Federal Register / Vol. 60, No. 47 / Friday, March 10, 1995 / Notices 13197

1 15 U.S.C. 78s(b)(1) (1988).

2Letters from Karen Saperstein, General Counsel,

NSCC, to Jerry Carpenter, Assistant Director, Office

of Securities Processing, Division of Market

Regulation, Commission (January 31, 1995 and

March 1, 1995).

3On October 6, 1993, the Commission adopted

Rule 15c6–1 which became effective June 7, 1995,

establishes T+3 as the standard settlement cycle.

Securities Exchange Act Release Nos. 33023

(October 6, 1993), 58 FR 52891 (order approving

Rule 15c6–1); 34952 (November 9, 1994), 59 FR

59137 (order changing the effective date of Rule

15c6–1).

4 In a T+3 settlement environment, one day

settlement will be provided for any transaction

processed on T+2 prior to the cut off time.

C. Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received from

Members, Participants or Others

The Exchange has neither solicited

nor received written comments on the

proposed rule change.

III. Date of Effectiveness of the

Proposed Rule Change and timing for

Commission Action

Within 35 days of the publication of

this notice in the Federal Register or

within such other period (i) as the

Commission may designate up to 90

days of such date if it finds such longer

period to be appropriate and publishes

its reasons for so finding or (ii) as to

which the self-regulatory organization

consents, the Commission will:

(A) by order approve the proposed

rule change, or

(B) institute proceedings to determine

whether the proposed rule change

should be disapproved.

VI. Solicitation of Comments

Interested persons are invited to

submit written data, views and

arguments concerning the foregoing.

Persons making written submissions

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street, NW.,

Washington, DC 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of U.S.C. § 552, will be

available for inspection and copying at

the Commission’s Public Reference

Section 450 Fifth Street, NW.,

Washington, DC 20549. Copies of such

filing will also be available for

inspection and copying at the principal

office of the PSE. All submissions

should refer to File No. SR–PSE–95–06

and should be submitted by March 31,

1995.

For the Commission, by the Division of

Market Regulations, pursuant to delegated

authority.

Jonathan G. Katz,

Secretary.

[FR Doc. 95–5864 Filed 3–9–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35442; File No. SR–NSCC–

95–02]

Self-Regulatory Organizations;

National Securities Clearing

Corporation; Notice of Filing and Order

Granting Accelerated Approval of a

Proposed Rule Change To Provide a

One Day Settling Capability

March 3, 1995.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’) 1 notice is hereby given that on

January 24, 1995, the National

Securities Clearing Corporation

(‘‘NSCC’’) filed with the Securities and

Exchange Commission (‘‘Commission’’)

the proposed rule change (File No. SR–

NSCC–95–02) as described in Items I

and II below, which items have been

prepared primarily by NSCC. On

January 31, 1995, and March 1, 1995,

NSCC filed amendments to the

proposed rule change.2 The Commission

is publishing this notice and order to

solicit comments from interested

persons and to grant accelerated

approval of the proposed rule change.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The purpose of the proposed rule

change is to modify NSCC’s rules and

procedures in order to provide a one

day settling capability for trades that are

compared or recorded one day prior to

normal settlement date and thereafter.

The proposed rule also will revise

NSCC’s trade guarantee to provide that

NSCC will guarantee one day settling

items at the time that NSCC completes

the trade comparison process for trades

which NSCC compares or the trade

recording process for trades which

NSCC receives in a lock-in capacity.

II. Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

In its filing with the Commission,

NSCC included statements concerning

the purpose of and basis for the

proposed rule change and discussed any

comments that it received on the

proposed rule change. The test of these

statement may be examined at the

places specified in Item IV below. NSCC

has prepared summaries, set forth in

sections (A), (B) and (C) below, of the

most significant aspects of such

statements.

(A) Self-Regulatory Organization’s

Statement of the Purpose of, and

Statutory Basis for, the Proposed Rule

Change

(a) In the current environment where

trades are settled five business days

after the trade (‘‘T+5’’), trades that are

compared or recorded at NSCC after the

third business day after the trade date

(‘‘T+3’’) do not settle until two days

later. Thus, a trade which is compared

or is recorded on T+4 is not included in

the normal settlement cycle for

settlement on T+5. NSCC’s system

assigns a new settlement date to these

items which is two business days after

the trade is compared or recorded,

which in this case would be T+6. Under

this processing system, when the T+3

settlement cycle is implemented, trades

which are compared or recorded on T+2

would not settle until T+4.3 Without a

change in this process it is estimated

that a substantial number of transactions

could miss timely settlement.

In order to allow as many compared

trades as possible to settle in a normal

cycle, NSCC proposes to provide a

processing capability that will permit

items processed one day prior to the

normal settlement day or later to settle

the next business day instead of settling

two business days after processing. This

enhancement will be implemented first

in the processing of trades settling in the

five day settlement cycle and will

include trades processed on T+4 prior to

the cut off time, which initially will be

9:00 p.m.4 T+4, trades processed prior

to the daily cut off time also will be

subject to next day settlement. Trades

processed after the daily cut off time

will continue to settle two business days

following comparison or recordation.

Transactions in securities which are not

eligible for NSCC’s Continuous Net

Settlement (‘‘CNS’’) system received

prior to the cut off time on T+4 (in a T+5

settlement cycle) or on T+2 (in a T+3

settlement cycle) will be processed on a

trade for trade basis for settlement the

next business day.

One day settling items will be

reported back to members on the

morning of the settlement day in a

separate section of the Consolidated

Trade Summary (‘‘CTS’’). Unlike other

trades listed on the CTS, these trades
13198 Federal Register / Vol. 60, No. 47 / Friday, March 10, 1995 / Notices

5The CTS will continue to indicate a net position

of CNS and non-CNS trades scheduled to settle the

next business day and also will show individual

positions in all one day settling items scheduled to

settle that day. The member’s actual settlement

position of that day will be a combination of the

net positions reported the day before and the one

day settling items reported that day on the CTS.

Settlement of the one day settling items may occur

prior to the issuance of the CTS reporting such

trades.

6This guarantee applies to all trades that settle on

the next business day. For example, trades

processed on T+5 prior to the cut off time will be

guaranteed at that time. A trade processed on T+5

after cut off time, however, will still be guaranteed

as of midnight of the day it is reported.

7The protect period is a period during which

NSCC provides protection to members’ positions in

securities that are subject to a voluntary

reorganization. The protect period begins two

business days before the expiration date of a tender

offer through such time as NSCC determines, which

generally is five business days after the date of the

tender offer.

8These references are no longer needed because

they represent defunct organizations.

9 15 U.S.C. 78q–1(b)(3)(F) (1988).

10 15 U.S.C. 78q–1(b)(3)(F) (1988).

will be shown as individual items

instead of as net positions.5 No contract

output will be provided for one day

settling items. Currently, a member’s

obligation to receive and pay for CNS

securities is fixed at the time the CTS is

made available to the member. With

respect to obligations due to settle that

day, the obligation of a member to

receive and pay for CNS securities and

the obligation of a member to deliver

CNS securities will be fixed at the time

NSCC completes CNS processing.

CNS transactions received or

compared on T+4 prior to cut off time

in a T+5 cycle or on T+2 in a T+3 cycle

will be included in either the night time

allocation cycle or the day time

allocation cycle depending on when the

data is received from the marketplace or

member. Positions which remain open

after the evening cycle may be changed

as a result of one day settling trades. To

avoid creating a customer segregation

problem for members with respect to

short positions first appearing as

compared on settlement day, all one day

settling CNS items will automatically be

exempted from CNS delivery to the

extent they create or increase an existing

short position. Members will have the

ability through daily instructions to

override this exemption for specific

issues or through standing instructions

to override this exemption for all issues.

The proposal also will prohibit

members with a long position to which

an exercise privilege attaches from

submitting an exercise notice with

respect to one day settling items.

Currently, NSCC guarantees the

settlement of CNS trades as of midnight

of the day they are reported to members

as compared and the settlement of nonCNS trades from the morning of T+4

through and including T+5. Since one

day settling items will appear on the

CTS initially on T+5 settlement day,

they could settle before midnight of the

day they are first reported as compared

(i.e., CNS trades could settle before the

guarantee becomes effective). NSCC

believes that one day settling

transactions should receive the same

guarantee of completion as other trades

settling the same day. Accordingly, a

secondary purpose of the rule proposal

is to revise NSCC’s trade guarantee rules

to provide that for CNS one day settling

items, the guarantee will be effective at

the time NSCC completes the trade

comparison process for trades which

NSCC compared or at the time NSCC

completes the trade recording process

for trades which NSCC receives in a

locked-in capacity.6 With respect to

non-CNS one day settling items, NSCC

will guarantee such trades from

completion of comparison or recording

through T+5. If a party to a one day

settling trade is a member of an

interfacing clearing corporation, such

guarantee will not be applicable unless

an agreement to guarantee such trade

exists between NSCC and the interfacing

clearing corporation.

Additionally, the proposal provides

that transactions in securities which are

subject to a voluntary corporate

reorganization, have a trade date on or

before the expiration of the voluntary

corporate reorganization, and are

compared or received after T+3 and at

least one day prior to the end of the

protect period 7 will be processed on a

trade-for-trade basis. The proposal also

includes certain technical corrections to

NSCC’s rules and procedures by

deleting any reference to the National

Institutional Settlement System

(‘‘NISS’’) or TAD 8 and by reclassifying

Miscellaneous Delivery Order (‘‘MDO’’)

as simply a Delivery Order (‘‘DO’’).

The primary purpose of the rule

change is to modify NSCC’s rules and

procedures in order to provide a one

day settling capability. NSCC believes

that members should have the

opportunity to become familiar with

this new settlement feature before T+3

is implemented. Accordingly NSCC

plans to implement this enhancement

while still in the T+5 cycle.

(b) NSCC believes the proposed rule

change is consistent with the

requirements of the Act, specifically

section 17A of the Act, and the rules

and regulations thereunder because the

rule proposal will facilitates the prompt

and accurate clearance and settlement of

securities transactions.

B. Self-Regulatory Organization’s

Statement on Burden on Competition

NSCC does not believe that the

proposed rule change will have an

impact on or impose a burden on

competition.

(C) Self-Regulatory Organization’s

Statement on Comments on the

Proposed Rule Change Received From

Members Participants, or Others

No written comments have been

solicited or received. NSCC will notify

the Commission of any written

comments received by NSCC.

III. Date of Effectiveness of the

Proposed Rule Change and Timing for

Commission Action

Section 17A(b)(3)(F) 9 of the Act

requires the rules of a clearing agency be

designed to promote the prompt and

accurate clearance and settlement of

securities transactions. The Commission

believes that NSCC’s one day settling

capability should help promote prompt

and accurate clearing and settlement

because it will increase the number of

trades that are included in the normal

settlement cycle. Thus, the number of

failed trades and the time required for

settlement should be reduced.

As discussed above, as of June 7,

1995, a new settlement cycle of T+3 will

be mandated by Commission Rule 15c6–

1. The Commission believes that

settlement of trades in a shorter time

frame will reduce risk to the securities

market, including risk to clearing

corporations as a result of member

failure. Without a one day settling

feature, it is possible that many trades

may fail to settle according to this

settlement time frame. Thus, the

proposal is consistent with Section

17A(b)(3)(F) 10 of the Act in that it

should enhance NSCC’s ability to

safeguard securities and funds under its

control.

NSCC has requested that the

Commission find good cause for

approving the proposed rule change

prior to the thirtieth day after the date

of publication of notice of the filing. The

Commission finds good cause for so

approving the proposed rule change

because participants should have the

opportunity to become familiar with the

one day settling capability prior to the

implementation of T+3 settlement.

IV. Solicitation of Comments

Interested persons are invited to

submit written data, views, and

arguments concerning the foregoing.

Persons making written submissions
Federal Register / Vol. 60, No. 47 / Friday, March 10, 1995 / Notices 13199

11 17 CFR 200.30–3(a)(12) (1994).

1See Securities Exchange Act Release No. 35391

(Feb. 16, 1995), 60 FR 9878 (Feb. 22, 1995. Notice

of the proposed rule change, together with the

substance of the proposal as initially filed, was

provided by issuance of a Commission release

(Securities Exchange Act Release No. 35122, Dec.

20, 1994) and by publication in the Federal Register

(59 FR 66389, Dec. 23, 1994).

2NASD Manual, Rules of Fair Practice, Art. III,

Sec. 1 (CCH) ¶ 2151.07.

3NASD Manual, Rules of Fair Practice, Art. III,

Sec. 21 (CCH) ¶ 2171.

should file six copies thereof with the

Secretary, Securities and Exchange

Commission, 450 Fifth Street NW.,

Washington, DC 20549. Copies of the

submission, all subsequent

amendments, all written statements

with respect to the proposed rule

change that are filed with the

Commission, and all written

communications relating to the

proposed rule change between the

Commission and any person, other than

those that may be withheld from the

public in accordance with the

provisions of 5 U.S.C. 552, will be

available for inspection and copying in

the Commission’s Public Reference

Room, 450 Fifth Street NW.,

Washington, DC 20549. Copies of such

filing also will be available for

inspection and copying at the principal

office of NSCC. All submissions should

refer to the file number SR–NSCC–95–

02 and should be submitted by March

31, 1995.

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act, that the

proposed rule change (File No. SR–

NSCC–95–02) be, and hereby is,

approved.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.11

Jonathan G. Katz,

Secretary.

[FR Doc. 95–5863 Filed 3–9–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35454; File No. SR–NASD–

94–62, Amendment No. 2]

Self-Regulatory Organizations; Notice

of Filing of Amendment No. 2 to

Proposed Rule Change by National

Association of Securities Dealers, Inc.

Relating to Limit Order Protection for

Member-to-Member Limit Order

Handling on Nasdaq

March 8, 1995.

Pursuant to Section 19(b)(1) of the

Securities Exchange Act of 1934

(‘‘Act’’), 15 U.S.C. 78s(b)(1), notice is

hereby given that on March 7, 1995, the

National Association of Securities

Dealers, Inc. (‘‘NASD’’ or ‘‘Association’’)

filed with the Securities and Exchange

Commission (‘‘SEC’’ or ‘‘Commission’’)

an amendment to the proposed rule

change as described in Items I, II, and

III below, which Items have been

prepared by the NASD. The

Commission is publishing this notice to

solicit comments on the proposed rule

change from interested persons.

I. Self-Regulatory Organization’s

Statement of the Terms of Substance of

the Proposed Rule Change

The NASD recently proposed to

amend SR–NASD–94–62 relating to

limit order protection for member-tomember limit order handling in The

Nasdaq Stock Market.1 Currently, the

NASD’s Interpretation to the Rules of

Fair Practice2 makes it a violation of just

and equitable principles of trade for a

member firm to trade ahead of its own

customer’s limit orders. That

amendment clarified that the ‘‘terms

and conditions’’ exception to the

Interpretation applies only to limit

orders from institutional accounts,

whether such limit orders come from a

firm’s own customers or are member-tomember limit orders. The term

‘‘institutional account’’ is defined in

Article III, Section 21(c)(4) of the Rules

of Fair Practice.3 The NASD now is

proposing to amend the proposed rule

change to provide that the ‘‘terms and

conditions’’ exception to the

Interpretation also applies to limit

orders that are 10,000 shares or more,

unless such orders are less than

$100,000 in value, as well as to limit

orders from institutional accounts.

Below is the text of the proposed rule

change. Proposed new language,

including the language that was added

in the original proposal, is italicized;

language to be deleted is bracketed.

Limit Order Protection Interpretation to

Article III, Section 1 of the NASD Rules

of Fair Practice

To continue to ensure investor

protection and enhance market quality,

the NASD Board of Governors is issuing

an Interpretation to the Rules of Fair

Practice dealing with member firm

treatment of [their] customer limit

orders in Nasdaq securities. This

Interpretation will require members

acting as market makers to handle

[their] customer limit orders with all

due care so that market makers do not

‘‘trade ahead’’ of those limit orders.

Thus, members acting as market makers

that handle customer limit orders,

whether received from their own

customers or from another member, are

prohibited from trading at prices equal

or superior to that of the limit order

without executing the limit order,

provided that, prior to September 1,

1995, this prohibition shall not apply to

customer limit orders that a member

firm receives from another member firm

and that are greater than 1,000 shares.

Such orders shall be protected from

executions at prices that are superior

but not equal to that of the limit order.

In the interests of investor protection,

the NASD is eliminating the so-called

disclosure ‘‘safe harbor’’ previously

established for members that fully

disclosed to their customers the practice

of trading ahead of a customer limit

order by a market-making firm.

Interpretation

Article III, Section 1 of the Rules of

Fair Practice states that:

A member, in the conduct of his

business, shall observe high standards

of commercial honor and just and

equitable principles of trade.

The Best Execution Interpretation

states that: In any transaction for or with

a customer, a member and persons

associated with a member shall use

reasonable diligence to ascertain the

best inter-dealer market for the subject

security and buy or sell in such a market

so that the resultant price to the

customer is as favorable as possible to

the customer under prevailing market

conditions. Failure to exercise such

diligence shall constitute conduct

inconsistent with just and equitable

principles of trade in violation of Article

III, Section 1 of the Rules of Fair

Practice.

In accordance with Article VII,

Section 1(a)(2) of the NASD By-Laws,

the following interpretation under

Article III, Section 1 of the Rules of Fair

Practice has been approved by the

Board:

A member firm that accepts and holds

an unexecuted limit order from a

customer (whether its own customer or

a customer of another member) in a

Nasdaq security and that continues to

trade the subject security for its own

market-making account at prices that

would satisfy the customer’s limit order,

without executing that limit order,

[under the specific terms and conditions

by which the order was accepted by the

firm,] shall be deemed to have acted in

a manner inconsistent with just and

equitable principles of trade, in

violation of Article III, Section 1 of the

Rules of Fair Practice, provided that,

until September 1, 1995, customer limit

orders in excess of 1,000 shares received

from another member firm shall be

protected from the market maker’s

executions at prices that are superior

but not equal to that of the limit order,