Federal Register / Vol. 60, No. 66 / Thursday, April 6, 1995 / Notices 17597

13 15 U.S.C. 78s(b)(2) (1988).

14 17 CFR 200.30–3(a)(12) (1994).

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

2Letter From David Rusoff, Foley & Lardner, to

Christine Sibille, Senior Attorney, Office of

Securities Processing, Division of Market

Regulation, Commission (December 16, 1994).

3Securities Exchange Act Release No. 35155

(December 27, 1994), 60 FR 517.

4Letter from P. Howard Edelstein, President,

Electronic Settlements Group, Thomson Trading

Services, Inc., to Jonathan G. Katz, Secretary,

Commission (January 25, 1995).

5Securities 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).

6Friday, 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.

7Letter from P. Howard Edelstein, President,

Electronic Settlements Group, Thomson Trading

Services, Inc., to Jonathan G. Katz, Secretary,

Commission (January 25, 1995).

8 15 U.S.C. 78f (1988).

9The adopting release stated, ‘‘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

Continued

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 Exchange. All submissions

should refer to File No. SR–CHX–94–22

and should be submitted by April 27,

1995.

Conclusion

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,13 that the

proposed rule change (SR–CHX–94–22)

is approved.

For the Commission, by the Division of

Market Regulation, pursuant to delegated

authority.14

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–8491 Filed 4–5–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35554; File No. SR–CHX–

94–26]

Self-Regulatory Organizations; The

Chicago Stock Exchange,

Incorporated; Order Approving

Proposed Rule Change Relating to

Implementation of a Three-Day

Settlement Standard

March 31, 1995.

On November 30, 1994, the Chicago

Stock Exchange, Incorporated (‘‘CHX’’)

filed a proposed rule change (File No.

SR–CHX–94–26) with the Securities and

Exchange Commission (‘‘Commission’’)

pursuant to Section 19(b) of the

Securities Exchange Act of 1934

(‘‘Act’’).1 On December 14, 1994, CHX

filed an amendment to the proposed

rule change.2 Notice of the proposal was

published in the Federal Register on

January 4, 1995, to solicit comments

from interested persons.3 The

Commission received one written

comment.4 As discussed below, this

order approves the proposed rule

change.

I. Description

In October 1993, the Commission

adopted Rule 15c6–1 under the Act

which will become effective June 7,

1995.5 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 CHX’s rules are

interrelated with settlement timeframes.

The purpose of the proposed rule

change is to amend CHX’s rules

consistent with a T+3 settlement

standard for securities transactions.

Article XX, Rule 9 will define regular

way transactions as requiring delivery

on the third business day after the trade

date. Seller’s option trades will settle

not less than four business days nor

more than sixty days following the day

of the contract. Trades made for ‘‘next

day’’ may include delivery on the first

or second business day following the

day of the contract. The proposed rule

change also will eliminate references to

the fourth and fifth full business day

preceding the final day for subscription

contained in Rule 9.

Article XXVII, Rule 1 will provide

that stock transactions shall be exdividend or ex-rights two business days

preceding the record date. With respect

to record dates on other than a business

day, stock transactions will be exdividend or ex-rights three business

days preceding the record date.

Article XXVII, Rule 2 will require

stock transactions to be ex-warrant on

the second business day preceding the

date of expiration of the warrants. 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.

Article XXX, Rule 15 will require all

claims involving erroneous comparisons

to be made within two business days of

the original trade date. Claims which

concern the omission of a report will

need to be made within two business

days of the date the order should have

been executed. Claims relative to a lack

of comparison of a reported transaction

will need to be made within two

business days of the original trade.

CHX has requested that the proposed

rule change become effective on the

same date as Rule 15c6–1. Rule 15c6–

1 is scheduled to become effective on

June 7, 1995. The transition from T+5

settlement to T+3 settlement will occur

over a four day period.6

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.7 Thomson believes that the

CHX should amend Article XV, Rule 5

which requires the use of the facilities

of a securities depository for

confirmation and acknowledgement of

all depository-eligible transactions.

III. Discussion

The Commission believes the

proposal is consistent with the

requirements of Section 6 of the Act.8

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. The CHX 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 CHX’s current rule establishing a

T+5 settlement cycle will be

inconsistent with the Commission rules.

This proposal will amend the CHX’s

rules to harmonize them with 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 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, and there will be less time

between trade execution and settlement

for the value of those trades to

deteriorate.9
17598 Federal Register / Vol. 60, No. 66 / Thursday, April 6, 1995 / Notices

corporation or by a major market participant or enduser 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.

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

11 15 U.S.C. 78s(b)(2) (1988)

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

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

2Securities Exchange Act Release No. 35288

(January 27, 1995), 60 FR 6580.

3 GSCC also intends to include such services as

the tracking of rate changes and open repo interest,

the provision to the funds borrower of coupon

protection, the provision to all parties of a

comprehensive audit trail for their repo activity,

and the monitoring and facilitation of collateral

substitutions.

4 GSCC will file proposed rule changes for the

authority to implement both the next stage of the

first phase of repro services, which is the provision

of netting and risk management services for the

non-same-day settling aspects of next-day and

forward settling repo transactions, and future

phases of repo services.

5The proposed rule change establishes a new

schedule of required data submission items

applicable to all trades. In addition to the items on

the schedule of required match data, a member

must submit the broker reference number, contra

submitting member’s executing firm, executing

firm, external reference number, price (rate), pricing

method, and trade date. These fields are not

matched.

6The following items must match for a trade to

compare: (1) Contra member identifying

information, (2) CUSIP number, (3) member’s

identifying number, (4) par amount (quantity), (5)

settlement amount, (6) settlement date, and (7)

transaction type (i.e., buy, sell, repo, or reverse). In

addition, these required match data items must

match only for repo transactions: (1) start amount

(i.e., the contract value for the start leg of the repo

transaction) and (2) start date (i.e., the settlement

date for the start leg of a repo transaction).

While the Thomson letter supports

the CHX’s efforts to shorten the

settlement cycle for securities

transactions, Thomson believes that the

CHX should amend Article XV, Rule 5,

which requires the use of the facilities

of a securities depository for the

confirmation and acknowledgement of

all depository-eligible transactions

whereby payment for securities

purchased or delivery of securities sold

is to be made to or by an agent of the

customer. The Commission believes that

the issue raised by the Thomson letter

need not be resolved prior to the

approval of the proposed rule change.

Discussions regarding Thomson’s

concerns are underway among the

Commission, Thomson, DTC, and the

Securities Industry Association. The

Commission will continue to work with

the industry to address Thomson’s

concerns. However, if the proposed rule

change is not approved prior to the June

7, 1995, effective date of Rule 15c6–1,

the CHX rules will conflict with the

Commission Rule 15c6–1.

The Thomson letter suggests that

approval of the proposed rule change

without amendments to Article XV,

Rule 5 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 the

anticompetitive effects pointed to by

Thomson, if in fact there are any

anticompetitive effects, are not caused

by the proposed rule change approved

by this order but rather by an existing

CHX 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 CHX’s proposal

is consistent with Section 6 of the Act.10

It is therefore ordered, pursuant to

Section 19(b)(2) of the Act,11 that the

proposed rule change (File No. SR–

CHX–94–26) be and hereby is approved,

effective June 7, 1995.

For the Commission by the Division of

Market Regulation, pursuant to delegated

authority.12

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95–8494 Filed 4–5–95; 8:45 am]

BILLING CODE 8010–01–M

[Release No. 34–35557; File No. SR–GSCC–

94–10]

Self-Regulatory Organizations;

Government Securities Clearing

Corporation; Order Approving

Proposed Rule Change Relating to

Implementing a Comparison Service

for Repurchase and Reverse

Repurchase Transactions Involving

Government Securities as the

Underlying Instrument

March 31, 1995.

On December 30, 1994, the

Government Securities Clearing

Corporation (‘‘GSCC’’) filed with the

Securities and Exchange Commission

(‘‘Commission’’) a proposed rule change

(File No. SR–GSCC–94–10) pursuant to

Section 19(b)(1) of the Securities

Exchange Act of 1934 (‘‘Act’’).1 Notice

of the proposal was published in the

Federal Register on February 2, 1995.2

No comment letters were received

regarding the proposed rule change. For

the reasons discussed below, the

Commission is approving the proposed

rule change.

I. Description

GSCC is amending its rules to provide

comparison services for repurchase and

reverse repurchase transactions

involving government securities as the

underlying instrument (‘‘repos’’). GSCC

ultimately intends to provide

comparison, netting, and risk

management services for the opening

(‘‘on’’) and closing (‘‘off’’) legs of all

overnight repos (also referred to as nextday repos), term repos (also referred to

as forward settling repos), and open

repos, including the same-day settling

aspects of those repos.3

GSCC will offer its repo services in

three phases. The first phase will

involve the provision of comparison and

netting services. The pending proposal

would authorize GSCC to implement the

initial stage of the first phase, which is

the provision of comparison services for

overnight and term repos whether or not

the on leg occurs before, on, or after the

submission date.4 GSCC will accept and

compare data on all of the components

of a repo transaction, including

information on the on and off legs of a

repo, with members providing such data

via a single input. The second

implementation phase of GSCC’s

planned repo services will focus on the

provision of comparison, netting, and

risk management services for open

repos. The last phase of GSCC’s planned

implementation of repo services will

focus on providing intraday netting and

risk management services for the sameday settling aspects of repo transactions,

including settlement of same-day

settling start legs and close-outs of open

repos.

The Phase 1 comparison process for

repos is substantially similar to the

comparison process offered by GSCC

today. Each party to a repo will submit

its transaction data to GSCC.5 As is the

case now for non-repo transactions,

comparison of a repo trade will occur

immediately upon the receipt by GSCC

from two members of matching data. If

all mandatory data fields that are

required to match do in fact match,

GSCC will generate a comparison.6

If the data on a repo remains

uncompared at end-of-day, the

submitter of the repo data will receive

a report of an uncompared trade, and

the participant being submitted against

will receive an advisory. If a repo

transaction has not yet been compared,

it may be unilaterally canceled, and the

submitter will receive notification of the

cancellation. To cancel a repo that has