[Federal Register Volume 60, Number 57 (Friday, March 24, 1995)]
[Notices]
[Pages 15618-15619]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7238]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35506; File No. SR-NYSE-94-40]
Self-Regulatory Organizations; New York Stock Exchange, Inc.;
Order Approving Proposed Rule Change Relating to Implementation of a
Three-Day Settlement Standard
March 17, 1995.
On November 3, 1994, the New York Stock Exchange, Inc., (``NYSE'')
filed a proposed rule change (File No. SR-NYSE-94-40) with the
Securities and Exchange Commission (``Commission'') pursuant to Section
19(b) of the Securities Exchange Act of 1934 (``Act'').\1\ Notice of
the proposal was published in the Federal Register on December 23, 1994
to solicit comments from interested persons.\2\ The Commission received
one comment letter.\3\ As discussed below, this order approves the
proposed rule change.
\1\15 U.S.C. 78s(b) (1988).
\2\Securities Exchange Act Release No. 35110 (December 16,
1994), 59 FR 35011.
\3\Letter from Dr. Keith B. Jarrett, President, Thomson Trading
Services, Inc., to Jonathan G. Katz, Secretary, Commission (January
12, 1995).
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I. Description
In October 1993, the Commission adopted Rule 15c6-1 under the
Act\4\ which establishes three business days after the trade date
(``T+3''), instead of five business days (``T+5''), as the standard
settlement cycle for most securities transactions. The rule will become
effective June 7, 1995.\5\ Several of the current NYSE's rules are
interrelated with a T+5 settlement time frame. The purpose of the rule
change is to amend NYSE's rules to be consistent with a T+3 settlement
standard for securities transactions.
\4\17 CFR 240.15c6-1.
\5\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 from June 1,
1995, to June 7, 1995).
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NYSE Rules 64(a)(3), 65(b), and 85(d)(3) specify the delivery date
for securities sold in regular way transactions, odd lot sales, and
cabinet sales, respectively. The time frames contained in each rule is
being shortened to conform to a T+3 settlement cycle. 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.
This section is being amended to eliminate references to the fourth and
fifth business days. Rule 64(c) is being amended to provide that
seller's option trades can settle on the third business day, rather
than the fifth business day, after the trade date.
Rule 235 is being 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 a day 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. The time
frame contained in Rule 257 for delivery of dividends or rights for
securities sold before the ``ex'' date but delivered after the record
date is being shortened to three days after record date.
Rule 236 prescribes when ex-warrant trading will begin. The ex-
warrant period is being 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 387(a)(4) requires a member to obtain an agreement from its
customer to deliver instructions to its agent within certain time
periods with respect to receipt and delivery of securities sold
delivery versus payment (``DVP'') or receipt versus payment (``RVP'').
All the time frames contained in Rule 387(a)(4) are being shortened by
two days. 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. This time frame is being shortened by two business days. The
proposal shortens the time frames contained in Rule 123B(b)(2) (A) and
(B) for correcting [[Page 15619]] execution reports.\6\ Supplementary
Material .10, .12, and .13 of Rule 128B are being amended to shorten
the time frames for tape corrections and other errors.\7\
\6\Rule 123B(b)(2)(A) is being amended to 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) is being
amended to 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 is
being amended to 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.
\7\Supplementary Material .10 is being amended to 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. Supplementary Rule .12 is being
amended to 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. Supplementary Material .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.
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The NYSE has requested that the proposed rule change become
effective on the same date as Rule 15c6-1. Rule 15c6-1 becomes
effective on June 7, 1995.\8\
\8\The transition from five day settlement to three day
settlement will occur over a four day period. Friday, June 2, will
be the last trading day with five business day settlement. Monday,
June 5, and Tuesday, June 6, will be trading days with four business
day settlement. Wednesday, June 7, will be the first trading day
with three business day settlement. As a result, trades from June 2
and June 5 will settle on Friday, June 9. Trades from June 6 and
June 7 will settle on Monday, June 12.
II. Written Comment
The Commission received one comment letter from Thomson Trading
Services, Inc. (``Thomson'') suggesting that additional regulatory
changes may be necessary to implement T+3 settlement.\9\ Thomson
believes that the NYSE should amend Rule 387(a)(5) which requires the
use of the facilities of a securities depository for confirmation and
acknowledgement of all transactions in securities which are depository-
eligible.
\9\Letter from Dr. Keith B. Jarrett, supra note 3.
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III. Discussion
The Commission believes the proposal is consistent with the
requirements of Section 6 of the Act.\10\ Specifically, Section 6(b)(5)
states that the rules of an exchange must be designed to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, and processing information. NYSE rules and other
self-regulatory organizations' rules currently establish the standard
time frame for settlement of securities transactions. On June 7, 1995,
the new settlement cycle of T+3 will be established as mandated by the
Commission's Rule 15c6-1. As a result, the NYSE's current rules
providing for a T+5 settlement cycle will be inconsistent with the
Commission's rule. This proposal will amend the NYSE's rules to
harmonize them with the Commission's rule 15c6-1 and a T+3 settlement
cycle.
\10\15 U.S.C. 78f (1988)
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In addition, the Commission believes that 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 risks to clearing
corporations, their members, and public investors which are inherent in
settling securities transactions. The reduction of the time period for
settlement of most securities transactions will correspondingly
decrease the number of unsettled trades in the clearance and settlement
system at any given time. Thus, fewer unsettled trades will be subject
to credit and market risk, and there will be less time between trade
execution and settlement for the value of those trades to
deteriorate.\11\
\11\The Commission release adopting Rule 15c6-1 stated that
``the value of securities positions can change suddenly causing a
market participant to default on unsettled positions. Because the
markets are interwoven through common members, default at one
clearing corporation or by a major market participant or end-user
could trigger additional failures resulting in risk to the national
clearance and settlement system.'' Securities Exchange Act Release
No. 33023 (October 6, 1993), 58 FR 52891.
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While Thomson's letter supports the NYSE's efforts to shorten the
settlement cycle for securities transactions, Thomson believes that the
NYSE should amend Rule 387, which requires the use of the facilities of
a securities depository for the confirmation and acknowledgement of all
DVP or RVP transactions in depository-eligible securities. The
Commission believes that the issue raised by the Thomson letter need
not be resolved prior to the approval of the NYSE's proposed rule
change. Discussions regarding Thomson's concerns are underway among the
Commission, Thomson, and DTC. DTC has submitted a rule filing that will
establish a linkage between DTC and vendors such as Thomson.\12\ The
Commission intends to consider whether self-regulatory organization
rules should continue to preclude use of private vendor systems for
confirmation/affirmation services in DVP/RVP trades. However, if the
NYSE's proposed rule change being approved by this order is not
approved prior to the June 7, 1995, effective date of Rule 15c6-1, the
NYSE rules will conflict with the Commission Rule 15c6-1.
\12\Securities Exchange Act Release No. 35332 (February 3,
1995), 60 FR 8102 (notice of filing of proposed rule change).
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The Thomson letter suggests that approval of the proposed rule
change without amendments to Rules 387 raises competitive concerns.
Under the Act, the Commission's responsibility is to balance the
perceived anticompetitive effects of a regulatory policy or decision
against the purpose of the Act that would be advance by the policy or
decisions and the costs associated therewith. The Commission notes that
any anticompetitive effects pointed to by Thomson are not caused by the
proposed rule change being approved by this order but rather by an
existing NYSE rule. The Commission is reviewing Thomson's claim but
does not believe that approval of this proposal will itself create any
burdens on competition. Moreover, as discussed above, the rule advances
fundamental purposes under the Act, namely the efficient clearance and
settlement of securities.
IV. Conclusion
For the reasons stated above, the Commission finds that NYSE's
proposal is consistent with Section 6 of the Act.\13\
\13\15 U.S.C. 78f (1988).
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It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (File No. SR-NYSE-94-40) be and
hereby is approved and will become effective on June 7, 1995.
\14\15 U.S.C. 78s(b)(2) (1988)
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For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\15\
\15\17 CFR 200.30(a)(12)(1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-7238 Filed 3-23-95; 8:45 am]
BILLING CODE 8010-01-M
