Self-Regulatory Organizations; The NASDAQ Stock Market 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 From Three Business Days After the Trade Date to Two Business Days After the Trade Date, 10924-10926 [2017-03103]

Download as PDF 10924 Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices 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. IV. Solicitation of Comments 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– BatsBZX–2017–12 on the subject line. asabaliauskas on DSK3SPTVN1PROD with NOTICES Paper Comments • Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File Number SR–BatsBZX–2017–12. This file number should be included on the subject line if email is used. To help the Commission process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet Web site (http://www.sec.gov/ rules/sro.shtml). Copies of the submission, all subsequent amendments, all written statements with respect to the proposed rule change that are filed with the Commission, and all written communications relating to the proposed rule change between the Commission and any person, other than those that may be withheld from the public in accordance with the provisions of 5 U.S.C. 552, will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. Copies of the filing also will be available for inspection and copying at the principal office of the Exchange. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. All submissions should refer to File Number SR– 19:05 Feb 15, 2017 Jkt 241001 For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.22 Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017–03102 Filed 2–15–17; 8:45 am] BILLING CODE 8011–01–P 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: VerDate Sep<11>2014 BatsBZX–2017–12 and should be submitted on or before March 9, 2017. SECURITIES AND EXCHANGE COMMISSION [Release Nos. 33–10306; 34–80024; File No. 265–28] Investor Advisory Committee Meeting Securities and Exchange Commission. ACTION: Notice of Meeting of Securities and Exchange Commission Dodd-Frank Investor Advisory Committee. AGENCY: The Securities and Exchange Commission Investor Advisory Committee, established pursuant to Section 911 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, is providing notice that it will hold a public meeting. The public is invited to submit written statements to the Committee. DATES: The meeting will be held on Thursday, March 9, 2017 from 9:00 a.m. until 11:55 a.m. (ET). Written statements should be received on or before March 9, 2017. ADDRESSES: The meeting will be held in Multi-Purpose Room LL–006 at the Commission’s headquarters, 100 F Street NE., Washington, DC 20549. The meeting will be webcast on the Commission’s Web site at www.sec.gov. Written statements may be submitted by any of the following methods: SUMMARY: Electronic Statements D Use the Commission’s Internet submission form (http://www.sec.gov/ rules/other.shtml); or D Send an email message to rulescomments@sec.gov. Please include File No. 265–28 on the subject line; or Paper Statements D Send paper statements to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549–1090. All submissions should refer to File No. 265–28. This file number should be included on the subject line if email is used. To help us process and review your statement more efficiently, please use only one method. 22 17 PO 00000 CFR 200.30–3(a)(12). Frm 00054 Fmt 4703 Sfmt 4703 Statements also will be available for Web site viewing and printing in the Commission’s Public Reference Room, 100 F Street NE., Room 1503, Washington, DC 20549, on official business days between the hours of 10:00 a.m. and 3:00 p.m. All statements received will be posted without change; we do not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. FOR FURTHER INFORMATION CONTACT: Marc Oorloff Sharma, Chief Counsel, Office of the Investor Advocate, at (202) 551–3302, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549. SUPPLEMENTARY INFORMATION: The meeting will be open to the public, except during that portion of the meeting reserved for an administrative work session during lunch. Persons needing special accommodations to take part because of a disability should notify the contact person listed in the section above entitled FOR FURTHER INFORMATION CONTACT. The agenda for the meeting includes: Remarks from Commissioners; a discussion regarding SEC investor research initiatives, the FINRA 2016 Financial Capability Study, and academic research on financial literacy; a discussion regarding unequal voting rights of common stock; a report on the nonpublic administrative work session; and a nonpublic administrative work session during lunch. Dated: February 13, 2017. Brent J. Fields, Secretary. [FR Doc. 2017–03122 Filed 2–15–17; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–80013; File No. SR– NASDAQ–2016–183] Self-Regulatory Organizations; The NASDAQ Stock Market 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 From Three Business Days After the Trade Date to Two Business Days After the Trade Date February 10, 2017. I. Introduction On December 22, 2016, The NASDAQ Stock Market LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the Securities E:\FR\FM\16FEN1.SGM 16FEN1 Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices 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 30, 2016.4 The Commission received two comment letters on the proposed rule change.5 This order approves the proposed rule change. II. Description of the Proposal The Exchange proposes to amend Exchange Rules 11140 (Transactions in Securities ‘‘Ex-Dividend,’’ ‘‘Ex-Rights’’ or ‘‘Ex-Warrants’’), 11150 (Transactions ‘‘Ex-Interest’’ in Bonds Which Are Dealt in ‘‘Flat’’), 11210 (Sent by Each Party), 11320 (Dates of Delivery), 11620 (Computation of Interest), and IM– 11810 (Sample Buy-In Forms), to conform to the Commission’s proposed amendment to Rule 15c6–1(a) under the Act that would shorten the standard settlement cycle for most broker-dealer transactions from T+3 to T+2. Exchange Rule 11140(b)(1) concerns the determination of normal exdividend and ex-warrants dates for certain types of dividends and distributions. Currently, 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, if the definitive information is received sufficiently in advance of the record date, the date designated as the ‘‘ex-dividend date’’ is the second business day preceding the record date if the record date falls on a business day, or the third business day preceding the record date if the record date falls on a day designated by Nasdaq Regulation as a non-delivery day. Under 1 15 U.S.C. 78s(b)(1). CFR 240.19b–4. 3 See Securities Exchange Act Release No. 78962 (Sep. 28, 2016), 81 FR 69240 (Oct. 5, 2016) (Amendment to Securities Transaction Settlement Cycle) (File No. S7–22–16) (‘‘T+2 Proposing Release’’). 4 See Securities Exchange Act Release No. 79687 (Dec. 23, 2016), 81 FR 96545. 5 See Letters to Brent J. Fields, Secretary, Commission from Manisha Kimmel, Chief Regulatory Officer, Wealth Management, Thomson Reuters, dated Jan. 19, 2017 and Thomas F. Price, Managing Director, Operations, Technology & BCP, Securities Industry and Financial Markets Association (‘‘SIFMA’’), dated Jan. 19, 2017 (‘‘SIFMA Letter’’). asabaliauskas on DSK3SPTVN1PROD with NOTICES 2 17 VerDate Sep<11>2014 19:05 Feb 15, 2017 Jkt 241001 the proposal, the ‘‘ex-dividend date’’ would be 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 Nasdaq Regulation as a non-delivery date. Exchange Rule 11150(a) concerns the determination of normal ex-interest dates for certain types of transactions. Currently, all transactions, except ‘‘cash’’ transactions, in bonds or similar evidences of indebtedness which are traded ‘‘flat’’ are ‘‘ex-interest’’ on the second business day preceding the record date if the record date falls on a business day, on the third business day preceding the record date if the record date falls on a day other than a business day, and on the third business day preceding the date on which an interest payment is to be made if no record date has been fixed. Under the proposal, these transactions would be ‘‘exinterest’’ on the first business day preceding the record date if the record date falls on a business day, on the second business day preceding the record date if the record date falls on a day other than a business day, and on the second business day preceding the date on which an interest payment is to be made if no record date has been fixed. Exchange Rules 11210(c) and (d) set forth ‘‘DK’’ procedures using ‘‘Don’t Know Notices’’ and other forms of notices, respectively.6 Exchange Rule 11210(c) currently provides that, when a party to a transaction sends a comparison or confirmation of a trade, but does not receive a comparison or confirmation or a signed DK from the contra-member by the close of four business days following the trade date of the transaction, the party may use the procedures set forth in the rule. The Exchange proposes to shorten the ‘‘four business days’’ time period to one business day. Exchange Rule 11210(c)(2)(A) currently provides that a contra-member has four business days after the ‘‘Don’t Know Notice’’ is received to either confirm or DK the transaction in accordance with Exchange Rule 11210(c)(2)(B) or (C). The Exchange proposes to shorten the ‘‘four business days’’ time period to two business days.7 Exchange Rule 11210(c)(3) currently provides that if the 6 Exchange Rule 11210 does not apply to transactions that clear through the National Securities Clearing Corporation or other clearing organizations registered under the Act. See Exchange Rule 11210(a)(4). 7 The Exchange also proposes to make nonsubstantive, formatting changes to Exchange Rule 11210(c)(2)(A). PO 00000 Frm 00055 Fmt 4703 Sfmt 4703 10925 confirming member does not receive a response from the contra-member by the close of four business days after receipt by the confirming member the fourth copy of the ‘‘Don’t Know Notice’’ if delivered by messenger, or the post office receipt if delivered by mail, such shall constitute a DK and the confirming member shall have no further liability for the trade. The Exchange proposes to shorten the ‘‘four business days’’ time period to two business days. The Exchange proposes similar changes to Exchange Rule 11210(d). Exchange Rule 11210(d) currently provides that, when a party to a transaction sends a comparison or confirmation of a trade, but does not receive a comparison or confirmation or a signed DK from the contra-member by the close of four business days following the date of the transaction, the party may use the procedures set forth in the rule. The Exchange proposes to shorten the ‘‘four business days’’ time period to one business day. Exchange Rule 11210(d)(5) currently provides that if the confirming member does not receive a response in the form of a notice from the contra-member by the close of four business days after receipt of the confirming member’s notice, such shall constitute a DK and the confirming member shall have no further liability. The Exchange proposes to shorten the ‘‘four business days’’ time period to two business days. Exchange Rule 11320 prescribes delivery dates for various types of transactions. Exchange Rule 11320(b) currently provides that in connection with a transaction ‘‘regular way,’’ delivery is made at the office of the purchaser on, but not before, the third business day following the date of the transaction. Under the proposal, delivery would be required to be made on, but not before, the second business day following the date of the transaction. Exchange Rule 11320(c) currently provides in part that, in connection with a transaction ‘‘seller’s option,’’ delivery may be made by the seller on any business day after the third business day following the date of transaction and prior to the expiration of the option, provided the seller delivers at the office of the purchaser, on a business day preceding the day of delivery, written notice of intention to deliver. Under the proposal, delivery may be made by the seller on any business day after the second business day following the date of the transaction and prior to expiration of the option.8 8 The Exchange also proposes to make a nonsubstantive change to Exchange Rule 11320(c). E:\FR\FM\16FEN1.SGM 16FEN1 10926 Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices asabaliauskas on DSK3SPTVN1PROD with NOTICES Exchange Rule 11620 governs the computation of interest. Exchange Rule 11620(a) currently provides in part that, in the settlement of contracts in interestpaying securities other than for ‘‘cash,’’ there shall be added to the dollar price interest at the rate specified in the security, which shall be computed up to but not including the third business day following the date of the transaction. Under the proposal, the interest would be computed up to but not including the second business day following the date of the transaction.9 Exchange Rule IM–11810(i)(1)(A) sets forth the circumstances under which a receiving member may deliver a Liability Notice to the delivering member as an alternative to the closeout procedures set forth in Exchange Rule IM–11810(a)–(g). Currently, when the parties to a contract are not both participants in a registered clearing agency that has an automated service for notifying a failing party of the liability that will be attendant to a failure to deliver, the notice must be issued using written or comparable electronic media having immediate receipt capabilities ‘‘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 by the rule. Under the proposal, the notice must be ‘‘sent 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’’ in order to obtain the protection provided by the rule. The Exchange represents that it will announce the effective date of the proposed rule change in an Equity Regulatory Alert, which date would correspond with the industry-led transition to a T+2 standard settlement, and the effective date of the Commission’s proposed amendment to Rule 15c6–1(a) under the Act.10 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.11 Specifically, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act,12 which 9 The Exchange also proposes to capitalize certain words in the title of Exchange Rule 11620(a). 10 See supra note 3. 11 In approving this proposed rule change, the Commission has considered the proposed rule’s impact on efficiency, competition, and capital formation. See 15 U.S.C. 78c(f). 12 15 U.S.C. 78f(b)(5). VerDate Sep<11>2014 19:05 Feb 15, 2017 Jkt 241001 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. As noted above, the Commission received two comment letters on the proposed rule change.13 Both comment letters express support for Commission approval of the proposed rule change.14 The Commission notes that the proposal would amend Exchange rules to conform to the amendment that the Commission has proposed to Rule 15c6– 1(a) under the Act 15 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,16 and as a result a reduction in systemic risk for U.S. market participants.17 The Commission also notes that it has not yet adopted the proposed amendment to Rule 15c6–1(a), and that the Exchange has, accordingly, not proposed to make its amended rules effective at present. Instead, the Exchange has proposed to announce the effective date of the proposed rule change in an Equity Regulatory Alert. The Commission expects that the effective 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 (‘‘DTCC’’), in collaboration with the Investment Company Institute, SIFMA, and other market participants, formed an Industry 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.18 The ISC has identified September 5, 2017, as the target date for the transition to a T+2 settlement cycle to occur.19 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, remove impediments to and perfect the mechanism of a free and open market and a national market system, and protect investors and the public interest. IV. Conclusion It is therefore ordered, pursuant to Section 19(b)(2) of the Act,20 that the proposed rule change (SR–NASDAQ– 2016–183), be and hereby is, approved. 13 See For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.21 Eduardo A. Aleman, Assistant Secretary. 14 One [FR Doc. 2017–03103 Filed 2–15–17; 8:45 am] supra note 5. of the commenters requests guidance from the Exchange with respect to Exchange Rule 11210(c) to permit the use of electronic means to communicate DK notices. The commenter notes that, currently, Exchange Rule 11210(c)(1) requires that such notices be sent ‘‘by certified mail, return receipt requested, or messenger.’’ See SIFMA Letter, at 3. The Commission notes that this request is beyond the scope of the current proposed rule change. However, the Commission notes that the Exchange could work with the commenter and other market participants to determine whether changes to the communication methods specified in Exchange Rule 11210(c) would be appropriate. 15 See supra note 3. 16 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. 17 See id., 81 FR at 69241. PO 00000 Frm 00056 Fmt 4703 Sfmt 9990 BILLING CODE 8011–01–P 18 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. 19 See Press Release, ISC, US T+2 ISC Recommends Move to Shorter Settlement Cycle On September 5, 2017 (Mar. 7, 2016), http:// www.ust2.com/pdfs/T2-ISC-recommends-shortersettlement-030716.pdf. 20 15 U.S.C. 78s(b)(2). 21 17 CFR 200.30–3(a)(12). E:\FR\FM\16FEN1.SGM 16FEN1

Agencies

[Federal Register Volume 82, Number 31 (Thursday, February 16, 2017)]
[Notices]
[Pages 10924-10926]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03103]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80013; File No. SR-NASDAQ-2016-183]


Self-Regulatory Organizations; The NASDAQ Stock Market 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 From Three Business Days After 
the Trade Date to Two Business Days After the Trade Date

February 10, 2017.

I. Introduction

    On December 22, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' or 
``Exchange'') filed with the Securities

[[Page 10925]]

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 
30, 2016.\4\ The Commission received two comment letters on the 
proposed rule change.\5\ This order approves the proposed rule change.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 78962 (Sep. 28, 
2016), 81 FR 69240 (Oct. 5, 2016) (Amendment to Securities 
Transaction Settlement Cycle) (File No. S7-22-16) (``T+2 Proposing 
Release'').
    \4\ See Securities Exchange Act Release No. 79687 (Dec. 23, 
2016), 81 FR 96545.
    \5\ See Letters to Brent J. Fields, Secretary, Commission from 
Manisha Kimmel, Chief Regulatory Officer, Wealth Management, Thomson 
Reuters, dated Jan. 19, 2017 and Thomas F. Price, Managing Director, 
Operations, Technology & BCP, Securities Industry and Financial 
Markets Association (``SIFMA''), dated Jan. 19, 2017 (``SIFMA 
Letter'').
---------------------------------------------------------------------------

II. Description of the Proposal

    The Exchange proposes to amend Exchange Rules 11140 (Transactions 
in Securities ``Ex-Dividend,'' ``Ex-Rights'' or ``Ex-Warrants''), 11150 
(Transactions ``Ex-Interest'' in Bonds Which Are Dealt in ``Flat''), 
11210 (Sent by Each Party), 11320 (Dates of Delivery), 11620 
(Computation of Interest), and IM-11810 (Sample Buy-In Forms), to 
conform to the Commission's proposed amendment to Rule 15c6-1(a) under 
the Act that would shorten the standard settlement cycle for most 
broker-dealer transactions from T+3 to T+2.
    Exchange Rule 11140(b)(1) concerns the determination of normal ex-
dividend and ex-warrants dates for certain types of dividends and 
distributions. Currently, 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, 
if the definitive information is received sufficiently in advance of 
the record date, the date designated as the ``ex-dividend date'' is the 
second business day preceding the record date if the record date falls 
on a business day, or the third business day preceding the record date 
if the record date falls on a day designated by Nasdaq Regulation as a 
non-delivery day. Under the proposal, the ``ex-dividend date'' would be 
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 Nasdaq 
Regulation as a non-delivery date.
    Exchange Rule 11150(a) concerns the determination of normal ex-
interest dates for certain types of transactions. Currently, all 
transactions, except ``cash'' transactions, in bonds or similar 
evidences of indebtedness which are traded ``flat'' are ``ex-interest'' 
on the second business day preceding the record date if the record date 
falls on a business day, on the third business day preceding the record 
date if the record date falls on a day other than a business day, and 
on the third business day preceding the date on which an interest 
payment is to be made if no record date has been fixed. Under the 
proposal, these transactions would be ``ex-interest'' on the first 
business day preceding the record date if the record date falls on a 
business day, on the second business day preceding the record date if 
the record date falls on a day other than a business day, and on the 
second business day preceding the date on which an interest payment is 
to be made if no record date has been fixed.
    Exchange Rules 11210(c) and (d) set forth ``DK'' procedures using 
``Don't Know Notices'' and other forms of notices, respectively.\6\ 
Exchange Rule 11210(c) currently provides that, when a party to a 
transaction sends a comparison or confirmation of a trade, but does not 
receive a comparison or confirmation or a signed DK from the contra-
member by the close of four business days following the trade date of 
the transaction, the party may use the procedures set forth in the 
rule. The Exchange proposes to shorten the ``four business days'' time 
period to one business day. Exchange Rule 11210(c)(2)(A) currently 
provides that a contra-member has four business days after the ``Don't 
Know Notice'' is received to either confirm or DK the transaction in 
accordance with Exchange Rule 11210(c)(2)(B) or (C). The Exchange 
proposes to shorten the ``four business days'' time period to two 
business days.\7\ Exchange Rule 11210(c)(3) currently provides that if 
the confirming member does not receive a response from the contra-
member by the close of four business days after receipt by the 
confirming member the fourth copy of the ``Don't Know Notice'' if 
delivered by messenger, or the post office receipt if delivered by 
mail, such shall constitute a DK and the confirming member shall have 
no further liability for the trade. The Exchange proposes to shorten 
the ``four business days'' time period to two business days.
---------------------------------------------------------------------------

    \6\ Exchange Rule 11210 does not apply to transactions that 
clear through the National Securities Clearing Corporation or other 
clearing organizations registered under the Act. See Exchange Rule 
11210(a)(4).
    \7\ The Exchange also proposes to make non-substantive, 
formatting changes to Exchange Rule 11210(c)(2)(A).
---------------------------------------------------------------------------

    The Exchange proposes similar changes to Exchange Rule 11210(d). 
Exchange Rule 11210(d) currently provides that, when a party to a 
transaction sends a comparison or confirmation of a trade, but does not 
receive a comparison or confirmation or a signed DK from the contra-
member by the close of four business days following the date of the 
transaction, the party may use the procedures set forth in the rule. 
The Exchange proposes to shorten the ``four business days'' time period 
to one business day. Exchange Rule 11210(d)(5) currently provides that 
if the confirming member does not receive a response in the form of a 
notice from the contra-member by the close of four business days after 
receipt of the confirming member's notice, such shall constitute a DK 
and the confirming member shall have no further liability. The Exchange 
proposes to shorten the ``four business days'' time period to two 
business days.
    Exchange Rule 11320 prescribes delivery dates for various types of 
transactions. Exchange Rule 11320(b) currently provides that in 
connection with a transaction ``regular way,'' delivery is made at the 
office of the purchaser on, but not before, the third business day 
following the date of the transaction. Under the proposal, delivery 
would be required to be made on, but not before, the second business 
day following the date of the transaction. Exchange Rule 11320(c) 
currently provides in part that, in connection with a transaction 
``seller's option,'' delivery may be made by the seller on any business 
day after the third business day following the date of transaction and 
prior to the expiration of the option, provided the seller delivers at 
the office of the purchaser, on a business day preceding the day of 
delivery, written notice of intention to deliver. Under the proposal, 
delivery may be made by the seller on any business day after the second 
business day following the date of the transaction and prior to 
expiration of the option.\8\
---------------------------------------------------------------------------

    \8\ The Exchange also proposes to make a non-substantive change 
to Exchange Rule 11320(c).

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

[[Page 10926]]

    Exchange Rule 11620 governs the computation of interest. Exchange 
Rule 11620(a) currently provides in part that, in the settlement of 
contracts in interest-paying securities other than for ``cash,'' there 
shall be added to the dollar price interest at the rate specified in 
the security, which shall be computed up to but not including the third 
business day following the date of the transaction. Under the proposal, 
the interest would be computed up to but not including the second 
business day following the date of the transaction.\9\
---------------------------------------------------------------------------

    \9\ The Exchange also proposes to capitalize certain words in 
the title of Exchange Rule 11620(a).
---------------------------------------------------------------------------

    Exchange Rule IM-11810(i)(1)(A) sets forth the circumstances under 
which a receiving member may deliver a Liability Notice to the 
delivering member as an alternative to the close-out procedures set 
forth in Exchange Rule IM-11810(a)-(g). Currently, when the parties to 
a contract are not both participants in a registered clearing agency 
that has an automated service for notifying a failing party of the 
liability that will be attendant to a failure to deliver, the notice 
must be issued using written or comparable electronic media having 
immediate receipt capabilities ``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 by the rule. Under the proposal, the 
notice must be ``sent 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'' in order to obtain the protection 
provided by the rule.
    The Exchange represents that it will announce the effective date of 
the proposed rule change in an Equity Regulatory Alert, which date 
would correspond with the industry-led transition to a T+2 standard 
settlement, and the effective date of the Commission's proposed 
amendment to Rule 15c6-1(a) under the Act.\10\
---------------------------------------------------------------------------

    \10\ See supra note 3.
---------------------------------------------------------------------------

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.\11\ Specifically, the 
Commission finds that the proposed rule change is consistent with 
Section 6(b)(5) of the Act,\12\ 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. As noted above, the Commission 
received two comment letters on the proposed rule change.\13\ Both 
comment letters express support for Commission approval of the proposed 
rule change.\14\
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    \11\ In approving this proposed rule change, the Commission has 
considered the proposed rule's impact on efficiency, competition, 
and capital formation. See 15 U.S.C. 78c(f).
    \12\ 15 U.S.C. 78f(b)(5).
    \13\ See supra note 5.
    \14\ One of the commenters requests guidance from the Exchange 
with respect to Exchange Rule 11210(c) to permit the use of 
electronic means to communicate DK notices. The commenter notes 
that, currently, Exchange Rule 11210(c)(1) requires that such 
notices be sent ``by certified mail, return receipt requested, or 
messenger.'' See SIFMA Letter, at 3. The Commission notes that this 
request is beyond the scope of the current proposed rule change. 
However, the Commission notes that the Exchange could work with the 
commenter and other market participants to determine whether changes 
to the communication methods specified in Exchange Rule 11210(c) 
would be appropriate.
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    The Commission notes that the proposal would amend Exchange rules 
to conform to the amendment that the Commission has proposed to Rule 
15c6-1(a) under the Act \15\ 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,\16\ and as a result a reduction in systemic risk for 
U.S. market participants.\17\ The Commission also notes that it has not 
yet adopted the proposed amendment to Rule 15c6-1(a), and that the 
Exchange has, accordingly, not proposed to make its amended rules 
effective at present. Instead, the Exchange has proposed to announce 
the effective date of the proposed rule change in an Equity Regulatory 
Alert. The Commission expects that the effective 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 
(``DTCC''), in collaboration with the Investment Company Institute, 
SIFMA, and other market participants, formed an Industry 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.\18\ The ISC has identified 
September 5, 2017, as the target date for the transition to a T+2 
settlement cycle to occur.\19\
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    \15\ See supra note 3.
    \16\ 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.
    \17\ See id., 81 FR at 69241.
    \18\ 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.
    \19\ See Press Release, ISC, US 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, remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and protect investors and the public interest.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\20\ that the proposed rule change (SR-NASDAQ-2016-183), be and 
hereby is, approved.
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    \20\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03103 Filed 2-15-17; 8:45 am]
BILLING CODE 8011-01-P