Document ID: SEC-2017-1258-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: New York Stock Exchange LLC
Posted Date: 2017-07-26T04:00Z

[Federal Register Volume 82, Number 142 (Wednesday, July 26, 2017)]
[Notices]
[Pages 34728-34731]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15631]

-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81176; File No. SR-NYSE-2017-33]

 Self-Regulatory Organizations; New York Stock Exchange LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Eliminate Non-Regular Way Trading on the Exchange

July 20, 2017.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on July 10, 2017, New York Stock Exchange LLC (``NYSE'' or 
the ``Exchange'') filed with the Securities and Exchange Commission 
(the ``Commission'') the proposed rule change as described in Items I 
and II below, which Items have been prepared by the self-regulatory 
organization. The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C.78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to eliminate non-regular way trading on the 
Exchange. The proposed rule change is available on the Exchange's Web 
site at www.nyse.com, at the principal office of the Exchange, and at 
the Commission's Public Reference Room.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to eliminate non-regular way trading on the 
Exchange. To effect this change, the Exchange proposes to amend or 
delete the following rules:
     Rule 12 (``Business Day'');
     Rule 14 (Non-Regular Way Settlement Instructions for 
Orders);
     Rule 14T (Non-Regular Way Settlement Instructions for 
Orders);
     Dealings and Settlements (Rules 45--299C);
     Rule 64 (Bonds, Rights and 100-Share-Unit Stocks);
     Rule 64T (Bonds, Rights and 100-Share-Unit Stocks);
     Rule 66 (U.S. Government Securities);
     Rule 73 (Seller's Option);
     Rule 123 (Record of Orders);
     Rule 130 (Overnight Comparison of Exchange Transactions);
     Rule 132 (Comparison and Settlement of Transactions 
Through A Fully-Interfaced or Qualified Clearing Agency);
     Rule 137 (Written Contracts);
     Rule 137A (Samples of Written Contracts);
     Rule 177 (Delivery Time--``Cash'' Contracts);
     Rule 179 (``Seller's Option'');
     Rule 189 (Unit of Delivery);
     Rule 235 (Ex-Dividend, Ex-Rights);
     Rule 235T (Ex-Dividend, Ex-Rights);
     Rule 236 (Ex-Warrants);
     Rule 236T (Ex-Warrants);
     Rule 241 (Interest--Added to Contract Price);
     Rule 257 (Deliveries After ``Ex'' Date);
     Rule 257T (Deliveries After ``Ex'' Date); and

[[Page 34729]]

     Rule 282 (Buy-in Procedures).

Background and Proposed Rule Change

    The current standard trade settlement cycle for most securities 
transactions is three business days after trade date (``T+3'').\4\ The 
standard settlement cycle is referred to as ``regular way'' settlement. 
Settlement cycles that are longer or shorter than the standard cycle 
are referred to as ``non-regular way'' settlement instructions. Rule 
14(a)(i) defines non-regular way settlement instructions as 
instructions allowing for settlement other than regular way. Non-
regular way settlement instructions are (1) cash; (2) next day; and (3) 
seller's option.\5\ Currently, the Exchange only offers non-regular way 
settlement instructions for orders manually represented by Floor 
brokers.\6\
---------------------------------------------------------------------------

    \4\ See SEC Rule 15c6-1(a), 17 CFR 240.15c6-1(a). SEC Rule 15c6-
1(a) has been amended to shorten the settlement cycle to two 
business days (``T+2''), which will be operative on September 5, 
2017 (the ``T+2 regular way settlement initiative''). See Securities 
Exchange Act Release No. 80295, 82 FR 15564 (May 30, 2017) (File No. 
S7-22-16). The Exchange has also amended its rules to reflect the 
T+2 regular way settlement initiative. See Securities Exchange Act 
Release No. 80021 (February 10, 2017), 82 FR 10931 (February 16, 
2017) (SR-NYSE-2016-87) (``Release No. 80021'').
    \5\ See Rule 14(b). Orders indicating cash settlement 
instructions require delivery of the securities on the same day as 
the trade date. Next day settlement instructions require delivery of 
the securities on the first business day following the trade date. 
Orders that have settlement instructions of seller's option afford 
the seller the right to deliver the security at any time within a 
specified period, ranging from not less than two business days to 
not more than sixty days for securities and not less than two 
business days and no more than sixty days for U.S. government 
securities.
    \6\ In March 2009, the Exchange amended its rules to require 
that all orders submitted to Exchange be submitted for regular way 
settlement. See Securities and Exchange Act Release No. 59446 
(February 25, 2009), 74 FR 9323 (March 3, 2009)(SR-NYSE-2009-17) 
(``Release No. 58446''). In July 2009, in response to certain 
customer needs, the Exchange adopted Rule 14 to allow orders 
containing non-regular way settlement instructions to be transmitted 
directly to a Floor broker for manual order handling. See Securities 
and Exchange Act Release No. 60216 (July 1, 2009), 74 FR 33283 (July 
10, 2009)(SR-NYSE-2009-59).
---------------------------------------------------------------------------

    Because non-regular way settlement instructions are infrequently 
used by market participants,\7\ the Exchange proposes to eliminate non-
regular way settlement instructions.
---------------------------------------------------------------------------

    \7\ For example, in 2016, the Exchange and its affiliate NYSE 
MKT LLC combined received a total of 5 orders with non-regular way 
instructions, 2 of which were later reversed. All 5 orders were 
received in the last two trading months of the year. No orders with 
non-regular way instructions have been received on either market to 
date in 2017. In contrast, at the time the Exchange eliminated non-
regular way settlement instructions in 2009, the Exchange was 
receiving, on average, 28 cash orders, 48 next day orders, and 2 
seller's option orders each day. See Release No. 58446, supra note 
5, 74 FR at 9324 (based on a review of orders received during one 
week in May 2008). During the last five trading days of 2007, when 
the most cash, next day and seller's options orders were received, 
the average daily submissions were 123 for cash, 199 for next day, 
and 10 for seller's option. See id.
---------------------------------------------------------------------------

    To effect this change, the Exchange proposes to amend or delete the 
following Rules:
     Rule 12 defines the term ``Business Day'' and provides 
that on any business day that the banks, transfer agencies and 
depositories for securities in New York State are closed, except for 
orders containing non-regular way settlement instructions pursuant to 
Rule 14, deliveries or payments ordinarily due on such a day shall be 
due on the following business day. As discussed below, Rule 14 is being 
amended to delete non-regular way settlement. The Exchange accordingly 
proposes to delete the clause ``Except for orders containing non-
regular way settlement instructions pursuant to Rule 14,'' in Rule 
12(1). The Exchange also proposes to delete the clause ``other than 
``cash'' contracts made on such a day'' in Rule 12(3).
     As noted, Rule 14 provides for non-regular way settlement 
instructions. The Exchange proposes to amend Rule 14 to provide that 
all bids and offers will be deemed regular way. To effect this change, 
the Exchange proposes to delete (i) the heading of current Rule 14 and 
replace it with ``Bid or Offer Deemed Regular Way,'' and (ii) the 
preamble to current Rule 14, the text of subsections (a) through (e), 
and the subsection heading ``(f).'' The Exchange further proposes to 
replace the rule text with the following text: ``Bids and offers will 
be considered to be `regular way.''' This proposed rule is based on 
NYSE Arca Equities, Inc. Rule 7.8.
     Rule 14T was adopted in 2016 to reflect the upcoming 
transition to T+2 to reflect two day settlement.\8\ In light of the 
proposed changes to Rule 14, the Exchange proposes to delete Rule 14T 
in its entirety as moot.
---------------------------------------------------------------------------

    \8\ In 2016, the Exchange also adopted, among other rules, 
Current Dealings and Settlements (Rules 45--299C), Rule 64T, Rule 
235T, Rule 236T, and Rule 257T, and added preambles to the current 
version of each amended rule and to the rules designated with a T. 
See Release No. 80021, supra note 3, 82 FR at 10932.
---------------------------------------------------------------------------

     Current Dealings and Settlements (Rules 45--299C) sets 
forth delivery dates for cash, regular way, seller's option and when 
issued and when distributed contracts for the sale of securities (Rule 
64, 65). The Exchange proposes to delete all references to the cash and 
seller's options. The Exchange proposes the same changes to Current 
Dealings and Settlements (Rules 45--299C). In the chart addressing 
contracts for sale of U.S. government bonds (Rule 66), the Exchange 
similarly proposes to delete all references to the cash and seller's 
options.
     Rule 64 governs settlement instructions for bonds, rights 
and 100-share-unit stocks. The Exchange proposes to delete the preamble 
and all references to non-regular way settlement instructions from this 
Rule. Specifically, the Exchange would delete ``(a) (i) Except as 
provided in (ii) below, b'' and capitalize the ``b'' in bids in the 
first sentence. The Exchange proposes to insert a period after 
``regular way'' and delete the clause ``i.e., for delivery on the third 
business day following the day of the contract.'' The Exchange further 
proposes to delete the last sentence of current subsection (a)(i) 
referring to non-regular way settlement instructions along with the 
parentheses. Subsections (a)(ii) and (b) through (c) would also be 
deleted.
     In light of the changes to Rule 64, the Exchange proposes 
to delete Rule 64T in its entirety as moot.
     Rule 66 governs settlement instructions for U.S. 
Government securities. The Exchange proposes to insert a period 
following ``regular way'' and delete the clause ``for that security 
i.e., for delivery on the business day following the day of the 
trade.'' The Exchange also proposes to delete the final sentence of the 
rule referring to non-regular way settlement instructions along with 
the parentheses.
     Rule 73 governs seller's option. The heading and rule text 
would be deleted in their entirety. ``Reserved'' would replace 
``Seller's Option'' in the heading.
     Rule 123 sets forth certain record keeping requirements 
for orders. Subsection (f) governs order execution reports and 
specifies the data elements for such reports. The Exchange proposes to 
delete data element 14, which relates to non-regular way settlement 
instructions, and re-number the remaining elements.
     Rule 130 governs overnight comparison of Exchange 
transactions. The Exchange proposes to delete the phrase ``contracts 
for `regular way', `next day' and `seller's option' settlement, as 
prescribed in Rule 14, in stocks, rights, warrants,'' in subsection 
(c).
     Rule 132 governs comparison and settlement of transactions 
through a fully-interfaced or qualified clearing agency (as defined 
therein). Supplementary Material .30 of the Rule sets forth the 
necessary trade data elements that clearing member organizations must 
submit to a fully-interfaced or qualified clearing agency for the 
comparison and/or settlement of a round-lot regular way contract. The 
last paragraph of Supplementary Material .30 provides that clearing 
member organizations that are a party to

[[Page 34730]]

a round lot non-regular way contract shall submit the same trade data 
elements. The Exchange proposes to delete the last paragraph.
     Rule 137 addresses various aspect of written contracts 
for, among other things, seller's option in stocks and bonds for more 
than seven days, that are not submitted to the Exchange or to a 
qualified clearing agency for comparison. The Exchange proposes to 
delete the clause ```seller's option' transactions in stocks, on 
`seller's option' transactions in bonds for more than seven days, as 
prescribed in Rule 14 and on'' in the first paragraph of the Rule.
     Rule 137A sets forth examples of written contracts. 
Supplementary Material .20 of the Rule provides a model for a seller's 
option contract for stock. The Exchange proposes to delete 
Supplementary Material .20 in its entirety and that current 
Supplementary Material .30 become Supplementary Material .20.
     Rule 177 specifies the time for delivery of transactions 
made for cash. The Exchange proposes to delete the rule text in its 
entirety and mark it ``Reserved.''
     Rule 179 specifies the delivery and notice requirements 
for securities sold seller's option. The Exchange proposes to delete 
the rule text in its entirety and mark it ``Reserved.''
     Rule 189 provides that buyers shall accept any portion of 
a lot of securities contracted for if tendered in lots of one trading 
unit or multiples thereof, and may buy in the undelivered portion as 
provided in Rule 284, except for sale made seller's option. The 
Exchange proposes to delete the last clause of the rule addressing the 
seller's option exception.
     Current Rule 235 provides that transactions in stocks, 
except those made for cash as prescribed in Rule 14, shall be ex-
dividend or ex-rights on the second business day preceding the record 
date fixed by the corporation or the date of the closing of transfer 
books. The Exchange proposes to delete the references to transactions 
made for cash. The same changes are proposed for Rule 235T.
     Current Rule 236 provides that transactions in securities 
that have subscription warrants attached, except those made for cash as 
prescribed in Rule 14, will begin on the second business day preceding 
the date of expiration of the warrants, except that when expiration 
occurs on a non-business day, in which case it will begin on the third 
business day preceding date of expiration. The Rule further provides 
that transactions in securities made for ``cash'' shall be ex-warrants 
on the business day following the date of expiration of the warrants. 
The Exchange proposes to delete the references to transactions made for 
cash. The same changes are proposed for Rule 236T.
     Rule 241 governs computation of interest on the principal 
amount in bonds, except that in the case of contracts made seller's 
option such interest shall be computed only up to but not including the 
day when delivery would have been due if the contract had been made 
regular way. The Exchange proposes to delete the last clause in the 
rule containing the exception for contracts made seller's option.
     Rule 257 governs deliveries after a security is sold 
before it is ex-dividend or ex-rights. The Exchange proposes to delete 
the clause referring to securities sold thereafter to and including the 
record date for cash. The same change is proposed for Rule 257T.
     Rule 282A sets forth the procedures for a buyer to close 
out a contract in securities, except one where its close-out is 
governed by the rules of a Qualified Clearing Agency, which has not 
been completed by the seller in accordance with its terms. Subsection 
(d) provides that where the buyer is a customer (i.e., other than 
another member organization), upon failure of a defaulting member 
organization to effect delivery in accordance with a ``buy-in'' notice, 
among the ways the contract may be closed-out is by purchasing for cash 
as prescribed in Rule 14 in the best available market. The Exchange 
proposes to eliminate this clause in Rule 282A(d). Further, the 
Exchange proposes to delete references to contracts made for cash in 
Supplemental Material .70.
* * * * *
    The Exchange will announce the operative date of the elimination of 
non-regular way settlement instructions by Trader Update, which the 
Exchange anticipates will be before the September 5, 2017 
implementation of the T+2 regular way settlement initiative.
2. Statutory Basis
    The Exchange believes that the proposed rule change is consistent 
with Section 6(b) of the Act,\9\ in general, and furthers the 
objectives of Section 6(b)(5) of the Act,\10\ in particular, because it 
is designed to prevent fraudulent and manipulative acts and practices, 
promote just and equitable principles of trade, to foster cooperation 
and coordination with persons engaged in regulating, clearing, 
settling, processing information with respect to, and 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.
---------------------------------------------------------------------------

    \9\ 15 U.S.C. 78f(b).
    \10\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    Specifically, the Exchange believes that eliminating non-regular 
way trading on the Exchange removes impediments to and perfects a 
national market system by eliminating little-used order instructions 
that involve manual handling by Floor traders, thereby furthering the 
immediate and automatic execution of orders on the Exchange in the most 
efficient manner. The Exchange believes that eliminating these order 
instructions would be consistent with the public interest and the 
protection of investors because investors will not be harmed by the 
removal of little-used order instructions that are remnants of a time 
when the Exchange functioned as a manual auction market.\11\ The 
Exchange further believes that deleting corresponding references to 
delete non-regular way order instructions also removes impediments to 
and perfects the mechanism of a free and open market by ensuring that 
members, regulators and the public can more easily navigate the 
Exchange's rulebook and reduce potential confusion that may result from 
having such references in the Exchange's rulebook. Removing such 
obsolete cross references would also further the goal of transparency 
and add clarity to the Exchange's rules.
---------------------------------------------------------------------------

    \11\ See Release No. 59446, supra note 8, 74 FR at 9323.
---------------------------------------------------------------------------

B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change imposes 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act. The proposed change is not 
designed to address any competitive issue but rather would remove 
little used, anachronistic order instructions, thereby reducing 
confusion and making the Exchange's rules easier to understand and 
navigate.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

[[Page 34731]]

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \12\ and Rule 19b-4(f)(6) thereunder.\13\ 
Because the foregoing proposed rule change does not: (i) Significantly 
affect the protection of investors or the public interest; (ii) impose 
any significant burden on competition; and (iii) become operative for 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, it has become effective pursuant to 
Section 19(b)(3)(A)(iii) of the Act \14\ and subparagraph (f)(6) Rule 
19b-4 thereunder.\15\
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \13\ 17 CFR 240.19b-4(f)(6).
    \14\ 15 U.S.C. 78s(b)(3)(A).
    \15\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
---------------------------------------------------------------------------

    At any time within 60 days of the filing of such proposed rule 
change, the Commission summarily may temporarily suspend such rule 
change if it appears to the Commission that such action is necessary or 
appropriate in the public interest, for the protection of investors, or 
otherwise in furtherance of the purposes of the Act. If the Commission 
takes such action, the Commission shall institute proceedings under 
Section 19(b)(2)(B) \16\ of the Act to determine whether the proposed 
rule change should be approved or disapproved.
---------------------------------------------------------------------------

    \16\ 15 U.S.C. 78s(b)(2)(B).
---------------------------------------------------------------------------

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSE-2017-33 on the subject line.

Paper Comments

     Send paper comments in triplicate to Brent J. Fields, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSE-2017-33. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). 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 Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NYSE-2017-33 and should be 
submitted on or before August 16, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\17\
---------------------------------------------------------------------------

    \17\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-15631 Filed 7-25-17; 8:45 am]
 BILLING CODE 8011-01-P