inc. Amending the
Buy-in Procedures in Section 59 of the Uniform Practice Code to Clarify
the Appropriate Delivery Deadlines for Buy-in Notices
November 20, 1995.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November
15, 1995, the National Association of Securities Dealers, Inc.
(``NASD'' or ``Association'') filed with the Securities and Exchange
Commission (``SEC'' or ``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by the NASD \1\ The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
\1\ The proposal was originally filed with the Commission on
October 26, 1995. The NASD subsequently submitted Amendment No. 1 to
the filing. This document provides notice of the filing as amended.
Letter from Elliot Curzon, Assistant General Counsel, NASD, to Karl
J. Varner, Over-the-Counter Regulation, Division of Market
Regulation, SEC, dated November 15, 1995.
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
Pursuant to the provisions of Section 19(b)(1) of the Act, the NASD
is herewith filing a proposed rule change to amend Section 59 of the
Uniform Practice Code (``UPC'' or ``Code'') to revise the buy-in
procedures to clarify the appropriate delivery deadlines for buy-in
notices. Below is the text of the proposed rule change. Proposed new
language is italicized; proposed deletions are in brackets.
Uniform Practice Code
Close-Out Procedure
``Buying-in''
Sec. 59.
A contract which has not been completed by the seller according to
its terms may be closed by the buyer not sooner than the third business
day following the date delivery was due, in accordance with the
following procedure:
Notice of ``buy-in''
(a)(1) Written notice of ``buy-in'' shall be delivered to the
seller at his office not later than 12 noon, his time, two business
days preceding the executing of the proposed ``buy-in.''
(2) For purposes of this rule written notice shall include an
electronic notice through a medium that provides for an immediate
return receipt capability. Such electronic media shall include but not
be limited to facsimile transmission, a computerized network facility,
etc.
Information contained in ``buy-in'' notice
(b)(1) Every notice of ``buy-in'' shall state the date of the
contract to be closed, the quantity and contract price of the
securities covered by said contract, the settlement date of said
contract and any other information deemed necessary to properly
identify the contract to be closed. Such notice shall state further
that unless delivery is effected at or before a certain specified time,
which may not be prior to 11:30 a.m. local time in the community where
the buyer maintains his office, the security may be ``bought-in'' on
the date specified for the account of the seller. If the originator of
a ``buy-in'' in a depository eligible security is a participant in a
registered securities
[[Page 58696]]
depository, the specified delivery time may not be prior to 3:30 p.m.
Eastern Time and the ``buy-in'' may not be executed prior to [2:30]
3:00 p.m., Eastern Time. Each ``buy-in'' notice shall also state the
name and telephone number of the individual authorized to pursue
further discussions concerning the buy-in.
(2) Notice may be redelivered immediately to another broker/dealer
from whom the securities involved are due in the form of a re-
transmitted notice (``re-transmit''). Ar[R]e-transmitted notice of buy-
in must be delivered to subsequent broker/dealers not later than 12
noon, recipient's local time, on the [one] business day preceding the
time and date of execution of the proposed buy-in, and the time
specified for delivery may not be prior to the time specified in the
original notice.
II. Self-Regulatory Organization's Statement of the Purpose of and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD 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 NASD 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
Under Section 59 of the Code, when the seller has not completed a
contract of sale of securities by delivering the securities called for
in the contract on settlement day, the buyer may close the contract by
purchasing the subject securities in the open market (``buying-in'').
When securities are bought in to complete a contract, the seller in
liable for any difference between the contract price and the buy-in
price.
Pursuant to subsection 59(a) of the Code, a buy-in is initiated by
the buyer delivering a notice of buy-in to the seller at his office not
later than 12 noon, the seller's time, two business days preceding the
execution of the proposed buy-in. Subsection 59(b) provides that the
notice must include the terms of the contract to be closed and must
state that unless delivery is effected at or before a certain specified
time not earlier than 11:30 A.M., the buyer's local time, the security
may be bought in for the account of the seller (meaning the seller
assumes the liability for the market price of the security bought in).
Subsection 59(b) also provides that if the originator of the buy-in
notice is a participant in a registered securities depository, and the
security to be bought in is a depository eligible security, the buy-in
may not be executed before 2:30 P.M. Eastern Time.
The NASD has identified an inconsistency in subsection 59(b) in
that the provisions permit a buy-in notice to specify a delivery
deadline no earlier than 11:39 A.M., local time, yet the buy-in may not
be executed before 2:30 P.M., Eastern Time. If the seller obtained
securities and tendered them for delivery after the notice deadline but
before the buy-in was executed, the provisions of the rule and the
notice could permit the buyer to refuse delivery and subject the seller
to the risk of an execution at a price higher than the original
contract price.
In order to resolve this anomaly, the NASD is proposing to amend
subsection 59(b) of the UPC to modify the delivery times permitted to
be specified in the buy-in notice. With respect to buy-in notices for
depository eligible securities where the originator is a depository
participant, the NASD is proposing to amend subsection 59(b) to provide
that the notice may not specify a delivery time earlier than 3:00 P.M.
Eastern Time.\2\ By limiting this restriction to depository eligible
securities and depository participants, the rule retains the current
provision permitting broker-to-broker buy-ins specifying an earlier
delivery time (no earlier than 11:30 A.M. local time).
\2\ The NASD notes that with the advent of same day funds
settlement (SDFS) in early 1996 and the new settlement time frames
associated with the Depository Trust Company's SDFS System, the
appropriate buy-in execution time in Section 59(b) should not be
prior to 3:00 P.M. Eastern Time.
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In addition, the NASD is proposing to amend subsection 59(b)(2),
which permits the recipient of a buy-in notice to re-transmit the
notice to another broker/dealer from whom the subject securities are
due. The proposed amendment to subsection 59(b)(2) provides that a re-
transmitted buy-in notice must be delivered to the recipient not later
than 12 noon, seller's local time, on the business day preceding the
buy-in date and that the specified delivery time in the re-transmitted
notice must not be earlier than the time specified in the original
notice. This amendment clarifies the existing language and will ensure
that the recipient of the retransmitted notice has at least one full
business day's notice.\3\
\3\ The NASD notes that because subsection 59(b)(1) permits the
buy-in notice to specify a delivery deadline of 11:30 A.M. local
time for broker-to-broker buy-ins in non-depository eligible
securities, it is possible that a buy-in notice retransmitted at 12
noon the previous business day would afford the recipient 23\1/2\
hours to deliver. Nevertheless, the proposed amendment is an
improvement to the current rule language which arguably permits
retransmittal to occur at the end of the previous business day,
affording the recipient as little as 18\1/2\ hours notice.
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The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6) of the Act \4\ in that the proposed
rules will facilitate the functioning of the clearance and settlement
system by eliminating an inconsistencyin the buy-in process and
refining the provisions of the Code relating to buy-ins to recognize
new developments in the clearance and settlement system.
\4\ 15 U.S.C. Sec. 78o-3.
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(B) Self-Regulatory Organization's Statement on Burden on Completion
The NASD does not believe that the proposed rule change will result
in any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act, as amended.
(C) Self-Regulatory Organization's Statement on Comments on the
Proposed Rule Change Received, from Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 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 90 days of such date if if finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the self-regulatory organization 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
[[Page 58697]]
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 Room. Copies of such filing will also be available for
inspection and copying at the principal office of the NASD. All
submissions should refer to SR-NASD-95-50 and should be submitted by
December 19, 1995.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-28932 Filed 11-27-95; 8:45 am]
BILLING CODE 8010-01-M
