Document ID: SEC-2017-0247-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NYSE MKT LLC
Posted Date: 2017-02-16T05:00Z

[Federal Register Volume 82, Number 31 (Thursday, February 16, 2017)]
[Notices]
[Pages 10940-10942]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03109]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80020; File No. SR-NYSEMKT-2016-119]

Self-Regulatory Organizations; NYSE MKT LLC; Order Granting 
Approval of a Proposed Rule Change To Conform to Proposed Amendment to 
Rule 15c6-1(a) Under the Securities Exchange Act of 1934 To Shorten the 
Standard Settlement Cycle for Most Broker-Dealer Transactions From 
Three Business Days After the Trade Date (``T+3'') to Two Business Days 
After the Trade Date (``T+2'')

February 10, 2017.

I. Introduction

    On December 15, 2016, NYSE MKT LLC (``NYSE MKT'' or ``Exchange'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
conform its rules to an amendment proposed by the Commission to Rule 
15c6-1(a) under the Act to shorten the standard settlement cycle for 
most broker-dealer transactions from three business days after the 
trade date (``T+3'') to two business days after the trade date 
(``T+2'').\3\ The proposed rule change was published for comment in the 
Federal Register on December 29, 2016.\4\ The Commission received two 
comments on the proposal, each of which supports the proposed rule 
change.\5\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 78962 (Sept. 28, 
2016), 81 FR 69240 (Oct. 5, 2016) (File No. S7-22-16) (``T+2 
Proposing Release'').
    \4\ See Securities Exchange Act Release No. 79659 (Dec. 22, 
2016), 81 FR 84635 (Dec. 29, 2016).
    \5\ See Letters from Manisha Kimmel, Chief Regulatory Officer, 
Wealth Management, Thomson Reuters, dated January 19, 2017; and 
Thomas F. Price, Managing Director, Operations, Technology & BCP, 
Securities Industry and Financial Markets Association (``SIFMA''), 
dated January 19, 2017.
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II. Description of the Proposal

    The Exchange proposes to adopt Equities Rules 14T--Equities (Non-
Regular Way Settlement Instructions for Orders); 64T--Equities (Bonds, 
Rights and 100-Share-Unit Stocks); 235T--Equities (Ex-Dividend, Ex-
Rights); 236T--Equities (Ex-Warrants); 257T--Equities (Deliveries After 
``Ex'' Date); 282.65T--Equities (Failure to Deliver and Liability 
Notice Procedures); and Sections 510T (Three Day Delivery Plan) and 
512T (Ex-Dividend Procedure) of the NYSE MKT Company Guide, in order to 
conform the Exchange's rulebook to the Commission's proposed amendment 
to Rule 15c6-1(a) under the Act, which would shorten the standard 
settlement cycle from T+3 to T+2 for most broker-dealer transactions.
    Exchange Rule 14--Equities defines ``non-regular way'' settlement 
instructions as instructions that allow for settlement other than 
``regular way'' (i.e., other than settlement on the third business day 
following trade date for securities other than U.S. Government 
Securities). Proposed Exchange Rule 14T--Equities would amend this 
definition to replace ``third business day'' with ``second business 
day.''
    Similarly, Exchange Rule 64(a)--Equities defines ``regular way'' as 
``for delivery on the third business day following the day of the 
contract.'' Proposed Exchange Rule 64T(a)--Equities would replace 
``third business day'' with ``second business day.'' \6\ Exchange Rule 
64(a)(ii)--Equities currently provides that on the second and third 
business days preceding the final day for subscription, bids and offers 
in rights to subscribe shall be made only ``next day.'' To conform with 
the move to a T+2 settlement cycle, proposed Exchange Rule 64T(a)(ii)--
Equities would delete the reference to the third business day preceding 
the final day for subscription because in a T+2 settlement cycle, bids 
and offers in rights to subscribe on that day would simply be subject 
to ``regular way'' settlement. Under Current Exchange Rule 64(c)--
Equities, all ``seller's option'' trades, for delivery between 2 and 60 
business days, should be reported to the tape only in calendar days. 
The Exchange proposes to amend Exchange Rule 64T(c)--Equities to 
replace the reference to ``two'' with a reference to ``three.''
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    \6\ The Exchange also proposes to make several non-substantive 
changes. As reflected in proposed Exchange Rule 64T(a)(i)--Equities, 
italics would be removed from the single quote before the words 
``issued'' and ``regular'' and a missing parenthesis added before 
the word ``See'' in the second sentence of the second paragraph. 
Italics would also be removed from the single quote before the word 
``seller's'' in five places in proposed Exchange Rule 64T(c)--
Equities as well as before the word ``regular'' in the last 
sentence. Finally, as reflected in proposed Exchange Rule 64T(a)(1), 
(a)(ii) and (b)--Equities, bold would be removed from ``(a)(i),'' 
``(ii)'' and ``(b).''
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    Exchange Rule 235--Equities provides that transactions in stocks, 
except those made for ``cash'' as prescribed in Exchange Rule 14--
Equities, 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 in Exchange Rule 
235T--Equities to change ``second business day preceding'' to 
``business day preceding.'' The current Exchange Rule 235--Equities 
further provides that, if the record date or closing of transfer books 
occurs upon a day other than a business day, Exchange Rule 235 shall 
apply for the third preceding business day. The Exchange proposes to 
change ``third preceding business day'' to ``second preceding business 
day'' in proposed Exchange Rule 235T--Equities.\7\
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    \7\ The Exchange also proposes to make non-substantive changes 
to correct punctuation in proposed Exchange Rule 235T--Equities by 
removing italics from the single quote before the word ``cash'' in 
two places.
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    Exchange Rule 236--Equities pertaining to ex-warrants similarly 
provides that transactions in securities that have subscription 
warrants attached, except those made for cash, shall be ex-warrants on 
the second business day preceding the date of expiration of the 
warrants, except that when the date of expiration occurs on a day other 
than a business day, the

[[Page 10941]]

transactions shall be ex-warrants on the third business day preceding 
the date of expiration. The Exchange proposes to adopt proposed 
Exchange Rule 236T--Equities and change the warrant period to the 
business day preceding expiration of the warrants instead of the second 
business day. Under proposed Exchange Rule 236T--Equities, when warrant 
expiration does not occur on a business day, the ex-warrant period will 
begin on the second business day preceding the expiration date instead 
of on the third business day.\8\
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    \8\ The Exchange also proposes to make non-substantive changes 
to correct punctuation in proposed Rule 236T--Equities by removing 
italics from the single quote before the word ``cash'' in two 
places.
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    Exchange Rule 257--Equities prescribes that the time frame for 
delivery of dividends or rights for securities sold before the ``ex'' 
date but delivered after the record date must occur within three days 
after the record date. Proposed Exchange Rule 257T--Equities would 
shorten the time frame to two days.\9\
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    \9\ The Exchange also proposes to make non-substantive changes 
to correct punctuation in proposed Rule 257T--Equities by removing 
italics from the single quote before the word ``Ex'' in the heading 
and the word ``cash'' in the rule text.
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    Subdivision (1)(A) of Supplementary Material .65 to current 
Exchange Rule 282--Equities provides that when a liability notice is 
sent by parties to a contract who are not both participants in a 
Qualified Clearing Agency that has an automated service for notifying a 
failing party of the liability that will be attendant to a failure to 
deliver, that notice must be issued no later than one business day 
prior to the latest time and the date of the offer or other event in 
order to obtain the protection provided under Exchange Rule 282--
Equities. The Exchange proposes to amend the Supplementary Material so 
that Exchange Rule 282.65T(1)(A)--Equities would provide that, to 
obtain the protection provided by Exchange Rule 282- Equities, the 
receiving member organization must send the liability notice to the 
delivering member organization as soon as practicable but not later 
than two hours prior to the cutoff time set forth in the instructions 
on a specific offer or other event.
    Section 510 of the Exchange's Company Guide provides that all 
transactions effected on the Exchange (unless otherwise specified) will 
be settled in three business days. Additionally, Section 510 states 
that a ``regular way'' transaction is due for settlement by delivery of 
the securities against payment on the third business day after the 
transaction date. Section 510 also provides an example stating that a 
``regular way'' transaction made on a Friday is due for settlement on 
Wednesday of the following week and that a transaction on Monday is due 
for settlement on Thursday of the same week. The Exchange proposes in 
Section 510T to replace both references to ``three business days'' with 
a reference to ``two business days.'' Proposed Section 510T would also 
amend the example provided in Section 510 by changing ``Wednesday'' to 
``Tuesday'' and ``Thursday'' to ``Wednesday.''
    Section 512 of the Exchange's Company Guide provides that 
transactions in stocks (except those made for ``cash'') are ex-dividend 
on the second business day preceding the record date, unless the record 
date selected is not a business day, in which case the stock will be 
quoted ex-dividend on the third preceding business day. Proposed 
Section 512T would shorten these time frames to the business day 
preceding the record date and the second business day preceding the 
record date, respectively.
    The Exchange proposes to adopt the rules but delay making the rules 
operative until the compliance date of any amendment to Rule 15c6-1(a) 
under the Act that the Commission adopts. The Exchange proposes to add 
preambles to each amended rule, and to the rule it would replace, to 
provide that (1) the existing rule will remain operative until the 
Exchange files separate proposed rule changes as necessary to establish 
the operative date of the revised rule, to delete the current rule and 
proposed preamble, and to remove the preamble text from the revised 
rule; and (2) in addition to filing the necessary proposed rule 
changes, the Exchange will announce via Information Memo the operative 
date of the deletion of the current rule and implementation of the 
proposed rule designated with a T.

III. Discussion and Commission's Findings

    After careful review of the proposed rule change and the comments, 
the Commission finds that the proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange.\10\ Specifically, the 
Commission finds that the rule change is consistent with Section 
6(b)(5) of the Act,\11\ which requires that the rules of a national 
securities exchange be designed, among other things, to prevent 
fraudulent and manipulative acts and practices, to 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 facilitating transactions in 
securities, to remove impediments to and perfect the mechanism of a 
free and open market and a national market system, and to protect 
investors and the public interest.
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    \10\ In approving this proposed rule change, the Commission has 
considered the rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \11\ 15 U.S.C. 78f(b)(5).
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    As noted above, the Commission received two comment letters on the 
proposed rule change.\12\ Both comment letters express support for 
Commission approval of the proposed rule change.
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    \12\ See supra note 5.
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    The Commission notes that the proposal would amend the Exchange's 
rules to conform to the amendment that the Commission has proposed to 
Rule 15c6-1(a) under the Act \13\ and support a move to a T+2 standard 
settlement cycle. In the T+2 Proposing Release the Commission stated 
its preliminary belief that shortening the standard settlement cycle 
from T+3 to T+2 will result in a reduction of credit, market, and 
liquidity risk,\14\ and as a result a reduction in systemic risk for 
U.S. market participants.\15\ The Commission also notes that it has not 
yet adopted the proposed amendment to Rule 15c6-1(a) under the Act and 
that the Exchange has, accordingly, not proposed to make its amended 
rules operative at present. Instead, the Exchange has proposed to 
announce the operative date of the Exchange's proposal via Information 
Memo and by filing a separate proposed rule change. The Commission 
expects that the operative date of the proposed rule change would 
correspond with the compliance date of any amendment to Rule 15c6-1(a) 
that is adopted by the Commission. The Commission notes that, in 
October 2014, Depository Trust and Clearing Corporation, in 
collaboration with the Investment Company Institute, SIFMA, and other 
market participants, formed an Industry

[[Page 10942]]

Steering Group (``ISC'') and an industry working group to facilitate 
the transition to a T+2 settlement cycle for U.S. trades in equities, 
corporate and municipal bonds, and unit investment trusts.\16\ The ISC 
has identified September 5, 2017, as the target date for the transition 
to a T+2 settlement cycle to occur.\17\
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    \13\ See supra note 3.
    \14\ Credit risk refers to the risk that the credit quality of 
one party to a transaction will deteriorate to the extent that it is 
unable to fulfill its obligations to its counterparty on settlement 
date. Market risk refers to the risk that the value of securities 
bought and sold will change between trade execution and settlement 
such that the completion of the trade would result in a financial 
loss. Liquidity risk describes the risk that an entity will be 
unable to meet financial obligations on time due to an inability to 
deliver funds or securities in the form required though it may 
possess sufficient financial resources in other forms. See T+2 
Proposing Release, supra note 3, 81 FR at 69241 n. 3.
    \15\ See T+2 Proposing Release, supra note 3, 81 FR at 69241.
    \16\ See Press Release, DTCC, Industry Steering Committee and 
Working Group Formed to Drive Implementation of T+2 in the U.S. 
(Oct. 2014), http://www.dtcc.com/news/2014/october/16/ust2.aspx.
    \17\ See Press Release, ISC, U.S. T+2 ISC Recommends Move to 
Shorter Settlement Cycle On September 5, 2017 (Mar. 7, 2016), http://www.ust2.com/pdfs/T2-ISC-recommends-shorter-settlement-030716.pdf.
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    For the reasons noted above, the Commission finds that the proposal 
is consistent with the requirements of the Act and would 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 to protect investors and the public interest.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\18\ that the proposed rule change (SR-NYSEMKT-2016-119), be and 
hereby is, approved.
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    \18\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\19\
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    \19\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03109 Filed 2-15-17; 8:45 am]
BILLING CODE 8011-01-P