Document ID: SEC-2017-1498-0001
Agency: sec
Document Type: Notice
Title: Self-Regulatory Organizations; Proposed Rule Changes: NASDAQ BX, Inc.
Posted Date: 2017-09-07T04:00Z

[Federal Register Volume 82, Number 172 (Thursday, September 7, 2017)]
[Notices]
[Pages 42407-42410]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18937]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81512; File No. SR-BX-2017-039]

Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change To Address the 
Application of Exchange Rule 11140 (Transactions in Securities ``Ex-
Dividend,'' ``Ex-Rights'' or ``Ex-Warrants'') as it Relates to 
Establishing Ex-Dividend Dates in connection With the Implementation of 
the T+2 Settlement Cycle on September 5, 2017

August 31, 2017.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on August 29, 2017, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed with 
the Securities and Exchange Commission (``SEC'' or ``Commission'') the 
proposed rule change as described in Items I and II below, which Items 
have been prepared by the Exchange. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to address the application of Exchange Rule 
11140 (Transactions in Securities ``Ex-Dividend,'' ``Ex-Rights'' or 
``Ex-Warrants'') as it relates to establishing ex-dividend dates in 
connection with the implementation of the T+2 settlement cycle on 
September 5, 2017. No change to the text of Rule 11140(b)(1) is 
required by this proposal.

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 Exchange 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 these 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 aspects of such 
statements.

[[Page 42408]]

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

1. Purpose
Background
    On March 22, 2017, the SEC adopted amendments to SEA Rule 15c6-1(a) 
to shorten the standard settlement cycle for U.S. secondary market 
transactions in equities, corporate and municipal bonds, unit 
investment trusts and financial instruments composed of these products, 
from three business days after the trade date (``T+3'') to two business 
days after the trade date (``T+2'').\3\ The industry-wide initiative is 
designed to reduce a number of risks, including credit risk, market 
risk, and liquidity risk and, as a result, reduce systemic risk for 
U.S. market participants.\4\ The compliance date for the rule 
amendments is September 5, 2017.
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    \3\ See Securities Exchange Act Release No. 80295 (March 22, 
2017), 82 FR 15564 (March 29, 2017) (Securities Transaction 
Settlement Cycle) (File No. S7-22-16) (stating that, as amended, SEA 
Rule 15c6-1(a) will prohibit broker-dealers from effecting or 
entering into a contract for the purchase or sale of a security 
(other than an exempted security, government security, municipal 
security, commercial paper, bankers' acceptances or commercial 
bills) that provides for payment of funds and delivery of securities 
later than the second business day after the date of the contract, 
unless otherwise expressly agreed to by the parties at the time of 
the transaction).
    \4\ See id.
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    In support of this initiative, the Exchange proposed changes to its 
rules pertaining to securities settlement by, among other things, 
amending the definition of ``regular way'' settlement as occurring on 
T+2.\5\ On May 10, 2017, the SEC approved the Exchange's amendments to 
the applicable rules, including Rule 11140(b), that establish or 
reference T+3 to conform to T+2, and these amendments will become 
effective on September 5, 2017.\6\
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    \5\ See Securities Exchange Act Release No. 34-80282 (March 21, 
2017), 82 FR 15258 (March 27, 2017) (Notice of Filing of File No. 
SR-BX-2017-13).
    \6\ See Securities Exchange Act Release No. 34-80640 (May 10, 
2017), 82 FR 22598 (May 16, 2017) (Order Approving File No. SR-BX-
2017-13).
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    During the transition period the industry and self-regulatory 
organizations (``SROs''), including The Depository Trust Company 
(``DTC'') which processes corporate action events, have raised concern 
that the September 5, 2017 industry-wide transition date from T+3 to 
T+2 will result in September 7, 2017 being a ``double'' settlement date 
for trades that occur on September 1, 2017 (under T+3 and reflecting 
the Labor Day holiday on September 4, 2017) and trades that occur on 
September 5, 2017 (under T+2), which generally will result in investors 
who trade on either date being deemed a record holder of September 7, 
2017.\7\ In order to avoid confusion about the proper settlement date 
and to coordinate with other SROs, the Exchange is proposing not to 
establish September 5, 2017 as an ex-dividend date for applicable 
securities.
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    \7\ See, e.g., Nasdaq Issuer Alert 2017-001, Changes to Ex-
dividend Procedures Effective September 5, 2017 to Accommodate T+2 
Settlement, http://nasdaq.cchwallstreet.com/nasdaq/pdf/nasdaq-issalerts/2017/2017-001.pdf; NYSE, NYSE MKT, NYSE ARCA: Changes 
Related to the Shortened Settlement Cycle (T+2) (July 11, 2017), 
https://www.nyse.com/trader-update/history#110000069618.
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Proposal
    The Exchange is proposing to address the application of Rule 
11140(b) as it relates to the ex-dividend date in connection with the 
implementation of the T+2 settlement cycle on September 5, 2017. As 
amended to address T+2, the timeframes in Rule 11140 to establish an 
ex-dividend date were generally reduced by one business day.
    The ex-dividend date (or ex-date) is the date on or after which a 
security is traded without a specific dividend or distribution. Rule 
11140(b) provides for the determination of normal ex-dividend and ex-
warrant dates for certain types of dividends and distributions. As 
amended to address T+2, Rule 11140(b)(1) provides that with respect to 
cash dividends or distributions, or stock dividends, and the issuance 
or distribution of warrants, which are less than 25% of the value of 
the subject security (i.e., ``regular'' distributions), if the 
definitive information is received sufficiently in advance of the 
record date, the date designated as the ``ex-dividend date'' is the 
first business day preceding the record date if the record date falls 
on a business day, or the second business day preceding the record date 
if the record date falls on a day designated by the Exchange's Uniform 
Practice Code (``UPC'') Committee as a non-delivery date.\8\ Rule 
11140(b)(2), which did not require amendment in connection with T+2, 
establishes the ex-dividend date as the first business day following 
the payable date with respect to cash dividends or distributions, stock 
dividends and/or splits, and the distribution of warrants, which are 
25% or greater of the value of the subject security (i.e., ``large'' 
distributions).\9\
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    \8\ The record date is the date fixed by an issuer for the 
purpose of determining the holder of the security who is eligible to 
receive the dividend, interest or principal payment, or any other 
distribution relating to the security.
    \9\ The payable date is the date that the dividend is sent to 
the record owner of the security.
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    Consistent with the compliance date of the amendments to SEA Rule 
15c6-1(a), the industry and the Exchange have adopted Tuesday, 
September 5, 2017 as the transition date to the T+2 settlement 
cycle.\10\ To mitigate the potential confusion that may result 
concerning proper settlement during the transition period, the 
Exchange, in coordination with other SROs, supports the proposal that 
Tuesday, September 5, 2017 should not be designated as an ex-dividend 
date.\11\
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    \10\ See Nasdaq Equity Trader Alert 2017-174 (July 28, 2017).
    \11\ See, e.g., Nasdaq Issuer Alert 2017-001, Changes to Ex-
dividend Procedures Effective September 5, 2017 to Accommodate T+2 
Settlement, http://nasdaq.cchwallstreet.com/nasdaq/pdf/nasdaq-issalerts/2017/2017-001.pdf; NYSE, NYSE MKT, NYSE ARCA: Changes 
Related to the Shortened Settlement Cycle (T+2) (July 11, 2017), 
https://www.nyse.com/trader-update/history#110000069618.
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    Accordingly, the Exchange proposes to interpret Rule 11140(b)(1) so 
that the first record date to which the new ex-dividend date 
determination will be applied will be Thursday, September 7, 2017. The 
ex-dividend dates for ``regular'' distributions during the transition 
to T+2 will be as follows:
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    \12\ The last day of the T+3 settlement cycle.
    \13\ The first day of the T+2 settlement cycle.
    \14\ Monday, September 4, 2017 is Labor Day, a Federal holiday.
    \15\ See id.
    \16\ The date on which previous trades settling on a T+3 
settlement cycle and current trades on the T+2 settlement cycle will 
be processed.

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                 Record date                                                Ex-date
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Friday, September 1, 2017 \12\..............  Wednesday, August 30, 2017.
Tuesday, September 5, 2017 \13\.............  Thursday, August 31, 2017.\14\
Wednesday, September 6, 2017................  Friday, September 1, 2017.\15\
Thursday, September 7, 2017 \16\............  Wednesday, September 6, 2017.
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[[Page 42409]]

    As described above, the ex-date for ``large'' distributions under 
Rule 11140(b)(2) is the first business day following the payable date. 
This provision was not amended in connection with T+2. In order to 
ensure that September 5, 2017 will not be designated as an ex-dividend 
date for ``large'' distributions, the Exchange will advise issuers to 
not set September 1, 2017 as the payable date for any ``large'' 
distribution under Rule 11140(b)(2) and proposes to interpret Rule 
11140(b)(2) so that, if an issuer sets September 1, 2017 as the payable 
date for a ``large'' distribution, the ex-dividend date will be 
September 6, 2017, not September 5, 2017.
2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\17\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\18\ in particular, in that it is designed to 
promote just and equitable principles of trade, 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. Specifically, the Exchange believes that the proposal to 
address the application of Rule 11140(b) to exclude September 5, 2017 
as an ex-dividend date for ``regular'' or ``large'' distributions 
supports the collective effort among the industry and SROs to mitigate 
the potential confusion concerning proper settlement during the 
transition from the T+3 settlement cycle to the T+2 settlement cycle.
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    \17\ 15 U.S.C. 78f(b).
    \18\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition not necessary or appropriate in 
furtherance of the purposes of the Act. As noted above, the SROs 
support that no securities will be subject to an ex-date ruling on 
September 5, 2017. The primary benefit of this proposal is to minimize 
potential confusion about proper settlement that may arise during the 
transition to the T+2 settlement cycle.\19\ The Exchange believes that 
the proposal would not impose any additional costs on the industry. As 
noted above, the proposal does not change the text to Rule 11140(b). 
Instead, the proposal interprets the application of the rule solely to 
refrain from designating September 5, 2017 as an ex-dividend date for 
``regular'' or ``large'' distributions.
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    \19\ As a result of the September 5, 2017 transition date for 
regular-way settlement from T+3 to T+2, September 7, 2017 will be a 
``double'' settlement date for trades that occur on September 1, 
2017 (under T+3 and reflecting the Labor Day holiday on September 4, 
2017) and trades that occur on September 5, 2017 (under T+2).
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C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

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

    Because the 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \20\ and Rule 19b-4(f)(6) 
thereunder.\21\
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    \20\ 15 U.S.C. 78s(b)(3)(A).
    \21\ 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.
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    A proposed rule change filed under Rule 19b-4(f)(6) \22\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\23\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative upon filing. The Exchange has stated that the 
purpose of the proposed rule change is to minimize confusion about 
proper settlement that may arise during the transition to the T+2 
settlement cycle on September 5, 2017. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest to avoid the confusion that could 
arise in connection with the transition to the T+2 settlement cycle on 
September 5, 2017, if normal or large distributions were to be ex-
dividend on that date. Accordingly, the Commission hereby waives the 
30-day operative delay requirement and designates the proposed rule 
change as operative upon filing.\24\
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    \22\ 17 CFR 240.19b-4(f)(6).
    \23\ 17 CFR 240.19b-4(f)(6)(iii).
    \24\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    At any time within 60 days of the filing of the 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 to 
determine whether the proposed rule should be approved or disapproved.

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-BX-2017-039 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BX-2017-039. 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

[[Page 42410]]

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-BX-2017-039, and should be 
submitted on or before September 28, 2017.
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    \25\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\25\
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-18937 Filed 9-6-17; 8:45 am]
 BILLING CODE 8011-01-P