[Federal Register Volume 60, Number 68 (Monday, April 10, 1995)]
[Notices]
[Pages 18161-18163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8709]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35553; File No. SR-Amex-94-57]
Self-Regulatory Organizations; American Stock Exchange, Inc.;
Order Approving Proposed Rule Change Relating to Implementation of a
Three-Day Settlement Standard
March 31, 1995.
On December 23, 1994, the American Stock Exchange, Inc. (``Amex'')
filed a proposed rule change (File No. SR-Amex-94-57) 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 January 12, 1995,
to solicit comments from interested persons.\2\ The Commission received
one written comment.\3\ As discussed below, this order approves the
proposed rule change.
\1\15 U.S.C. Sec. 78s(b) (1988).
\2\Securities Exchange Act Release No. 35197 (January 6, 1995),
60 FR 3007.
\3\Letter from P. Howard Edelstein, President Electronic
Settlements Group, Thomson Trading Services, Inc., to Jonathan G.
Katz, Secretary, Commission (January 30, 1995).
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I. Description
In October 1993, the Commission adopted Rule 15c6-1 under the Act
which will become effective June 7, 1995.\4\ The rule 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. Several of the Amex's rules are interrelated with the T+5
settlement time frame. The purpose of the proposed rule change is to
amend Amex's rules consistent with a T+3 [[Page 18162]] settlement
standard for securities transactions.
\4\Securities Exchange Act Release Nos. 33023 (October 6, 1993),
58 FR 52891 (adopting Rule 15c6-1) and 34952 (November 9, 1994), 59
FR 59137 (changing the effective date from June 1, 1995, to June 7,
1995).
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Rule 124(c) specifies the delivery date for regular way
transactions which will be shortened to T+3. The references to a
seller's option delivery to be made not less than six business days
after the trade date contained in Rules 124(d) and 205C(2) will be
changed to not less than four business days.
Rules 17(b) and 179(a) will require that all transactions and
orders entered on a specialist's book in an issue of rights shall be
made ``next day'' during the three business days preceding the final
day for dealings in an issue of rights. Rules 17(c) and 179(b) will
require all transactions and orders entered on a specialist's book in
warrants shall be made for cash during the three final business days
for trading in such issue. Rule 179(c) will require an order in an
expiring equity securities entered on a specialist's book to be for
``next day'' delivery during the final three business days preceding
the final day for trading.
The proposal will shorten by two days the time frames contained in
Rule 423(4) for delivery of agent instructions with respect to receipt
versus payment (``RVP'') or delivery versus payment (``DVP'') customer
transactions. The proposal will shorten by two days the time frames
contained in Rule 830 for the ex-divident period and the ex-rights
period (if the terms of the subscription are known sufficiently in
advance) for stock transactions not made in cash. In addition, the
proposal eliminates the separate ex-dividend and ex-right periods for
transfers outside of New York.
Rule 858 directs settlement in contracts in bonds dealt in ``and
interest.'' The proposal will amend Rule 858 to provide that with
respect to seller's option contracts, there shall be added to the
contract price interest on the principle amount at the rate specified
in the bond, which shall be computed up to but not including the day
when delivery would have been due if the contract had been made
``regular way.''
Rule 862 will require that the return of loans of securities must
be made on the third business day following the day on which notice is
given. Rule 866 will require a loan of securities to be deliverable on
the third business day following the day of the loan unless otherwise
agreed to by the parties. Rule 882 will require that a seller deliver
to the buyer a due-bill for dividends or rights to subscribe within
three days after the record date if a security is sold before it is ex-
dividend or ex-rights and delivery is made after the record date. The
references in Rule 882 to the equivalent New York record date will be
eliminated.
Amex has requested that the proposed rule change become effective
on the same date as Rule 15c6-1.\5\ Rule 15c6-1 is scheduled to become
effective on June 7, 1995. The transition from T+5 settlement to T+3
settlement will occur over a four day period.\6\
\5\Letter from Ivonne Nagy, Special Counsel, Amex, to Michele
Bianco, Attorney, Office of Securities Processing, Division of
Market Regulation, Commission (December 30, 1994).
\6\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.
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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.\7\ Thomson
believes that the Amex should amend Rule 423(5) which requires the use
of the facilities of a securities depository for confirmation and
acknowledgement of all depository-eligible transactions.
\7\Letter from P. Howard Edelstein, President, Electronic
Settlement Group, Thomson Trading Services, Inc., to Jonathan G.
Katz, Secretary, Commission (January 30, 1995).
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III. Discussion
The Commission believes the proposal is consistent with the
requirements of Section 6 of the Act.\8\ Specifically, Section 6(b)(5)
states that the rules of the exchange must be designed to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, and processing information. Amex's 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 Amex's current rules
providing for a T+5 settlement cycle will be inconsistent with
Commission rules. This proposal will amend the Amex's rules to
harmonize them with a T+3 settlement cycle.
\8\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 the risk to clearing
corporations, their members, and public investors which is 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.\9\
\9\The adopting release stated, ``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 the Thomson letter supports the Amex's efforts to shorten the
settlement cycle for securities transactions, Thomson believes that the
Amex should amend Rule 423(5), which requires the use of the facilities
of a securities depository for the confirmation and acknowledgement of
all DVP and RVP depository-eligible transactions. The Commission
believes that the issue raised by the Thomson letter need not be
resolved prior to the approval of the proposed rule change. Discussions
regarding Thomson's concerns are underway among the Commission,
Thomson, DTC, and the Securities Industry Association. The Commission
will continue to work with the industry to address Thomson's concerns.
However, if the proposed rule change is not approved prior to the June
7, 1995, effective date of Rule 15c6-1, the Amex rules will conflict
with the Commission Rule 15c6-1.
The Thomson letter suggests that approval of the proposed rule
change without amendments to Rule 423 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 advanced by the policy or
decisions and the costs associated therewith. The Commission notes that
the anticompetitive effects pointed to by Thomson, if in fact there are
any anticompetitive effects, are not caused by the proposed rule change
approved by this order but rather by an existing Amex 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 [[Page 18163]] efficient
clearance and settlement of securities.
IV. Conclusion
For the reasons stated above, the Commission finds that Amex's
proposal is consistent with Section 6 of the Act.\10\
\10\15 U.S.C. Sec. 78f (1988).
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It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\11\ that the proposed rule change (File No. SR-Amex-94-57) be and
hereby is approved, effective June 7, 1995.
\11\15 U.S.C. Sec. 78s(b)(2) (1988).
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\12\
\12\17 CFR 200.30(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8709 Filed 4-7-95; 8:45 am]
BILLING CODE 8010-01-M
