[Federal Register Volume 60, Number 66 (Thursday, April 6, 1995)]
[Notices]
[Pages 17597-17598]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8494]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35554; File No. SR-CHX-94-26]
Self-Regulatory Organizations; The Chicago Stock Exchange,
Incorporated; Order Approving Proposed Rule Change Relating to
Implementation of a Three-Day Settlement Standard
March 31, 1995.
On November 30, 1994, the Chicago Stock Exchange, Incorporated
(``CHX'') filed a proposed rule change (File No. SR-CHX-94-26) with the
Securities and Exchange Commission (``Commission'') pursuant to Section
19(b) of the Securities Exchange Act of 1934 (``Act'').\1\ On December
14, 1994, CHX filed an amendment to the proposed rule change.\2\ Notice
of the proposal was published in the Federal Register on January 4,
1995, to solicit comments from interested persons.\3\ The Commission
received one written comment.\4\ As discussed below, this order
approves the proposed rule change.
\1\15 U.S.C. 78s(b) (1988).
\2\Letter From David Rusoff, Foley & Lardner, to Christine
Sibille, Senior Attorney, Office of Securities Processing, Division
of Market Regulation, Commission (December 16, 1994).
\3\Securities Exchange Act Release No. 35155 (December 27,
1994), 60 FR 517.
\4\Letter from P. Howard Edelstein, President, Electronic
Settlements Group, Thomson Trading Services, Inc., to Jonathan G.
Katz, Secretary, Commission (January 25, 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.\5\ 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 CHX's rules are interrelated with
settlement timeframes. The purpose of the proposed rule change is to
amend CHX's rules consistent with a T+3 settlement standard for
securities transactions.
\5\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 effective date from June 1, 1995, to June 7,
1995).
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Article XX, Rule 9 will define regular way transactions as
requiring delivery on the third business day after the trade date.
Seller's option trades will settle not less than four business days nor
more than sixty days following the day of the contract. Trades made for
``next day'' may include delivery on the first or second business day
following the day of the contract. The proposed rule change also will
eliminate references to the fourth and fifth full business day
preceding the final day for subscription contained in Rule 9.
Article XXVII, Rule 1 will provide that stock transactions shall be
ex-dividend or ex-rights two business days preceding the record date.
With respect to record dates on other than a business day, stock
transactions will be ex-dividend or ex-rights three business days
preceding the record date.
Article XXVII, Rule 2 will require stock transactions to be ex-
warrant on the second business day preceding the date of expiration of
the warrants. 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.
Article XXX, Rule 15 will require all claims involving erroneous
comparisons to be made within two business days of the original trade
date. Claims which concern the omission of a report will need to be
made within two business days of the date the order should have been
executed. Claims relative to a lack of comparison of a reported
transaction will need to be made within two business days of the
original trade.
CHX has requested that the proposed rule change become effective on
the same date as Rule 15c6-1. 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\
\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 CHX should amend Article XV, Rule 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
Settlements Group, Thomson Trading Services, Inc., to Jonathan G.
Katz, Secretary, Commission (January 25, 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. The CHX 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 CHX's current rule
establishing a T+5 settlement cycle will be inconsistent with the
Commission rules. This proposal will amend the CHX'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. [[Page 17598]]
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While the Thomson letter supports the CHX's efforts to shorten the
settlement cycle for securities transactions, Thomson believes that the
CHX should amend Article XV, Rule 5, which requires the use of the
facilities of a securities depository for the confirmation and
acknowledgement of all depository-eligible transactions whereby payment
for securities purchased or delivery of securities sold is to be made
to or by an agent of the customer. 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 CHX rules will conflict with the
Commission Rule 15c6-1.
The Thomson letter suggests that approval of the proposed rule
change without amendments to Article XV, Rule 5 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
CHX 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 CHX's
proposal is consistent with Section 6 of the Act.\10\
\10\15 U.S.C. 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-CHX-94-26) be and
hereby is approved, effective June 7, 1995.
\11\15 U.S.C. 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. 95-8494 Filed 4-5-95; 8:45 am]
BILLING CODE 8010-01-M
