Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change Consisting of Proposed Amendments to Rules G-12 and G-15 To Define Regular-Way Settlement for Municipal Securities Transactions as Occurring on a Two-Day Settlement Cycle and Technical Conforming Amendments, 14906-14910 [2016-06091]

Download as PDF 14906 Federal Register / Vol. 81, No. 53 / Friday, March 18, 2016 / Notices report that is prepared by PCAOB staff and submitted to the Board. The Commission also directs the Board during 2016 to continue to include in its quarterly reports to the Commission information about the PCAOB’s inspections program. Such information is to include: (a) Statistics relative to the numbers and types of firms budgeted and expected to be inspected in 2016, including by location and by year the inspections are required to be conducted in accordance with the Sarbanes-Oxley Act and PCAOB rules; (b) information about the timing of the issuance of inspections reports for domestic and non-U.S. inspections; and (c) updates on the PCAOB’s efforts to establish cooperative arrangements with respective non-U.S. authorities for inspections required in those countries. The Commission understands that the Office of Management and Budget (‘‘OMB’’) has determined the 2016 budget of the PCAOB to be sequestrable under the Budget Control Act of 2011.5 Consequently, we expect the PCAOB will have approximately $1 million in excess funds available from the 2015 sequestration for spending in 2016. Accordingly, the PCAOB has reduced its accounting support fee for 2016 by approximately $1 million. The Commission has determined that the PCAOB’s 2016 budget and annual accounting support fee are consistent with Section 109 of the Sarbanes-Oxley Act. Accordingly, It is ordered, pursuant to Section 109 of the Sarbanes-Oxley Act, that the PCAOB budget and annual accounting support fee for calendar year 2016 are approved. By the Commission. Robert W. Errett, Deputy Secretary. [FR Doc. 2016–06095 Filed 3–17–16; 8:45 am] asabaliauskas on DSK3SPTVN1PROD with NOTICES BILLING CODE 8011–01–P 5 See ‘‘OMB Report to the Congress on the Joint Committee Reductions for Fiscal Year 2016’’, Appendix page 15 of 15 at: https:// www.whitehouse.gov/sites/default/files/omb/assets/ legislative_reports/sequestration/2016_jc_ sequestration_report_speaker.pdf. VerDate Sep<11>2014 19:50 Mar 17, 2016 Jkt 238001 SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77364; File No. SR–MSRB– 2016–04] Self-Regulatory Organizations; Municipal Securities Rulemaking Board; Notice of Filing of a Proposed Rule Change Consisting of Proposed Amendments to Rules G–12 and G–15 To Define Regular-Way Settlement for Municipal Securities Transactions as Occurring on a Two-Day Settlement Cycle and Technical Conforming Amendments March 14, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Exchange Act’’ or ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on March 1, 2016, the Municipal Securities Rulemaking Board (the ‘‘MSRB’’ or ‘‘Board’’) filed with the Securities and Exchange Commission (the ‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I, II, and III below, which Items have been prepared by the MSRB. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The MSRB filed with the Commission a proposed rule change consisting of proposed amendments to Rule G–12, on uniform practice, and Rule G–15, on confirmation, clearance, settlement and other uniform practice requirements with respect to transactions with customers, to define regular-way settlement for municipal securities transactions as occurring on a two-day settlement cycle (‘‘T+2’’) and technical conforming amendments (‘‘proposed rule change’’). The compliance date of the proposed rule change will be announced by the MSRB in a notice published on the MSRB Web site, which date would correspond with the industry’s transition to a T+2 regularway settlement, which would include amendments by the SEC to Exchange Act Rule 15c6–1(a). The text of the proposed rule change is available on the MSRB’s Web site at www.msrb.org/Rules-andInterpretations/SEC-Filings/2016Filings.aspx, at the MSRB’s principal office, and at the Commission’s Public Reference Room. 1 15 2 17 PO 00000 U.S.C. 78s(b)(i). CFR 240.19b–4. Frm 00085 Fmt 4703 Sfmt 4703 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 MSRB 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 MSRB has prepared summaries, set forth in Sections A, B, and C below, of the most significant aspects of such statements. A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change 1. Purpose Background Following the financial crisis in 2008, regulators implemented additional rules and regulations designed to reduce risk in the markets, achieve greater transparency and improve efficiency in the financial industry. Consistent with those goals, the securities industry launched a voluntary initiative to shorten the settlement cycle for securities transactions to reduce counterparty risk, decrease clearing capital requirements, reduce liquidity demands, and harmonize the settlement cycle globally. The industry-led initiative to shift from the current regular-way settlement cycle defined as a three-day settlement cycle (‘‘T+3’’) to a T+2 settlement cycle is being led by the Shortened Settlement Cycle Industry Steering Committee (‘‘ISC’’) which is jointly chaired by the Investment Company Institute (‘‘ICI’’) and the Securities Industry and Financial Markets Association (‘‘SIFMA’’).3 The ISC announced its proposal in a white paper (the ‘‘white paper’’), which outlined the timeline and activities required to move to a T+2 settlement cycle in the U.S. for equities, corporate and municipal bonds, and unit investment trust trades.4 The ISC’s white paper identified all SEC and selfregulatory organization (‘‘SRO’’) rule changes that it believed would be necessary to support a T+2 settlement cycle. The ISC recommended a timeline calling for relevant regulatory 3 Shortening the Settlement Cycle: The Move to T+2, available at, https://www.ust2.com/pdfs/ ssc.pdf. Other participating industry associations include: The Association of Global Custodians, The Association of Institutional Investors, The Securities Transfer Association, Inc., and The Depository Trust & Clearing Corporation (‘‘DTCC’’). 4 Id. E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 81, No. 53 / Friday, March 18, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES organizations to confirm support for a reduced settlement cycle by the third quarter of 2015, propose rule changes by the fourth quarter of 2015 and adopt rule changes by the second quarter of 2016, followed by industry implementation of the T+2 settlement cycle occurring by the third quarter of 2017. In a press release announcing the Board’s actions at its July 2015 Board meeting, the MSRB publicly communicated its support of the industry’s initiative to shorten the settlement cycle to T+2.5 On November 10, 2015, the MSRB published a Request for Comment on Changes to MSRB Rules to Facilitate Shortening the Securities Settlement Cycle (‘‘Request for Comment’’).6 On June 18, 2015, concurrent with the white paper, SIFMA and ICI jointly submitted a letter to SEC Chair Mary Jo White to express support for the industry’s efforts ‘‘to shorten the settlement cycle for equities, corporate and municipal bonds, unit investment trusts and financial instruments comprised of these products traded on the secondary market.’’ 7 The ICI/SIFMA letter identified specific rules that the relevant securities regulators would need to consider amending in order to facilitate the move to T+2. In response to the ICI/SIFMA letter, Chair White stated that she ‘‘strongly support[s] [the] efforts to shorten the settlement cycle from the third business day after the trade date to no later than the second business day’’ and is ‘‘committed to considering regulatory changes necessary for this migration to proceed on a timetable that will permit the industry to complete its essential work by no later than the proposed goal of the third quarter of 2017.’’ Further, Chair White stated that she has ‘‘requested that the SROs finalize [schedules of rule changes necessary to support a T+2 settlement cycle] by October 31, 2015.’’ 8 In light of Chair White’s support of the industry initiative and the timeline set forth in the ISC’s white paper, the MSRB is filing this proposed rule change. 5 See Press Release, MSRB Holds Quarterly Meeting, (August, 3 2015), available at, https:// www.msrb.org/News-and-Events/Press-Releases/ 2015/MSRB-Holds-Quarterly-Meeting-July2015.aspx. 6 MSRB Notice 2015–22, Request for Comment on Changes to MSRB Rules To Facilitate Shortening the Securities Settlement Cycle (November 10, 2015). 7 See Letter from Paul Schott Stevens, President & CEO, ICI (‘‘Stevens’’), and Kenneth E. Bentsen, Jr., President and CEO, SIFMA (‘‘Bentsen’’), to Mary Jo White, Chair, SEC (June 18, 2015) (‘‘ICI/SIFMA letter’’). 8 See Letter from Mary Jo White, Chair, SEC, to Bentsen and Stevens (September 16, 2015). VerDate Sep<11>2014 19:50 Mar 17, 2016 Jkt 238001 Proposal Two MSRB rules were identified in the ICI/SIFMA letter as essential to facilitate the move to T+2, Rule G– 12(b)(ii)(B)–(D) and Rule G–15(b)(ii)(B)– (C), because these rules currently define regular-way settlement as occurring on T+3. The MSRB’s proposed rule change would amend Rules G–12(b)(ii)(B)–(D) and G–15(b)(ii)(B)–(C) to define regularway settlement as occurring on T+2. As generally noted in ISC’s white paper, the migration to T+2 settlement is expected to provide significant benefits to the financial industry broadly. The benefits to the industry include the mitigation of counterparty risk, a decrease in margin requirements for National Securities Clearing Corporation’s (‘‘NSCC’’) clearing members, a reduction in pro-cyclical margin and liquidity demands especially during periods of market volatility, and an increase in global settlement harmonization by aligning the U.S. markets with other major markets, such as the European Union.9 By shortening the time between trade and execution and settlement by one business day (from T+3 to T+2), the risk of counterparty default and the capital required to mitigate this risk would be reduced. Similarly, the ICI/SIFMA letter noted that ‘‘[a]mong other benefits, the shorter settlement cycle will result in process and procedural improvements that will help mitigate the operational risks that can be present between trade date and settlement date.’’ 10 The MSRB believes the likely costs of the proposed rule change, including the changes in processes and technology as well as behavioral modifications by the industry and investors, are justified by the likely benefits associated with transitioning to T+2. Both the ISC and the ICI/SIFMA letter identified Exchange Act Rule 15c6–1(a) as the primary SEC rule that would need to be amended to facilitate the transition to T+2. Exchange Act Rule 15c6–1 defines regular-way settlement as occurring on T+3 for equities and corporate bonds. Although Exchange Act Rule 15c6–1 does not apply to transactions in municipal securities, the MSRB has previously stated that the regular-way settlement cycle for municipal securities transactions in the secondary markets should be consistent with that for equity and corporate bond 9 See Equity Settlement Cycle for Top 10 Exchanges by Market Capitalization, Figure 2, page 9 (depicting global settlement harmonization for equities pre- and post-migration to T+2), available at, https://www.ust2.com/pdfs/ssc.pdf. 10 See supra n.7. PO 00000 Frm 00086 Fmt 4703 Sfmt 4703 14907 transactions.11 Among other reasons, this ensures that investors will not encounter differing settlement cycles when replacing equity or corporate bonds with municipal securities. This consistency is currently reflected in MSRB Rules G–12(b)(ii) and G– 15(b)(ii), which both define regular-way settlement as occurring on T+3. These rules were last modified in 1995 in coordination with the changes made to Exchange Act Rule 15c6–1 to facilitate shortening the settlement cycle from a five-day settlement cycle (‘‘T+5’’) to T+3. In order to maintain consistency across asset classes, the MSRB’s proposed rule change is necessary to support the current industry initiative to shift to a T+2 settlement cycle. The MSRB would coordinate implementation of a T+2 regular-way settlement cycle for municipal securities transactions with other securities regulators contingent on the SEC adopting amendments to Exchange Act Rule 15c6–1(a) establishing T+2 as the standard for regular-way settlement cycle for equities and corporate bonds. Proposed Amendments to MSRB Rules G–12(b)(ii)(B)–(D) and G–15(b)(ii)(B)–(C) MSRB Rule G–12, on uniform practice, establishes uniform industry practices for processing, clearance and settlement of transactions in municipal securities between a broker, dealer or municipal securities dealer and any other broker, dealer or municipal securities dealer. Rule G–12(b)(ii), on settlement dates, defines ‘‘regular way’’ settlement as occurring on a T+3 basis. The proposed rule change would amend Rule G–12(b)(ii)(B)–(D) to define ‘‘regular way’’ settlement as occurring on a T+2 basis. MSRB Rule G–15, on confirmations, clearance, settlement and other uniform practice requirements, requires municipal securities brokers and municipal securities dealers to provide customers with written confirmations of transactions, containing specified information; and prescribes certain uniform practice procedures for dealers that transact municipal securities business with customers. Rule G– 15(b)(ii), on settlement dates, defines ‘‘regular way’’ settlement as occurring on a T+3 basis. The proposed rule change would amend Rule G– 15(b)(ii)(B)–(C) to define ‘‘regular way’’ settlement as occurring on a T+2 basis. 11 See, e.g., ‘‘T+3 Settlement, Amendments Filed: Rules G–12 and G–15,’’ MSRB Reports, Vol. 14, No. 4 (August 1994) at 3; and ‘‘Report of the Municipal Securities Rulemaking Board on T+3 Settlement for the Municipal Securities Market’’ (March 17, 1994). E:\FR\FM\18MRN1.SGM 18MRN1 14908 Federal Register / Vol. 81, No. 53 / Friday, March 18, 2016 / Notices Technical Amendments The MSRB is also proposing technical changes to Rules G–12(b)(i)(B), G– 15(b)(i)(B) and G–15(g)(ii)(B). Rules G– 12(b)(i)(B) and G–15(b)(i)(B) would both be revised by replacing the reference to ‘‘National Association of Securities Dealers, Inc.’’ with the ‘‘Financial Industry Regulatory Authority.’’ Rule G– 15(g)(ii)(B) would likewise be revised to replace the reference to ‘‘NASD Conduct Rule 2260(g),’’ which is retired, and replace it with the current relevant rule cite ‘‘FINRA Rule 2251(g).’’ Compliance Date The compliance date of the proposed rule change will be announced by the MSRB in a notice published on the MSRB Web site, which date would correspond with the industry’s transition to a T+2 regular-way settlement, which would include amendments by the SEC to Exchange Act Rule 15c6–1(a). 2. Statutory Basis The MSRB believes that the proposed rule change is consistent with Section 15B(b)(2)(C) of the Exchange Act,12 which provides that the MSRB’s rules shall: asabaliauskas on DSK3SPTVN1PROD with NOTICES be designed 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 municipal securities and municipal financial products, to remove impediments to and perfect the mechanism of a free and open market in municipal securities and municipal financial products, and, in general, to protect investors, municipal entities, obligated persons, and the public interest. The MSRB believes that cooperating and coordinating with the various regulators, identified by the ISC, and the industry, shortening the time between trade execution and settlement by one business day will serve to reduce the risk of counterparty default, subsequent mandatory closeouts and, as a result, capital required to mitigate these risks would be reduced. Additionally, the MSRB believes the move to a shortened settlement cycle, as facilitated by the proposed rule change, will improve the overall efficiency of the securities markets, promote financial stability and better align U.S. securities markets with global markets. 12 15 U.S.C. 78o–4(b)(2)(C). VerDate Sep<11>2014 19:50 Mar 17, 2016 Jkt 238001 B. Self-Regulatory Organization’s Statement on Burden on Competition Section 15B(b)(2)(C) of the Exchange Act 13 requires that MSRB rules not be designed to impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. In determining whether these standards have been met, the MSRB was guided by the Board’s Policy on the Use of Economic Analysis in MSRB Rulemaking.14 In accordance with this policy, the Board has evaluated the potential impacts on competition of the proposed rule change, including in comparison to reasonable alternative regulatory approaches, relative to the baseline. The MSRB also considered other economic impacts of the proposed rule change and has addressed any comments relevant to these impacts in other sections of this document. Based on the DTCC’s Cost Benefit Analysis of Shortening the Settlement Cycle,15 which is the only quantitative analysis of this subject of which the MSRB is aware, the MSRB believes that the cost of the systems changes that may be required to shift from a T+3 to T+2 settlement cycle may be significant. Firms with relatively smaller revenue bases and/or firms that only participate in the municipal securities market may be disproportionately impacted by changes that require significant investments. Nonetheless, the MSRB believes that the changes are necessary or appropriate in furtherance of the purposes of the Exchange Act and yield important benefits for a range of market participants including, but not limited to, operational cost savings, reduced counterparty risk, decreasing clearing capital requirements, reduce procyclical margin and liquidity demands and increased global securities settlement harmonization. Therefore, the MSRB does not believe that the proposed rule change will impose any additional burdens on competition, relative to the baseline, that are not necessary or appropriate in furtherance of the purposes of the Exchange Act. 13 Id. 14 Policy on the Use of Economic Analysis in MSRB Rulemaking, available at, https://msrb.org/ Rules-and-Interpretations/Economic-AnalysisPolicy.aspx. 15 Cost Benefit Analysis of Shortening the Settlement Cycle (October 2012), available at, https://www.dtcc.com/∼/media/Files/Downloads/ WhitePapers/CBA_BCG_Shortening_the_ Settlement_Cycle_October2012.pdf. PO 00000 Frm 00087 Fmt 4703 Sfmt 4703 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The MSRB received nine comment letters 16 in response to the Request for Comment on the draft amendments to Rules G–12 and G–15.17 Seven of the nine commenters provided comments in support of the transition to T+2, agreeing that the move to a shortened settlement cycle would improve the overall efficiency of the securities markets, promote financial stability and better align U.S. securities markets with global markets.18 Four of the nine commenters expressed concerns about the impact the shortened settlement cycle would have on investors— particularly senior investors—who, the commenters note, often pay for municipal securities purchases by writing a check and sending it through the mail. Several commenters requested the Board consider the impact the proposal may have on the customer disclosure obligations of brokers, dealers and municipal securities dealers (‘‘dealers’’) pursuant to MSRB Rule G– 32. Finally, BDA, FSI, ICI and SIFMA encouraged the MSRB to work with other regulators on the T+2 initiative and to file any necessary rule changes by the second quarter of 2016 in order to finalize the necessary amendments and implement the change to T+2 in accordance with ISC’s timeline, which called for completing the transition to T+2 by the third quarter of 2017. The Impact of T+2 on Certain Retail Investors BDA, Bernardi, Brandis and Coastal each commented that retail municipal securities investors that do not utilize 16 Comment letters were received in response to the Request for Comment from: Bernardi Securities, Inc., Letter from Eric Bederman, SVP, Chief Operating & Compliance Officer, dated November 17, 2015 (‘‘Bernardi’’); Bond Dealers of America, Letter from Michael Nicholas, Chief Executive Officer, dated December 10, 2015 (‘‘BDA’’); Brandis Tallman LLC, Letter from Richard Brandis, (‘‘Brandis’’); Castle Advisory Company, Email from Garth Schulz, dated November 10, 2015 (‘‘Castle’’); Coastal Securities, Email from Chris Melton, Executive Vice President, dated December 10, 2015 (‘‘Coastal’’); Financial Services Institute, Letter from David T. Bellaire, Executive Vice President & General Counsel, dated December 10, 2015 (‘‘FSI’’); Geraldine Lettieri, Email dated November 10, 2015 (‘‘Lettieri’’); Investment Company Institute, Letter from Martin A. Burns, Chief Industry Operations Officer, dated December 1, 2015 (‘‘ICI’’); and Securities Industry and Financial Markets Association, Letter from Leslie M. Norwood, Managing Director and Associate General Counsel, dated December 10, 2015 (‘‘SIFMA’’). 17 See supra n.6. 18 The following commenters were supportive of the amendments contained in the Request for Comment: Bernardi, BDA, Castle, FSI, ICI, Lettierie and SIFMA. E:\FR\FM\18MRN1.SGM 18MRN1 Federal Register / Vol. 81, No. 53 / Friday, March 18, 2016 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES payment mechanisms to ensure funds are good/cleared and available for settlement would be negatively impacted by the proposed rule change. Bernardi stated that the move to T+2 would specifically impact ‘‘1. Customer purchases with longer settlements (i.e., 5–10 days) designed to coincide with another bond’s redemption. 2. Customers who do not hold cash balances and send payment via the US Postal System. 3. Customer trades which are booked to settle on the same date as the corresponding firm street trade, if not done ‘regular way.’ ’’ Brandis stated that many of the investors associated with his firm who invest in municipal securities are over the age of 50, are less tech savvy, and predominantly pay for bond purchases by writing a check and sending payment through the mail. Coastal stated, ‘‘This proposal . . . will all but require retail clients that cannot settle DVP to transact business only with the firm that holds their assets, effectively eliminating any competition for the municipal business of many clients . . . [s]hortening of the settlement cycle should be delayed until retail commercial banking can provide investors with a cost effective manner of immediate fund transfer.’’ Similarly, BDA stated that ‘‘many retail clients still rely on sending checks, which may not clear within a two-day window.’’ The MSRB recognizes that it may be difficult for certain investors to make the behavioral changes necessary for a successful transition to a T+2 settlement cycle. The MSRB believes that the vast majority of firms have access to technology that would enable their clients to deliver funds in order to settle their municipal securities trades on a T+2 basis and firms should encourage their customers to leverage electronic funds payment to streamline payment processing. Dealers with customers that fund their trade settlement using checks or ACH payments may wish to consider updating their internal control processes and educating customers to ensure that funds are available to settle a transaction on T+2, as proposed. T+2 and the Implications for Rule G–32 Two commenters, BDA and SIFMA, commented that a shortened settlement cycle bears on other MSRB rules, including Rule G–32, which governs the delivery of official documents to customers in connection with primary offerings. SIFMA stated that ‘‘[c]oncerning the baseline legal requirement of Rule G–32, for dealers delivering paper official statements to customers, the move to T+2 will compress the timeframe dealers have to complete the delivery of offering VerDate Sep<11>2014 19:50 Mar 17, 2016 Jkt 238001 documents in fulfillment of this disclosure obligation.’’ 19 SIFMA suggested the Board consider clarifying previous guidance with respect to the electronic delivery of official statements, but recognized that revisiting the prior guidance was not critical to transitioning to T+2 and should not impede the proposed rule change.20 BDA also recognized that the proposed rule would automatically shorten the timeframe associated with the requirement to deliver offering documents by no later than the settlement of the transaction. BDA urged the Board to address the amendments to Rules G–12 and G–15, but leave all other requirements under MSRB rules tied to the settlement date, such as Rule G–32, unchanged. Timing and Implementation of the Proposed Rule Change BDA, FSI, ICI and SIFMA encouraged the Board to move forward with the T+2 initiative within ISC’s proposed timeline, which outlines the activities that would be required to complete the transition to T+2 by the third quarter of 2017. The MSRB stated in the Request for Comment that the draft amendments to facilitate the transition to T+2 settlement cycle will be dependent on the SEC amendments to Exchange Act Rule 15c6–1(a), which would establish T+2 as the standard regular-way settlement cycle for equities and corporate bonds. Although, Exchange Act Rule 15c6–1 does not apply to municipal securities, the MSRB has previously stated that the regular-way settlement cycle of municipal securities transactions should be consistent with that for transactions in the equity and corporate bond markets.21 ICI and SIFMA both commented that the Board should not consider amendments to Exchange Act Rule 15c6–1(a) to be a ‘‘precondition’’ of filing the MSRB’s proposed changes to Rules G–12 and G– 15 with the SEC. SIFMA noted that the MSRB rule change will afford sufficient time, prior to the move to T+2, to implement any system and process changes and fully test those internally and with other industry participants. The MSRB agrees that the adoption of amendments to Exchange Act Rule 19 SIFMA comment letter. requested that the Board consider clarifying definitively that ‘‘access equals delivery’’ under Rule G–32(a)(ii) and (iii) applies to all dealers and in order to harmonize Rule G–32 with SEC Rules 172, 173 and 174 of the Securities Act of 1933, revisiting the guidance that a customer’s standing request for copies of official statements applies to all municipal transactions with that dealer. The MSRB may consider SIFMA’s suggested clarifications in the future. 21 See supra n.11. 20 SIFMA PO 00000 Frm 00088 Fmt 4703 Sfmt 4703 14909 15c6–1(a) should not be a precondition to the Board filing proposed amendments to applicable MSRB rules. However, the MSRB will announce the compliance date of amended Rules G– 12 and G–15 to correspond with applicable amendments to rules of other self-regulatory organizations as well as the SEC’s implementation of changes to Exchange Act Rule 15c6–1(a). The MSRB intends to ensure that the settlement cycle for municipal securities remains consistent with the settlement cycle for equities and corporate bonds. The MSRB believes that shortening the time between trade execution and settlement by one business day will serve to reduce the risk of counterparty default, subsequent mandatory closeouts and, as a result, capital required to mitigate these risks would be reduced. Additionally, the MSRB believes the move to a shortened settlement cycle will improve the overall efficiency of the securities markets, promote financial stability and better align U.S. securities markets with global markets. The majority of the commenters were supportive of the draft amendments in the Request for Comment, generally in agreement that the move to T+2 would mitigate counterparty risk, provide for more liquidity in the market and increase global harmonization. Commenters recognized that shortening the time between trade execution and settlement by one business day will reduce the risk of counterparty default, subsequent mandatory closeouts and capital required to mitigate these risks would be reduced. Several commenters stated that the move to T+2 would require process, technological and behavioral (business and client) modifications as well as coordination among regulators in order to transition to the T+2 settlement cycle. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication of this notice in the Federal Register or within such longer period of up to 90 days (i) as the Commission may designate if it finds such longer period to be appropriate and publishes its reasons for so finding or (ii) as to which the self-regulatory organization consents, the Commission will: (A) By order approve or disapprove such proposed rule change, or (B) institute proceedings to determine whether the proposed rule change should be disapproved. E:\FR\FM\18MRN1.SGM 18MRN1 14910 Federal Register / Vol. 81, No. 53 / Friday, March 18, 2016 / Notices 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 (https://www.sec.gov/ rules/sro.shtml); or • Send an email to rule-comments@ sec.gov. Please include File Number SR– MSRB–2016–04 on the subject line. Paper Comments A. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change [FR Doc. 2016–06091 Filed 3–17–16; 8:45 am] 1. Purpose The Exchange proposes to amend the Fees Schedule.3 On March 2, 2015 and March 9, 2015, the Exchange commenced Extended Trading Hours 4 (‘‘ETH’’) for VIX and SPX/SPXW options, respectively. The Exchange also established fees for the ETH session as well as adopted a rebate for Lead Market-Markers (‘‘LMMs’’).5 By way of background, ETH LMMs, like any ETH Market-Maker, must maintain continuous two-sided quotes in 60% of the series with less than nine months to expiration in their appointed products for at least 90% of the time they are quoting during ETH (to be determined on a monthly basis) and satisfy all other Market-Maker obligations set forth in Rule 8.7 during ETH (see CBOE Rule 8.7). Additionally, for SPX and VIX, if an LMM (1) provides continuous electronic quotes in at least the lesser of 99% of the nonadjusted series or 100% of the nonadjusted series minus one call-put pair in an ETH allocated class (excluding intra-day add-on series on the day during which such series are added for trading) during ETH in a given month and (2) ensures an opening of the same percentage of series by 2:05 a.m. for at least 90% of the trading days during ETH in a given month, the LMM will receive a rebate for that month and will receive a pro-rata share of a compensation pool equal to $25,000 times the number of LMMs in that class. For example, if three LMMs are appointed in SPX, a compensation pool will be established each month totaling $75,000. If each LMM meets the heightened continuous quoting standard in SPX during a month, each will BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–77365; File No. SR–CBOE– 2016–018] Self-Regulatory Organizations; Chicago Board Options Exchange, Incorporated; Notice of Filing and Immediate Effectiveness of a Proposed Rule To Amend the Fees Schedule March 14, 2016. • Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. asabaliauskas on DSK3SPTVN1PROD with NOTICES For the Commission, pursuant to delegated authority.22 Robert W. Errett, Deputy Secretary. All submissions should refer to File Number SR–MSRB–2016–04. 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 (https://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 MSRB. 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–MSRB– 2016–04 and should be submitted on or before April 8, 2016. 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 March 11, 2016, Chicago Board Options Exchange, Incorporated (‘‘Exchange’’ or ‘‘CBOE’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I, II, and III 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. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend the Fees Schedule. The text of the proposed rule change is available on the Exchange’s Web site (https:// www.cboe.com/AboutCBOE/ CBOELegalRegulatoryHome.aspx), at the Exchange’s Office of the Secretary, 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 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. 22 17 CFR 200.30–3(a)(12). U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. 1 15 VerDate Sep<11>2014 19:50 Mar 17, 2016 Jkt 238001 PO 00000 Frm 00089 Fmt 4703 Sfmt 4703 3 The Exchange initially filed the proposed fee changes on February 29, 2016 (SR–CBOE–2016– 015). On March 11, 2016, the Exchange withdrew that filing and submitted this filing. 4 The Extended Trading Hours session is from 2:00 a.m. to 8:15 a.m. Chicago time, Monday through Friday. 5 Pursuant to subparagraph (e)(iii)(A) of Rule 6.1A (Extended Trading Hours), the Exchange may approve one or more Market-Makers to act as LMMs in each class during Extended Trading Hours in accordance with Rule 8.15A for terms of at least one month. On September 22, 2014, the Exchange issued Regulatory Circular RG14–134, which announced that the Exchange had appointed 3 LMMs in SPX options and 3 LMMs in VIX options during ETH. The LMM appointments are effective for a one-year period and began on the launch date for ETH trading of the applicable class. On February 24, 2016, the Exchange issued Regulatory Circular RG16–038, which announced that the Exchange made new LMM appointments for a one-year period beginning after the current one-year period ends. E:\FR\FM\18MRN1.SGM 18MRN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 81, Number 53 (Friday, March 18, 2016)]
[Notices]
[Pages 14906-14910]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-06091]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77364; File No. SR-MSRB-2016-04]


Self-Regulatory Organizations; Municipal Securities Rulemaking 
Board; Notice of Filing of a Proposed Rule Change Consisting of 
Proposed Amendments to Rules G-12 and G-15 To Define Regular-Way 
Settlement for Municipal Securities Transactions as Occurring on a Two-
Day Settlement Cycle and Technical Conforming Amendments

March 14, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Exchange Act'' or ``Act'') \1\ and Rule 19b-4 thereunder,\2\ 
notice is hereby given that on March 1, 2016, the Municipal Securities 
Rulemaking Board (the ``MSRB'' or ``Board'') filed with the Securities 
and Exchange Commission (the ``SEC'' or ``Commission'') the proposed 
rule change as described in Items I, II, and III below, which Items 
have been prepared by the MSRB. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(i).
    \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 MSRB filed with the Commission a proposed rule change 
consisting of proposed amendments to Rule G-12, on uniform practice, 
and Rule G-15, on confirmation, clearance, settlement and other uniform 
practice requirements with respect to transactions with customers, to 
define regular-way settlement for municipal securities transactions as 
occurring on a two-day settlement cycle (``T+2'') and technical 
conforming amendments (``proposed rule change''). The compliance date 
of the proposed rule change will be announced by the MSRB in a notice 
published on the MSRB Web site, which date would correspond with the 
industry's transition to a T+2 regular-way settlement, which would 
include amendments by the SEC to Exchange Act Rule 15c6-1(a).
    The text of the proposed rule change is available on the MSRB's Web 
site at www.msrb.org/Rules-and-Interpretations/SEC-Filings/2016-Filings.aspx, at the MSRB's principal office, 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 MSRB 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 MSRB has prepared summaries, set forth in Sections 
A, B, and C below, of the most significant aspects of such statements.

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

1. Purpose
Background
    Following the financial crisis in 2008, regulators implemented 
additional rules and regulations designed to reduce risk in the 
markets, achieve greater transparency and improve efficiency in the 
financial industry. Consistent with those goals, the securities 
industry launched a voluntary initiative to shorten the settlement 
cycle for securities transactions to reduce counterparty risk, decrease 
clearing capital requirements, reduce liquidity demands, and harmonize 
the settlement cycle globally. The industry-led initiative to shift 
from the current regular-way settlement cycle defined as a three-day 
settlement cycle (``T+3'') to a T+2 settlement cycle is being led by 
the Shortened Settlement Cycle Industry Steering Committee (``ISC'') 
which is jointly chaired by the Investment Company Institute (``ICI'') 
and the Securities Industry and Financial Markets Association 
(``SIFMA'').\3\ The ISC announced its proposal in a white paper (the 
``white paper''), which outlined the timeline and activities required 
to move to a T+2 settlement cycle in the U.S. for equities, corporate 
and municipal bonds, and unit investment trust trades.\4\ The ISC's 
white paper identified all SEC and self-regulatory organization 
(``SRO'') rule changes that it believed would be necessary to support a 
T+2 settlement cycle.
---------------------------------------------------------------------------

    \3\ Shortening the Settlement Cycle: The Move to T+2, available 
at, https://www.ust2.com/pdfs/ssc.pdf. Other participating industry 
associations include: The Association of Global Custodians, The 
Association of Institutional Investors, The Securities Transfer 
Association, Inc., and The Depository Trust & Clearing Corporation 
(``DTCC'').
    \4\ Id.
---------------------------------------------------------------------------

    The ISC recommended a timeline calling for relevant regulatory

[[Page 14907]]

organizations to confirm support for a reduced settlement cycle by the 
third quarter of 2015, propose rule changes by the fourth quarter of 
2015 and adopt rule changes by the second quarter of 2016, followed by 
industry implementation of the T+2 settlement cycle occurring by the 
third quarter of 2017. In a press release announcing the Board's 
actions at its July 2015 Board meeting, the MSRB publicly communicated 
its support of the industry's initiative to shorten the settlement 
cycle to T+2.\5\ On November 10, 2015, the MSRB published a Request for 
Comment on Changes to MSRB Rules to Facilitate Shortening the 
Securities Settlement Cycle (``Request for Comment'').\6\
---------------------------------------------------------------------------

    \5\ See Press Release, MSRB Holds Quarterly Meeting, (August, 3 
2015), available at, https://www.msrb.org/News-and-Events/Press-Releases/2015/MSRB-Holds-Quarterly-Meeting-July-2015.aspx.
    \6\ MSRB Notice 2015-22, Request for Comment on Changes to MSRB 
Rules To Facilitate Shortening the Securities Settlement Cycle 
(November 10, 2015).
---------------------------------------------------------------------------

    On June 18, 2015, concurrent with the white paper, SIFMA and ICI 
jointly submitted a letter to SEC Chair Mary Jo White to express 
support for the industry's efforts ``to shorten the settlement cycle 
for equities, corporate and municipal bonds, unit investment trusts and 
financial instruments comprised of these products traded on the 
secondary market.'' \7\ The ICI/SIFMA letter identified specific rules 
that the relevant securities regulators would need to consider amending 
in order to facilitate the move to T+2. In response to the ICI/SIFMA 
letter, Chair White stated that she ``strongly support[s] [the] efforts 
to shorten the settlement cycle from the third business day after the 
trade date to no later than the second business day'' and is 
``committed to considering regulatory changes necessary for this 
migration to proceed on a timetable that will permit the industry to 
complete its essential work by no later than the proposed goal of the 
third quarter of 2017.'' Further, Chair White stated that she has 
``requested that the SROs finalize [schedules of rule changes necessary 
to support a T+2 settlement cycle] by October 31, 2015.'' \8\ In light 
of Chair White's support of the industry initiative and the timeline 
set forth in the ISC's white paper, the MSRB is filing this proposed 
rule change.
---------------------------------------------------------------------------

    \7\ See Letter from Paul Schott Stevens, President & CEO, ICI 
(``Stevens''), and Kenneth E. Bentsen, Jr., President and CEO, SIFMA 
(``Bentsen''), to Mary Jo White, Chair, SEC (June 18, 2015) (``ICI/
SIFMA letter'').
    \8\ See Letter from Mary Jo White, Chair, SEC, to Bentsen and 
Stevens (September 16, 2015).
---------------------------------------------------------------------------

Proposal
    Two MSRB rules were identified in the ICI/SIFMA letter as essential 
to facilitate the move to T+2, Rule G-12(b)(ii)(B)-(D) and Rule G-
15(b)(ii)(B)-(C), because these rules currently define regular-way 
settlement as occurring on T+3. The MSRB's proposed rule change would 
amend Rules G-12(b)(ii)(B)-(D) and G-15(b)(ii)(B)-(C) to define 
regular-way settlement as occurring on T+2.
    As generally noted in ISC's white paper, the migration to T+2 
settlement is expected to provide significant benefits to the financial 
industry broadly. The benefits to the industry include the mitigation 
of counterparty risk, a decrease in margin requirements for National 
Securities Clearing Corporation's (``NSCC'') clearing members, a 
reduction in pro-cyclical margin and liquidity demands especially 
during periods of market volatility, and an increase in global 
settlement harmonization by aligning the U.S. markets with other major 
markets, such as the European Union.\9\ By shortening the time between 
trade and execution and settlement by one business day (from T+3 to 
T+2), the risk of counterparty default and the capital required to 
mitigate this risk would be reduced. Similarly, the ICI/SIFMA letter 
noted that ``[a]mong other benefits, the shorter settlement cycle will 
result in process and procedural improvements that will help mitigate 
the operational risks that can be present between trade date and 
settlement date.'' \10\ The MSRB believes the likely costs of the 
proposed rule change, including the changes in processes and technology 
as well as behavioral modifications by the industry and investors, are 
justified by the likely benefits associated with transitioning to T+2.
---------------------------------------------------------------------------

    \9\ See Equity Settlement Cycle for Top 10 Exchanges by Market 
Capitalization, Figure 2, page 9 (depicting global settlement 
harmonization for equities pre- and post-migration to T+2), 
available at, https://www.ust2.com/pdfs/ssc.pdf.
    \10\ See supra n.7.
---------------------------------------------------------------------------

    Both the ISC and the ICI/SIFMA letter identified Exchange Act Rule 
15c6-1(a) as the primary SEC rule that would need to be amended to 
facilitate the transition to T+2. Exchange Act Rule 15c6-1 defines 
regular-way settlement as occurring on T+3 for equities and corporate 
bonds. Although Exchange Act Rule 15c6-1 does not apply to transactions 
in municipal securities, the MSRB has previously stated that the 
regular-way settlement cycle for municipal securities transactions in 
the secondary markets should be consistent with that for equity and 
corporate bond transactions.\11\ Among other reasons, this ensures that 
investors will not encounter differing settlement cycles when replacing 
equity or corporate bonds with municipal securities.
---------------------------------------------------------------------------

    \11\ See, e.g., ``T+3 Settlement, Amendments Filed: Rules G-12 
and G-15,'' MSRB Reports, Vol. 14, No. 4 (August 1994) at 3; and 
``Report of the Municipal Securities Rulemaking Board on T+3 
Settlement for the Municipal Securities Market'' (March 17, 1994).
---------------------------------------------------------------------------

    This consistency is currently reflected in MSRB Rules G-12(b)(ii) 
and G-15(b)(ii), which both define regular-way settlement as occurring 
on T+3. These rules were last modified in 1995 in coordination with the 
changes made to Exchange Act Rule 15c6-1 to facilitate shortening the 
settlement cycle from a five-day settlement cycle (``T+5'') to T+3. In 
order to maintain consistency across asset classes, the MSRB's proposed 
rule change is necessary to support the current industry initiative to 
shift to a T+2 settlement cycle. The MSRB would coordinate 
implementation of a T+2 regular-way settlement cycle for municipal 
securities transactions with other securities regulators contingent on 
the SEC adopting amendments to Exchange Act Rule 15c6-1(a) establishing 
T+2 as the standard for regular-way settlement cycle for equities and 
corporate bonds.
Proposed Amendments to MSRB Rules G-12(b)(ii)(B)-(D) and G-
15(b)(ii)(B)-(C)
    MSRB Rule G-12, on uniform practice, establishes uniform industry 
practices for processing, clearance and settlement of transactions in 
municipal securities between a broker, dealer or municipal securities 
dealer and any other broker, dealer or municipal securities dealer. 
Rule G-12(b)(ii), on settlement dates, defines ``regular way'' 
settlement as occurring on a T+3 basis. The proposed rule change would 
amend Rule G-12(b)(ii)(B)-(D) to define ``regular way'' settlement as 
occurring on a T+2 basis.
    MSRB Rule G-15, on confirmations, clearance, settlement and other 
uniform practice requirements, requires municipal securities brokers 
and municipal securities dealers to provide customers with written 
confirmations of transactions, containing specified information; and 
prescribes certain uniform practice procedures for dealers that 
transact municipal securities business with customers. Rule G-
15(b)(ii), on settlement dates, defines ``regular way'' settlement as 
occurring on a T+3 basis. The proposed rule change would amend Rule G-
15(b)(ii)(B)-(C) to define ``regular way'' settlement as occurring on a 
T+2 basis.

[[Page 14908]]

Technical Amendments
    The MSRB is also proposing technical changes to Rules G-
12(b)(i)(B), G-15(b)(i)(B) and G-15(g)(ii)(B). Rules G-12(b)(i)(B) and 
G-15(b)(i)(B) would both be revised by replacing the reference to 
``National Association of Securities Dealers, Inc.'' with the 
``Financial Industry Regulatory Authority.'' Rule G-15(g)(ii)(B) would 
likewise be revised to replace the reference to ``NASD Conduct Rule 
2260(g),'' which is retired, and replace it with the current relevant 
rule cite ``FINRA Rule 2251(g).''
Compliance Date
    The compliance date of the proposed rule change will be announced 
by the MSRB in a notice published on the MSRB Web site, which date 
would correspond with the industry's transition to a T+2 regular-way 
settlement, which would include amendments by the SEC to Exchange Act 
Rule 15c6-1(a).
2. Statutory Basis
    The MSRB believes that the proposed rule change is consistent with 
Section 15B(b)(2)(C) of the Exchange Act,\12\ which provides that the 
MSRB's rules shall:
---------------------------------------------------------------------------

    \12\ 15 U.S.C. 78o-4(b)(2)(C).

be designed 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 municipal securities and 
municipal financial products, to remove impediments to and perfect 
the mechanism of a free and open market in municipal securities and 
municipal financial products, and, in general, to protect investors, 
---------------------------------------------------------------------------
municipal entities, obligated persons, and the public interest.

    The MSRB believes that cooperating and coordinating with the 
various regulators, identified by the ISC, and the industry, shortening 
the time between trade execution and settlement by one business day 
will serve to reduce the risk of counterparty default, subsequent 
mandatory closeouts and, as a result, capital required to mitigate 
these risks would be reduced. Additionally, the MSRB believes the move 
to a shortened settlement cycle, as facilitated by the proposed rule 
change, will improve the overall efficiency of the securities markets, 
promote financial stability and better align U.S. securities markets 
with global markets.

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

    Section 15B(b)(2)(C) of the Exchange Act \13\ requires that MSRB 
rules not be designed to impose any burden on competition not necessary 
or appropriate in furtherance of the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \13\ Id.
---------------------------------------------------------------------------

    In determining whether these standards have been met, the MSRB was 
guided by the Board's Policy on the Use of Economic Analysis in MSRB 
Rulemaking.\14\ In accordance with this policy, the Board has evaluated 
the potential impacts on competition of the proposed rule change, 
including in comparison to reasonable alternative regulatory 
approaches, relative to the baseline. The MSRB also considered other 
economic impacts of the proposed rule change and has addressed any 
comments relevant to these impacts in other sections of this document.
---------------------------------------------------------------------------

    \14\ Policy on the Use of Economic Analysis in MSRB Rulemaking, 
available at, https://msrb.org/Rules-and-Interpretations/Economic-Analysis-Policy.aspx.
---------------------------------------------------------------------------

    Based on the DTCC's Cost Benefit Analysis of Shortening the 
Settlement Cycle,\15\ which is the only quantitative analysis of this 
subject of which the MSRB is aware, the MSRB believes that the cost of 
the systems changes that may be required to shift from a T+3 to T+2 
settlement cycle may be significant. Firms with relatively smaller 
revenue bases and/or firms that only participate in the municipal 
securities market may be disproportionately impacted by changes that 
require significant investments.
---------------------------------------------------------------------------

    \15\ Cost Benefit Analysis of Shortening the Settlement Cycle 
(October 2012), available at, https://www.dtcc.com/~/media/Files/
Downloads/WhitePapers/
CBA_BCG_Shortening_the_Settlement_Cycle_October2012.pdf.
---------------------------------------------------------------------------

    Nonetheless, the MSRB believes that the changes are necessary or 
appropriate in furtherance of the purposes of the Exchange Act and 
yield important benefits for a range of market participants including, 
but not limited to, operational cost savings, reduced counterparty 
risk, decreasing clearing capital requirements, reduce pro-cyclical 
margin and liquidity demands and increased global securities settlement 
harmonization.
    Therefore, the MSRB does not believe that the proposed rule change 
will impose any additional burdens on competition, relative to the 
baseline, that are not necessary or appropriate in furtherance of the 
purposes of the Exchange Act.

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

    The MSRB received nine comment letters \16\ in response to the 
Request for Comment on the draft amendments to Rules G-12 and G-15.\17\ 
Seven of the nine commenters provided comments in support of the 
transition to T+2, agreeing that the move to a shortened settlement 
cycle would improve the overall efficiency of the securities markets, 
promote financial stability and better align U.S. securities markets 
with global markets.\18\ Four of the nine commenters expressed concerns 
about the impact the shortened settlement cycle would have on 
investors--particularly senior investors--who, the commenters note, 
often pay for municipal securities purchases by writing a check and 
sending it through the mail. Several commenters requested the Board 
consider the impact the proposal may have on the customer disclosure 
obligations of brokers, dealers and municipal securities dealers 
(``dealers'') pursuant to MSRB Rule G-32. Finally, BDA, FSI, ICI and 
SIFMA encouraged the MSRB to work with other regulators on the T+2 
initiative and to file any necessary rule changes by the second quarter 
of 2016 in order to finalize the necessary amendments and implement the 
change to T+2 in accordance with ISC's timeline, which called for 
completing the transition to T+2 by the third quarter of 2017.
---------------------------------------------------------------------------

    \16\ Comment letters were received in response to the Request 
for Comment from: Bernardi Securities, Inc., Letter from Eric 
Bederman, SVP, Chief Operating & Compliance Officer, dated November 
17, 2015 (``Bernardi''); Bond Dealers of America, Letter from 
Michael Nicholas, Chief Executive Officer, dated December 10, 2015 
(``BDA''); Brandis Tallman LLC, Letter from Richard Brandis, 
(``Brandis''); Castle Advisory Company, Email from Garth Schulz, 
dated November 10, 2015 (``Castle''); Coastal Securities, Email from 
Chris Melton, Executive Vice President, dated December 10, 2015 
(``Coastal''); Financial Services Institute, Letter from David T. 
Bellaire, Executive Vice President & General Counsel, dated December 
10, 2015 (``FSI''); Geraldine Lettieri, Email dated November 10, 
2015 (``Lettieri''); Investment Company Institute, Letter from 
Martin A. Burns, Chief Industry Operations Officer, dated December 
1, 2015 (``ICI''); and Securities Industry and Financial Markets 
Association, Letter from Leslie M. Norwood, Managing Director and 
Associate General Counsel, dated December 10, 2015 (``SIFMA'').
    \17\ See supra n.6.
    \18\ The following commenters were supportive of the amendments 
contained in the Request for Comment: Bernardi, BDA, Castle, FSI, 
ICI, Lettierie and SIFMA.
---------------------------------------------------------------------------

The Impact of T+2 on Certain Retail Investors
    BDA, Bernardi, Brandis and Coastal each commented that retail 
municipal securities investors that do not utilize

[[Page 14909]]

payment mechanisms to ensure funds are good/cleared and available for 
settlement would be negatively impacted by the proposed rule change. 
Bernardi stated that the move to T+2 would specifically impact ``1. 
Customer purchases with longer settlements (i.e., 5-10 days) designed 
to coincide with another bond's redemption. 2. Customers who do not 
hold cash balances and send payment via the US Postal System. 3. 
Customer trades which are booked to settle on the same date as the 
corresponding firm street trade, if not done `regular way.' '' Brandis 
stated that many of the investors associated with his firm who invest 
in municipal securities are over the age of 50, are less tech savvy, 
and predominantly pay for bond purchases by writing a check and sending 
payment through the mail. Coastal stated, ``This proposal . . . will 
all but require retail clients that cannot settle DVP to transact 
business only with the firm that holds their assets, effectively 
eliminating any competition for the municipal business of many clients 
. . . [s]hortening of the settlement cycle should be delayed until 
retail commercial banking can provide investors with a cost effective 
manner of immediate fund transfer.'' Similarly, BDA stated that ``many 
retail clients still rely on sending checks, which may not clear within 
a two-day window.''
    The MSRB recognizes that it may be difficult for certain investors 
to make the behavioral changes necessary for a successful transition to 
a T+2 settlement cycle. The MSRB believes that the vast majority of 
firms have access to technology that would enable their clients to 
deliver funds in order to settle their municipal securities trades on a 
T+2 basis and firms should encourage their customers to leverage 
electronic funds payment to streamline payment processing. Dealers with 
customers that fund their trade settlement using checks or ACH payments 
may wish to consider updating their internal control processes and 
educating customers to ensure that funds are available to settle a 
transaction on T+2, as proposed.
T+2 and the Implications for Rule G-32
    Two commenters, BDA and SIFMA, commented that a shortened 
settlement cycle bears on other MSRB rules, including Rule G-32, which 
governs the delivery of official documents to customers in connection 
with primary offerings. SIFMA stated that ``[c]oncerning the baseline 
legal requirement of Rule G-32, for dealers delivering paper official 
statements to customers, the move to T+2 will compress the timeframe 
dealers have to complete the delivery of offering documents in 
fulfillment of this disclosure obligation.'' \19\ SIFMA suggested the 
Board consider clarifying previous guidance with respect to the 
electronic delivery of official statements, but recognized that 
revisiting the prior guidance was not critical to transitioning to T+2 
and should not impede the proposed rule change.\20\ BDA also recognized 
that the proposed rule would automatically shorten the timeframe 
associated with the requirement to deliver offering documents by no 
later than the settlement of the transaction. BDA urged the Board to 
address the amendments to Rules G-12 and G-15, but leave all other 
requirements under MSRB rules tied to the settlement date, such as Rule 
G-32, unchanged.
---------------------------------------------------------------------------

    \19\ SIFMA comment letter.
    \20\ SIFMA requested that the Board consider clarifying 
definitively that ``access equals delivery'' under Rule G-32(a)(ii) 
and (iii) applies to all dealers and in order to harmonize Rule G-32 
with SEC Rules 172, 173 and 174 of the Securities Act of 1933, 
revisiting the guidance that a customer's standing request for 
copies of official statements applies to all municipal transactions 
with that dealer. The MSRB may consider SIFMA's suggested 
clarifications in the future.
---------------------------------------------------------------------------

Timing and Implementation of the Proposed Rule Change
    BDA, FSI, ICI and SIFMA encouraged the Board to move forward with 
the T+2 initiative within ISC's proposed timeline, which outlines the 
activities that would be required to complete the transition to T+2 by 
the third quarter of 2017. The MSRB stated in the Request for Comment 
that the draft amendments to facilitate the transition to T+2 
settlement cycle will be dependent on the SEC amendments to Exchange 
Act Rule 15c6-1(a), which would establish T+2 as the standard regular-
way settlement cycle for equities and corporate bonds. Although, 
Exchange Act Rule 15c6-1 does not apply to municipal securities, the 
MSRB has previously stated that the regular-way settlement cycle of 
municipal securities transactions should be consistent with that for 
transactions in the equity and corporate bond markets.\21\ ICI and 
SIFMA both commented that the Board should not consider amendments to 
Exchange Act Rule 15c6-1(a) to be a ``precondition'' of filing the 
MSRB's proposed changes to Rules G-12 and G-15 with the SEC. SIFMA 
noted that the MSRB rule change will afford sufficient time, prior to 
the move to T+2, to implement any system and process changes and fully 
test those internally and with other industry participants. The MSRB 
agrees that the adoption of amendments to Exchange Act Rule 15c6-1(a) 
should not be a precondition to the Board filing proposed amendments to 
applicable MSRB rules. However, the MSRB will announce the compliance 
date of amended Rules G-12 and G-15 to correspond with applicable 
amendments to rules of other self-regulatory organizations as well as 
the SEC's implementation of changes to Exchange Act Rule 15c6-1(a). The 
MSRB intends to ensure that the settlement cycle for municipal 
securities remains consistent with the settlement cycle for equities 
and corporate bonds.
---------------------------------------------------------------------------

    \21\ See supra n.11.
---------------------------------------------------------------------------

    The MSRB believes that shortening the time between trade execution 
and settlement by one business day will serve to reduce the risk of 
counterparty default, subsequent mandatory closeouts and, as a result, 
capital required to mitigate these risks would be reduced. 
Additionally, the MSRB believes the move to a shortened settlement 
cycle will improve the overall efficiency of the securities markets, 
promote financial stability and better align U.S. securities markets 
with global markets.
    The majority of the commenters were supportive of the draft 
amendments in the Request for Comment, generally in agreement that the 
move to T+2 would mitigate counterparty risk, provide for more 
liquidity in the market and increase global harmonization. Commenters 
recognized that shortening the time between trade execution and 
settlement by one business day will reduce the risk of counterparty 
default, subsequent mandatory closeouts and capital required to 
mitigate these risks would be reduced. Several commenters stated that 
the move to T+2 would require process, technological and behavioral 
(business and client) modifications as well as coordination among 
regulators in order to transition to the T+2 settlement cycle.

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period of up to 90 days (i) as 
the Commission may designate if it finds such longer period to be 
appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization consents, the Commission will:
    (A) By order approve or disapprove such proposed rule change, or
    (B) institute proceedings to determine whether the proposed rule 
change should be disapproved.

[[Page 14910]]

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 (https://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-MSRB-2016-04 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-MSRB-2016-04. 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 (https://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 MSRB. 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-MSRB-2016-04 and should be 
submitted on or before April 8, 2016.

    For the Commission, pursuant to delegated authority.\22\
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    \22\ 17 CFR 200.30-3(a)(12).
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Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016-06091 Filed 3-17-16; 8:45 am]
 BILLING CODE 8011-01-P

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