Securities Transaction Settlement Cycle, 26347-26349 [2018-12267]

Agencies

• FEDERAL DEPOSIT INSURANCE CORPORATION
• Office of the Comptroller of the Currency
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 83, Number 110 (Thursday, June 7, 2018)]
[Rules and Regulations]
[Pages 26347-26349]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-12267]



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Rules and Regulations
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains regulatory documents 
having general applicability and legal effect, most of which are keyed 
to and codified in the Code of Federal Regulations, which is published 
under 50 titles pursuant to 44 U.S.C. 1510.

The Code of Federal Regulations is sold by the Superintendent of Documents. 

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Federal Register / Vol. 83 , No. 110 / Thursday, June 7, 2018 / Rules 
and Regulations

[[Page 26347]]



DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

12 CFR Parts 12 and 151

[Docket ID OCC-2017-0013]
RIN 1557-AE24

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Part 344

RIN 3064-AE64


Securities Transaction Settlement Cycle

AGENCY: Office of the Comptroller of the Currency, Treasury (``OCC''); 
and Federal Deposit Insurance Corporation (``FDIC'').

ACTION: Final rule.

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SUMMARY: The OCC and the FDIC (``Agencies'') are adopting a final rule 
to shorten the standard settlement cycle for securities purchased or 
sold by national banks, federal savings associations, and FDIC-
supervised institutions. The Agencies' final rule is consistent with an 
industry-wide transition to a two business-day settlement cycle, which 
is designed to reduce settlement exposure and align settlement 
practices across all market participants.

DATES: This final rule is effective October 1, 2018.

FOR FURTHER INFORMATION CONTACT: 
    OCC: David Stankiewicz, Special Counsel, Securities and Corporate 
Practices Division, (202) 649-5510; Daniel Perez, Attorney, Legislative 
and Regulatory Activities Division, (202) 649-5490 or, for persons who 
are deaf or hearing-impaired, TTY, (202) 649-5597; or Patricia Dalton, 
Technical Expert, Asset Management Group, Market Risk, at (202) 649-
6360.
    FDIC: Thomas F. Lyons, Chief, (202) 898-6850; Michael W. Orange, 
Senior Trust Examination Specialist, (678) 916-2289, Policy & Program 
Development, Risk Management Policy Branch, Division of Risk Management 
Supervision; Annmarie H. Boyd, Counsel, (202) 898-3714; Benjamin J. 
Klein, Counsel, (202) 898-7027, Bank Activities Unit, Supervision and 
Legislation Branch, Legal Division.

SUPPLEMENTARY INFORMATION:

I. Background

    On September 5, 2017, the securities industry in the United States 
transitioned from a standard securities settlement cycle of three 
business days after the date of the contract, commonly known as 
``T+3,'' to a two-business day standard, or ``T+2.'' The transition was 
the culmination of a multi-year securities industry initiative and rule 
changes implemented by the U.S. Securities and Exchange Commission and 
securities self-regulatory organizations (such as the Financial 
Industry Regulatory Authority and the Municipal Securities Rulemaking 
Board). In connection with the transition to T+2, on June 9, 2017, the 
OCC issued Bulletin 2017-22, which notified national banks, federal 
savings associations (``FSAs''), federal branches, and federal agencies 
(together, ``OCC-supervised institutions'') that they should be in 
compliance with T+2 as of September 5, 2017. The FDIC issued similar 
guidance applicable to FDIC-supervised institutions \1\ through 
Financial Institution Letter 32-2017 on July 26, 2017.
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    \1\ ``FDIC-supervised institution'' means any insured depository 
institution for which the FDIC is the appropriate Federal banking 
agency pursuant to section 3(q) of the Federal Deposit Insurance 
Act, 12 U.S.C. 1813(q). 12 CFR 344.3(h). Pursuant to section 3(q), 
the FDIC is the appropriate Federal banking agency with respect to: 
(1) Any State nonmember insured bank; (2) any foreign bank having an 
insured branch; and (3) any State savings association. 12 U.S.C. 
1813(q)(2).
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    Regulations governing recordkeeping and confirmation requirements 
for the securities transactions of national banks and FSAs, both for 
the bank's own account and for customers, are set out in parts 12 and 
151 of the OCC's regulations, respectively. Regulations governing the 
same for FDIC-supervised institutions are set out in part 344 of the 
FDIC's regulations. These regulations require that banks generally not 
effect or enter into a contract for the purchase or sale of a security 
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.

II. Notice of Proposed Rulemaking

    On September 11, 2017, the Agencies published in the Federal 
Register a notice of proposed rulemaking that would amend regulations 
applicable to OCC-supervised institutions and FDIC-supervised 
institutions (together, ``banks'') by aligning those regulations with 
T+2.\2\ In the notice of proposed rulemaking, the Agencies proposed to 
amend their respective regulations by directly changing the settlement 
period applicable to banks from three business days to two. The 
Agencies also proposed an alternative approach, which would achieve the 
same immediate result but operate by tying the settlement period 
applicable to banks to the ``standard settlement cycle followed by 
registered broker dealers in the United States.''
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    \2\ 82 FR 42619 (Sep. 11, 2017).
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    The Agencies received three responses to their request for comment. 
The Investment Company Institute (``ICI'') and the Securities Industry 
and Financial Markets Association (``SIFMA'') both ``strongly'' 
supported the proposal as a path to aligning the Agencies' regulations 
with those applicable to other market participants in the United 
States. A third commenter, an individual, also expressed support for 
the final rule. Both ICI and SIFMA expressed a preference for the 
alternative approach. After considering these comments, the Agencies 
decided to adopt the alternative approach in order to maintain 
alignment more readily between the settlement period applicable to 
banks and the standard settlement cycle followed by registered broker 
dealers in the United States.

III. Description of the Final Rule

    The final rule will require banks to settle most securities 
transactions within the number of business days in the ``standard 
settlement cycle followed by registered broker dealers in the United 
States'' unless otherwise agreed to by the parties at the time of the 
transaction. Banks will be able to determine the number of business 
days in the standard settlement cycle

[[Page 26348]]

followed by registered broker dealers in the United States by 
referencing SEC Rule 15c6-1, 17 CFR 240.15c6-1(a). Effective September 
5, 2017, and as of the date of publication of this final rule, the 
standard settlement cycle followed by registered broker dealers in the 
United States is two business days after the date of the contract.
    The final rule amends the OCC and FDIC regulations at parts 12, 
151, and 344, which govern the recordkeeping and confirmation 
requirements for bank securities transactions. In order to accommodate 
the change described above, the Agencies made certain additional, 
purely editorial changes to the language of these parts. The additional 
changes were intended to make the regulations easier to follow and 
understand in light of the revisions necessary to implement the 
alternative approach.
    The effective date for this final rule is October 1, 2018. The 
Agencies understand that, consistent with the industry's transition to 
T+2, banks are already in compliance with a two-day settlement standard 
as a practical matter.

IV. Regulatory Analysis

Paperwork Reduction Act

    Under the Paperwork Reduction Act (``PRA''), 44 U.S.C. 3501-3520, 
the Agencies may not conduct or sponsor, and a person is not required 
to respond to, an information collection unless the information 
collection displays a valid Office of Management and Budget (``OMB'') 
control number. This final rule does not introduce or change any 
collections of information; therefore, it does not require a submission 
to OMB. The Agencies invited comment on their PRA determination when 
issuing the proposed rule, and no responsive comments were received.

Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq. (``RFA''), 
requires an agency, in connection with a final rule, to prepare a Final 
Regulatory Flexibility Analysis describing the impact of the rule on 
small entities (defined by the Small Business Administration (``SBA'') 
for purposes of the RFA to include banking entities with total assets 
of $550 million or less) or to certify that the rule would not have a 
significant economic impact on a substantial number of small entities.
    FDIC: For the reasons described below and pursuant to section 
605(b) of the RFA, the FDIC certifies that the final rule will not have 
a significant economic impact on a substantial number of small 
entities.
    As of December 31, 2017, the FDIC supervises 3,643 depository 
institutions, of which 2,924 are defined as small banking entities by 
the terms of the RFA. The transition of the standard settlement cycle 
to two days will reduce by one day the settlement time of transactions 
for equities, corporate bonds, municipal bonds, unit investment trusts, 
mutual funds, exchange-traded funds, exchange-traded products, American 
depository receipts, options, rights, and warrants. According to recent 
Call Report data, 2,565 FDIC-supervised small entities reported holding 
some volume of equities that are likely to be affected by the new 
securities settlement cycle, provide custodial banking services, or 
possess a subsidiary classified as a securities dealer.
    The effects on small entities will vary according to the degree of 
participation in securities transactions. According to recent Call 
Report data one small entity identified itself as providing custodial 
banking services, while seven small entities have a subsidiary 
classified as a securities dealer according to data from the Federal 
Reserve's National Information Center.
    As discussed above, because the industry has already implemented 
the practice of a standard settlement cycle, currently consisting of 
two days, and because the final rule does not contain any new 
recordkeeping, reporting, or compliance requirements, the FDIC 
anticipates that it will not impose any significant additional costs on 
FDIC-supervised institutions. Thus, the final rule will not have a 
substantial impact on any FDIC-supervised small entities. Therefore, 
the FDIC certifies that the final rule would not have a significant 
economic impact on a substantial number of FDIC-supervised small 
entities.
    OCC: As of December 31, 2017, the OCC supervised approximately 886 
small entities.\3\ Because the final rule does not contain any new 
recordkeeping, reporting, or compliance requirements, the OCC 
anticipates that it will not impose costs on any OCC-supervised 
institutions. Further, OCC-supervised institutions were required to 
comply with the substance of the rule before the proposed rule was 
published in the Federal Register. Thus, the final rule will not have a 
substantial impact on any OCC-supervised small entities. Therefore, the 
OCC certifies that the final rule would not have a significant economic 
impact on a substantial number of OCC-supervised small entities.
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    \3\ The OCC calculated the number of small entities using the 
SBA's size thresholds for commercial banks and savings institutions, 
and trust companies, which are $550 million and $38.5 million, 
respectively. Consistent with the General Principles of Affiliation, 
13 CFR 121.103(a), the OCC counted the assets of affiliated 
financial institutions when determining whether to classify a 
national bank or federal savings association as a small entity. The 
OCC used December 31, 2017, to determine size because a ``financial 
institution's assets are determined by averaging the assets reported 
on its four quarterly financial statements for the preceding year.'' 
See footnote 8 of the SBA's Table of Size Standards.
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Unfunded Mandates Reform Act of 1995 Determination

    The OCC analyzed the final rule under the factors set forth in the 
Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1532). Under this 
analysis, the OCC considered whether the final rule includes a federal 
mandate that may result in the expenditure by state, local, and Tribal 
governments, in the aggregate, or by the private sector, of $100 
million or more in any one year (adjusted annually for inflation).
    The rule does not impose new mandates. Therefore, the OCC concludes 
that implementation of the rule will not result in an expenditure of 
$100 million or more annually by state, local, and tribal governments, 
or by the private sector.

Riegle Community Development and Regulatory Improvement Act

    The Riegle Community Development and Regulatory Improvement Act 
(``RCDRIA'') requires that the Agencies, in determining the effective 
date and administrative compliance requirements of new regulations that 
impose additional reporting, disclosure, or other requirements on 
insured depository institutions (``IDIs''), consider, consistent with 
principles of safety and soundness and the public interest, any 
administrative burdens that such regulations would place on depository 
institutions, including small depository institutions, and customers of 
depository institutions, as well as the benefits of such regulations. 
12 U.S.C. 4802. In addition, in order to provide an adequate transition 
period, new regulations that impose additional reporting, disclosures, 
or other new requirements on IDIs generally must take effect on the 
first day of a calendar quarter that begins on or after the date on 
which the regulations are published in final form.
    The final rule includes no additional reporting, disclosure, or 
other requirements on IDIs, including small depository institutions, 
nor on the customers of depository institutions. Therefore, the 
requirements of RCDRIA

[[Page 26349]]

do not apply. Nonetheless, the Agencies invited comment on any 
administrative burdens that the final rule would place on depository 
institutions, including small depository institutions, and customers of 
depository institutions. The Agencies did not receive any comments 
responsive to this issue.

Plain Language

    Section 722 of the Gramm-Leach-Bliley Act requires the Agencies to 
use plain language in all proposed and final rules published after 
January 1, 2000. When issuing a proposed rule, the Agencies invited 
comment on how to make this rule easier to understand. No comments 
responsive to this issue were received.

List of Subjects

12 CFR Parts 12 and 151

    Banks, Banking, Federal savings associations, National banks, 
Reporting and recordkeeping requirements, Securities.

12 CFR Part 344

    Banks, Banking, Reporting and recordkeeping requirements, Savings 
associations.

    OCC amends 12 CFR parts 12 and 151 and FDIC amends 12 CFR part 344 
as follows:

DEPARTMENT OF THE TREASURY

Office of the Comptroller of the Currency

PART 12--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR SECURITIES 
TRANSACTIONS

0
1. The authority citation for part 12 continues to read as follows:

    Authority: 12 U.S.C. 24, 92a, and 93a.


0
2. Section 12.9 is amended by revising paragraph (a) to read as 
follows:


Sec.  12.9  Settlement of securities transactions.

    (a) All contracts effected or entered into by a national bank for 
the purchase or sale of a security (other than an exempted security as 
defined in 15 U.S.C. 78c(a)(12), government security, municipal 
security, commercial paper, bankers' acceptances, or commercial bills) 
shall provide for completion of the transaction within the number of 
business days in the standard settlement cycle followed by registered 
broker dealers in the United States, unless otherwise agreed to by the 
parties at the time of the transaction. The number of business days in 
the standard settlement cycle shall be determined by reference to 
paragraph (a) of SEC Rule 15c6-1, 17 CFR 240.15c6-1(a).
* * * * *

PART 151--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR 
SECURITIES TRANSACTIONS

0
3. The authority citation for part 151 continues to read as follows:

    Authority: 12 U.S.C. 1462a, 1463, 1464, 5412(b)(2)(B).


0
4. Section 151.130 is amended by:
0
a. Republishing paragraph (a) introductory text.
0
b. Revising paragraphs (a)(1) and (a)(2);
0
c. Redesignating paragraph (a)(3) as (a)(4); and
0
d. Adding a new paragraph (a)(3).
    The revisions and addition are set forth below.


Sec.  151.130  When must I settle a securities transaction?

    (a) You may not effect or enter into a contract for the purchase or 
sale of a security that provides for payment of funds and delivery of 
securities later than the latest of:
    (1) The number of business days in the standard settlement cycle 
followed by registered broker dealers in the United States after the 
date of the contract. The number of business days in the standard 
settlement cycle shall be determined by reference to paragraph (a) of 
SEC Rule 15c6-1, 17 CFR 240.15c6-1(a);
    (2) The fourth business day after the contract, if the contract 
involves the sale for cash of securities that are priced after 4:30 
p.m. Eastern Standard Time on the date the securities are priced and 
are sold by an issuer to an underwriter under a firm commitment 
underwritten offering registered under the Securities Act of 1933, 15 
U.S.C. 77a, et seq., or are sold by you to an initial purchaser 
participating in the offering;
    (3) Such time as the SEC may specify pursuant to an order of 
exemption in accordance with paragraph (b)(2) of SEC Rule 15c6-1; or
* * * * *

FEDERAL DEPOSIT INSURANCE CORPORATION

PART 344--RECORDKEEPING AND CONFIRMATION REQUIREMENTS FOR 
SECURITIES TRANSACTIONS

0
5. The authority citation for part 344 continues to read as follows:

    Authority: 12 U.S.C. 1817, 1818, 1819, and 5412.


0
6. Section 344.7 is amended by revising paragraph (a) to read as 
follows:


Sec.  344.7  Settlement of securities transactions.

    (a) All contracts effected or entered into by an FDIC-supervised 
institution that provide for the purchase or sale of a security (other 
than an exempted security as defined in 15 U.S.C. 78c(a)(12), 
government security, municipal security, commercial paper, bankers' 
acceptances, or commercial bills) shall provide for completion of the 
transaction within the number of business days in the standard 
settlement cycle followed by registered broker dealers in the United 
States, unless otherwise agreed to by the parties at the time of the 
transaction. The number of business days in the standard settlement 
cycle shall be determined by reference to paragraph (a) of SEC Rule 
15c6-1, 17 CFR 240.15c6-1(a).
* * * * *

    Dated: May 29, 2018.
Joseph M. Otting,
Comptroller of the Currency.
    Dated at Washington, DC, this 31st of May 2018.

    By order of the Board of Directors.

Federal Deposit Insurance Corporation.
Robert E. Feldman,
Executive Secretary.
[FR Doc. 2018-12267 Filed 6-6-18; 8:45 am]
BILLING CODE 4810-33-P; 6714-01-P