Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1, To Shorten the Settlement Cycle From T+3 to T+2, 15258-15263 [2017-05919]
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Federal Register / Vol. 82, No. 57 / Monday, March 27, 2017 / Notices
subparagraph (f)(6) of Rule 19b–4
thereunder.31
A proposed rule change filed
pursuant to Rule 19b–4(f)(6) under the
Act 32 normally does not become
operative for 30 days after the date of its
filing. However, Rule 19b–4(f)(6)(iii) 33
permits the Commission to designate a
shorter time if such action is consistent
with the protection of investors and the
public interest. The Exchange has asked
the Commission to waive the 30-day
operative delay so that the proposal may
become operative immediately upon
filing. The Commission believes that
waiving the 30-day operative delay is
consistent with the protection of
investors and the public interest as it
will allow the Exchange to implement
the proposed rule change by April 17,
2017 in coordination with the other
options exchanges. Accordingly, the
Commission hereby waives the
operative delay and designates the
proposal operative upon filing.34
At any time within 60 days of the
filing of the proposed rule change, the
Commission summarily may
temporarily suspend such rule change if
it appears to the Commission that such
action is: (i) Necessary or appropriate in
the public interest; (ii) for the protection
of investors; or (iii) otherwise in
furtherance of the purposes of the Act.
If the Commission takes such action, the
Commission shall institute proceedings
to determine whether the proposed rule
should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
Electronic Comments
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• 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–
MIAX–2017–13 on the subject line.
31 17 CFR 240.19b–4(f)(6). In addition, Rule 19b–
4(f)(6) requires a self-regulatory organization to give
the Commission written notice of its intent to file
the proposed rule change at least five business days
prior to the date of filing of the proposed rule
change, or such shorter time as designated by the
Commission. The Exchange has satisfied this
requirement.
32 17 CFR 240.19b–4(f)(6).
33 17 CFR 240.19b–4(f)(6)(iii).
34 For purposes only of waiving the 30-day
operative delay, the Commission has also
considered the proposed rule’s impact on
efficiency, competition, and capital formation. See
15 U.S.C. 78c(f).
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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–MIAX–2017–13. 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 such
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–MIAX–
2017–13, and should be submitted on or
before April 17, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.35
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–05921 Filed 3–24–17; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–80282; File No. SR–BX–
2017–013]
Self-Regulatory Organizations;
NASDAQ BX, Inc.; Notice of Filing of
Proposed Rule Change, as Modified by
Amendment No. 1, To Shorten the
Settlement Cycle From T+3 to T+2
March 21, 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 March 9,
2017, NASDAQ BX, Inc. (‘‘BX’’ or
‘‘Exchange’’) filed with the Securities
and Exchange Commission (‘‘SEC’’ or
‘‘Commission’’) the proposed rule
change as described in Items I, II, and
III, below, which Items have been
prepared by the Exchange. On March
13, 2017, the Exchange filed
Amendment No. 1.3 The Commission is
publishing this notice to solicit
comments on the proposed rule change,
as modified by Amendment No. 1, from
interested persons.
I. Self-Regulatory Organization’s
Statement of the Terms of Substance of
the Proposed Rule Change
The Exchange proposes to amend BX
Rules 11140 (Transactions in Securities
‘‘Ex-Dividend,’’ ‘‘Ex-Rights’’ or ‘‘ExWarrants’’), 11150 (Transactions ‘‘ExInterest’’ 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 SEA Rule 15c6–1(a) 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’’) and the industry-led
initiative to shorten the settlement cycle
from T+3 to T+2.4
The text of the proposed rule change
is available on the Exchange’s Web site
at https://nasdaqbx.cchwallstreet.com/,
at the principal office of the Exchange,
and at the Commission’s Public
Reference Room.
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 In Amendment No. 1, the Exchange proposes to
capitalize the letter ‘‘d’’ in the word ‘‘department’’
in the proposed revisions to Rule 11140(b)(1), as set
forth in Exhibit 5 to the filing, to conform to the
Exchange’s current rule text.
4 See Securities Exchange Act Release No. 78962
(September 28, 2016), 81 FR 69240 (October 5,
2016) (Amendment to Securities Transaction
Settlement Cycle) (File No. S7–22–16) (‘‘SEC
Proposing Release’’).
2 17
35 17
PO 00000
CFR 200.30–3(a)(12).
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Federal Register / Vol. 82, No. 57 / Monday, March 27, 2017 / Notices
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 the
Statutory Basis for, the Proposed Rule
Change
1. Purpose
SEC Proposing Release
On September 28, 2016, the
Commission proposed amending SEA
Rule 15c6–1(a) to shorten the standard
settlement cycle for most broker-dealer
transactions from T+3 to T+2 on the
basis that the shorter settlement cycle
would reduce the risks that arise from
the value and number of unsettled
securities transactions prior to the
completion of settlement, including
credit, market, and liquidity risk
directly faced by U.S. market
participants.5 The proposed rule
amendment was published for comment
in the Federal Register on October 5,
2016.6
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Background
In 1995, the standard U.S. trade
settlement cycle for equities, municipal
and corporate bonds, and unit
investment trusts, and financial
instruments composed of these products
was shortened from five business days
after the trade date (‘‘T+5’’) to T+3.7
5 See Securities and Exchange Commission Press
Release 2016–200: ‘‘SEC Proposes Rule Amendment
to Expedite Process for Settling Securities
Transactions’’ (September 28, 2016).
6 See supra note 4.
7 In 1993, the Commission adopted SEA Rule
15c6–1 which became effective in 1995. See
Securities Exchange Act Release Nos. 33023
(October 6, 1993), 58 FR 52891 (October 13, 1993)
and 34952 (November 9, 1994), 59 FR 59137
(November 16, 1994). SEA Rule 15c6–1(a) provides,
in relevant part, that ‘‘a broker or dealer shall not
effect or enter into a contract for the purchase or
sale of a security (other than an exempted security,
government security, municipal security,
commercial paper, bankers’ acceptances, or
commercial bills) that provides for payment of
funds and delivery of securities later than the third
business day after the date of the contract unless
otherwise expressly agreed to by the parties at the
time of the transaction.’’ 17 CFR 240.15c6–1(a).
Although not covered by SEA Rule 15c6–1, in 1995,
the Commission approved the Municipal Securities
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Accordingly, BX and other selfregulatory organizations (‘‘SROs’’)
amended their respective rules to
conform to the T+3 settlement cycle.8
Since that time, the SEC and the
financial services industry have
continued to explore the idea of
shortening the settlement cycle even
further.9
In April 2014, the Depository Trust &
Clearing Corporation (‘‘DTCC’’)
published its formal recommendation to
shorten the standard U.S. trade
settlement cycle to T+2 and announced
that it would partner with market
participants and industry organizations
to devise the necessary approach and
timelines to achieve T+2.10
In an effort to improve the overall
efficiency of the U.S. settlement system
by reducing the attendant risks in T+3
settlement of securities transactions,
and to align U.S. markets with other
major global markets that have already
moved to T+2, DTCC, in collaboration
with the financial services industry,
formed an Industry Steering Committee
(‘‘ISC’’) and an industry working group
and sub-working groups to facilitate the
move to T+2.11 In June 2015, the ISC
published a White Paper outlining the
activities and proposed time frames that
would be required to move to T+2 in the
U.S.12 Concurrently, the Securities
Industry and Financial Markets
Association (‘‘SIFMA’’) and the
Investment Company Institute (‘‘ICI’’)
jointly submitted a letter to SEC Chair
White, expressing support of the
financial services industry’s efforts to
shorten the settlement cycle and
identifying SEA Rule 15c6–1(a) and
Rulemaking Board’s rule change requiring
transactions in municipal securities to settle by
T+3. See Securities Exchange Act Release No.
35427 (February 28, 1995), 60 FR 12798 (March 8,
1995) (Order Approving File No. SR–MSRB–94–10).
8 See, e.g., Securities Exchange Act Release No.
35507 (March 17, 1995), 60 FR15616 (March 24,
1995) (Order Approving File No. SR–NASD–94–56);
Securities Exchange Act Release No. 35506 (March
17, 1995), 60 FR 15618 (March 24, 1995) (Order
Approving File No. SR–NYSE–94–40); and
Securities Exchange Act Release No. 35553 (March
31, 1995), 60 FR 18161 (April 10, 1995) (Order
Approving File No. SR–Amex–94–57).
9 See, e.g., Securities Industry Association
(‘‘SIA’’), ‘‘SIA T+1 Business Case Final Report’’
(July 2000); Concept Release: Securities
Transactions Settlement, Securities Exchange Act
Release No. 49405 (March 11, 2004), 69 FR 12922
(March 18, 2004); and Depository Trust & Clearing
Corporation, ‘‘Proposal to Launch a New CostBenefit Analysis on Shortening the Settlement
Cycle’’ (December 2011).
10 See DTCC, ‘‘DTCC Recommends Shortening the
U.S. Trade Settlement Cycle’’ (April 2014).
11 The ISC includes, among other participants,
DTCC, the Securities Industry and Financial
Markets Association and the Investment Company
Institute.
12 See ‘‘Shortening the Settlement Cycle: The
Move to T+2’’ (June 18, 2015).
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15259
several SRO rules that they believed
would require amendments for an
effective transition to T+2.13 In March
2016, the ISC announced the industry
target date of September 5, 2017 for the
transition to a T+2 settlement cycle to
occur.14
Proposed Rule Change
In light of the SEC Proposing Release
that would amend SEA Rule 15c6–1(a)
to require standard settlement no later
than T+2 and similar proposals from
other SROs,15 BX is proposing changes
to its rules pertaining to securities
settlement by, among other things,
amending the definition of ‘‘standard’’
settlement as occurring on T+2. SEA
Rule 15c6–1(a) currently establishes
‘‘standard’’ settlement as occurring no
later than T+3 for all securities, other
than an exempt security, government
security, municipal security,
commercial paper, bankers’
acceptances, or commercial bills.16 BX
is proposing changes to rules pertaining
to securities settlement to support the
industry-led initiative to shorten the
standard settlement cycle to two
business days. Most of the rules that BX
has identified for these changes are
successors to provisions under the
legacy NASD Rules of Fair Practice and
NASD Uniform Practice Code (‘‘UPC’’)
that were amended when the
Commission adopted SEA Rule 15c6–
1(a), which established T+3 as the
standard settlement cycle.17 As such,
BX is proposing to amend BX Rules
11140 (Transactions in Securities ‘‘Ex13 See Letter from ICI and SIFMA to Mary Jo
White, Chair, SEC, dated June 18, 2015. See also
Letter from Mary Jo White, Chair to Kenneth E.
Bentsen, Jr., President and CEO, SIFMA, and Paul
Schott Stevens, President and CEO, ICI, dated
September 16, 2015 (expressing her strong support
for industry efforts to shorten the trade settlement
cycle to T+2 and commitment to developing a
proposal to amend SEA Rule 15c6–1(a) to require
standard settlement no later than T+2).
14 See ISC Media Alert: ‘‘US T+2 ISC
Recommends Move to Shorter Settlement Cycle On
September 5, 2017’’ (March 7, 2016).
15 See, e.g., Securities Exchange Act Release No.
77744 (April 29, 2016), 81 FR 26851 (May 4, 2016)
(Order Approving File No. SR–MSRB–2016–04).
16 See supra note 7.
17 The legacy NASD rules that were changed to
conform to the move from T+5 to T+3 included
Section 26 (Investment Companies) of the Rules of
Fair Practice, and Section 5 (Transactions in
Securities ‘‘Ex-Dividend,’’ ‘‘Ex-Rights’’ or ‘‘ExWarrants’’), Section 6 (Transactions ‘‘Ex-Interest’’ in
Bonds Which Are Dealt in ‘‘Flat’’), Section 12
(Dates of Delivery), Section 46 (Computation of
Interest) and Section 64 (Acceptance and
Settlement of COD Orders) of the UPC. See
Securities Exchange Act Release No. 35507 (March
17, 1995), 60 FR 15616 (March 24, 1995) (Order
Approving File No. SR–NASD–94–56). See also
Notice to Members 95–36 (May 1995) (enumerating
the various sections under the NASD Rules of Fair
Practice and UPC that were amended to implement
T+3 settlement for securities transactions).
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Dividend,’’ ‘‘Ex-Rights’’ or ‘‘ExWarrants’’), 11150 (Transactions ‘‘ExInterest’’ in Bonds Which Are Dealt in
‘‘Flat’’), 11320 (Dates of Delivery), and
11620 (Computation of Interest). In
addition, BX is proposing to amend BX
Rules 11210 (Sent by Each Party) and
IM–11810 (Sample Buy-In Forms) to
conform provisions, where appropriate,
to the T+2 settlement cycle.18
The details of the proposed rule
change are described below.
(1) BX Rule 11140 (Transactions in
Securities ‘‘Ex-Dividend,’’ ‘‘Ex- Rights’’
or ‘‘Ex-Warrants’’)
Rule 11140(b)(1) provides that for
dividends or distributions, and the
issuance or distribution of warrants, that
are less than 25 percent of the value of
the subject security, if definitive
information is received sufficiently in
advance of the record date, the date
designated as the ‘‘ex-dividend date’’
shall be 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 Exchange’s Regulation
Department 19 as a non-delivery date.
BX is proposing to shorten the time
frames in Rule 11140(b)(1) by one
business day.
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(2) BX Rule 11150 (‘‘Ex-Interest’’ in
Bonds Which Are Dealt in ‘‘Flat’’)
Rule 11150(a) prescribes the manner
for establishing ‘‘ex-interest dates’’ for
transactions in bonds or other similar
evidences of indebtedness which are
traded ‘‘flat.’’ Such transactions are ‘‘exinterest’’ 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, or on the third
business day preceding the date on
which an interest payment is to be made
if no record date has been fixed. BX is
proposing to shorten the time frames in
Rule 11150(a) by one business day.
(3) BX Rule 11210 (Sent by Each Party)
Paragraphs (c) and (d) of Rule 11210
set forth the ‘‘Don’t Know’’ (‘‘DK’’)
voluntary procedures for using ‘‘DK
Notices’’ or other forms of notices,
respectively. Depending upon the notice
used, a confirming member may follow
the ‘‘DK’’ procedures when it sends a
comparison or confirmation of a trade
18 BX Rules 11210 and IM–11810 are successors
to legacy NASD UPC Section 9 (Sent by Each Party)
and 59 (‘‘Buying-in’’), respectively, which remained
unchanged during the transition from T+5 to T+3.
See supra note 17.
19 See supra note 3.
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(other than one that clears through the
National Securities Clearing Corporation
(‘‘NSCC’’) or other registered clearing
agency), 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 (‘‘T+4’’).
The procedures generally provide that
after T+4, the confirming member shall
send a ‘‘DK Notice’’ (or similar notice)
to the contra-member. The contramember then has four business days
after receipt of the confirming member’s
notice to either confirm or ‘‘DK’’ the
transaction.
BX is proposing to amend paragraphs
(c) and (d) of Rule 11210 to provide that
the ‘‘DK’’ procedures may be used by
the confirming member if it does not
receive a comparison or confirmation or
signed ‘‘DK’’ from the contra-member by
the close of one business day following
the trade date of the transaction, rather
than the current T+4.20 In addition, BX
is proposing amendments to paragraphs
(c)(2)(A), (c)(3), and (d)(5) of Rule 11210
to adjust the time in which a contramember has to respond to a ‘‘DK
Notice’’ (or similar notice) from four
business days after the contra-member’s
receipt of the notice to two business
days.
(4) BX Rule 11320 (Dates of Delivery)
Rule 11320 prescribes delivery dates
for various transactions. Paragraph (b)
states that for a ‘‘regular way’’
transaction, delivery must be made on,
but not before, the third business day
after the date of the transaction. BX is
proposing to amend Rule 11320(b) to
change the reference to third business
day to second business day. Paragraph
(c) provides that in a ‘‘seller’s option’’
transaction, delivery may be made by
the seller on any business day after the
third business day following the date of
the transaction. BX is proposing to
amend Rule 11320(c) to change the
reference to third business day to
second business day.
(5) BX Rule 11620 (Computation of
Interest)
In the settlement of contracts in
interest-paying securities other than for
cash, Rule 11620(a) requires the
20 As stated above, the time frames in Rule 11210
remained unchanged during the transition from T+5
to T+3. In light of the industry-led initiative to
shorten the standard settlement cycle and the SEC
Proposing Release to amend SEA Rule 15c6–1(a) to
establish T+2 as the standard settlement for most
broker dealer transactions, the Exchange believes
that the current time frames in Rule 11210 are more
protracted than necessary even in a T+3
environment and as such, the Exchange is
proposing to amend these time frames to reflect
more current industry practices.
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calculation of interest at the rate
specified in the security up to, but not
including, the third business day after
the date of the transaction. The
proposed amendment would shorten the
time frame to the second business day.
In addition, the proposed amendment
would make non-substantive technical
changes to the title of paragraph (a).
(6) BX Rule IM–11810 (Sample Buy-In
Forms)
Rule IM–11810(i)(1)(A) sets forth the
fail-to-deliver and liability notice
procedures where a securities contract
is for warrants, rights, convertible
securities or other securities which have
been called for redemption; are due to
expire by their terms; are the subject of
a tender or exchange offer; or are subject
to other expiring events such as a record
date for the underlying security and the
last day on which the securities must be
delivered or surrendered is the
settlement date of the contract or later.21
Under Rule IM–11810(i)(1)(A), the
receiving member delivers a liability
notice to the owing counterparty. The
liability notice sets a cutoff date for the
delivery of the securities by the
counterparty and provides notice to the
counterparty of the liability attendant to
its failure to deliver the securities in
time. If the owing counterparty, or
delivering member, delivers the
securities in response to the liability
notice, it has met its delivery obligation.
If the delivering member fails to deliver
the securities on the expiration date, it
will be liable for any damages that may
accrue thereby.
Rule IM–11810(i)(1)(A) further
provides that when both parties to a
contract are participants in a registered
clearing agency that has an automated
liability notification service,
transmission of the liability notice must
be accomplished through such system.22
When the parties to a contract are not
21 Rule IM–11810(i) is the successor to legacy
NASD UPC Section 59(i) (Failure to Deliver and
Liability Notice Procedures). When this provision
was added to NASD’s existing close-out procedures
in 1984, it was drafted to be similar to the liability
notice provisions adopted by the NSCC so that
members that were also participants in NSCC could
use the same procedures for both ex-clearing and
NSCC cleared transactions, thereby simplifying
members’ back office procedures.
22 In 2007, NYSE Rule 180 was amended to
require that when the parties to a failed contract
were both participants in a registered clearing
agency that had an automated service for notifying
a failing party of the liability that will be attendant
to a failure to deliver and the contract was to be
settled through the facilities of that registered
clearing agency, the transmission of the liability
notification must be accomplished through the use
of the registered clearing agency’s automated
liability notification system. See Securities
Exchange Act Release No. 55132 (January 19, 2007),
72 FR 3896 (January 26, 2007) (Order Approving
File No. SR–NYSE–2006–57).
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both participants in a registered clearing
agency that has an automated liability
notification service, such notice must be
issued using written or comparable
electronic media having immediate
receipt capabilities not 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.23
Given the proposed shortened
settlement cycle, BX is proposing to
amend Rule IM–11810(i)(1)(A) in
situations where both parties to a
contract are not participants of a
registered clearing agency with an
automated notification service, by
extending the time frame for delivery of
the liability notice. Rule IM–
11810(i)(1)(A) would be amended to
provide that in such cases, the receiving
member must send the liability notice to
the delivering member 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 to obtain the protection provided
by the Rule. BX believes that extending
the time given to the receiving member
to transmit liability notifications will
maintain the efficiency of the
notification process while mitigating the
possible overuse of such notifications.
Currently, BX understands that the
identity of the counterparty, or
delivering member, becomes known to
the receiving member by mid-day on the
business day after trade date (‘‘T+1’’),
and by that time, the receiving member
will generally also know which
transactions are subject to an event
identified in Rule IM–11810(i)(1)(A)
that would prompt the receiving
member to issue a liability notice to the
delivering member. BX believes that the
receiving member regularly issues
liability notices to the seller or other
parties from which the securities
involved are due when the security is
subject to an event identified in Rule
IM–11810(i)(1)(A) during the settlement
cycle as a way to mitigate the risk of a
potential fail-to-deliver. In the current
T+3 settlement environment, the one
business day time frame gives the
receiving member the requisite time
needed to identify the parties involved
and undertake the liability notification
process.
23 While Rule IM–11810 has undergone
amendments over the years, the one-day time frame
in paragraph (j) has remained unchanged. The oneday time frame also appears in comparable
provisions of other SROs. See, e.g., NSCC Rules &
Procedures, Procedure X (Execution of Buy-Ins)
(Effective August 10, 2016); NYSE Rule 282.65 (Fail
to Deliver and Liability Notice Procedures). See also
infra note 31 and accompanying text.
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However, BX believes that the move
to a T+2 settlement environment will
create inefficiencies in the liability
notification process under Rule IM–
11810(i)(1)(A) when both parties to a
contract are not participants in a
registered clearing agency with an
automated notification service. The
shorter settlement cycle, with the loss of
one business day, would not afford the
receiving member sufficient time to: (1)
Ascertain that the securities are subject
to an event listed in Rule IM–
11810(i)(1)(A) during the settlement
cycle; (2) identify the delivering
member and other parties from which
the securities involved are due; and (3)
determine the likelihood that such
parties may fail to deliver. Where the
receiving member has sufficient time
(e.g., one business day after), it can
transmit liability notices as needed to
the right parties. However, as a
consequence of the shortened settlement
cycle, the receiving member would be
compelled to issue liability notices
proactively to all potentially failing
parties as a matter of course to preserve
its rights against such parties without
the benefit of knowing which
transactions would actually necessitate
the delivery of such notice. This would
create a significant increase in the
volume of liability notices members
send and receive, many of which may
be unnecessary. Members would then
have to manage this overabundance of
liability notices, increasing the
possibility of errors, which would
adversely impact the efficiency of the
process. Therefore, BX believes its
proposal to extend the time for the
receiving member to deliver a liability
notice when the parties to a contract are
not both participants in a registered
clearing agency with an automated
notification service would help alleviate
the potential burden on the liability
notification process in a T+2 settlement
environment.
Implementation
BX will announce the operative 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 compliance date of the
proposed amendment to SEA Rule
15c6–1(a) that the Commission may
adopt, to require standard settlement no
later than T+2.24
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act,25 in general, and furthers the
objectives of Section 6(b)(5) of the Act,26
in particular, in that it is designed 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,
and, in general, to protect investors and
the public interest. The Exchange
believes that the proposed rule change
supports the supports the industry-led
initiative to shorten the settlement cycle
to two business days. Moreover, the
proposed rule change is consistent with
the SEC’s proposed amendment to SEA
Rule 15c6–1(a) to require standard
settlement no later than T+2. BX
believes that the proposed rule change
will provide the regulatory certainty to
facilitate the industry-led move to a T+2
settlement cycle. As noted herein, upon
approval, BX will announce the
operative 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 compliance
date of the Commission’s proposed
amendment to SEA Rule 15c6–1(a) to
require standard settlement no later
than T+2.
B. Self-Regulatory Organization’s
Statement on Burden on Competition
The Exchange does not believe that
the proposed rule change will impose
any burden on competition not
necessary or appropriate in furtherance
of the purposes of the Act. The
proposed rule change makes changes to
rules pertaining to securities settlement
and is intended to facilitate the
implementation of the industry-led
transition to a T+2 settlement cycle.
Moreover, the proposed rule changes are
consistent with the SEC’s proposed
amendment to SEA Rule 15c6–1(a) to
require standard settlement no later
than T+2. Accordingly, BX believes that
the proposed changes do not impose
any burdens on the industry in addition
to those necessary to implement
amendments to SEA Rule 15c6–1(a) as
described and enumerated in the SEC
Proposing Release.27
These conforming changes include
changes to rules that specifically
establish the settlement cycle as well as
rules that establish time frames based on
settlement dates, including for certain
post-settlement rights and obligations.
BX believes that the proposed changes
set forth in the filing are necessary to
25 15
U.S.C. 78f(b).
U.S.C. 78f(b)(5).
27 See supra note 4.
26 15
24 See
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Federal Register / Vol. 82, No. 57 / Monday, March 27, 2017 / Notices
support a standard settlement cycle
across the U.S. for secondary market
transactions in equities, corporate and
municipal bonds, unit investment
trusts, and financial instruments
composed of these products, among
other things.28 A standard U.S.
settlement cycle for such products is
critical for the operation of fair and
orderly markets.
C. Self-Regulatory Organization’s
Statement on Comments on the
Proposed Rule Change Received From
Members, Participants, or Others
A previous version of the proposed
rule change was published for comment
in Equity Regulatory Alert 2016–4 on
May 18, 2016. Two comments were
received in response to the Regulatory
Alert.29 A copy of the Regulatory Alert
is attached as Exhibit 2a.30 Copies of the
comment letters received in response to
the Regulatory Notice are attached as
Exhibits 2d and a list of comments is
attached as Exhibit 2c.
Both of the letters received expressed
support for the industry led move to
T+2 stating, among other benefits, that
the move will align U.S. markets with
international markets that already work
in the T+2 environment, improve the
overall efficiency and liquidity of the
securities markets, and the stability of
the financial system by reducing
counterparty risk and pro-cyclical and
liquidity demands, and decreasing
clearing capital requirements. SIFMA
also provided their view on the
proposed amendments to two rules
under the BX Rule 11800 Series (Buying
In).
BX Rule IM–11810(i)—Sample Buy-In
Forms
In its comment letter, SIFMA raised a
concern with the one-day time frame in
Rule IM–11810(i)(1)(A), asserting that
the requirement for the delivering
member to deliver a liability notice to
the receiving member 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 may no longer be
appropriate in a T+2 environment in
some situations such as where the
delivery obligation is transferred to
asabaliauskas on DSK3SPTVN1PROD with NOTICES
28 See
supra note 4.
Letter from Martin A. Burns, Chief Industry
Operations Officer, Investment Company Institute
to John Zecca, Senior Vice President, Marketwatch
dated June 8, 2016 (‘‘ICI’’); letter from Thomas F.
Price, Managing Director, Operations, Securities
Industry and Financial Markets Association, to John
Zecca, Senior Vice President Market Watch dated
June 8, 2016 (‘‘SIFMA’’).
30 The Commission notes that the exhibits
referred to are attached to the filing and not to this
Notice.
29 See
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18:02 Mar 24, 2017
Jkt 241001
another party as a result of continuous
net settlement, settlements outside of
the NSCC, and settlements involving a
third party that is not a BX member
firm. SIFMA noted that NYSE Rule 180
(Failure to Deliver) includes a similar
requirement for NYSE member firms
that are participants in a registered
clearing agency to transmit liability
notification through an automated
notification service and proposed
amending Rule IM–11810(i)(1)(A) to
omit the reference to a notification time
frame, which would align with NYSE
Rule 180.31 In the alternative, SIFMA
proposed amending Rule IM–
11810(i)(1)(A) to require that the
liability notice be delivered in a
‘‘reasonable amount of time’’ ahead of
the settlement obligation in light of facts
and circumstances. SIFMA maintained
that under either proposed amendment
to paragraph (j), the delivering member
would be liable for any damages caused
by its failure to deliver in a timely
fashion.
While BX did not initially propose
amendments to Rule IM–11810 for the
T+2 initiative,32 in light of SIFMA’s
concern regarding Rule IM–
11810(i)(1)(A), BX is proposing to
amend the Rule to provide that, where
both parties to a contract are not
participants of a registered clearing
agency with an automated notification
service, the receiving member must
send the liability notice to the
delivering member 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 to obtain the protection provided
by the Rule.33
31 See NYSE Rule 180 (Failure to Deliver)
providing in part that ‘‘[w]hen the parties to a
contract are both participants in a registered
clearing agency which has an automated service for
notifying a failing party of the liability that will be
attendant to a failure to deliver and that contract
was to be settled through the facilities of said
registered clearing agency, the transmission of the
liability notification must be accomplished through
use of said automated notification service.’’ BX
notes that NYSE Rule 180 does not address the
transmission of the liability notification for parties
to a contract that are not both participants in a
registered clearing agency (or non-participants). The
transmission of the liability notification for nonparticipants is addressed under NYSE Rule 282.65
(Failure to Deliver and Liability Notice Procedures).
See supra note 23.
32 See Equity Regulatory Alert 2016–4.
33 BX expects similar amendments to other
comparable SRO provisions in NYSE Rule 282.65
(Fail to Deliver and Liability Notice Procedures)
and FINRA Rule 11810 (Buying-in), and NSCC
Rules & Procedures, Procedure X (Execution of BuyIns) to address SIFMA’s concern about the one-day
notification time frame.
PO 00000
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Fmt 4703
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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 (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the Exchange consents,
the Commission shall: (a) By order
approve or disapprove such proposed
rule change, or (b) institute proceedings
to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change, as modified by Amendment No.
1, 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–
BX–2017–013 on the subject line.
Paper Comments
• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–BX–2017–013. 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
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Federal Register / Vol. 82, No. 57 / Monday, March 27, 2017 / Notices
inspection and copying at the principal
office of the Exchange. All comments
received will be posted without change;
the Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly. All submissions
should refer to File Number SR–BX–
2017–013, and should be submitted on
or before April 17, 2017.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.34
Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017–05919 Filed 3–24–17; 8:45 am]
BILLING CODE 8011–01–P
SOCIAL SECURITY ADMINISTRATION
[Docket No. SSA–2012–0035]
Rescission of Social Security Rulings
96–2p, 96–5p, and 06–3p
Social Security Administration.
Notice of rescission of Social
Security Rulings.
AGENCY:
ACTION:
In accordance with 20 CFR
402.35(b)(1), the Acting Commissioner
of Social Security gives notice of the
rescission of Social Security Rulings
(SSR) 96–2p, 96–5p, and 06–03p.
DATES: Effective Date: This rescission
will be effective for claims filed on or
after March 27, 2017.
FOR FURTHER INFORMATION CONTACT:
Joshua Silverman, Office of Disability
Policy, Social Security Administration,
6401 Security Boulevard, Baltimore, MD
21235–6401, (410) 594–2128. For
information on eligibility or filing for
benefits, call our national toll-free
number 1–800–772, 1213, or TTY 1–
800–325–0778, or visit our Internet site,
Social Security Online, at https://
www.socialsecurity.gov.
SUMMARY:
Although
5 U.S.C. 552(a)(1) and (a)(2) do not
require us to publish this notice, we are
doing so in accordance with 20 CFR
402.35(b)(1).
Through SSRs, we make available to
the public precedential decisions
relating to the Federal old-age,
survivors, disability, supplemental
security income, and special veterans
benefits programs. We may base SSRs
on determinations or decisions made at
all levels of administrative adjudication,
Federal court decisions, Commissioner’s
decisions, opinions of the Office of the
General Counsel, or other
asabaliauskas on DSK3SPTVN1PROD with NOTICES
SUPPLEMENTARY INFORMATION:
34 17
CFR 200.30–3(a)(12).
VerDate Sep<11>2014
18:02 Mar 24, 2017
Jkt 241001
interpretations of the law and
regulations.
We are rescinding the following SSRs:
• SSR 96–2p: Titles II and XVI:
Giving Controlling Weight to Treating
Source Medical Opinions.
• SSR 96–5p: Titles II and XVI:
Medical Source Opinions on Issues
Reserved to the Commissioner.
• SSR 06–03p: Titles II and XVI:
Considering Opinions and Other
Evidence from Sources Who Are Not
‘‘Acceptable Medical Sources’’ in
Disability Claims; Considering
Decisions on Disability by Other
Governmental and Nongovernmental
Agencies.
These three SSRs are inconsistent or
unnecessarily duplicative with our
recent final rules, Revisions to Rules
Regarding the Evaluation of Medical
Evidence, published in the Federal
Register on January 18, 2017 (82 FR
5844).
SSR 96–2p explained how
adjudicators should evaluate medical
opinions from treating sources,
including when it is appropriate to give
controlling weight to medical opinions
from treating sources. The final rules
revised these policies for claims filed on
or after March 27, 2017, in several ways.
For example, adjudicators will not
assign a weight, including controlling
weight, to any medical opinion for
claims filed on or after March 27, 2017.
Therefore, this SSR is inconsistent with
the final rules.
SSR 96–5p explained how
adjudicators should consider and
articulate their consideration of medical
source opinions on issues reserved to
the Commissioner in the notice of the
determination or decision. The final
rules revised these policies for claims
filed on or after March 27, 2017, in
several ways. For example, in claims
filed on or after March 27, 2017,
adjudicators will not provide any
articulation about their consideration of
this evidence because it is inherently
neither valuable nor persuasive to us.
Therefore, this SSR is inconsistent with
the final rules.
SSR 06–03p explained how we
consider opinions and other evidence
from sources who are not acceptable
medical sources and how we consider
decisions by other governmental and
nongovernmental agencies on the issue
of disability or blindness. The final
rules revised these policies for claims
filed on or after March 27, 2017, in
several ways. For example, in claims
filed on or after March 27, 2017, the
final rules state that all medical sources,
not just acceptable medical sources, can
make evidence that we categorize and
consider as medical opinions. Also, in
PO 00000
Frm 00085
Fmt 4703
Sfmt 4703
15263
claims filed on or after March 27, 2017,
the final rules state that adjudicators
will not provide any articulation about
their consideration of decisions from
other governmental agencies and
nongovernmental entities because this
evidence is inherently neither valuable
nor persuasive to us. Therefore, this SSR
is inconsistent with the final rules.
(Catalog of Federal Domestic Assistance,
Programs Nos. 96.001, Social Security—
Disability Insurance; 96.002, Social
Security—Retirement Insurance; 96.004,
Social Security—Survivors Insurance;
96.006—Supplemental Security Income.)
Nancy A. Berryhill,
Acting Commissioner of Social Security.
[FR Doc. 2017–05958 Filed 3–24–17; 8:45 am]
BILLING CODE 4191–02–P
SOCIAL SECURITY ADMINISTRATION
[Docket No. SSA–2012–0035]
Social Security Ruling (SSR) 17–2p:
Titles II and XVI: Evidence Needed by
Adjudicators at the Hearings and
Appeals Council Levels of the
Administrative Review Process To
Make Findings About Medical
Equivalence
Social Security Administration.
Notice of Social Security Ruling
AGENCY:
ACTION:
(SSR).
We are providing notice of
SSR 17–2p. This SSR provides guidance
about how adjudicators at the hearings
and Appeals Council (AC) levels of the
administrative review process make
findings about medical equivalence in
disability claims under titles II and XVI
of the Social Security Act.
DATES: Effective Date: March 27, 2017.
FOR FURTHER INFORMATION CONTACT:
Joshua Silverman, Office of Disability
Policy, Social Security Administration,
6401 Security Boulevard, Baltimore, MD
21235–6401, (410) 594–2128. For
information on eligibility or filing for
benefits, call our national toll-free
number 1–800–772, 1213, or TTY 1–
800–325–0778, or visit our Internet site,
Social Security Online, at https://
www.socialsecurity.gov.
SUPPLEMENTARY INFORMATION: Although
5 U.S.C. 552(a)(1) and (a)(2) do not
require us to publish this SSR, we are
doing so in accordance with 20 CFR
402.35(b)(1).
Through SSRs, we make available to
the public precedential decisions
relating to the Federal old-age,
survivors, disability, supplemental
security income, and special veterans
benefits programs. We may base SSRs
on determinations or decisions made at
SUMMARY:
E:\FR\FM\27MRN1.SGM
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]]>Agencies
[Federal Register Volume 82, Number 57 (Monday, March 27, 2017)]
[Notices]
[Pages 15258-15263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-05919]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-80282; File No. SR-BX-2017-013]
Self-Regulatory Organizations; NASDAQ BX, Inc.; Notice of Filing
of Proposed Rule Change, as Modified by Amendment No. 1, To Shorten the
Settlement Cycle From T+3 to T+2
March 21, 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 March 9, 2017, NASDAQ BX, Inc. (``BX'' or ``Exchange'') filed with
the Securities and Exchange Commission (``SEC'' or ``Commission'') the
proposed rule change as described in Items I, II, and III, below, which
Items have been prepared by the Exchange. On March 13, 2017, the
Exchange filed Amendment No. 1.\3\ The Commission is publishing this
notice to solicit comments on the proposed rule change, as modified by
Amendment No. 1, from interested persons.
---------------------------------------------------------------------------
\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ In Amendment No. 1, the Exchange proposes to capitalize the
letter ``d'' in the word ``department'' in the proposed revisions to
Rule 11140(b)(1), as set forth in Exhibit 5 to the filing, to
conform to the Exchange's current rule text.
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend BX 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 SEA Rule 15c6-1(a) 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'') and the industry-led
initiative to shorten the settlement cycle from T+3 to T+2.\4\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 78962 (September 28,
2016), 81 FR 69240 (October 5, 2016) (Amendment to Securities
Transaction Settlement Cycle) (File No. S7-22-16) (``SEC Proposing
Release'').
---------------------------------------------------------------------------
The text of the proposed rule change is available on the Exchange's
Web site at https://nasdaqbx.cchwallstreet.com/, at the principal office
of the Exchange, and at the Commission's Public Reference Room.
[[Page 15259]]
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 the
Statutory Basis for, the Proposed Rule Change
1. Purpose
SEC Proposing Release
On September 28, 2016, the Commission proposed amending SEA Rule
15c6-1(a) to shorten the standard settlement cycle for most broker-
dealer transactions from T+3 to T+2 on the basis that the shorter
settlement cycle would reduce the risks that arise from the value and
number of unsettled securities transactions prior to the completion of
settlement, including credit, market, and liquidity risk directly faced
by U.S. market participants.\5\ The proposed rule amendment was
published for comment in the Federal Register on October 5, 2016.\6\
---------------------------------------------------------------------------
\5\ See Securities and Exchange Commission Press Release 2016-
200: ``SEC Proposes Rule Amendment to Expedite Process for Settling
Securities Transactions'' (September 28, 2016).
\6\ See supra note 4.
---------------------------------------------------------------------------
Background
In 1995, the standard U.S. trade settlement cycle for equities,
municipal and corporate bonds, and unit investment trusts, and
financial instruments composed of these products was shortened from
five business days after the trade date (``T+5'') to T+3.\7\
Accordingly, BX and other self-regulatory organizations (``SROs'')
amended their respective rules to conform to the T+3 settlement
cycle.\8\ Since that time, the SEC and the financial services industry
have continued to explore the idea of shortening the settlement cycle
even further.\9\
---------------------------------------------------------------------------
\7\ In 1993, the Commission adopted SEA Rule 15c6-1 which became
effective in 1995. See Securities Exchange Act Release Nos. 33023
(October 6, 1993), 58 FR 52891 (October 13, 1993) and 34952
(November 9, 1994), 59 FR 59137 (November 16, 1994). SEA Rule 15c6-
1(a) provides, in relevant part, that ``a broker or dealer shall not
effect or enter into a contract for the purchase or sale of a
security (other than an exempted security, government security,
municipal security, commercial paper, bankers' acceptances, or
commercial bills) that provides for payment of funds and delivery of
securities later than the third business day after the date of the
contract unless otherwise expressly agreed to by the parties at the
time of the transaction.'' 17 CFR 240.15c6-1(a). Although not
covered by SEA Rule 15c6-1, in 1995, the Commission approved the
Municipal Securities Rulemaking Board's rule change requiring
transactions in municipal securities to settle by T+3. See
Securities Exchange Act Release No. 35427 (February 28, 1995), 60 FR
12798 (March 8, 1995) (Order Approving File No. SR-MSRB-94-10).
\8\ See, e.g., Securities Exchange Act Release No. 35507 (March
17, 1995), 60 FR15616 (March 24, 1995) (Order Approving File No. SR-
NASD-94-56); Securities Exchange Act Release No. 35506 (March 17,
1995), 60 FR 15618 (March 24, 1995) (Order Approving File No. SR-
NYSE-94-40); and Securities Exchange Act Release No. 35553 (March
31, 1995), 60 FR 18161 (April 10, 1995) (Order Approving File No.
SR-Amex-94-57).
\9\ See, e.g., Securities Industry Association (``SIA''), ``SIA
T+1 Business Case Final Report'' (July 2000); Concept Release:
Securities Transactions Settlement, Securities Exchange Act Release
No. 49405 (March 11, 2004), 69 FR 12922 (March 18, 2004); and
Depository Trust & Clearing Corporation, ``Proposal to Launch a New
Cost-Benefit Analysis on Shortening the Settlement Cycle'' (December
2011).
---------------------------------------------------------------------------
In April 2014, the Depository Trust & Clearing Corporation
(``DTCC'') published its formal recommendation to shorten the standard
U.S. trade settlement cycle to T+2 and announced that it would partner
with market participants and industry organizations to devise the
necessary approach and timelines to achieve T+2.\10\
---------------------------------------------------------------------------
\10\ See DTCC, ``DTCC Recommends Shortening the U.S. Trade
Settlement Cycle'' (April 2014).
---------------------------------------------------------------------------
In an effort to improve the overall efficiency of the U.S.
settlement system by reducing the attendant risks in T+3 settlement of
securities transactions, and to align U.S. markets with other major
global markets that have already moved to T+2, DTCC, in collaboration
with the financial services industry, formed an Industry Steering
Committee (``ISC'') and an industry working group and sub-working
groups to facilitate the move to T+2.\11\ In June 2015, the ISC
published a White Paper outlining the activities and proposed time
frames that would be required to move to T+2 in the U.S.\12\
Concurrently, the Securities Industry and Financial Markets Association
(``SIFMA'') and the Investment Company Institute (``ICI'') jointly
submitted a letter to SEC Chair White, expressing support of the
financial services industry's efforts to shorten the settlement cycle
and identifying SEA Rule 15c6-1(a) and several SRO rules that they
believed would require amendments for an effective transition to
T+2.\13\ In March 2016, the ISC announced the industry target date of
September 5, 2017 for the transition to a T+2 settlement cycle to
occur.\14\
---------------------------------------------------------------------------
\11\ The ISC includes, among other participants, DTCC, the
Securities Industry and Financial Markets Association and the
Investment Company Institute.
\12\ See ``Shortening the Settlement Cycle: The Move to T+2''
(June 18, 2015).
\13\ See Letter from ICI and SIFMA to Mary Jo White, Chair, SEC,
dated June 18, 2015. See also Letter from Mary Jo White, Chair to
Kenneth E. Bentsen, Jr., President and CEO, SIFMA, and Paul Schott
Stevens, President and CEO, ICI, dated September 16, 2015
(expressing her strong support for industry efforts to shorten the
trade settlement cycle to T+2 and commitment to developing a
proposal to amend SEA Rule 15c6-1(a) to require standard settlement
no later than T+2).
\14\ See ISC Media Alert: ``US T+2 ISC Recommends Move to
Shorter Settlement Cycle On September 5, 2017'' (March 7, 2016).
---------------------------------------------------------------------------
Proposed Rule Change
In light of the SEC Proposing Release that would amend SEA Rule
15c6-1(a) to require standard settlement no later than T+2 and similar
proposals from other SROs,\15\ BX is proposing changes to its rules
pertaining to securities settlement by, among other things, amending
the definition of ``standard'' settlement as occurring on T+2. SEA Rule
15c6-1(a) currently establishes ``standard'' settlement as occurring no
later than T+3 for all securities, other than an exempt security,
government security, municipal security, commercial paper, bankers'
acceptances, or commercial bills.\16\ BX is proposing changes to rules
pertaining to securities settlement to support the industry-led
initiative to shorten the standard settlement cycle to two business
days. Most of the rules that BX has identified for these changes are
successors to provisions under the legacy NASD Rules of Fair Practice
and NASD Uniform Practice Code (``UPC'') that were amended when the
Commission adopted SEA Rule 15c6-1(a), which established T+3 as the
standard settlement cycle.\17\ As such, BX is proposing to amend BX
Rules 11140 (Transactions in Securities ``Ex-
[[Page 15260]]
Dividend,'' ``Ex-Rights'' or ``Ex-Warrants''), 11150 (Transactions
``Ex- Interest'' in Bonds Which Are Dealt in ``Flat''), 11320 (Dates of
Delivery), and 11620 (Computation of Interest). In addition, BX is
proposing to amend BX Rules 11210 (Sent by Each Party) and IM-11810
(Sample Buy-In Forms) to conform provisions, where appropriate, to the
T+2 settlement cycle.\18\
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\15\ See, e.g., Securities Exchange Act Release No. 77744 (April
29, 2016), 81 FR 26851 (May 4, 2016) (Order Approving File No. SR-
MSRB-2016-04).
\16\ See supra note 7.
\17\ The legacy NASD rules that were changed to conform to the
move from T+5 to T+3 included Section 26 (Investment Companies) of
the Rules of Fair Practice, and Section 5 (Transactions in
Securities ``Ex-Dividend,'' ``Ex-Rights'' or ``Ex- Warrants''),
Section 6 (Transactions ``Ex-Interest'' in Bonds Which Are Dealt in
``Flat''), Section 12 (Dates of Delivery), Section 46 (Computation
of Interest) and Section 64 (Acceptance and Settlement of COD
Orders) of the UPC. See Securities Exchange Act Release No. 35507
(March 17, 1995), 60 FR 15616 (March 24, 1995) (Order Approving File
No. SR-NASD-94-56). See also Notice to Members 95-36 (May 1995)
(enumerating the various sections under the NASD Rules of Fair
Practice and UPC that were amended to implement T+3 settlement for
securities transactions).
\18\ BX Rules 11210 and IM-11810 are successors to legacy NASD
UPC Section 9 (Sent by Each Party) and 59 (``Buying-in''),
respectively, which remained unchanged during the transition from
T+5 to T+3. See supra note 17.
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The details of the proposed rule change are described below.
(1) BX Rule 11140 (Transactions in Securities ``Ex-Dividend,'' ``Ex-
Rights'' or ``Ex-Warrants'')
Rule 11140(b)(1) provides that for dividends or distributions, and
the issuance or distribution of warrants, that are less than 25 percent
of the value of the subject security, if definitive information is
received sufficiently in advance of the record date, the date
designated as the ``ex-dividend date'' shall be 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 Exchange's Regulation Department \19\ as a
non-delivery date. BX is proposing to shorten the time frames in Rule
11140(b)(1) by one business day.
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\19\ See supra note 3.
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(2) BX Rule 11150 (``Ex-Interest'' in Bonds Which Are Dealt in
``Flat'')
Rule 11150(a) prescribes the manner for establishing ``ex-interest
dates'' for transactions in bonds or other similar evidences of
indebtedness which are traded ``flat.'' Such transactions 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, or on the third business day preceding the date on
which an interest payment is to be made if no record date has been
fixed. BX is proposing to shorten the time frames in Rule 11150(a) by
one business day.
(3) BX Rule 11210 (Sent by Each Party)
Paragraphs (c) and (d) of Rule 11210 set forth the ``Don't Know''
(``DK'') voluntary procedures for using ``DK Notices'' or other forms
of notices, respectively. Depending upon the notice used, a confirming
member may follow the ``DK'' procedures when it sends a comparison or
confirmation of a trade (other than one that clears through the
National Securities Clearing Corporation (``NSCC'') or other registered
clearing agency), 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 (``T+4''). The
procedures generally provide that after T+4, the confirming member
shall send a ``DK Notice'' (or similar notice) to the contra-member.
The contra-member then has four business days after receipt of the
confirming member's notice to either confirm or ``DK'' the transaction.
BX is proposing to amend paragraphs (c) and (d) of Rule 11210 to
provide that the ``DK'' procedures may be used by the confirming member
if it does not receive a comparison or confirmation or signed ``DK''
from the contra-member by the close of one business day following the
trade date of the transaction, rather than the current T+4.\20\ In
addition, BX is proposing amendments to paragraphs (c)(2)(A), (c)(3),
and (d)(5) of Rule 11210 to adjust the time in which a contra-member
has to respond to a ``DK Notice'' (or similar notice) from four
business days after the contra-member's receipt of the notice to two
business days.
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\20\ As stated above, the time frames in Rule 11210 remained
unchanged during the transition from T+5 to T+3. In light of the
industry-led initiative to shorten the standard settlement cycle and
the SEC Proposing Release to amend SEA Rule 15c6-1(a) to establish
T+2 as the standard settlement for most broker dealer transactions,
the Exchange believes that the current time frames in Rule 11210 are
more protracted than necessary even in a T+3 environment and as
such, the Exchange is proposing to amend these time frames to
reflect more current industry practices.
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(4) BX Rule 11320 (Dates of Delivery)
Rule 11320 prescribes delivery dates for various transactions.
Paragraph (b) states that for a ``regular way'' transaction, delivery
must be made on, but not before, the third business day after the date
of the transaction. BX is proposing to amend Rule 11320(b) to change
the reference to third business day to second business day. Paragraph
(c) provides that in a ``seller's option'' transaction, delivery may be
made by the seller on any business day after the third business day
following the date of the transaction. BX is proposing to amend Rule
11320(c) to change the reference to third business day to second
business day.
(5) BX Rule 11620 (Computation of Interest)
In the settlement of contracts in interest-paying securities other
than for cash, Rule 11620(a) requires the calculation of interest at
the rate specified in the security up to, but not including, the third
business day after the date of the transaction. The proposed amendment
would shorten the time frame to the second business day. In addition,
the proposed amendment would make non-substantive technical changes to
the title of paragraph (a).
(6) BX Rule IM-11810 (Sample Buy-In Forms)
Rule IM-11810(i)(1)(A) sets forth the fail-to-deliver and liability
notice procedures where a securities contract is for warrants, rights,
convertible securities or other securities which have been called for
redemption; are due to expire by their terms; are the subject of a
tender or exchange offer; or are subject to other expiring events such
as a record date for the underlying security and the last day on which
the securities must be delivered or surrendered is the settlement date
of the contract or later.\21\
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\21\ Rule IM-11810(i) is the successor to legacy NASD UPC
Section 59(i) (Failure to Deliver and Liability Notice Procedures).
When this provision was added to NASD's existing close-out
procedures in 1984, it was drafted to be similar to the liability
notice provisions adopted by the NSCC so that members that were also
participants in NSCC could use the same procedures for both ex-
clearing and NSCC cleared transactions, thereby simplifying members'
back office procedures.
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Under Rule IM-11810(i)(1)(A), the receiving member delivers a
liability notice to the owing counterparty. The liability notice sets a
cutoff date for the delivery of the securities by the counterparty and
provides notice to the counterparty of the liability attendant to its
failure to deliver the securities in time. If the owing counterparty,
or delivering member, delivers the securities in response to the
liability notice, it has met its delivery obligation. If the delivering
member fails to deliver the securities on the expiration date, it will
be liable for any damages that may accrue thereby.
Rule IM-11810(i)(1)(A) further provides that when both parties to a
contract are participants in a registered clearing agency that has an
automated liability notification service, transmission of the liability
notice must be accomplished through such system.\22\ When the parties
to a contract are not
[[Page 15261]]
both participants in a registered clearing agency that has an automated
liability notification service, such notice must be issued using
written or comparable electronic media having immediate receipt
capabilities not 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.\23\
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\22\ In 2007, NYSE Rule 180 was amended to require that when the
parties to a failed contract were both participants in a registered
clearing agency that had an automated service for notifying a
failing party of the liability that will be attendant to a failure
to deliver and the contract was to be settled through the facilities
of that registered clearing agency, the transmission of the
liability notification must be accomplished through the use of the
registered clearing agency's automated liability notification
system. See Securities Exchange Act Release No. 55132 (January 19,
2007), 72 FR 3896 (January 26, 2007) (Order Approving File No. SR-
NYSE-2006-57).
\23\ While Rule IM-11810 has undergone amendments over the
years, the one-day time frame in paragraph (j) has remained
unchanged. The one-day time frame also appears in comparable
provisions of other SROs. See, e.g., NSCC Rules & Procedures,
Procedure X (Execution of Buy-Ins) (Effective August 10, 2016); NYSE
Rule 282.65 (Fail to Deliver and Liability Notice Procedures). See
also infra note 31 and accompanying text.
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Given the proposed shortened settlement cycle, BX is proposing to
amend Rule IM-11810(i)(1)(A) in situations where both parties to a
contract are not participants of a registered clearing agency with an
automated notification service, by extending the time frame for
delivery of the liability notice. Rule IM-11810(i)(1)(A) would be
amended to provide that in such cases, the receiving member must send
the liability notice to the delivering member 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 to obtain the
protection provided by the Rule. BX believes that extending the time
given to the receiving member to transmit liability notifications will
maintain the efficiency of the notification process while mitigating
the possible overuse of such notifications.
Currently, BX understands that the identity of the counterparty, or
delivering member, becomes known to the receiving member by mid-day on
the business day after trade date (``T+1''), and by that time, the
receiving member will generally also know which transactions are
subject to an event identified in Rule IM-11810(i)(1)(A) that would
prompt the receiving member to issue a liability notice to the
delivering member. BX believes that the receiving member regularly
issues liability notices to the seller or other parties from which the
securities involved are due when the security is subject to an event
identified in Rule IM-11810(i)(1)(A) during the settlement cycle as a
way to mitigate the risk of a potential fail-to-deliver. In the current
T+3 settlement environment, the one business day time frame gives the
receiving member the requisite time needed to identify the parties
involved and undertake the liability notification process.
However, BX believes that the move to a T+2 settlement environment
will create inefficiencies in the liability notification process under
Rule IM-11810(i)(1)(A) when both parties to a contract are not
participants in a registered clearing agency with an automated
notification service. The shorter settlement cycle, with the loss of
one business day, would not afford the receiving member sufficient time
to: (1) Ascertain that the securities are subject to an event listed in
Rule IM-11810(i)(1)(A) during the settlement cycle; (2) identify the
delivering member and other parties from which the securities involved
are due; and (3) determine the likelihood that such parties may fail to
deliver. Where the receiving member has sufficient time (e.g., one
business day after), it can transmit liability notices as needed to the
right parties. However, as a consequence of the shortened settlement
cycle, the receiving member would be compelled to issue liability
notices proactively to all potentially failing parties as a matter of
course to preserve its rights against such parties without the benefit
of knowing which transactions would actually necessitate the delivery
of such notice. This would create a significant increase in the volume
of liability notices members send and receive, many of which may be
unnecessary. Members would then have to manage this overabundance of
liability notices, increasing the possibility of errors, which would
adversely impact the efficiency of the process. Therefore, BX believes
its proposal to extend the time for the receiving member to deliver a
liability notice when the parties to a contract are not both
participants in a registered clearing agency with an automated
notification service would help alleviate the potential burden on the
liability notification process in a T+2 settlement environment.
Implementation
BX will announce the operative 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
compliance date of the proposed amendment to SEA Rule 15c6-1(a) that
the Commission may adopt, to require standard settlement no later than
T+2.\24\
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\24\ See supra note 4.
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2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\25\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\26\ in particular, in that it is designed 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, and, in general, to protect investors and
the public interest. The Exchange believes that the proposed rule
change supports the supports the industry-led initiative to shorten the
settlement cycle to two business days. Moreover, the proposed rule
change is consistent with the SEC's proposed amendment to SEA Rule
15c6-1(a) to require standard settlement no later than T+2. BX believes
that the proposed rule change will provide the regulatory certainty to
facilitate the industry-led move to a T+2 settlement cycle. As noted
herein, upon approval, BX will announce the operative 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 compliance date of the Commission's proposed
amendment to SEA Rule 15c6-1(a) to require standard settlement no later
than T+2.
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\25\ 15 U.S.C. 78f(b).
\26\ 15 U.S.C. 78f(b)(5).
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B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposed rule change makes
changes to rules pertaining to securities settlement and is intended to
facilitate the implementation of the industry-led transition to a T+2
settlement cycle. Moreover, the proposed rule changes are consistent
with the SEC's proposed amendment to SEA Rule 15c6-1(a) to require
standard settlement no later than T+2. Accordingly, BX believes that
the proposed changes do not impose any burdens on the industry in
addition to those necessary to implement amendments to SEA Rule 15c6-
1(a) as described and enumerated in the SEC Proposing Release.\27\
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\27\ See supra note 4.
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These conforming changes include changes to rules that specifically
establish the settlement cycle as well as rules that establish time
frames based on settlement dates, including for certain post-settlement
rights and obligations. BX believes that the proposed changes set forth
in the filing are necessary to
[[Page 15262]]
support a standard settlement cycle across the U.S. for secondary
market transactions in equities, corporate and municipal bonds, unit
investment trusts, and financial instruments composed of these
products, among other things.\28\ A standard U.S. settlement cycle for
such products is critical for the operation of fair and orderly
markets.
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\28\ See supra note 4.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
A previous version of the proposed rule change was published for
comment in Equity Regulatory Alert 2016-4 on May 18, 2016. Two comments
were received in response to the Regulatory Alert.\29\ A copy of the
Regulatory Alert is attached as Exhibit 2a.\30\ Copies of the comment
letters received in response to the Regulatory Notice are attached as
Exhibits 2d and a list of comments is attached as Exhibit 2c.
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\29\ See Letter from Martin A. Burns, Chief Industry Operations
Officer, Investment Company Institute to John Zecca, Senior Vice
President, Marketwatch dated June 8, 2016 (``ICI''); letter from
Thomas F. Price, Managing Director, Operations, Securities Industry
and Financial Markets Association, to John Zecca, Senior Vice
President Market Watch dated June 8, 2016 (``SIFMA'').
\30\ The Commission notes that the exhibits referred to are
attached to the filing and not to this Notice.
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Both of the letters received expressed support for the industry led
move to T+2 stating, among other benefits, that the move will align
U.S. markets with international markets that already work in the T+2
environment, improve the overall efficiency and liquidity of the
securities markets, and the stability of the financial system by
reducing counterparty risk and pro-cyclical and liquidity demands, and
decreasing clearing capital requirements. SIFMA also provided their
view on the proposed amendments to two rules under the BX Rule 11800
Series (Buying In).
BX Rule IM-11810(i)--Sample Buy-In Forms
In its comment letter, SIFMA raised a concern with the one-day time
frame in Rule IM-11810(i)(1)(A), asserting that the requirement for the
delivering member to deliver a liability notice to the receiving member
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 may no longer be appropriate in a T+2 environment in some
situations such as where the delivery obligation is transferred to
another party as a result of continuous net settlement, settlements
outside of the NSCC, and settlements involving a third party that is
not a BX member firm. SIFMA noted that NYSE Rule 180 (Failure to
Deliver) includes a similar requirement for NYSE member firms that are
participants in a registered clearing agency to transmit liability
notification through an automated notification service and proposed
amending Rule IM-11810(i)(1)(A) to omit the reference to a notification
time frame, which would align with NYSE Rule 180.\31\ In the
alternative, SIFMA proposed amending Rule IM-11810(i)(1)(A) to require
that the liability notice be delivered in a ``reasonable amount of
time'' ahead of the settlement obligation in light of facts and
circumstances. SIFMA maintained that under either proposed amendment to
paragraph (j), the delivering member would be liable for any damages
caused by its failure to deliver in a timely fashion.
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\31\ See NYSE Rule 180 (Failure to Deliver) providing in part
that ``[w]hen the parties to a contract are both participants in a
registered clearing agency which has an automated service for
notifying a failing party of the liability that will be attendant to
a failure to deliver and that contract was to be settled through the
facilities of said registered clearing agency, the transmission of
the liability notification must be accomplished through use of said
automated notification service.'' BX notes that NYSE Rule 180 does
not address the transmission of the liability notification for
parties to a contract that are not both participants in a registered
clearing agency (or non-participants). The transmission of the
liability notification for non-participants is addressed under NYSE
Rule 282.65 (Failure to Deliver and Liability Notice Procedures).
See supra note 23.
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While BX did not initially propose amendments to Rule IM-11810 for
the T+2 initiative,\32\ in light of SIFMA's concern regarding Rule IM-
11810(i)(1)(A), BX is proposing to amend the Rule to provide that,
where both parties to a contract are not participants of a registered
clearing agency with an automated notification service, the receiving
member must send the liability notice to the delivering member 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 to
obtain the protection provided by the Rule.\33\
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\32\ See Equity Regulatory Alert 2016-4.
\33\ BX expects similar amendments to other comparable SRO
provisions in NYSE Rule 282.65 (Fail to Deliver and Liability Notice
Procedures) and FINRA Rule 11810 (Buying-in), and NSCC Rules &
Procedures, Procedure X (Execution of Buy-Ins) to address SIFMA's
concern about the one-day notification time frame.
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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 (i) as the Commission may
designate up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding or (ii) as to
which the Exchange consents, the Commission shall: (a) By order approve
or disapprove such proposed rule change, or (b) institute proceedings
to determine whether the proposed rule change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change, as modified by Amendment No. 1, 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-BX-2017-013 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
All submissions should refer to File Number SR-BX-2017-013. 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
[[Page 15263]]
inspection and copying at the principal office of the Exchange. All
comments received will be posted without change; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly. All
submissions should refer to File Number SR-BX-2017-013, and should be
submitted on or before April 17, 2017.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\34\
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\34\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-05919 Filed 3-24-17; 8:45 am]
BILLING CODE 8011-01-P
