[Federal Register Volume 59, Number 246 (Friday, December 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31602]
[[Page Unknown]]
[Federal Register: December 23, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35110; File No. SR-NYSE-94-40]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Notice of Filing of a Proposed Rule Change Relating to Implementation
of a Three-Day Settlement Standard
December 16, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on November 3, 1994, the New
York Stock Exchange, Inc. (``NYSE'') 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 NYSE. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons.
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\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 NYSE's rules
to accommodate the implementation of a three business day settlement
standard for securities transactions.
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 NYSE included statements
concerning the purpose of and basis for the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The NYSE 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 Purposed Rule Change
In October 1993 the Commission adopted Rule 15c6-1 under the Act
which will become effective June 7, 1995.\2\ The rule establishes three
business days after the trade date (``T+3), instead of five business
days (``T+5), as the standard cycle for most securities transactions.
In order to accommodate the implementation of T+3, NYSE has identified
those rules which requires amendment to provide for compliance with
Rule 15c6-1 by members and member organizations. The rules are
described below.
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\2\Securities and 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 effective date from June 1,
1995, to June 7, 1995).
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Rule 64--``Bonds, Rights and 100-Share-Unit Stocks''
Rule 64(a)(3) currently defines ``regular way'' dealings as those
requiring delivery on the fifth business day of the contract. ``Fifth''
business day will be changed to ``third'' business day.\3\ Rule
64(a)(5) currently provides that on the second, third, fourth, and
fifth business days preceding the final day for subscription, bids, and
offers in rights to subscribe shall be made only for delivery next day.
Paragraph (a)(5) will be amended to eliminate references to the fourth
and fifth business days. Rule 64(c) will be amended to provide that
seller's option trades cannot settle on the third business day, rather
than the fifth business day, after the trade date.
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\3\As proposed, the rule will include in a T+3 environment sales
of securities exempted under Commission Rule 15c6-1(b)(2).
Specifically, under the proposal, securities sold pursuant to a firm
commitment offering registered under the Securities Act of 1993 will
have to be settled within three business days.
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Rule 65--``Less Than 100-Share-Unit Stocks''
Rule 65(b) will require that an odd lot of stock sold by an odd lot
dealer for its own account shall be delivered on the third business day
following the day of the transaction rather than permitting delivery
between the fifth business day and the fourteenth day following the
transaction.
Rule 85--``Cabinet Securities''
Rule 85(d)(3) will require that with respect to ten share unit
stocks dealt in by use of cabinets and odd lot sold by a dealer for its
own account shall be delivered on the third business day following the
day of the transaction rather than between the fifth business day and
the fourteenth day following the transaction date.
Rule 123A--``Miscellaneous Requirements''
Rule 123A.32 currently states that the liability of a specialist
shall not extend beyond the closing price on the third business day
where it is deemed that the specialist did not send out a report. It is
proposed to delete the word ``third'' and add the language ``following
the day of the transaction'' after reference to ``the business day'' in
the last paragraph.
Rule 123B--``Exchange Automated Order Routing Systems''
The amendments will shorten the time frames contained in Rule
123B(b)(2)(A) and (B) for correcting execution reports. Rule
123B(b)(2)(A) will require that for most transaction between brokers,
if a purchase or sale has been reported in error and a transaction has
appeared on the tape at the price of the erroneous report, the broker
who made the error will be required to render a corrected report not
later than noon on T+1 rather than one hour after the opening on T+2.
Rule 123B(b)(2)(B) will require that for orders received by the
specialist through the Designated Order Turnaround System or the Limit
Order System, if the subscribing member organization requests a
correction from the specialist prior to the opening of the second
business day, rather than third business day, following the
transaction, the specialist shall correct the report. Rule
123B(b)(2)(B) also will require that if the erroneous report is at a
price more than one-half point away from the execution price, the
specialist must render a corrected report not later than noon on T+1
rather than one hour after the opening on T+2.
Rule 128--``Publications of Changes, Corrections, Cancellations or
Omissions and Verification of Transactions''
Rule 128B.10, .12 and .13 apply to tape corrections and other
errors. Rule 128B.10 will require that in the event that publication of
a change, correction, or cancellation of a transaction which previously
appeared on the tape or of a transaction omitted from the tape is not
made on the tape on the day of the transaction, such change,
correction, cancellation, or omission may be published in the ``sales
sheet'' within three business days, rather than within seven calendar
days, of the date of the transaction with the approval of both the
buying and selling members and a floor official. Rule 128B.12 will
require that erroneous publications made on the tape due to mechanical
or system troubles or clerical errors may be corrected in the sales
sheet within three business days, rather than within seven calendar
days, of the date of the transaction under the direction of an
authorized NYSE employee. Rule 128B.13 will require that any other
errors in the amount of a transaction reported erroneously to a
reporter by a party to the transaction may be published on the sales
sheet within three business days, rather than within seven calendar
days, of the date of the transaction with the approval of a floor
official.
Rule 235--``Ex-Dividend, Ex-Rights''
Rule 235 will be amended to provide that transactions in stocks
shall be ex-dividend or ex-rights on the second business day preceding
the record date rather than on the fourth business day. With regard to
a record date on other than a business day, transactions in stocks
shall be ex-dividend or ex-rights on the third preceding business day
rather than on the fifth preceding business day.
Rule 236--``Ex-Warrants''
Rule 236 prescribes when ex-warrant trading will begin. The ex-
warrant period will be changed to the second business day preceding the
date of expiration of the warrants instead of the fourth business day.
When warrant expiration occurs on other than a business day, the ex-
warrant period will begin on the third business day preceding the
expiration date instead of on the fifth business day.
Rule 257--``Deliveries After `Ex' Date''
Rule 257 provides for the delivery of dividends or rights after the
``ex'' date or due-bill-check. The seller will be required to deliver
dividend or rights three days after record date rather than five days.
Rule 387--``COD Orders''
Rule 387(a)(4) requires a member to obtain an agreement from its
customer to deliver instructions to its agent with respect to receipt
and delivery of securities within certain time periods. In the case of
a purchase by the customer where the agent is to receive the securities
against payment (COD), a customer must agree to furnish its agent with
instructions no later than the close of business on the second business
day, rather than the fourth business day, after the date of execution
of the trade as to which the particular confirmation relates. In the
case of a sale by the customer where the agent is to deliver the
securities against payment (POD), a customer must agree to deliver to
its agent instructions by the close of the business on the first day,
rather than the third business day, after the date of execution of the
trade as to which the particular confirmation relates.
The NYSE's implementation of these rule changes will be consistent
with the ``T+3'' conversion schedule which the National Securities
Clearing Corporation has developed for industry use. The schedule is as
follows:
``T+3'' Conversion Schedule--June 1995
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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 NYSE may need to undertake additional rule
amendments. It is intended that the proposed rule changes are to become
effective on 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 requires 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
NYSE believes that the proposed rule change will not impose any
burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
(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 of such date if it 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 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. Copies of such filing also will be available for
inspection and copying at the principal office of the NYSE. All
submissions should refer to the File No. SR-NYSE-94-40 and should be
submitted by January 13, 1995.
For the Commission by the Division of Market Regulation,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31602 Filed 12-22-94; 8:45 am]
BILLING CODE 8010-01-M
