15616 Federal Register / Vol. 60, No. 57 / Friday, March 24, 1995 / Notices

5The 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.

6 15 U.S.C. 78q–1 (1988).

7 15 U.S.C. 78q–1(b)(3)) (F) (1988).

8 15 U.S.C. 78q–1 (1988).

9 15 U.S.C. 78s(b)(2) (1988).

10 17 CFR 200.30(a)(12) (1994).

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

2Letter from Suzanne E. Rothwell, Associate

General Counsel, NASD, to Mark Barracca, Branch

Chief, Over-the-Counter Regulation, Division of

Market Regulation, Commission (November 8,

1994).

3Securities Exchange Act Release No. 34966

(November 10, 1994), 59 FR 59802.

4Securities Exchange Act Release No. 35031

(November 30, 1994), 59 FR 62761. The order

approved that portion of the proposed rule change

relating to the transfer of customer accounts

between broker-dealers.

5Letter from Suzanne E. Rothwell, Associate

General Counsel, NASD, to Mark Barracca, Branch

Chief, Over-the-Counter Regulation, Division of

market Regulation, Commission (December 7,

1994). Amendment No. 2 eliminated the proposed

amendment to Section 64(a)(3) which would have

shortened the time for confirmation of a customer

order from the day after trade date to the trade date.

Amendment No. 2 also lengthened by one day, from

the first day after trade date to the second day after

trade date, the time for a buying customer to

provide agent instructions under Section 64(a)(4).

6Letter from P. Howard Edelstein, President,

Electronic Settlements Group, Thomson Trading

Services, Inc. (A Thomson Financial Services

Company), to Jonathan G. Katz, Secretary,

Securities and Exchange Commission (December 2,

1994).

7With this order, the Commission has now

approved all of File No. SR–NASD–94–56.

8On October 6, 1993, the Commission adopted

Rule 15c6–1 under the Act (17 CFR 240.15c6–1),

which establishes T+3 instead of T+5 as the

standard settlement time frame for most brokerdealer transactions. Securities Exchange Act

Release No. 33023 (October 6, 1993), 58 FR 52891.

The rule becomes effective June 7, 1995. Securities

Exchange Act Release No. 34952 (November 9,

1994), 59 FR 59137.

9The 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.

the intended date of settlement is one to

two days after the recording of the

transaction by MCC.

MCC 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, 1995.5

II. Discussion

The Commission believes the

proposal is consistent with the

requirements of Section 17A of the Act.6

Specifically, Section 17A(b)(3)(F) 7

states that the rules of a clearing agency

must be designed to assure the

safeguarding of securities and funds

which are in the MCC’s custody or

control or for which MCC is responsible

and must be designed to foster

cooperation and coordination with

persons engaged in the clearance and

settlement of securities transactions.

Several of MCC rules are based on a five

day 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 MCC’s current rules will be

inconsistent with the Commission’s

rule. This proposal will amend the

MCC’s rules to harmonize them with

Commission’s Rule 15c6–1 and a T+3

settlement cycle.

III. Conclusion

For the reasons stated above, the

Commission finds that MCC’s proposal

is consistent with Section 17A of the

Act.8

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,9 that the

proposed rule change (File No. SR–

MCC–94–16) be and hereby is approved

and will become effective June 7, 1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.10

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–7242 Filed 2–23–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35507; File No. SR–NASD–

94–56]

Self-Regulatory Organizations;

National Association of Securities

Dealers, Inc.; Order Granting Partial

Approval of Proposed Rule Change

Relating to the Three Business Day

Settlement of Securities Transactions

March 17, 1995.

On October 12, 1994, the National

Association of Securities Dealers, Inc.

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

Exchange Commission (‘‘Commission’’)

a proposed rule change pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’).1 On

November 9, 1994, the NASD filed with

the Commission Amendment No. 1.2

The purpose of the proposed rule

change is to amend the NASD’s rules to

provide for three business day

settlement of securities transactions.

The Commission published notice of the

proposed rule change in the Federal

Register on November 18, 1994.3 The

commission granted partial, accelerated

approval of the proposed rule change on

November 30, 1994.4 On December 8,

1994, the NASD filed with the

Commission Amendment No. 2.5 The

amendments were techincal

amendments that did not require

republication of notice. One comment

was received on the notice.6 As

discussed below, the Commission is

approving that portion of the proposed

rule change relating to the three day

settlement of securities transactions.7

I. Description

On June 7, 1995, the standard

settlement time frame for most

securities transactions will be shortened

from five business days after the trade

date (‘‘T+5’’) to three business days after

the trade date (‘‘T+3’’).8 The proposal

amends certain provisions of the

NASD’s Uniform Practice Code (‘‘UPC’’)

and the rules of Fair Practice (‘‘RFP’’)

consistent with a T+3 settlement cycle.

These amendments will become

effective on the same date as

Commission Rule 15c6–1, which

establishes T+3 as the standard

settlement time frame.9

The proposed rule change will

shorten the time periods established

under the NASD’s rules for taking

certain actions related to settlement.

Currently, Section 12(b) of the UPC

states that for a regular way transaction

delivery must be made on, but not

before, the fifth business day following

the trade date. The proposal shortens

the delivery requirement to on, but not

before, the third business day following

the trade date. In addition, seller’s

option transaction deliveries may be

made by the seller on any business day

after the third business day, rather than

after the fifth business day, following

the trade date.

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

of the RFP is amended to require that

members transmit payments received

from customers for the purchase of

investment company shares within

three business days, rather than within

five business days, after receipt of such

customers’ purchase orders or one

business day following receipt of

customer payments, whichever is later.

Section 64(a)(4) of the UPC currently

requires that customers that use an

agent to pay for or to deliver securities

must agree to furnish instructions to the

agent no later than T+4 if buying on a

receipt versus payment ‘‘(RVP’’) basis or

no later than T+3 if the customer is

selling on a delivery versus payment

(‘‘DVP’’) basis. The proposed rule
Federal Register / Vol. 60, No. 57 / Friday, March 24, 1995 / Notices 15617

10Section 64(a)(3) of the UPC currently requires

that members accepting an order whereby payment

or delivery is to be made to or by an agent of the

customer must deliver a confirmation no later than

T+1. The notice of the proposed rule change

indicated that this time period would be shortened

to trade date. The NASD has withdrawn this

portion of the rule change. Supra note 5.

11The ex-date indicates the interval between the

announcement and payment of a distribution

during which time an investor who purchases

shares is not entitled to the distribution.

12Letter from Thomson, supra note 6.

13 15 U.S.C. § 78o–3(b)(6) (1988).

14Supra note 7.

15The Commission’s 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.’’ Id.

16Thomson asserts that Section 64 precludes

vendors such as Thomson from competing with The

Depository Trust Company (‘‘DTC’’), a registered

clearing agency. Letter from Thomson, supra note

6. The self-regulatory organization confirmation

trades to the facilities of a registered securities

depository. These rules, however, were designed to

facilitate high levels of trading volume. Further, as

in the T+5 settlement cycle, an institutional

investor will be free to choose the post-trade

communication service provider as long as the trade

is eventually confirmed and acknowledgement

through a registered securities depository.

17Letter from Elliott R. Curzon, Assistant General

Counsel, NASD, to Christine Sibille, Senior

Counsel, Office of Securities Processing, Division of

Market Regulation, Commission (December 21,

1994).

18Letter from Suzanne E. Rothwell, Associate

General Counsel, NASD, to Christine Sibille, Senior

Counsel, Office of Securities Processing, Division of

Market Regulation Commission (January 26, 1995).

change shortens the time period for

furnishing such instructions to T+2 and

T+1 for buying and selling customers,

respectively.10

The Prompt Receipt and Delivery

Interpretation of the Board of Governors,

Article III, Section 1 of the RFP requires

each member to make an affirmative

determination that its customer owns

the security and will deliver it in good

deliverable form within five business

days of the execution of an order in

connection with a long sale. The

interpretation also states that to satisfy

the requests for an affirmative

determination, the member must note

on the order ticket at the time of the

order the customer’s ability to deliver

the securities within five business days.

The proposed rule change changes these

time limits from five business days to

three business days.

To accommodate a three business day

settlement cycle, it will be necessary to

change the ex-dates with respect to cash

and stock dividends, warrants, and

interest.11 Section 5(b)(1) of the UPC

currently provides that the ex-date with

respect to cash dividends or

distributions, stock dividends, or

warrants which are less than 25% of the

value of the security shall be the fourth

business day preceding the record date

of the fifth business day preceding the

record date if the record date falls on a

day designated as a non-delivery date

provided that definitive information is

received sufficiently in advance of the

record date. Section 6(a) currently

provides that all transactions, other than

cash transactions, in bonds or other

instruments of indebtedness which are

traded flat shall be ex-interest on the

forth business day preceding the record

date if the record date falls on a

business day, on the fifth business day

preceding the record date if the record

date does not fall on a business day, and

on the fifth business day preceding the

date on which an interest payment is to

be made if no record date has been

fixed. All of the time frames contained

in Sections 5(b)(1) and 6(a) are being

shortened by two business days. All the

other time frames contained in Sections

5 and 6 of the UPC are not being

changed.

Section 46 of the UPC currently

requires that interest to be added to the

price of interest-paying securities be

calculated up to but not including the

fifth business day following the date of

the transaction. The proposed rule

change shortens the time frame so that

interest is calculated up to but not

including the third business day.

II. Comments

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.12 Thomson believes that the

NASD should amend Section 64 of the

UPC which requires the use of a

registered clearing agency’s facilities for

automated confirmations and

acknowledgements.

III. Discussion

The Commission believes the

proposed rule change is consistent with

Section 15A of the Act and, therefore, is

approving the proposal. Specifically, the

Commission believes the proposal is

consistent with Section 15A(b)(6)13 of

the Act which requires that the rules of

the NASD be designed to foster

cooperation and coordination with

persons engaged in regulating, clearing,

settling, processing information with

respect to, and facilitating transactions

in securities, to remove impediments to

and perfect the mechanism of a free and

open market and a national market

system, and, in general, to protect

investors and the public interest.

Currently, the rules of the NASD and

other self-regulatory organizations

control the 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 NASD’s current rules

for a T+5 settlement cycle will be

inconsistent with the Commission’s

rule. This proposal amends the NASD’s

rules to harmonize them with the

Commission’s Rule 15c6–1 and a T+3

settlement cycle.

The commission believes that the

benefits of a three day settlement cycle,

as outlined in the release adopting Rule

15c6–1, apply equally to the NASD’s

proposed rule change.14 With a T+3

settlement cycle, 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.15 By

reducing risk to the clearance and

settlement system, the NASD’s proposed

rule change furthers Section 15A’s goals

of protection of investors and of the

public interest. The NASD’s rules will

assist the transition to a T+3 cycle by

providing guidelines for related matters

such as ex-dates and delivery of agent

instructions. Thus, the proposed rule

change is consistent with Section 15A’s

goals of fostering cooperation and

coordination with persons engaged in

regulating, clearing, and settling

transactions in securities and of

perfecting the mechanism of a free and

open market.

While Thomson’s letter supports the

NASD’s efforts to shorten the settlement

cycle for securities transactions,

Thomson believes that the NASD

should amend Section 64 of the UPC,

which requires the use of a registered

clearing agency’s facilities for

automated confirmation and

acknowledgement of all DVP/RVP

transactions.16 The NASD, in response

to Thomson’s letter, states that the

NASD opposes amending Section 64

because Thomson’s system is not

interfaced with other providers of

confirmation/acknowledgement services

and because Thomson is not subject to

regulatory oversight.17 The NASD also

states that Thomson’s letter raises

significant issues as to whether a thirdparty vendor of confirmation/

affirmation services should be

recognized to be equivalent to a

registered clearing organization

providing such services.18 Thomson

provided a further comment letter
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