15618 Federal Register / Vol. 60, No. 57 / Friday, March 24, 1995 / Notices

19Letter from P. Howard Edelstein, President,

Electronic Settlements Group, Thomson, to

Jonathan G. Katz, Secretary, Commission (February

1, 1995).

20Securities Exchange Act Release No. 35332

(February 3, 1995) 60 FR 8102 (notice of filing of

proposed rule change).

21 17 CFR 200.30–3(a)(12) (1994).

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

2Securities Exchange Act Release No. 35110

(December 16, 1994), 59 FR 35011.

3Letter from Dr. Keith B. Jarrett, President,

Thomson Trading Services, Inc., to Jonathan G.

Katz, Secretary, Commission (January 12, 1995).

4 17 CFR 240.15c6–1.

5Securities Exchange Act Release Nos. 33023

(October 6, 1993), 58 FR 52891 (order adopting Rule

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

59137 (order changing the effective date from June

1, 1995, to June 7, 1995).

asserting that provision of a trade

confirmation was not a depository

function and therefore did not require

the use of a depository registered with

the Commission.19

The Commission believes that the

issues raised by the Thomson letter

need not be resolved prior to the

approval of the NASD’s proposed rule

change. Discussions regarding

Thomson’s concern are underway

among the Commission, Thomson, and

DTC. DTC has submitted a rule filing

that will establish a linkage between

DTC and vendors such as Thomson.20

The Commission intends to consider

whether self-regulatory organization

rules should continue to preclude use of

private vendor systems for

confirmation/affirmation services in

DVP/RVP trades. However, if the

NASD’s proposed rule change being

approved by this order is not approved

prior to the June 7, 1995, effective date

of the Commission’s Rule 15c6–1, the

NASD rules will conflict with the

Commission Rule 15c6–1.

As discussed above, Thomson’s letter

suggests that approval of the proposed

rule change without amendments to

Section 64 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 any

anticompetitive effects pointed to by

Thomson are not caused by the

proposed rule change being approved by

this order but rather by an existing

NASD 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 the portion of the

proposed rule change relating to three

day settlement of securities transactions

is consistent with Section 15A of the

Act.

It is therefore ordered, pursuant to

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

portion of the rule change (File No. SR–

NASD–94–56) containing the

amendments to Sections 5, 6, 12, 46,

and 64 of the UPC and Article III,

Section 26(m)(1) and Article III, Section

1 of the RFP be and hereby is approved

and will become effective on June 7,

1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.21

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–7241 Filed 3–23–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35506; File No. SR–NYSE–

94–40]

Self-Regulatory Organizations; New

York Stock Exchange, Inc.; Order

Approving Proposed Rule Change

Relating to Implementation of a ThreeDay Settlement Standard

March 17, 1995.

On November 3, 1994, the New York

Stock Exchange, Inc., (‘‘NYSE’’) filed a

proposed rule change (File No. SR–

NYSE–94–40) 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

December 23, 1994 to solicit comments

from interested persons.2 The

Commission received one comment

letter.3 As discussed below, this order

approves the proposed rule change.

I. Description

In October 1993, the Commission

adopted Rule 15c6–1 under the Act 4

which 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. The rule will

become effective June 7, 1995.5 Several

of the current NYSE’s rules are

interrelated with a T+5 settlement time

frame. The purpose of the rule change

is to amend NYSE’s rules to be

consistent with a T+3 settlement

standard for securities transactions.

NYSE Rules 64(a)(3), 65(b), and

85(d)(3) specify the delivery date for

securities sold in regular way

transactions, odd lot sales, and cabinet

sales, respectively. The time frames

contained in each rule is being

shortened to conform to a T+3

settlement cycle. Rule 64(a)(5) currently

provides that on the second, third,

fourth, and fifth business days

preceding the final day for subscription,

bids, and offers in rights to subscribe

shall be made only for delivery next

day. This section is being amended to

eliminate references to the fourth and

fifth business days. Rule 64(c) is being

amended to provide that seller’s option

trades can settle on the third business

day, rather than the fifth business day,

after the trade date.

Rule 235 is being amended to provide

that transactions in stocks shall be exdividend or ex-rights on the second

business day preceding the record date

rather than on the fourth business day.

With regard to a record date on a day

other than a business day, transactions

in stocks shall be ex-dividend or exrights on the third preceding business

day rather than on the fifth preceding

business day. The time frame contained

in Rule 257 for delivery of dividends or

rights for securities sold before the ‘‘ex’’

date but delivered after the record date

is being shortened to three days after

record date.

Rule 236 prescribes when ex-warrant

trading will begin. The ex-warrant

period is being changed to the second

business day preceding the date of

expiration of the warrants instead of the

fourth business day. 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 instead of

on the fifth business day.

Rule 387(a)(4) requires a member to

obtain an agreement from its customer

to deliver instructions to its agent

within certain time periods with respect

to receipt and delivery of securities sold

delivery versus payment (‘‘DVP’’) or

receipt versus payment (‘‘RVP’’). All the

time frames contained in Rule 387(a)(4)

are being shortened by two days. Rule

123A.32 currently states that the

liability of a specialist shall not extend

beyond the closing price on the third

business day where it is deemed that the

specialist did not send out a report. This

time frame is being shortened by two

business days. The proposal shortens

the time frames contained in Rule

123B(b)(2) (A) and (B) for correcting
Federal Register / Vol. 60, No. 57 / Friday, March 24, 1995 / Notices 15619

6Rule 123B(b)(2)(A) is being amended to require

that for most transaction between brokers, if a

purchase or sale has been reported in error and a

transaction has appeared on the tape at the price of

the erroneous report, the broker who made the error

will be required to render a corrected report not

later than noon on T+1 rather than one hour after

the opening on T+2. Rule 123B(b)(2)(B) is being

amended to require that for orders received by the

specialist through the Designated Order

Turnaround System or the Limit Order System, if

the subscribing member organization requests a

correction from the specialist prior to the opening

of the second business day, rather than third

business day, following the transaction, the

specialist shall correct the report. Rule

123B(b)(2)(B) also is being amended to require that

if the erroneous report is at a price more than onehalf point away from the execution price, the

specialist must render a corrected report not later

than noon on T+1 rather than one hour after the

opening on T+2.

7Supplementary Material .10 is being amended to

require that in the event that publication of a

change, correction, or cancellation of a transaction

which previously appeared on the tape or of a

transaction omitted from the tape is not made on

the tape on the day of the transaction, such change,

correction, cancellation, or omission may be

published in the ‘‘sales sheet’’ within three business

days, rather than within seven calendar days, of the

date of the transaction with the approval of both the

buying and selling members and a floor official.

Supplementary Rule .12 is being amended to

require that erroneous publications made on the

tape due to mechanical or system troubles or

clerical errors may be corrected in the sales sheet

within three business days, rather than within

seven calendar days, of the date of the transaction

under the direction of an authorized NYSE

employee. Supplementary Material .13 will require

that any other errors in the amount of a transaction

reported erroneously to a reporter by a party to the

transaction may be published on the sales sheet

within three business days, rather than within

seven calendar days, of the date of the transaction

with the approval of a floor official.

8The transition from five day settlement to three

day settlement will occur over a four day period.

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.

9Letter from Dr. Keith B. Jarrett, supra note 3.

10 15 U.S.C. 78f (1988)

11The Commission release adopting Rule 15c6–

1 stated that ‘‘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.

12Securities Exchange Act Release No. 35332

(February 3, 1995), 60 FR 8102 (notice of filing of

proposed rule change).

13 15 U.S.C. 78f (1988).

14 15 U.S.C. 78s(b)(2) (1988)

15 17 CFR 200.30(a)(12)(1994).

execution reports.6 Supplementary

Material .10, .12, and .13 of Rule 128B

are being amended to shorten the time

frames for tape corrections and other

errors.7

The NYSE has requested that the

proposed rule change become effective

on the same date as Rule 15c6–1. Rule

15c6–1 becomes effective on June 7,

1995.8

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.9 Thomson believes that the

NYSE should amend Rule 387(a)(5)

which requires the use of the facilities

of a securities depository for

confirmation and acknowledgement of

all transactions in securities which are

depository-eligible.

III. Discussion

The Commission believes the

proposal is consistent with the

requirements of Section 6 of the Act.10

Specifically, Section 6(b)(5) states that

the rules of an exchange must be

designed to foster cooperation and

coordination with persons engaged in

regulating, clearing, settling, and

processing information. NYSE 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 NYSE’s current rules providing for

a T+5 settlement cycle will be

inconsistent with the Commission’s

rule. This proposal will amend the

NYSE’s rules to harmonize them with

the Commission’s rule 15c6–1 and a

T+3 settlement cycle.

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 risks to

clearing corporations, their members,

and public investors which are 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.11

While Thomson’s letter supports the

NYSE’s efforts to shorten the settlement

cycle for securities transactions,

Thomson believes that the NYSE should

amend Rule 387, which requires the use

of the facilities of a securities depository

for the confirmation and

acknowledgement of all DVP or RVP

transactions in depository-eligible

securities. The Commission believes

that the issue raised by the Thomson

letter need not be resolved prior to the

approval of the NYSE’s proposed rule

change. Discussions regarding

Thomson’s concerns are underway

among the Commission, Thomson, and

DTC. DTC has submitted a rule filing

that will establish a linkage between

DTC and vendors such as Thomson.12

The Commission intends to consider

whether self-regulatory organization

rules should continue to preclude use of

private vendor systems for

confirmation/affirmation services in

DVP/RVP trades. However, if the

NYSE’s proposed rule change being

approved by this order is not approved

prior to the June 7, 1995, effective date

of Rule 15c6–1, the NYSE rules will

conflict with the Commission Rule

15c6–1.

The Thomson letter suggests that

approval of the proposed rule change

without amendments to Rules 387 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 advance by the policy or

decisions and the costs associated

therewith. The Commission notes that

any anticompetitive effects pointed to

by Thomson are not caused by the

proposed rule change being approved by

this order but rather by an existing

NYSE 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 NYSE’s proposal

is consistent with Section 6 of the Act.13

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,14 that the

proposed rule change (File No. SR–

NYSE–94–40) be and hereby is

approved and will become effective on

June 7, 1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.15

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–7238 Filed 3–23–95; 8:45 am]

BILLING CODE 8010–01–M