Self-Regulatory Organizations; New York Stock Exchange LLC; Order Granting Approval of a Proposed Rule Change To Conform to Proposed Amendment to Rule 15c6-1(a) Under the Securities Exchange Act of 1934 To Shorten the Standard Settlement Cycle for Most Broker-Dealer Transactions From Three Business Days After the Trade Date (“T+3”) to Two Business Days After the Trade Date (“T+2”), 10931-10933 [2017-03110]
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Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices
Gemini’s functionality prevents
Immediate-or-Cancel (‘‘IOC’’) orders
entered by a market maker from trading
with the market maker’s own quote.62
The Exchange proposes to replace this
self-trade protection with antiinternalization functionality currently
offered on Phlx.63 The Exchange
proposes to provide that quotes and
orders entered by market makers using
the same member identifier will not be
executed against quotes and orders
entered on the opposite side of the
market by the same market maker using
the same member identifier. In such a
case, the system will cancel the resting
quote or order back to the entering party
prior to execution. The proposed antiinternalization functionality will not
apply in any auction. The Exchange
states that this proposed functionality
does not modify the duty of best
execution owed to public customer
orders.64
The Exchange represents that the
proposal is designed to assist market
makers in reducing trading costs from
unwanted executions potentially
resulting from the interaction of
executable interest from the same firm
performing the same market making
function.65 The Commission believes
that the proposed rule is reasonably
designed to prevent the unwanted
execution of quotes and orders entered
by market makers using the same
member identifier.
H. Minimum Execution Quantity Orders
The Exchange proposes to amend ISE
Gemini Rule 715 (Types of Orders) to
remove minimum quantity orders in
subpart (q).66 The Exchange states that
the utilization of minimum quantity
orders by its members has been very
limited, and therefore proposes to
remove this order type.67 Furthermore,
the Exchange proposes to remove two
references to minimum quantity orders
in Supplementary Material .02 to ISE
Gemini Rule 713 and in Supplementary
Material .04 to ISE Gemini Rule 717.
The Exchange states that the removing
the minimum quantity order type would
62 See
id.
Phlx Rule 1080(p)(2).
Notice, supra note 3, at 96120.
65 See Notice, supra note 3, at 96123.
66 A Minimum Quantity Order is an order type
that is available for partial execution only for a
specified number of contracts or greater. A member
may specify whether any subsequent executions of
the order must also be for the specified number of
contracts or greater, or if the balance may be
executed as a regular order. If all executions are to
be for a specified number of contracts or greater and
the balance of the order after one or more partial
execution(s) is less than the minimum, such
balance is treated as all-or-none. See ISE Gemini
Rule 715(q).
67 See Notice, supra note 3, at 96120.
63 See
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64 See
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simplify functionality available on the
Exchange and reduce the complexity of
its order types.68 The Exchange further
represents that the utilization of
minimum quantity orders by its
members has been very limited and is
currently being utilized to transact less
than 1% of the Exchange’s volume.69
Accordingly, the Commission believes it
is appropriate for the Exchange to
remove references to the minimum
quantity order type.
I. Delay of Implementation of Directed
Orders and Qualified Contingent Cross
Orders
Currently, ISE Gemini rules provide
for the use of Directed Orders 70 and
Qualified Contingent Cross Orders.71
The Exchange proposes to amend ISE
Gemini Rules 721 (Crossing Orders) and
811 (Directed Orders) to note that these
functionalities will not be available as of
a certain date in the first quarter of 2017
to be announced in a notice. The
Exchange represents that it will
recommence the Directed Orders and
Qualified Contingent Cross
functionalities on ISE Gemini within
one year from the date of the filing of
the proposed rule change. Otherwise,
the Exchange will file a rule proposal
with the Commission to remove these
rules.
The Exchange represents that it
proposes to delay the implementation of
the Directed Order and Qualified
Contingent Cross Order functionalities
on ISE Gemini to provide the Exchange
additional time to rebuild the required
technology on the new platform.72 The
Exchange further represents that
members have been given adequate
notice of the implementation dates and
that the Exchange will provide further
notifications to members to ensure
clarity about the delay of
implementation of these
functionalities.73 The Commission
believes that the proposed rule change
helps ensure clarity about the delay of
implementation of this functionality.
For these reasons, the Commission
believes that the proposed rule change,
as modified by Amendment Nos. 1 and
2, is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,74 that the
proposed rule change (SR–ISEGemini2016–17), as modified by Amendment
68 See
Notice, supra note 3, at 96123.
Notice, supra note 3, at 96120 n.35.
70 See ISE Gemini Rule 811.
71 See ISE Gemini Rule 715(j).
72 See Notice, supra note 3, at 96123.
73 See id.
74 15 U.S.C. 78s(b)(2).
69 See
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10931
Nos. 1 and 2, be, and hereby is,
approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.75
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–03101 Filed 2–15–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80021; File No. SR–NYSE–
2016–87]
Self-Regulatory Organizations; New
York Stock Exchange LLC; Order
Granting Approval of a Proposed Rule
Change To Conform to Proposed
Amendment to Rule 15c6–1(a) Under
the Securities Exchange Act of 1934 To
Shorten the Standard Settlement Cycle
for Most Broker-Dealer Transactions
From Three Business Days After the
Trade Date (‘‘T+3’’) to Two Business
Days After the Trade Date (‘‘T+2’’)
February 10, 2017.
I. Introduction
On December 15, 2016, New York
Stock Exchange LLC (‘‘NYSE’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission
(‘‘Commission’’), pursuant to Section
19(b)(1) of the Securities Exchange Act
of 1934 (‘‘Act’’) 1 and Rule 19b–4
thereunder,2 a proposed rule change to
conform its rules to an amendment
proposed by the Commission to Rule
15c6–1(a) under the Act to shorten the
standard settlement cycle for most
broker-dealer transactions from three
business days after the trade date
(‘‘T+3’’) to two business days after the
trade date (‘‘T+2’’).3 The proposed rule
change was published for comment in
the Federal Register on December 29,
2016.4 The Commission received two
comments on the proposal, each of
which supports the proposed rule
change.5 This order approves the
proposed rule change.
75 17
CFR 200.30–3(a)(12).
U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 78962
(Sept. 28, 2016), 81 FR 69240 (Oct. 5, 2016) (File
No. S7–22–16) (‘‘T+2 Proposing Release’’).
4 See Securities Exchange Act Release No. 79659
(Dec. 22, 2016), 81 FR 84635 (Dec. 29, 2016).
5 See Letters from Manisha Kimmel, Chief
Regulatory Officer, Wealth Management, Thomson
Reuters, dated January 19, 2017; and Thomas F.
Price, Managing Director, Operations, Technology &
BCP, Securities Industry and Financial Markets
Association (‘‘SIFMA’’), dated January 19, 2017.
1 15
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Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices
II. Description of the Proposal
The Exchange proposes to adopt
Rules 14T (Non-Regular Way Settlement
Instructions for Orders); Dealings and
SettlementsT (Rules 45–299C); 64T
(Bonds, Rights and 100-Share-Unit
Stocks); 235T (Ex-Dividend, Ex-Rights);
236T (Ex-Warrants); 257T (Deliveries
After ‘‘Ex’’ Date); 282.65T (Failure to
Deliver and Liability Notice
Procedures); and Section 703.02T (part
2) of the Listed Company Manual (Stock
Split/Stock Rights/Stock Dividend
Listing Process) in order to conform the
Exchange’s rulebook to the
Commission’s proposed amendment to
Rule 15c6–1(a) under the Act, which
would shorten the standard settlement
cycle from T+3 to T+2 for most brokerdealer transactions.
Exchange Rule 14 defines ‘‘nonregular way’’ settlement instructions as
instructions that allow for settlement
other than ‘‘regular way’’ (i.e., other
than settlement on the third business
day following trade date for securities
other than U.S. Government Securities).
Proposed Exchange Rule 14T would
amend this definition to replace ‘‘third
business day’’ with ‘‘second business
day.’’
The Exchange proposes similar
changes to Exchange rules related to
Dealing and Settlements. Exchange rules
related to Dealing and Settlements
define ‘‘regular way’’ as ‘‘due on the
third business day following the day of
the contract.’’ Proposed Exchange Rule
Dealing and SettlementsT would replace
‘‘third business day’’ with ‘‘second
business day.’’
Similarly, Exchange Rule 64(a)
defines ‘‘regular way’’ as ‘‘for delivery
on the third business day following the
day of the contract.’’ Proposed Exchange
Rule 64T(a) would replace ‘‘third
business day’’ with ‘‘second business
day.’’ Exchange Rule 64(a)(ii) currently
provides that on the second and third
business days preceding the final day
for subscription, bids and offers in
rights to subscribe shall be made only
‘‘next day.’’ To conform with the move
to a T+2 settlement cycle, proposed
Exchange Rule 64T(a)(ii) would delete
the reference to the third business day
preceding the final day for subscription,
because in a T+2 settlement cycle, bids
and offers in rights to subscribe on that
day would simply be subject to ‘‘regular
way’’ settlement. Under Current Rule
64(c), all ‘‘seller’s option’’ trades, for
delivery between 2 and 60 business
days, should be reported to the tape
only in calendar days. The Exchange
proposes to amend Exchange Rule
64T(c) to replace the reference to ‘‘two’’
with a reference to ‘‘three.’’
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Exchange Rule 235 provides that
transactions in stocks, except those
made for ‘‘cash’’ as prescribed in
Exchange Rule 14, shall be ex-dividend
or ex-rights on the second business day
preceding the record date fixed by the
corporation or the date of the closing of
transfer books. The Exchange proposes
in Exchange Rule 235T to change
‘‘second business day preceding’’ to
‘‘business day preceding.’’ The current
Exchange Rule 235 further provides
that, if the record date or closing of
transfer books occurs upon a day other
than a business day, Exchange Rule 235
shall apply for the third preceding
business day. The Exchange proposes to
change ‘‘third preceding business day’’
to ‘‘second preceding business day’’ in
proposed Exchange Rule 235T.
Exchange Rule 236 pertaining to exwarrants similarly provides that
transactions in securities that have
subscription warrants attached, except
those made for cash, shall be exwarrants on the second business day
preceding the date of expiration of the
warrants, except that when the date of
expiration occurs on a day other than a
business day, the transactions shall be
ex-warrants on the third business day
preceding the date of expiration. The
Exchange proposes to adopt proposed
Exchange Rule 236T and change the
warrant period to the business day
preceding expiration of the warrants
instead of the second business day.
Under proposed Exchange Rule 236T,
when warrant expiration does not occur
on a business day, the ex-warrant period
will begin on the second business day
preceding the expiration date instead of
on the third business day.
Exchange Rule 257 prescribes that the
time frame for delivery of dividends or
rights for securities sold before the ‘‘ex’’
date but delivered after the record date
must occur within three days after the
record date. Proposed Exchange Rule
257T would shorten the time frame to
two days.
Subdivision (1)(A) of Supplementary
Material .65 to current Exchange Rule
282 provides that, when a liability
notice is sent by parties to a contract
who are not both participants in a
Qualified Clearing Agency that has an
automated service for notifying a failing
party of the liability that will be
attendant to a failure to deliver, that
notice must be issued no later than one
business day prior to the latest time and
the date of the offer or other event in
order to obtain the protection provided
under Exchange Rule 282. The
Exchange proposes to amend the
Supplementary Material so that
Exchange Rule 282.65T(1)(A) would
provide that, to obtain the protection
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Frm 00062
Fmt 4703
Sfmt 4703
provided by Exchange Rule 282, the
receiving member organization must
send the liability notice to the
delivering member organization as soon
as practicable but not later than two
hours prior to the cutoff time set forth
in the instructions on a specific offer or
other event.
Finally, Section 703.02 (part 2) of the
Listed Company Manual prescribes that
a distribution of less than 25% of a
company’s common stock is traded ‘‘ex’’
on or after the second business day after
the record date. This procedure is based
on the Exchange’s current three-day
delivery rule in which contracts made
on the Exchange for the purchase and
sale of securities are settled by delivery
on the third business day after the
contract is made, unless other terms of
settlement are specified at the time the
contract is made. The Exchange
proposes to adopt Section 703.02T (part
2) to provide that a distribution of less
than 25% of a company’s common stock
is traded ‘‘ex’’ on and after the business
day prior to the record date.
The Exchange proposes to adopt the
rules but delay making the rules
operative until the compliance date of
any amendment to Rule 15c6–1(a) under
the Act that the Commission adopts.
The Exchange proposes to add
preambles to each amended rule, and to
the rule it would replace, to provide that
(1) the existing rule will remain
operative until the Exchange files
separate proposed rule changes as
necessary to establish the operative date
of the revised rule, to delete the current
rule and proposed preamble, and to
remove the preamble text from the
revised rule; and (2) in addition to filing
the necessary proposed rule changes,
the Exchange will announce via
Information Memo the operative date of
the deletion of the current rule and
implementation of the proposed rule
designated with a T.
III. Discussion and Commission’s
Findings
After careful review of the proposed
rule change and the comments, the
Commission finds that the proposal is
consistent with the requirements of the
Act and the rules and regulations
thereunder that are applicable to a
national securities exchange.6
Specifically, the Commission finds that
the rule change is consistent with
Section 6(b)(5) of the Act,7 which
requires that the rules of a national
securities exchange be designed, among
6 In approving this proposed rule change, the
Commission has considered the rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
7 15 U.S.C. 78f(b)(5).
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Federal Register / Vol. 82, No. 31 / Thursday, February 16, 2017 / Notices
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.8 Both comment
letters express support for Commission
approval of the proposed rule change.
The Commission notes that the
proposal would amend the Exchange’s
rules to conform to the amendment that
the Commission has proposed to Rule
15c6–1(a) under the Act 9 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,10 and as a result a
reduction in systemic risk for U.S.
market participants.11 The Commission
also notes that it has not yet adopted the
proposed amendment to Rule 15c6–1(a)
under the Act and that the Exchange
has, accordingly, not proposed to make
its amended rules operative at present.
Instead, the Exchange has proposed to
announce the operative date of the
Exchange’s proposal via Information
Memo and by filing a separate proposed
rule change. The Commission expects
that the operative date of the proposed
rule change would correspond with the
compliance date of any amendment to
Rule 15c6–1(a) that is adopted by the
Commission. The Commission notes
that, in October 2014, Depository Trust
and Clearing Corporation, in
collaboration with the Investment
Company Institute, SIFMA, and other
market participants, formed an Industry
Steering Group (‘‘ISC’’) and an industry
working group to facilitate the transition
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8 See
supra note 5.
9 See supra note 3.
10 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.
11 See T+2 Proposing Release, supra note 3, 81 FR
at 69241.
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Jkt 241001
to a T+2 settlement cycle for U.S. trades
in equities, corporate and municipal
bonds, and unit investment trusts.12 The
ISC has identified September 5, 2017, as
the target date for the transition to a T+2
settlement cycle to occur.13
For the reasons noted above, the
Commission finds that the proposal is
consistent with the requirements of the
Act and would foster cooperation and
coordination with persons engaged in
regulating, clearing, settling, processing
information with respect to, and
facilitating transactions in securities, to
remove impediments to and perfect the
mechanism of a free and open market
and a national market system, and to
protect investors and the public interest.
IV. Conclusion
It is therefore ordered, pursuant to
Section 19(b)(2) of the Act,14 that the
proposed rule change (SR–NYSE–2016–
87), be and hereby is, approved.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.15
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–03110 Filed 2–15–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80008; File No. SR–Phlx–
2017–09]
Self-Regulatory Organizations;
NASDAQ PHLX LLC; Notice of Filing
and Immediate Effectiveness of
Proposed Rule Change To Amend
Sections I and II of the Pricing
Schedule
February 10, 2017.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that, on February
1, 2017, NASDAQ PHLX LLC (‘‘Phlx’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III below, which Items have been
12 See Press Release, DTCC, Industry Steering
Committee and Working Group Formed to Drive
Implementation of T+2 in the U.S. (Oct. 2014),
https://www.dtcc.com/news/2014/october/16/
ust2.aspx.
13 See Press Release, ISC, US T+2 ISC
Recommends Move to Shorter Settlement Cycle On
September 5, 2017 (Mar. 7, 2016), https://
www.ust2.com/pdfs/T2-ISC-recommends-shortersettlement-030716.pdf.
14 15 U.S.C. 78s(b)(2).
15 17 CFR 200.30–3(a)(12).
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4.
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Sfmt 4703
10933
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
Exchange’s Pricing Schedule at Section
I, entitled ‘‘Rebates and Fees for Adding
and Removing Liquidity in SPY,’’ and
Section II, entitled ‘‘Multiply Listed
Options Fees’’ 3 to amend various
transaction fees and rebates.
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqphlx.cchwallstreet
.com/, at the principal office of the
Exchange, and at the Commission’s
Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission, the
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.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of the proposed rule
change is to amend the Exchange’s
Pricing Schedule at Section I, entitled
‘‘Rebates and Fees for Adding and
Removing Liquidity in SPY,’’ to (i)
amend the Simple Order Rebate for
Adding Liquidity which is paid to
Specialists 4 and Market Makers; 5
3 Multiply Listed Options includes options
overlying equities, ETFs, ETNs and indexes which
are Multiply Listed.
4 The term ‘‘Specialist’’ applies to transactions for
the account of a Specialist (as defined in Exchange
Rule 1020(a)).
5 The term ‘‘Market Maker’’ describes fees and
rebates applicable to Registered Options Traders
(‘‘ROT’’), Streaming Quote Traders (‘‘SQT’’) and
Remote Streaming Quote Traders (‘‘RSQT’’). A ROT
is defined in Exchange Rule 1014(b) as a regular
member of the Exchange located on the trading
floor who has received permission from the
Exchange to trade in options for his own account.
A ROT includes SQTs and RSQTs as well as on and
off-floor ROTS. An SQT is defined in Exchange
Rule 1014(b)(ii)(A) as an ROT who has received
permission from the Exchange to generate and
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16FEN1
]]>Agencies
[Federal Register Volume 82, Number 31 (Thursday, February 16, 2017)]
[Notices]
[Pages 10931-10933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03110]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80021; File No. SR-NYSE-2016-87]
Self-Regulatory Organizations; New York Stock Exchange LLC; Order
Granting Approval of a Proposed Rule Change To Conform to Proposed
Amendment to Rule 15c6-1(a) Under the Securities Exchange Act of 1934
To Shorten the Standard Settlement Cycle for Most Broker-Dealer
Transactions From Three Business Days After the Trade Date (``T+3'') to
Two Business Days After the Trade Date (``T+2'')
February 10, 2017.
I. Introduction
On December 15, 2016, New York Stock Exchange LLC (``NYSE'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to conform its rules to an amendment proposed by
the Commission to Rule 15c6-1(a) under the Act to shorten the standard
settlement cycle for most broker-dealer transactions from three
business days after the trade date (``T+3'') to two business days after
the trade date (``T+2'').\3\ The proposed rule change was published for
comment in the Federal Register on December 29, 2016.\4\ The Commission
received two comments on the proposal, each of which supports the
proposed rule change.\5\ This order approves the proposed rule change.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 78962 (Sept. 28,
2016), 81 FR 69240 (Oct. 5, 2016) (File No. S7-22-16) (``T+2
Proposing Release'').
\4\ See Securities Exchange Act Release No. 79659 (Dec. 22,
2016), 81 FR 84635 (Dec. 29, 2016).
\5\ See Letters from Manisha Kimmel, Chief Regulatory Officer,
Wealth Management, Thomson Reuters, dated January 19, 2017; and
Thomas F. Price, Managing Director, Operations, Technology & BCP,
Securities Industry and Financial Markets Association (``SIFMA''),
dated January 19, 2017.
---------------------------------------------------------------------------
[[Page 10932]]
II. Description of the Proposal
The Exchange proposes to adopt Rules 14T (Non-Regular Way
Settlement Instructions for Orders); Dealings and SettlementsT (Rules
45-299C); 64T (Bonds, Rights and 100-Share-Unit Stocks); 235T (Ex-
Dividend, Ex-Rights); 236T (Ex-Warrants); 257T (Deliveries After ``Ex''
Date); 282.65T (Failure to Deliver and Liability Notice Procedures);
and Section 703.02T (part 2) of the Listed Company Manual (Stock Split/
Stock Rights/Stock Dividend Listing Process) in order to conform the
Exchange's rulebook to the Commission's proposed amendment to Rule
15c6-1(a) under the Act, which would shorten the standard settlement
cycle from T+3 to T+2 for most broker-dealer transactions.
Exchange Rule 14 defines ``non-regular way'' settlement
instructions as instructions that allow for settlement other than
``regular way'' (i.e., other than settlement on the third business day
following trade date for securities other than U.S. Government
Securities). Proposed Exchange Rule 14T would amend this definition to
replace ``third business day'' with ``second business day.''
The Exchange proposes similar changes to Exchange rules related to
Dealing and Settlements. Exchange rules related to Dealing and
Settlements define ``regular way'' as ``due on the third business day
following the day of the contract.'' Proposed Exchange Rule Dealing and
SettlementsT would replace ``third business day'' with ``second
business day.''
Similarly, Exchange Rule 64(a) defines ``regular way'' as ``for
delivery on the third business day following the day of the contract.''
Proposed Exchange Rule 64T(a) would replace ``third business day'' with
``second business day.'' Exchange Rule 64(a)(ii) currently provides
that on the second and third business days preceding the final day for
subscription, bids and offers in rights to subscribe shall be made only
``next day.'' To conform with the move to a T+2 settlement cycle,
proposed Exchange Rule 64T(a)(ii) would delete the reference to the
third business day preceding the final day for subscription, because in
a T+2 settlement cycle, bids and offers in rights to subscribe on that
day would simply be subject to ``regular way'' settlement. Under
Current Rule 64(c), all ``seller's option'' trades, for delivery
between 2 and 60 business days, should be reported to the tape only in
calendar days. The Exchange proposes to amend Exchange Rule 64T(c) to
replace the reference to ``two'' with a reference to ``three.''
Exchange Rule 235 provides that transactions in stocks, except
those made for ``cash'' as prescribed in Exchange Rule 14, shall be ex-
dividend or ex-rights on the second business day preceding the record
date fixed by the corporation or the date of the closing of transfer
books. The Exchange proposes in Exchange Rule 235T to change ``second
business day preceding'' to ``business day preceding.'' The current
Exchange Rule 235 further provides that, if the record date or closing
of transfer books occurs upon a day other than a business day, Exchange
Rule 235 shall apply for the third preceding business day. The Exchange
proposes to change ``third preceding business day'' to ``second
preceding business day'' in proposed Exchange Rule 235T.
Exchange Rule 236 pertaining to ex-warrants similarly provides that
transactions in securities that have subscription warrants attached,
except those made for cash, shall be ex-warrants on the second business
day preceding the date of expiration of the warrants, except that when
the date of expiration occurs on a day other than a business day, the
transactions shall be ex-warrants on the third business day preceding
the date of expiration. The Exchange proposes to adopt proposed
Exchange Rule 236T and change the warrant period to the business day
preceding expiration of the warrants instead of the second business
day. Under proposed Exchange Rule 236T, when warrant expiration does
not occur on a business day, the ex-warrant period will begin on the
second business day preceding the expiration date instead of on the
third business day.
Exchange Rule 257 prescribes that the time frame for delivery of
dividends or rights for securities sold before the ``ex'' date but
delivered after the record date must occur within three days after the
record date. Proposed Exchange Rule 257T would shorten the time frame
to two days.
Subdivision (1)(A) of Supplementary Material .65 to current
Exchange Rule 282 provides that, when a liability notice is sent by
parties to a contract who are not both participants in a Qualified
Clearing Agency that has an automated service for notifying a failing
party of the liability that will be attendant to a failure to deliver,
that notice must be issued no later than one business day prior to the
latest time and the date of the offer or other event in order to obtain
the protection provided under Exchange Rule 282. The Exchange proposes
to amend the Supplementary Material so that Exchange Rule 282.65T(1)(A)
would provide that, to obtain the protection provided by Exchange Rule
282, the receiving member organization must send the liability notice
to the delivering member organization as soon as practicable but not
later than two hours prior to the cutoff time set forth in the
instructions on a specific offer or other event.
Finally, Section 703.02 (part 2) of the Listed Company Manual
prescribes that a distribution of less than 25% of a company's common
stock is traded ``ex'' on or after the second business day after the
record date. This procedure is based on the Exchange's current three-
day delivery rule in which contracts made on the Exchange for the
purchase and sale of securities are settled by delivery on the third
business day after the contract is made, unless other terms of
settlement are specified at the time the contract is made. The Exchange
proposes to adopt Section 703.02T (part 2) to provide that a
distribution of less than 25% of a company's common stock is traded
``ex'' on and after the business day prior to the record date.
The Exchange proposes to adopt the rules but delay making the rules
operative until the compliance date of any amendment to Rule 15c6-1(a)
under the Act that the Commission adopts. The Exchange proposes to add
preambles to each amended rule, and to the rule it would replace, to
provide that (1) the existing rule will remain operative until the
Exchange files separate proposed rule changes as necessary to establish
the operative date of the revised rule, to delete the current rule and
proposed preamble, and to remove the preamble text from the revised
rule; and (2) in addition to filing the necessary proposed rule
changes, the Exchange will announce via Information Memo the operative
date of the deletion of the current rule and implementation of the
proposed rule designated with a T.
III. Discussion and Commission's Findings
After careful review of the proposed rule change and the comments,
the Commission finds that the proposal is consistent with the
requirements of the Act and the rules and regulations thereunder that
are applicable to a national securities exchange.\6\ Specifically, the
Commission finds that the rule change is consistent with Section
6(b)(5) of the Act,\7\ which requires that the rules of a national
securities exchange be designed, among
[[Page 10933]]
other things, to prevent fraudulent and manipulative acts and
practices, to promote just and equitable principles of trade, to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and to protect investors and the public interest.
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\6\ In approving this proposed rule change, the Commission has
considered the rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f).
\7\ 15 U.S.C. 78f(b)(5).
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As noted above, the Commission received two comment letters on the
proposed rule change.\8\ Both comment letters express support for
Commission approval of the proposed rule change.
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\8\ See supra note 5.
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The Commission notes that the proposal would amend the Exchange's
rules to conform to the amendment that the Commission has proposed to
Rule 15c6-1(a) under the Act \9\ 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,\10\ and as a result a reduction in systemic risk for
U.S. market participants.\11\ The Commission also notes that it has not
yet adopted the proposed amendment to Rule 15c6-1(a) under the Act and
that the Exchange has, accordingly, not proposed to make its amended
rules operative at present. Instead, the Exchange has proposed to
announce the operative date of the Exchange's proposal via Information
Memo and by filing a separate proposed rule change. The Commission
expects that the operative date of the proposed rule change would
correspond with the compliance date of any amendment to Rule 15c6-1(a)
that is adopted by the Commission. The Commission notes that, in
October 2014, Depository Trust and Clearing Corporation, in
collaboration with the Investment Company Institute, SIFMA, and other
market participants, formed an Industry 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.\12\ The ISC has identified September 5, 2017,
as the target date for the transition to a T+2 settlement cycle to
occur.\13\
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\9\ See supra note 3.
\10\ 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.
\11\ See T+2 Proposing Release, supra note 3, 81 FR at 69241.
\12\ See Press Release, DTCC, Industry Steering Committee and
Working Group Formed to Drive Implementation of T+2 in the U.S.
(Oct. 2014), https://www.dtcc.com/news/2014/october/16/ust2.aspx.
\13\ See Press Release, ISC, US T+2 ISC Recommends Move to
Shorter Settlement Cycle On September 5, 2017 (Mar. 7, 2016), https://www.ust2.com/pdfs/T2-ISC-recommends-shorter-settlement-030716.pdf.
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For the reasons noted above, the Commission finds that the proposal
is consistent with the requirements of the Act and would foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, processing information with respect to, and
facilitating transactions in securities, to remove impediments to and
perfect the mechanism of a free and open market and a national market
system, and to protect investors and the public interest.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\14\ that the proposed rule change (SR-NYSE-2016-87), be and hereby
is, approved.
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\14\ 15 U.S.C. 78s(b)(2).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\15\
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\15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03110 Filed 2-15-17; 8:45 am]
BILLING CODE 8011-01-P
