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[Federal Register Volume 62, Number 45 (Friday, March 7, 1997)]
[Rules and Regulations]
[Pages 10450-10451]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-5670]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Part 300

[Release No. SIPA-163; File No. SIPC-96-1]

Rules of the Securities Investor Protection Corporation

AGENCY: Securities and Exchange Commission.

ACTION: Order approving a proposed rule change of the Securities 
Investor Protection Corporation.

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SUMMARY: The Securities and Exchange Commission (``Commission'') is 
approving a rule change submitted by the Securities Investor Protection 
Corporation (``SIPC'') as required by Section 3(e)(2) of the Securities 
Investor Protection Act of 1970 (``SIPA''). SIPC's proposed rule change 
amends two Series 300 SIPC Rules relating to the closeout and 
completion of contracts for the purchase or sale of securities made by 
debtors in liquidation under SIPA. Because SIPC rules have the force 
and effect as if promulgated by the Commission, those rules are 
published in Title 17 of the Code of Federal Regulations (``CFR'').

EFFECTIVE DATE: April 7, 1997.

FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, Associate 
Director, 202/942-0131, Peter R.

[[Page 10451]]

Geraghty, Assistant Director 202/942-0177, or Louis A. Randazzo, 
Special Counsel, 202/942-0191, Division of Market Regulation, 
Securities and Exchange Commission, 450 Fifth Street, NW., Washington, 
DC 20549.

SUPPLEMENTARY INFORMATION:

I. Introduction

    Pursuant to Section 3(e)(2) of SIPA,\1\ on October 10, 1996, SIPC 
\2\ filed with the Commission a proposed rule change (File No. SIPC-96-
1). The proposed rule change amends SIPC Rules 300 \3\ and 301 \4\ 
which relate to the closeout and completion of contracts for the 
purchase or sale of securities made by debtors in liquidation under 
SIPA, to make them consistent with Commission Rule 15c6-1 \5\ under the 
Securities Exchange Act of 1934 (``Act''), which established three 
business days as the standard settlement cycle for most securities 
transactions.
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    \1\ 15 U.S.C. 78ccc(e)(2) (1995).
    \2\ SIPC is a non-profit membership corporation providing 
certain protection to customers of member broker-dealers that 
experience financial difficulty.
    \3\ 17 CFR 300.300 (1996).
    \4\ 17 CFR 300.301 (1996).
    \5\ 17 CFR 240.15c6-1 (1996).
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II. Proposed Rule Change

    SIPC Rules 300 and 301 set forth SIPC's requirements and procedures 
for closing out or completing open contractual commitments for the 
purchase or sale of securities between a SIPC member broker-dealer 
undergoing liquidation (``debtor'') and other broker-dealers. 
Currently, under SIPC Rule 301, an open contractual commitment made 
between a debtor and another broker-dealer in the ordinary course of 
the debtor's business may be closed out or completed if, among other 
things, the open contractual commitment (1) had a settlement date on or 
within 30 calendar days prior to the filing date (i.e., the date SIPC 
files an application for a protective decree) and the respective 
obligations of the parties remain outstanding on the filing date or had 
a settlement date which occurs on or within five business days 
subsequent to the filing date and (2) had a trade date on or within 
five business days prior to such settlement date. Rule 300 currently 
defines open contractual commitments as a failed to receive or a failed 
to deliver which (1) had a settlement date prior to the filing date and 
the respective obligations of the parties remained outstanding on the 
filing date or (2) had a settlement date which occurs on or within five 
business days subsequent to the filing date.
    In June of 1995, Commission Rule 15c6-1 became effective, which 
established three business days as the standard settlement timeframe 
for most securities transactions.\6\ Because Rules 300 and 301 
currently refer to a five business day settlement timeframe, SIPC is 
amending Rules 300 and 301 by replacing the five business day 
references with three business days. This will make SIPC Rules 300 and 
301 consistent with the three business day settlement period in 
Commission Rule 15c6-1. In addition, SIPC is making a technical 
amendment to Rule 300(a),\7\ which will replace the reference to 
section 16(8) of SIPA \8\ with section 16(7) of SIPA.\9\ This technical 
correction will conform a statutory citation in Rule 300 to the correct 
section of SIPA.
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    \6\ Specifically, Rule 15c6-1 provides, among other things, that 
a broker-dealer shall not effect or enter into a contract for the 
purchase or sale of a security that provides for payment of funds 
and delivery of securities 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. Rule 15c6-1 does not apply 
to an exempted security, municipal security (Municipal Securities 
Rulemaking Board rules required municipal securities to clear three 
business days after the date of the contract), commercial paper, 
bankers' acceptance, commercial bill, or government security. Prior 
to the effective date of Rule 15c6-1, the settlement cycle for 
securities transactions was five business days. See securities 
Exchange Act Release No. 33023 (October 6, 1993), 58 FR 52891 
(October 13, 1993).
    \7\ 17 CFR 300.300(a) (1996).
    \8\ 16 U.S.C. 78lll(8) (1995).
    \9\ 15 U.S.C. 78lll(7) (1995).
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    Notice of the proposed rule change was published in the Federal 
Register on November 1, 1996.\10\ No comments were received.\11\
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    \10\ See Release No. SIPA-160 (October 25, 1996), 61 FR 56485 
(November 1, 1996).
    \11\ SIPC consented to an extension of the Commission's action 
date for the proposed rule change. See Letter from Kevin H. Bell, 
Assistant General Counsel, SIPC, to Louis A. Randazzo, Special 
Counsel, SEC, dated November 25, 1996.
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III. Discussion and Commission Action

    For the reasons discussed below, the Commission believes that the 
amendments are consistent with Sectopms 3(e)(2)(D) \12\ and 8(e) \13\ 
of SIPA. Section 3(e)(2)(D) of SIPA requires SIPC rule changes to be in 
the public interest and consistent with the purposes of SIPA. Section 
8(e) requires that SIPC adopt rules with respect to the closeout of 
contracts with a debtor for the purchase or sale of securities in the 
ordinary course of its business. Specifically, the commission believes 
that the proposed amendments make SIPC Rules 300 and 301 consistent 
with Commission Rule 15c6-1. In addition, the Commission believes that 
the amendments will ensure that SIPC's rules close off stale 
transactions from being completed, other than as a possible claim 
against the debtor's estate, while at the same time ensuring that 
current securities transactions with the standard three business day 
settlement period are completed. Finally, SIPC would retain the ability 
to closeout open contractual commitments that are not covered by SIPC 
rules. For example, pursuant to SIPC Rule 306,\14\ SIPC has discretion, 
after consulting with the Commission, to direct the closeout or 
completion of an open contractual commitment, irrespective of whether 
it is covered by Rules 300 or 301.
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    \12\ 15 U.S.C. 78ccc(e)(2)(D) (1995).
    \13\ 15 U.S.C. 78fff-2(e) (1995).
    \14\ 17 CFR 300.306 (1996).
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    Accordingly, the Commission finds that the proposed SIPC rule 
amendments are in the public interest and are consistent with the 
purposes of the SIPA.
    It is therefore ordered by the Commission, pursuant to Section 
3(e)(2) of SIPA, that the above mentioned proposed rule change is 
approved. In accordance with Section 3(e)(2) of SIPA, the approved rule 
change shall be given force and effect as if promulgated by the 
Commission.

IV. List of Subjects in 17 CFR Part 300

    Brokers, Securities, Securities Investor Protection Corporation.
    In accordance with the foregoing, Title 17 Chapter II of the Code 
of Federal Regulations is amended as follows:

PART 300--RULES OF THE SECURITIES INVESTOR PROTECTION CORPORATION

    1. The authority citation for Part 300 continues to read as 
follows:

    Authority: Section 3, 84 Stat. 1636, as amended; 15 U.S.C. 
78ccc.

Sec. 300.300  [Amended]

    2. Section 300.300(a) is amended by removing the reference to 
``section 16(8)'' and in its place adding ``section 16(7),'' and in 
Sec. 300.300(c) removing the reference to ``five business days'' and in 
its place adding ``three business days''.

Sec. 300.301  [Amended]

    3. Sections 300.301 (a)(2)(i) and (a)(2)(ii) are amended by 
removing the references to ``five business days'' and in their place 
adding ``three business days''.

    By the Commission.

    Dated: March 3, 1997.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 97-5670 Filed 3-6-97; 8:45 am]
BILLING CODE 8010-01-M
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