95-12697. Self-Regulatory Organizations; The Cincinnati Stock Exchange Incorporated; Order Approving Proposed Rule Change Relating to Implementation of a Three-Day Settlement Standard  

  • [Federal Register Volume 60, Number 100 (Wednesday, May 24, 1995)]
    [Notices]
    [Pages 27578-27579]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 95-12697]
    
    
    
    -----------------------------------------------------------------------
    
    SECURITIES AND EXCHANGE COMMISSION
    [Release No. 34-35724; File No. SR-CSE-95-04]
    
    
    Self-Regulatory Organizations; The Cincinnati Stock Exchange 
    Incorporated; Order Approving Proposed Rule Change Relating to 
    Implementation of a Three-Day Settlement Standard
    
    May 17, 1995.
        On April 4, 1995, The Cincinnati Stock Exchange Incorporated 
    (``CSE'') filed a proposed rule change (File No. SR-CSE-95-04) 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 April 17, 1995, 
    to solicit comments from interested persons.\2\ The Commission did not 
    receive any comments. As discussed below, this order approves the 
    proposed rule change.
    
        \1\ 15 U.S.C. 78s(b) (1988).
        \2\ Securities Exchange Act Release No. 35580 (April 7, 1995), 
    60 FR 19312.
    ---------------------------------------------------------------------------
    
    I. Description
    
        In October 1993, the Commission adopted Rule 15c6-1 under the Act 
    which will become effective June 7, 1995.\3\ 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 CSE's rules are interrelated with the 
    standard settlement time frame. The purpose of the proposed rule change 
    is to amend CSE's rules in order that they are consistent with a T+3 
    settlement standard for securities transactions.
    
        \3\ 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).
    ---------------------------------------------------------------------------
    
        The following changes to CSE rules are needed to implement the new 
    settlement standard established by Rule 15c6-1. Rule 3.8(b)(1)(iii) 
    will require that members receive reasonable assurance from the 
    customer that a security will be delivered within three business days 
    of the execution of the order. Rule 3.8(b)(2) will require that members 
    note on order tickets that the customer has the ability to deliver 
    stock within three business days. Rule 11.4 will provide that 
    transactions in stocks (other than those made for ``cash'') shall be 
    ``ex-dividend'' or ``ex-rights'' on the second business day preceding 
    the record date fixed by the company or the date of the closing of 
    transfer books except when the Board of Trustees of CSE rules 
    otherwise. When the record date or closing of transfer books occur upon 
    a day other than a business day, transactions in stocks shall be ``ex-
    dividend'' or ``ex-rights'' on the third preceding business day.
        CSE has requested that the proposed rule change become effective on 
    the same date as Rule 15c6-1, which will be June 7, 1995. The 
    transition from five day settlement to three day settlement will occur 
    over a four day period.\4\
    
        \4\ 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. Discussion
    
        The Commission believes the proposal is consistent with the 
    requirements of Section 6 of the Act.\5\ 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. 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 CSE's current rules based on 
    a T+5 settlement cycle will be inconsistent with this rule. This 
    proposal will amend the CSE's rules to harmonize them with the 
    Commission Rule 15c6-1 and with a T+3 settlement cycle.
    
        \5\ 15 U.S.C. 78f (1988).
    ---------------------------------------------------------------------------
    
        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.\6\
    
        \6\ The release adopting Commission Rule 15c6-1 stated, ``[T]he 
    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.
    ---------------------------------------------------------------------------
    
    IV. Conclusion
    
        For the reasons stated above, the Commission finds that CSE's 
    proposal is consistent with Section 6 of the Act.\7\
    
        \7\15 U.S.C. 78f (1988). [[Page 27579]] 
    ---------------------------------------------------------------------------
    
        It is therefore ordered, pursuant to Section 19(b)(2) of the 
    Act,\8\ that the proposed rule change (File No. SR-CSE-95-04) be and 
    hereby is approved, effective June 7, 1995.
    
        \8\ 15 U.S.C. 78s(b)(2) (1988).
    ---------------------------------------------------------------------------
    
        For the Commission by the Division of Market Regulation, 
    pursuant to delegated authority.\9\
    
        \9\ 17 CFR 200.30(a)(12) (1994).
    ---------------------------------------------------------------------------
    
    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 95-12697 Filed 5-23-95; 8:45 am]
    BILLING CODE 8010-01-M
    
    

Document Information

Published:
05/24/1995
Department:
Securities and Exchange Commission
Entry Type:
Notice
Document Number:
95-12697
Pages:
27578-27579 (2 pages)
Docket Numbers:
Release No. 34-35724, File No. SR-CSE-95-04
PDF File:
95-12697.pdf