Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rules To Conform to Exchange Act Rules 15c6-1 and 15c6-2 To Shorten the Standard Settlement Cycle for Most Broker-Dealer Transactions From Two Business Days After the Trade Date to One Business Day After the Trade Date, 85678-85683 [2023-26928]

Download as PDF 85678 Federal Register / Vol. 88, No. 235 / Friday, December 8, 2023 / Notices annual cost burden utilizing in-house counsel is $1,626.24.8 Written comments are invited on: (a) whether the proposed collection of information is necessary for the proper performance of the functions of the Commission, including whether the information shall have practical utility; (b) the accuracy of the Commission’s estimate of the burden of the collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted by February 6, 2024. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information under the PRA unless it displays a currently valid OMB control number. Please direct your written comments to: David Bottom, Director/Chief Information Officer, Securities and Exchange Commission, c/o John Pezzullo, 100 F Street NE, Washington, DC 20549 or send an email to: PRA_ Mailbox@sec.gov. Dated: December 5, 2023. Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–26990 Filed 12–7–23; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–99075; File No. SR–FINRA– 2023–017] Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rules To Conform to Exchange Act Rules 15c6–1 and 15c6–2 To Shorten the Standard Settlement Cycle for Most Broker-Dealer Transactions From Two Business Days After the Trade Date to One Business Day After the Trade Date khammond on DSKJM1Z7X2PROD with NOTICES December 4, 2023. Pursuant to Section 19(b)(1) 1 of the Securities Exchange Act of 1934 (‘‘Act’’) and Rule 19b–4 thereunder,2 notice is hereby given that on November 28, 2023, the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) filed with the Securities and Exchange Commission (‘‘SEC’’ or ‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by FINRA. FINRA has designated the proposed rule change as constituting a ‘‘non-controversial’’ rule change under paragraph (f)(6) of Rule 19b–4 under the Act,3 which renders the proposal effective upon receipt of this filing by the Commission. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, FINRA 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. FINRA has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change A. Self-Regulatory Organization’s Statement of the Purpose of, and the Statutory Basis for, the Proposed Rule Change FINRA is proposing to amend FINRA Rules 2341 (Investment Company Securities), 4515 (Approval and Documentation of Changes in Account Name or Designation), 6282 (Transactions Reported by Members to the ADF), 6380A (Transaction Reporting), 6380B (Transaction Reporting), 6622 (Transaction Reporting), 7140 (Trade Report Processing), 7240A (Trade Report Processing), 7340 (Trade Report Processing), 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), 11860 (COD Orders), 11893 (Clearly Erroneous Transactions in OTC Equity Securities), and 11894 (Review by the Uniform Practice Code (‘‘UPC’’) Committee) to conform to the Commission’s final amendments to Exchange Act Rule 15c6–1 and adoption of Exchange Act Rule 15c6–2 to shorten the standard settlement cycle for most broker-dealer transactions from two business days after the trade date (‘‘T+2’’) to one business day after the trade date (‘‘T+1’’).4 The text of the proposed rule change is available on FINRA’s website at https://www.finra.org, at the principal office of FINRA and at the Commission’s Public Reference Room. 3 17 CFR 240.19b–4(f)(6). Securities Exchange Act Release No. 96930 (February 15, 2023), 88 FR 13872 (March 6, 2023) (File No. S7–05–22) (Shortening the Securities Transaction Settlement Cycle) (‘‘SEC T+1 Adopting Release’’). The effective date of final Exchange Act Rules changes is May 5, 2023, and the compliance date is May 28, 2024. 4 See 8 This estimate is based on the following calculation: 3.36 (estimated total hours utilizing inhouse counsel) × $484 (hourly rate for an in-house counsel) = $1,626.24. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4. VerDate Sep<11>2014 16:50 Dec 07, 2023 Jkt 262001 PO 00000 Frm 00101 Fmt 4703 Sfmt 4703 1. Purpose Background In October 1993, the Commission adopted Exchange Act Rule 15c6–1 to shorten the standard U.S. trade settlement cycle for most securities transactions from five business days after the trade date (‘‘T+5’’) to three business days after the trade date (‘‘T+3’’).5 In March 2017, the Commission amended Exchange Act Rule 15c6–1 to further shorten the trade settlement cycle from T+3 to T+2.6 On both occasions, FINRA amended its settlement-related rules to conform to the Commission’s changes to the trade settlement cycle.7 5 See Securities Exchange Act Release No. 33023 (October 6, 1993), 58 FR 52891 (October 13, 1993) (File No. S7–5–93). The implementation date of Exchange Act Rule 15c6–1 was June 7, 1995. See Securities Exchange Act Release No. 34592 (November 9, 1994), 59 FR 59137 (November 16, 1994) (File No. S7–5–93). When adopted, Exchange Act Rule 15c6–1 prohibited broker-dealers from effecting or entering 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. Although not covered by Exchange Act Rule 15c6–1, in 1995, the Commission approved the Municipal Securities Rulemaking Board’s (‘‘MSRB’’) 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). 6 See Securities Exchange Act Release No. 80295 (March 22, 2017), 82 FR 15564 (March 29, 2017) (File No. S7–22–16). The compliance date for the T+2 settlement cycle was September 5, 2017. In April 2016, the Commission approved the MSRB’s rule change requiring transactions in municipal securities to settle by T+2. See Securities Exchange Act Release No. 77744 (April 29, 2016), 81 FR 26851 (May 4, 2016) (Order Approving File No. SR– MSRB–2016–04). 7 See Securities Exchange Act Release No. 35507 (March 17, 1995), 60 FR 15616 (March 24, 1995) E:\FR\FM\08DEN1.SGM 08DEN1 Federal Register / Vol. 88, No. 235 / Friday, December 8, 2023 / Notices khammond on DSKJM1Z7X2PROD with NOTICES Even before the adoption of the T+2 settlement cycle, the concept of a T+1 settlement cycle already was being considered.8 In this regard, the Depository Trust & Clearing Corporation (‘‘DTCC’’) published a white paper in February 2021 highlighting the benefits of moving to a T+1 settlement cycle, particularly in light of the unprecedented market activity and volatility that had occurred in 2020 and early 2021.9 Following the publication of the DTCC White Paper, the industry formed an Industry Steering Committee (‘‘ISC’’) 10 and an Industry Working Group (‘‘IWG’’) 11 to develop an industry consensus for the transition to a T+1 settlement cycle. In December 2021, SIFMA, ICI, DTCC, and Deloitte published a report summarizing the work conducted by the ISC and IWG and setting forth the ISC’s recommendations for transitioning to a T+1 settlement cycle.12 Thereafter, in August 2022, SIFMA, ICI, and Deloitte published a T+1 implementation playbook to help market participants prepare for the implementation of T+1 settlement.13 (Order Approving File No. SR–NASD–94–56); Securities Exchange Act Release No. 80004 (February 9, 2017), 82 FR 10835 (February 15, 2017) (Order Approving File No. SR–FINRA–2016–047) and Securities Exchange Act Release No. 80004A (March 6, 2017), 82 FR 13517 (March 13, 2017) (Correction to Order Approving File No. SR– FINRA–2016–047). Other self-regulatory organizations (‘‘SROs’’), including, as previously noted, the MSRB, also amended their rules to conform to the shortening of the settlement cycle to T+3 and then T+2. 8 See, e.g., Deloitte & Touche LLP (‘‘Deloitte’’), T+2 Industry Implementation Playbook (12/18/ 2015), https://www.ust2.com/pdfs/T2-Playbook-1221-15.pdf; Investor Advisory Committee, U.S. Securities and Exchange Commission Recommendation of the Investor Advisory Committee: Shortening the Settlement Cycle in U.S. Financial Markets (February 12, 2015), https:// www.sec.gov/spotlight/investor-advisorycommittee-2012/settlement-cycle-recommendationfinal.pdf. 9 See DTCC, Advancing Together: Leading the Industry to Accelerated Settlement (February 2021) (‘‘DTCC White Paper’’), https://www.dtcc.com/-/ media/Files/PDFs/White%20Paper/DTCCAccelerated-Settle-WP-2021.pdf. 10 Participants in the ISC include, among others, DTCC, the Securities Industry and Financial Markets Association (‘‘SIFMA’’), and the Investment Company Institute (‘‘ICI’’). See https:// www.dtcc.com/ust1. 11 The IWG included over 800 subject matter advisors representing over 160 firms from buy- and sell-side firms, custodians, vendors, and clearinghouses. See infra note 12. 12 See SIFMA, ICI, DTCC & Deloitte, Accelerating the U.S. Securities Settlement Cycle to T+1 (December 1, 2021), https://www.sifma.org/wpcontent/uploads/2021/12/Accelerating-the-U.S.Securities-Settlement-Cycle-to-T1-December-12021.pdf. 13 See SIFMA, ICI & Deloitte, T+1 Securities Settlement Industry Implementation Playbook (August 2022), https://www.sifma.org/wp-content/ uploads/2022/08/T1_Industry_Implementation_ Playbook.pdf. VerDate Sep<11>2014 16:50 Dec 07, 2023 Jkt 262001 On February 9, 2022, the Commission published a proposal to shorten the standard settlement cycle for most U.S. securities transactions from T+2 to T+1.14 In the SEC T+1 Proposing Release, the Commission noted its belief that shortening the settlement cycle from T+2 to T+1 can promote investor protection, reduce risk, and increase operational and capital efficiency. Moreover, the Commission noted that two episodes involving increased market volatility–the outbreak of the COVID–19 pandemic in March 2020 and the ‘‘meme’’ stock phenomenon in January 2021–refocused attention on a T+1 standard settlement cycle. In the SEC T+1 Proposing Release, the Commission further noted that substantial progress has been made toward identifying the technological and operational changes that are necessary to establish a T+1 settlement cycle, including the industry-level changes that would be necessary to transition from a T+2 standard to a T+1 standard settlement cycle. In proposing new Exchange Act Rule 15c6–2, the Commission stated that additional regulatory steps were ‘‘necessary to improve the processing of institutional transactions, advancing two other longstanding objectives shared by the Commission and the securities industry: the completion of trade allocations, confirmations, and affirmations on trade date (an objective often referred to as ‘‘same-day affirmation’’) and the straight-through processing of securities transactions.’’ 15 The Commission received numerous comment letters on the proposal, specifically regarding the proposed amendments to Exchange Act Rule 15c6–1 and proposed new Exchange Act Rule 15c6–2.16 Following consideration of the comments, on February 15, 2023, the Commission adopted final rules to shorten the standard settlement cycle for most U.S. securities transactions from T+2 to T+1.17 In addition to the amendments to Exchange Act Rule 15c6–1 to shorten the settlement cycle, the Commission adopted new Exchange Act Rule 15c6–2 regarding same-day allocations and affirmations. Final Exchange Act Rule 15c6–1 requires most broker-dealer transactions to settle by T+1, subject to certain 14 See Securities Exchange Act Release No. 94196 (February 9, 2022), 87 FR 10436 (February 24, 2022) (File No. S7–05–22) (‘‘SEC T+1 Proposing Release’’). 15 See SEC T+1 Adopting Release, supra note 4, 88 FR 13872, 13873. 16 Copies of all comment letters received by the Commission are available at https://www.sec.gov/ comments/s7-05-22/s70522.htm. 17 See supra note 4. PO 00000 Frm 00102 Fmt 4703 Sfmt 4703 85679 exceptions. Final Exchange Act Rule 15c6–2 addresses same day allocations, confirmations and affirmations to improve institutional trades and straight-through processing. Certain transactions, primarily involving institutional trades, require post-trade exchange of confirmations and affirmations, in order for the parties to compare trade details and facilitate settlement with third-party custodians. In addition, investment managers that effect block trades for the accounts of several customers simultaneously need to provide post-trade underlying account allocation instructions to the broker or custodian before these transactions can settle. Final Exchange Act Rule 15c6–2 requires a brokerdealer to either enter into a written agreement or establish, maintain, and enforce written policies and procedures reasonably designed to ensure the completion of allocations, confirmations, and affirmations (or any combination thereof) as soon as technologically practicable and no later than the end of trade date in order to complete settlement by T+1. Proposed Rule Change Given the Commission’s recent changes to shorten the standard settlement cycle for most U.S. securities transactions from T+2 to T+1, FINRA is proposing amendments to its rules to align them with the changes set forth in the T+1 Adopting Release. As such, FINRA is proposing to amend FINRA Rules 2341 (Investment Company Securities), 4515 (Approval and Documentation of Changes in Account Name or Designation), 6282 (Transactions Reported by Members to the ADF), 6380A (Transaction Reporting), 6380B (Transaction Reporting), 6622 (Transaction Reporting), 7140 (Trade Report Processing), 7240A (Trade Report Processing), 7340 (Trade Report Processing), 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), 11860 (COD Orders), 11893 (Clearly Erroneous Transactions in OTC Equity Securities), and 11894 (Review by the Uniform Practice Code (‘‘UPC’’) Committee). The details of the proposed rule change are described below. FINRA Rule 2341 (Investment Company Securities) Rule 2341(m)(1) requires members, including underwriters, that engage in direct retail transactions for investment E:\FR\FM\08DEN1.SGM 08DEN1 85680 Federal Register / Vol. 88, No. 235 / Friday, December 8, 2023 / Notices company shares to transmit payments received from customers for the purchase of investment company shares to the payee by the end of the second business day after receipt of a customer’s order to purchase such shares, or by the end of one business day after receipt of a customer’s payment for such shares, whichever is later. FINRA is proposing to amend Rule 2341(m)(1) to change the two-business day transmittal requirement to one business day. FINRA is not proposing any changes to the one-business day alternative. khammond on DSKJM1Z7X2PROD with NOTICES 4515 (Approval and Documentation of Changes in Account Name or Designation) Rule 4515 requires that, before a customer order is executed, the account name or designation must be placed upon the order form or other similar record for the transaction, and addresses the approval and documentation procedures for changes in such account name or designation. Additionally, Rule 4515.01 provides that when accepting orders from investment advisers, the member firm may allow such investment advisers to make allocations on their orders for customers on whose behalf the investment advisers submit the orders, as long as the firm receives specific account designations or customer names from such investment advisers by noon of the next business day following the trading session.18 FINRA is proposing to amend Rule 4515.01 to provide that when accepting orders from investment advisers, a member firm may allow such investment advisers to make allocations on their orders for customers on whose behalf the investment advisers submit the orders, as long as the member firm receives specific account designations or customer names from such investment advisers by no later than the end of the day on the trade date. FINRA is proposing to amend the timeframe by which a member firm must receive the specific account designations or 18 Rule 4515.01 applies only where there is more than one customer for any particular order and it extends to investment advisers that are registered under the Investment Advisers Act or that, but for Investment Advisers Act Section 203(b) or 203A, would be required to register under the Investment Advisers Act. In addition, Rule 4515.01 clarifies that member firms may not knowingly facilitate the allocation of orders from investment advisers in a manner other than in compliance with both (i) the investment adviser’s intent at the time of trade execution to allocate shares on a percentage basis to the participating accounts and (ii) the investment adviser’s fiduciary duty with respect to allocations for such participating accounts, including but not limited to allocations based on the performance of a transaction between the time of execution and the time of allocation. VerDate Sep<11>2014 16:50 Dec 07, 2023 Jkt 262001 customer names from the investment adviser to conform Rule 4515.01 with the same-day confirmation, allocation, and affirmation requirements of new Exchange Act Rule 15c6–2. FINRA Rules 6282 (Transactions Reported by Members to the ADF), 6380A (Transaction Reporting), 6380B (Transaction Reporting), 6622 (Transaction Reporting) Rules 6282(a)(4)(D), 6380A(a)(5)(D), 6380B(a)(5)(D), and 6622(a)(5)(D) address transaction reporting with respect to the Alternative Display Facility (‘‘ADF’’), the FINRA/Nasdaq Trade Reporting Facility (‘‘NQTRF’’), the FINRA/NYSE Trade Reporting Facility, and the Over-the-Counter Reporting Facility (‘‘ORF’’), respectively. Specifically, these rules require a reporting firm to identify a Next Day Trade by appending the appropriate modifier to a last sale report. FINRA is proposing to delete Rules 6282(a)(4)(D), 6380A(a)(5)(D), 6380B(a)(5)(D), and 6622(a)(5)(D) because, upon implementation of a T+1 trade settlement cycle, a Next Day Trade will become a Regular Way Trade, which is the default settlement type for transaction reporting and does not require a modifier. FINRA Rules 7140 (Trade Report Processing), 7240A (Trade Report Processing), and 7340 (Trade Report Processing) Rules 7140(a)(3), 7240A(a)(3), and 7340(a)(3) address the automatic lock-in of trades in the ADF, the NQTRF, and the ORF, respectively. These rules provide that any trade that remains open at the end of its entry day will be carried over and automatically locked-in by the corresponding system. The trade is then submitted to the National Securities Clearing Corporation (‘‘NSCC’’) at 2:30 p.m. Eastern Time (‘‘ET’’) on the next business day. FINRA is proposing to amend Rules 7140(a)(3), 7240A(a)(3), and 7340(a)(3) to change the time a trade is submitted to the NSCC from 2:30 p.m. ET to noon ET to allow for sufficient time for NSCC to process the trade. FINRA 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 first business day preceding PO 00000 Frm 00103 Fmt 4703 Sfmt 4703 the record date if the record date falls on a business day, or the second business day preceding the record date if the record date falls on a day designated by FINRA’s Uniform Practice Code Committee (‘‘Committee’’) as a non-delivery date. FINRA is proposing to shorten the timeframes in Rule 11140(b)(1) by one business day. As such, the date designated as the ‘‘exdividend date’’ would be the record date if the record date falls on a business day, or the first business day preceding the record date if the record date falls on a day designated by the Committee as a non-delivery date. In addition, the proposed rule change would make a non-substantive technical change to the rule. FINRA Rule 11150 (Transactions ‘‘ExInterest’’ 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 (1) the first business day preceding the record date if the record date falls on a business day, (2) the second business day preceding the record date if the record date falls on a day other than a business day, or (3) the second business day preceding the date on which an interest payment is to be made if no record date has been fixed. FINRA is proposing to shorten the timeframes in Rule 11150(a) by one business day. Therefore, the transactions would be ‘‘ex-interest’’ on (1) the record date if the record date falls on a business day, (2) the first business day preceding the record date if the record date falls on a day other than a business day, or (3) the first business day preceding the date on which an interest payment is to be made if no record date has been fixed. FINRA Rule 11210 (Sent by Each Party) Rule 11210(a) requires each party to a transaction, other than a cash transaction, to send a Uniform Comparison or Confirmation of the transaction on or before the first business day following the date of the transaction. FINRA is proposing to shorten the timeframe in Rule 11210(a) and require the sending of the Uniform Comparison or Confirmation of a transaction by the end of the day on the trade date. In addition, the proposed rule change would clarify that, as a result of this change, the timeframe for the exchange of comparisons or confirmations for all transactions (cash and non-cash) would be the same. E:\FR\FM\08DEN1.SGM 08DEN1 Federal Register / Vol. 88, No. 235 / Friday, December 8, 2023 / Notices Paragraphs (c) and (d) of Rule 11210 set forth the ‘‘Don’t Know’’ (‘‘DK’’) voluntary procedures for using ‘‘DK Notices’’ (FINRA Form No. 101) 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 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 one business day following the trade date of the transaction. The procedures generally provide that after this time period, the confirming member shall send a ‘‘DK Notice’’ (or similar notice) to the contra-member. The contramember then has two business days after receipt of the confirming member’s notice to either confirm or ‘‘DK’’ the transaction. FINRA 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 end of the day on the trade date of the transaction, rather than by the current close of one business day following the trade date of the transaction. In addition, FINRA 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 two business days after the contra-member’s receipt of the notice to one business day after the contra-member’s receipt of the notice. khammond on DSKJM1Z7X2PROD with NOTICES FINRA 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 second business day after the date of the transaction. FINRA is proposing to amend Rule 11320(b) to change the reference to the second business day following the date of the transaction to the first business day following the date of the transaction. Rule 11320(c) provides that in a ‘‘seller’s option’’ transaction, delivery may be made by the seller on any business day after the second business day following the date of the transaction and prior to the expiration of the option. FINRA is proposing to amend Rule 11320(c) to change the reference to the second business day following the date of the transaction to the first business VerDate Sep<11>2014 16:50 Dec 07, 2023 Jkt 262001 day following the date of the transaction. FINRA 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 second business day after the date of the transaction. FINRA is proposing to amend Rule 11620(a) to shorten the timeframe to the first business day following the date of the transaction. FINRA Rule 11860 (COD Orders) Rule 11860(a) directs members to follow various procedures before accepting collect on delivery (‘‘COD’’) or payment on delivery (‘‘POD’’) orders.19 Rule 11860(a)(3) provides that the member must deliver to the customer a confirmation, or all relevant data customarily contained in a confirmation with respect to the execution of the order, not later than the close of business on the next business day after any such execution. FINRA is proposing to amend Rule 11860(a)(3) to shorten the timeframe for delivery in the rule to no later than the end of the day on the trade date. In addition, the proposed rule change would make a nonsubstantive technical change to the rule. Rule 11860(a)(4) requires that the member have obtained an agreement from the customer that the customer will furnish its agent instructions with respect to the receipt or delivery of the securities involved in the transaction promptly upon receipt by the customer of each confirmation, or the relevant data as to each execution, relating to such order, and that in any event the customer will assure that such instructions are delivered to its agent no later than the close of business on the first business day after the date of execution of a COD or POD order. In light of the Commission’s recent adoption of final Exchange Act Rule 15c6–2, FINRA is proposing to amend Rule 11860(a)(4) to provide that prior to accepting a COD or POD order, the member shall have entered into the written agreement, or established the written policies and procedures, required by SEA Rule 15c6–2 with respect to any resulting transaction. 19 A COD order is a purchase by the customer where the agent is to receive the securities against payment for the purchase and a POD order is a sale by the customer where the agent is to deliver the securities against payment of the sale proceeds. Alternative industry terms for COD and POD orders are delivery vs. payment (‘‘DVP’’) and receipt vs. payment (‘‘RVP’’). PO 00000 Frm 00104 Fmt 4703 Sfmt 4703 85681 FINRA Rule 11893. Clearly Erroneous Transactions in OTC Equity Securities Rule 11893 governs clearly erroneous determinations involving transactions in OTC Equity Securities. Pursuant to Rule 11893(a), a FINRA officer may declare any transaction involving an OTC Equity Security arising out of or reported through a trade reporting system owned or operated by FINRA or FINRA Regulation and authorized by the Commission null and void if the officer determines that (1) the transaction is clearly erroneous, or (2) such actions are necessary for the maintenance of a fair and orderly market or the protection of investors and the public interest; provided, however, that the officer shall take action pursuant to this paragraph as soon as possible after becoming aware of the transaction, but in all cases by 3:00 p.m., Eastern Time, on the next trading day following the date of the transaction(s) at issue. FINRA is proposing to amend Rule 11893(a) to require a FINRA officer to take action as soon as possible after becoming aware of the transaction, but in all cases no later than the start of trading on the day following the date of the transaction(s) at issue. FINRA is proposing this change to the rule so that, in the new T+1 environment, a determination regarding whether a transaction is null and void is made before the trade settles. The proposed change also closely aligns the timeframe for a FINRA officer to take action with respect to the review of a clearly erroneous transaction in OTC Equity Securities with the timeframe for such action in exchange-listed securities provided in FINRA Rule 11892 (Clearly Erroneous Transactions in ExchangeListed Securities). FINRA Rule 11894. Review by the Uniform Practice Code (‘‘UPC’’) Committee Rule 11894 governs the appeal to the UPC Committee of a FINRA officer’s determination to declare an execution null and void. Under the rule, an appeal must be made in writing and must be received by FINRA within 30 minutes after the person making the appeal is given the notification of the determination being appealed. If the appeal pertains to OTC Equity Securities, Rule 11894(b)(2) requires the UPC committee to render a determination as soon as practicable, but in no case later than two trading days following the date of the execution(s) under review. In connection with the shortening of the settlement cycle to T+1, FINRA is proposing to amend Rule 11894(b)(2) to E:\FR\FM\08DEN1.SGM 08DEN1 85682 Federal Register / Vol. 88, No. 235 / Friday, December 8, 2023 / Notices require the UPC Committee to render a determination as soon as practicable, but in no case later than the trading day following the date of the execution(s) under review. This proposed rule change also more closely aligns the timeframe for UPC Committee determinations with respect to OTC Equity Securities with those for exchange-listed securities set forth in Rule 11894(b)(1). Effective Date of Proposed Rule Change FINRA has filed the proposed rule change for immediate effectiveness. The operative date of the proposed rule change will be May 28, 2024, or such later date as may be announced by the Commission for compliance for Exchange Act Rules 15c6–1 and 15c6– 2. 2. Statutory Basis khammond on DSKJM1Z7X2PROD with NOTICES FINRA believes that the proposed rule change is consistent with the provisions of Section 15A(b)(6) of the Act,20 which requires, among other things, that FINRA rules must be designed to prevent fraudulent and manipulative acts and practices, to promote just and equitable principles of trade, to foster cooperation and coordination with persons engaged in regulating, clearing, settling, processing information with respect to, and facilitating transactions in securities, and, in general, to protect investors and the public interest. FINRA believes that the proposed rule change will minimize potential confusion and help industry participants comply with the T+1 settlement cycle by harmonizing FINRA rules with final Exchange Act Rules 15c6–1 and 15c6– 2. FINRA further believes that by defining ‘‘regular way’’ settlement as occurring on T+1, the proposed rule change will result in a reduction of the overall level of systemic risk in the financial system and an increase in operational and capital efficiency of the clearance and settlement process. In addition, FINRA believes that the shortening of the settlement cycle will benefit investors by more quickly providing them access to the proceeds of their securities transactions. B. Self-Regulatory Organization’s Statement on Burden on Competition FINRA does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. 20 15 U.S.C. 78o–3(b)(6). VerDate Sep<11>2014 16:50 Dec 07, 2023 Jkt 262001 Economic Impact Assessment FINRA has undertaken an economic impact assessment, as set forth below, to analyze the potential economic impacts of the proposed rule change, including anticipated costs, benefits, and distributional and competitive effects, relative to current baseline, and the alternatives FINRA considered in assessing how best to meet FINRA’s regulatory objectives. 1. Regulatory Need The proposed rule change will harmonize FINRA rules with final Exchange Act Rules 15c6–1 and 15c6– 2, minimizing potential confusion and helping industry participants comply with the T+1 settlement cycle. 2. Economic Baseline The economic baseline for the proposed rule change consists of current FINRA Rules 2341, 4515, 6282, 6380A, 6380B, 6622, 7140, 7240A, 7340, 11140, 11150, 11210, 11320, 11620, 11860, 11893, and 11894 as well as the amendments adopted by the SEC in final Rules 15c6–1 and 15c6–2. 3. Economic Impacts The proposed changes to FINRA rules conform trade processing and asset servicing activities to the shortened settlement cycle and do not impose any burdens on industry beyond those that industry must incur to implement the SEC’s final rules pertaining to a T+1 settlement cycle.21 4. Alternatives Considered An alternative to the proposed changes to FINRA Rule 11860 to shorten the relevant timeframes to facilitate the transition to T+1 consistent with final Exchange Act Rule 15c6–2 (no later than the end of the day on trade date) is to specify the exact hours on the trade date by which a member must deliver a confirmation and a customer must deliver instructions on the receipt or delivery of the securities. While this alternative would create more uniform practices, we [sic] believe that the proposed changes to FINRA Rule 11860 would provide greater flexibility and allow members and customers to establish the timelines that are more suitable for their operational capacities and constraints. 21 The proposed rule changes are also largely consistent with recommendations by industry trade groups. See supra note 13. PO 00000 Frm 00105 Fmt 4703 Sfmt 4703 C. Self-Regulatory Organization’s Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others Written comments were neither solicited nor received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Because the foregoing proposed rule change does not: (i) significantly affect the protection of investors or the public interest; (ii) impose any significant burden on competition; and (iii) become operative for 30 days from the date on which it was filed, or such shorter time as the Commission may designate, it has become effective pursuant to Section 19(b)(3)(A) of the Act 22 and Rule 19b– 4(f)(6) thereunder.23 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 necessary or appropriate in the public interest, for the protection of investors, or 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 • 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– FINRA–2023–017 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–FINRA–2023–017. This file 22 15 U.S.C. 78s(b)(3)(A). CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6)(iii) requires the self-regulatory organization to give the Commission written notice of the selfregulatory organization’s intent to file the proposed rule change, along with a brief description and text of 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. FINRA has satisfied this requirement. 23 17 E:\FR\FM\08DEN1.SGM 08DEN1 Federal Register / Vol. 88, No. 235 / Friday, December 8, 2023 / Notices khammond on DSKJM1Z7X2PROD with NOTICES 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 website (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 website 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 a.m. and 3 p.m. Copies of the filing also will be available for inspection and copying at the principal office of FINRA. Do not include personal identifiable information in submissions; you should submit only information that you wish to make available publicly. We may redact in part or withhold entirely from publication submitted material that is obscene or subject to copyright protection. All VerDate Sep<11>2014 16:50 Dec 07, 2023 Jkt 262001 submissions should refer to file number SR–FINRA–2023–017 and should be submitted on or before December 29, 2023. 85683 DEPARTMENT OF STATE jurisdiction of these persons are blocked, and U.S. persons are generally prohibited from engaging in transactions with them. DATES: See SUPPLEMENTARY INFORMATION section for applicable date(s). FOR FURTHER INFORMATION CONTACT: Aaron P. Forsberg, Director, Office of Economic Sanctions Policy and Implementation, Bureau of Economic and Business Affairs, Department of State, Washington, DC 20520, tel.: (202) 647 7677, email: ForsbergAP@state.gov. SUPPLEMENTARY INFORMATION: [Public Notice: 12267] Electronic Availability For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.24 Sherry R. Haywood, Assistant Secretary. [FR Doc. 2023–26928 Filed 12–7–23; 8:45 am] BILLING CODE 8011–01–P Notice of Department of State Sanctions Actions The Department of State is publishing the names of one or more persons that have been placed on the Department of Treasury’s List of Specially Designated Nationals and Blocked Persons (SDN List) administered by the Office of Foreign Asset Control (OFAC) based on the Department of State’s determination, in consultation with other departments, as appropriate, that one or more applicable legal criteria were satisfied. All property and interests in property subject to U.S. SUMMARY: 24 17 PO 00000 CFR 200.30–3(a)(12). Frm 00106 Fmt 4703 Sfmt 4703 The SDN List and additional information concerning sanctions programs are available on OFAC’s website, https://ofac.treasury.gov/ sanctions-programs-and-countryinformation/russian-harmful-foreignactivities-sanctions. Notice Of Department of State Actions On November 2, 2023, the Department of State, in consultation with other departments, as appropriate, determined that the property and interests in property subject to U.S. jurisdiction of the following persons are blocked under the relevant sanctions authority listed below. BILLING CODE 4710–AE–P E:\FR\FM\08DEN1.SGM 08DEN1

Agencies

[Federal Register Volume 88, Number 235 (Friday, December 8, 2023)]
[Notices]
[Pages 85678-85683]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-26928]


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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-99075; File No. SR-FINRA-2023-017]


Self-Regulatory Organizations; Financial Industry Regulatory 
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a 
Proposed Rule Change To Amend FINRA Rules To Conform to Exchange Act 
Rules 15c6-1 and 15c6-2 To Shorten the Standard Settlement Cycle for 
Most Broker-Dealer Transactions From Two Business Days After the Trade 
Date to One Business Day After the Trade Date

December 4, 2023.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on November 28, 2023, the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change as described in 
Items I and II below, which Items have been prepared by FINRA. FINRA 
has designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under 
the Act,\3\ which renders the proposal effective upon receipt of this 
filing by the Commission. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    FINRA is proposing to amend FINRA Rules 2341 (Investment Company 
Securities), 4515 (Approval and Documentation of Changes in Account 
Name or Designation), 6282 (Transactions Reported by Members to the 
ADF), 6380A (Transaction Reporting), 6380B (Transaction Reporting), 
6622 (Transaction Reporting), 7140 (Trade Report Processing), 7240A 
(Trade Report Processing), 7340 (Trade Report Processing), 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), 11860 (COD Orders), 11893 
(Clearly Erroneous Transactions in OTC Equity Securities), and 11894 
(Review by the Uniform Practice Code (``UPC'') Committee) to conform to 
the Commission's final amendments to Exchange Act Rule 15c6-1 and 
adoption of Exchange Act Rule 15c6-2 to shorten the standard settlement 
cycle for most broker-dealer transactions from two business days after 
the trade date (``T+2'') to one business day after the trade date 
(``T+1'').\4\
---------------------------------------------------------------------------

    \4\ See Securities Exchange Act Release No. 96930 (February 15, 
2023), 88 FR 13872 (March 6, 2023) (File No. S7-05-22) (Shortening 
the Securities Transaction Settlement Cycle) (``SEC T+1 Adopting 
Release''). The effective date of final Exchange Act Rules changes 
is May 5, 2023, and the compliance date is May 28, 2024.
---------------------------------------------------------------------------

    The text of the proposed rule change is available on FINRA's 
website at https://www.finra.org, at the principal office of FINRA and 
at the Commission's Public Reference Room.

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

    In its filing with the Commission, FINRA 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. FINRA 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
Background
    In October 1993, the Commission adopted Exchange Act Rule 15c6-1 to 
shorten the standard U.S. trade settlement cycle for most securities 
transactions from five business days after the trade date (``T+5'') to 
three business days after the trade date (``T+3'').\5\ In March 2017, 
the Commission amended Exchange Act Rule 15c6-1 to further shorten the 
trade settlement cycle from T+3 to T+2.\6\ On both occasions, FINRA 
amended its settlement-related rules to conform to the Commission's 
changes to the trade settlement cycle.\7\
---------------------------------------------------------------------------

    \5\ See Securities Exchange Act Release No. 33023 (October 6, 
1993), 58 FR 52891 (October 13, 1993) (File No. S7-5-93). The 
implementation date of Exchange Act Rule 15c6-1 was June 7, 1995. 
See Securities Exchange Act Release No. 34592 (November 9, 1994), 59 
FR 59137 (November 16, 1994) (File No. S7-5-93). When adopted, 
Exchange Act Rule 15c6-1 prohibited broker-dealers from effecting or 
entering 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. Although not covered by Exchange Act Rule 15c6-1, 
in 1995, the Commission approved the Municipal Securities Rulemaking 
Board's (``MSRB'') 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).
    \6\ See Securities Exchange Act Release No. 80295 (March 22, 
2017), 82 FR 15564 (March 29, 2017) (File No. S7-22-16). The 
compliance date for the T+2 settlement cycle was September 5, 2017. 
In April 2016, the Commission approved the MSRB's rule change 
requiring transactions in municipal securities to settle by T+2. See 
Securities Exchange Act Release No. 77744 (April 29, 2016), 81 FR 
26851 (May 4, 2016) (Order Approving File No. SR-MSRB-2016-04).
    \7\ See Securities Exchange Act Release No. 35507 (March 17, 
1995), 60 FR 15616 (March 24, 1995) (Order Approving File No. SR-
NASD-94-56); Securities Exchange Act Release No. 80004 (February 9, 
2017), 82 FR 10835 (February 15, 2017) (Order Approving File No. SR-
FINRA-2016-047) and Securities Exchange Act Release No. 80004A 
(March 6, 2017), 82 FR 13517 (March 13, 2017) (Correction to Order 
Approving File No. SR-FINRA-2016-047). Other self-regulatory 
organizations (``SROs''), including, as previously noted, the MSRB, 
also amended their rules to conform to the shortening of the 
settlement cycle to T+3 and then T+2.

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

[[Page 85679]]

    Even before the adoption of the T+2 settlement cycle, the concept 
of a T+1 settlement cycle already was being considered.\8\ In this 
regard, the Depository Trust & Clearing Corporation (``DTCC'') 
published a white paper in February 2021 highlighting the benefits of 
moving to a T+1 settlement cycle, particularly in light of the 
unprecedented market activity and volatility that had occurred in 2020 
and early 2021.\9\ Following the publication of the DTCC White Paper, 
the industry formed an Industry Steering Committee (``ISC'') \10\ and 
an Industry Working Group (``IWG'') \11\ to develop an industry 
consensus for the transition to a T+1 settlement cycle. In December 
2021, SIFMA, ICI, DTCC, and Deloitte published a report summarizing the 
work conducted by the ISC and IWG and setting forth the ISC's 
recommendations for transitioning to a T+1 settlement cycle.\12\ 
Thereafter, in August 2022, SIFMA, ICI, and Deloitte published a T+1 
implementation playbook to help market participants prepare for the 
implementation of T+1 settlement.\13\
---------------------------------------------------------------------------

    \8\ See, e.g., Deloitte & Touche LLP (``Deloitte''), T+2 
Industry Implementation Playbook (12/18/2015), https://www.ust2.com/pdfs/T2-Playbook-12-21-15.pdf; Investor Advisory Committee, U.S. 
Securities and Exchange Commission Recommendation of the Investor 
Advisory Committee: Shortening the Settlement Cycle in U.S. 
Financial Markets (February 12, 2015), https://www.sec.gov/spotlight/investor-advisory-committee-2012/settlement-cycle-recommendation-final.pdf.
    \9\ See DTCC, Advancing Together: Leading the Industry to 
Accelerated Settlement (February 2021) (``DTCC White Paper''), 
https://www.dtcc.com/-/media/Files/PDFs/White%20Paper/DTCC-Accelerated-Settle-WP-2021.pdf.
    \10\ Participants in the ISC include, among others, DTCC, the 
Securities Industry and Financial Markets Association (``SIFMA''), 
and the Investment Company Institute (``ICI''). See https://www.dtcc.com/ust1.
    \11\ The IWG included over 800 subject matter advisors 
representing over 160 firms from buy- and sell-side firms, 
custodians, vendors, and clearinghouses. See infra note 12.
    \12\ See SIFMA, ICI, DTCC & Deloitte, Accelerating the U.S. 
Securities Settlement Cycle to T+1 (December 1, 2021), https://www.sifma.org/wp-content/uploads/2021/12/Accelerating-the-U.S.-Securities-Settlement-Cycle-to-T1-December-1-2021.pdf.
    \13\ See SIFMA, ICI & Deloitte, T+1 Securities Settlement 
Industry Implementation Playbook (August 2022), https://www.sifma.org/wp-content/uploads/2022/08/T1_Industry_Implementation_Playbook.pdf.
---------------------------------------------------------------------------

    On February 9, 2022, the Commission published a proposal to shorten 
the standard settlement cycle for most U.S. securities transactions 
from T+2 to T+1.\14\ In the SEC T+1 Proposing Release, the Commission 
noted its belief that shortening the settlement cycle from T+2 to T+1 
can promote investor protection, reduce risk, and increase operational 
and capital efficiency. Moreover, the Commission noted that two 
episodes involving increased market volatility-the outbreak of the 
COVID-19 pandemic in March 2020 and the ``meme'' stock phenomenon in 
January 2021-refocused attention on a T+1 standard settlement cycle. In 
the SEC T+1 Proposing Release, the Commission further noted that 
substantial progress has been made toward identifying the technological 
and operational changes that are necessary to establish a T+1 
settlement cycle, including the industry-level changes that would be 
necessary to transition from a T+2 standard to a T+1 standard 
settlement cycle. In proposing new Exchange Act Rule 15c6-2, the 
Commission stated that additional regulatory steps were ``necessary to 
improve the processing of institutional transactions, advancing two 
other longstanding objectives shared by the Commission and the 
securities industry: the completion of trade allocations, 
confirmations, and affirmations on trade date (an objective often 
referred to as ``same-day affirmation'') and the straight-through 
processing of securities transactions.'' \15\ The Commission received 
numerous comment letters on the proposal, specifically regarding the 
proposed amendments to Exchange Act Rule 15c6-1 and proposed new 
Exchange Act Rule 15c6-2.\16\
---------------------------------------------------------------------------

    \14\ See Securities Exchange Act Release No. 94196 (February 9, 
2022), 87 FR 10436 (February 24, 2022) (File No. S7-05-22) (``SEC 
T+1 Proposing Release'').
    \15\ See SEC T+1 Adopting Release, supra note 4, 88 FR 13872, 
13873.
    \16\ Copies of all comment letters received by the Commission 
are available at https://www.sec.gov/comments/s7-05-22/s70522.htm.
---------------------------------------------------------------------------

    Following consideration of the comments, on February 15, 2023, the 
Commission adopted final rules to shorten the standard settlement cycle 
for most U.S. securities transactions from T+2 to T+1.\17\ In addition 
to the amendments to Exchange Act Rule 15c6-1 to shorten the settlement 
cycle, the Commission adopted new Exchange Act Rule 15c6-2 regarding 
same-day allocations and affirmations.
---------------------------------------------------------------------------

    \17\ See supra note 4.
---------------------------------------------------------------------------

    Final Exchange Act Rule 15c6-1 requires most broker-dealer 
transactions to settle by T+1, subject to certain exceptions. Final 
Exchange Act Rule 15c6-2 addresses same day allocations, confirmations 
and affirmations to improve institutional trades and straight-through 
processing. Certain transactions, primarily involving institutional 
trades, require post-trade exchange of confirmations and affirmations, 
in order for the parties to compare trade details and facilitate 
settlement with third-party custodians. In addition, investment 
managers that effect block trades for the accounts of several customers 
simultaneously need to provide post-trade underlying account allocation 
instructions to the broker or custodian before these transactions can 
settle. Final Exchange Act Rule 15c6-2 requires a broker-dealer to 
either enter into a written agreement or establish, maintain, and 
enforce written policies and procedures reasonably designed to ensure 
the completion of allocations, confirmations, and affirmations (or any 
combination thereof) as soon as technologically practicable and no 
later than the end of trade date in order to complete settlement by 
T+1.
Proposed Rule Change
    Given the Commission's recent changes to shorten the standard 
settlement cycle for most U.S. securities transactions from T+2 to T+1, 
FINRA is proposing amendments to its rules to align them with the 
changes set forth in the T+1 Adopting Release. As such, FINRA is 
proposing to amend FINRA Rules 2341 (Investment Company Securities), 
4515 (Approval and Documentation of Changes in Account Name or 
Designation), 6282 (Transactions Reported by Members to the ADF), 6380A 
(Transaction Reporting), 6380B (Transaction Reporting), 6622 
(Transaction Reporting), 7140 (Trade Report Processing), 7240A (Trade 
Report Processing), 7340 (Trade Report Processing), 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), 11860 (COD Orders), 11893 (Clearly Erroneous 
Transactions in OTC Equity Securities), and 11894 (Review by the 
Uniform Practice Code (``UPC'') Committee).
    The details of the proposed rule change are described below.
FINRA Rule 2341 (Investment Company Securities)
    Rule 2341(m)(1) requires members, including underwriters, that 
engage in direct retail transactions for investment

[[Page 85680]]

company shares to transmit payments received from customers for the 
purchase of investment company shares to the payee by the end of the 
second business day after receipt of a customer's order to purchase 
such shares, or by the end of one business day after receipt of a 
customer's payment for such shares, whichever is later. FINRA is 
proposing to amend Rule 2341(m)(1) to change the two-business day 
transmittal requirement to one business day. FINRA is not proposing any 
changes to the one-business day alternative.
4515 (Approval and Documentation of Changes in Account Name or 
Designation)
    Rule 4515 requires that, before a customer order is executed, the 
account name or designation must be placed upon the order form or other 
similar record for the transaction, and addresses the approval and 
documentation procedures for changes in such account name or 
designation. Additionally, Rule 4515.01 provides that when accepting 
orders from investment advisers, the member firm may allow such 
investment advisers to make allocations on their orders for customers 
on whose behalf the investment advisers submit the orders, as long as 
the firm receives specific account designations or customer names from 
such investment advisers by noon of the next business day following the 
trading session.\18\ FINRA is proposing to amend Rule 4515.01 to 
provide that when accepting orders from investment advisers, a member 
firm may allow such investment advisers to make allocations on their 
orders for customers on whose behalf the investment advisers submit the 
orders, as long as the member firm receives specific account 
designations or customer names from such investment advisers by no 
later than the end of the day on the trade date. FINRA is proposing to 
amend the timeframe by which a member firm must receive the specific 
account designations or customer names from the investment adviser to 
conform Rule 4515.01 with the same-day confirmation, allocation, and 
affirmation requirements of new Exchange Act Rule 15c6-2.
---------------------------------------------------------------------------

    \18\ Rule 4515.01 applies only where there is more than one 
customer for any particular order and it extends to investment 
advisers that are registered under the Investment Advisers Act or 
that, but for Investment Advisers Act Section 203(b) or 203A, would 
be required to register under the Investment Advisers Act. In 
addition, Rule 4515.01 clarifies that member firms may not knowingly 
facilitate the allocation of orders from investment advisers in a 
manner other than in compliance with both (i) the investment 
adviser's intent at the time of trade execution to allocate shares 
on a percentage basis to the participating accounts and (ii) the 
investment adviser's fiduciary duty with respect to allocations for 
such participating accounts, including but not limited to 
allocations based on the performance of a transaction between the 
time of execution and the time of allocation.
---------------------------------------------------------------------------

FINRA Rules 6282 (Transactions Reported by Members to the ADF), 6380A 
(Transaction Reporting), 6380B (Transaction Reporting), 6622 
(Transaction Reporting)
    Rules 6282(a)(4)(D), 6380A(a)(5)(D), 6380B(a)(5)(D), and 
6622(a)(5)(D) address transaction reporting with respect to the 
Alternative Display Facility (``ADF''), the FINRA/Nasdaq Trade 
Reporting Facility (``NQTRF''), the FINRA/NYSE Trade Reporting 
Facility, and the Over-the-Counter Reporting Facility (``ORF''), 
respectively. Specifically, these rules require a reporting firm to 
identify a Next Day Trade by appending the appropriate modifier to a 
last sale report. FINRA is proposing to delete Rules 6282(a)(4)(D), 
6380A(a)(5)(D), 6380B(a)(5)(D), and 6622(a)(5)(D) because, upon 
implementation of a T+1 trade settlement cycle, a Next Day Trade will 
become a Regular Way Trade, which is the default settlement type for 
transaction reporting and does not require a modifier.
FINRA Rules 7140 (Trade Report Processing), 7240A (Trade Report 
Processing), and 7340 (Trade Report Processing)
    Rules 7140(a)(3), 7240A(a)(3), and 7340(a)(3) address the automatic 
lock-in of trades in the ADF, the NQTRF, and the ORF, respectively. 
These rules provide that any trade that remains open at the end of its 
entry day will be carried over and automatically locked-in by the 
corresponding system. The trade is then submitted to the National 
Securities Clearing Corporation (``NSCC'') at 2:30 p.m. Eastern Time 
(``ET'') on the next business day. FINRA is proposing to amend Rules 
7140(a)(3), 7240A(a)(3), and 7340(a)(3) to change the time a trade is 
submitted to the NSCC from 2:30 p.m. ET to noon ET to allow for 
sufficient time for NSCC to process the trade.
FINRA 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 first business day 
preceding the record date if the record date falls on a business day, 
or the second business day preceding the record date if the record date 
falls on a day designated by FINRA's Uniform Practice Code Committee 
(``Committee'') as a non-delivery date. FINRA is proposing to shorten 
the timeframes in Rule 11140(b)(1) by one business day. As such, the 
date designated as the ``ex-dividend date'' would be the record date if 
the record date falls on a business day, or the first business day 
preceding the record date if the record date falls on a day designated 
by the Committee as a non-delivery date. In addition, the proposed rule 
change would make a non-substantive technical change to the rule.
FINRA Rule 11150 (Transactions ``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 (1) the first business day preceding the record date if 
the record date falls on a business day, (2) the second business day 
preceding the record date if the record date falls on a day other than 
a business day, or (3) the second business day preceding the date on 
which an interest payment is to be made if no record date has been 
fixed. FINRA is proposing to shorten the timeframes in Rule 11150(a) by 
one business day. Therefore, the transactions would be ``ex-interest'' 
on (1) the record date if the record date falls on a business day, (2) 
the first business day preceding the record date if the record date 
falls on a day other than a business day, or (3) the first business day 
preceding the date on which an interest payment is to be made if no 
record date has been fixed.
FINRA Rule 11210 (Sent by Each Party)
    Rule 11210(a) requires each party to a transaction, other than a 
cash transaction, to send a Uniform Comparison or Confirmation of the 
transaction on or before the first business day following the date of 
the transaction. FINRA is proposing to shorten the timeframe in Rule 
11210(a) and require the sending of the Uniform Comparison or 
Confirmation of a transaction by the end of the day on the trade date. 
In addition, the proposed rule change would clarify that, as a result 
of this change, the timeframe for the exchange of comparisons or 
confirmations for all transactions (cash and non-cash) would be the 
same.

[[Page 85681]]

    Paragraphs (c) and (d) of Rule 11210 set forth the ``Don't Know'' 
(``DK'') voluntary procedures for using ``DK Notices'' (FINRA Form No. 
101) 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 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 
one business day following the trade date of the transaction. The 
procedures generally provide that after this time period, the 
confirming member shall send a ``DK Notice'' (or similar notice) to the 
contra-member. The contra-member then has two business days after 
receipt of the confirming member's notice to either confirm or ``DK'' 
the transaction.
    FINRA 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 end of the day on the trade date of the 
transaction, rather than by the current close of one business day 
following the trade date of the transaction. In addition, FINRA 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 two business days after the 
contra-member's receipt of the notice to one business day after the 
contra-member's receipt of the notice.
FINRA 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 second business day after the date 
of the transaction. FINRA is proposing to amend Rule 11320(b) to change 
the reference to the second business day following the date of the 
transaction to the first business day following the date of the 
transaction.
    Rule 11320(c) provides that in a ``seller's option'' transaction, 
delivery may be made by the seller on any business day after the second 
business day following the date of the transaction and prior to the 
expiration of the option. FINRA is proposing to amend Rule 11320(c) to 
change the reference to the second business day following the date of 
the transaction to the first business day following the date of the 
transaction.
FINRA 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 second 
business day after the date of the transaction. FINRA is proposing to 
amend Rule 11620(a) to shorten the timeframe to the first business day 
following the date of the transaction.
FINRA Rule 11860 (COD Orders)
    Rule 11860(a) directs members to follow various procedures before 
accepting collect on delivery (``COD'') or payment on delivery 
(``POD'') orders.\19\ Rule 11860(a)(3) provides that the member must 
deliver to the customer a confirmation, or all relevant data 
customarily contained in a confirmation with respect to the execution 
of the order, not later than the close of business on the next business 
day after any such execution. FINRA is proposing to amend Rule 
11860(a)(3) to shorten the timeframe for delivery in the rule to no 
later than the end of the day on the trade date. In addition, the 
proposed rule change would make a non-substantive technical change to 
the rule.
---------------------------------------------------------------------------

    \19\ A COD order is a purchase by the customer where the agent 
is to receive the securities against payment for the purchase and a 
POD order is a sale by the customer where the agent is to deliver 
the securities against payment of the sale proceeds. Alternative 
industry terms for COD and POD orders are delivery vs. payment 
(``DVP'') and receipt vs. payment (``RVP'').
---------------------------------------------------------------------------

    Rule 11860(a)(4) requires that the member have obtained an 
agreement from the customer that the customer will furnish its agent 
instructions with respect to the receipt or delivery of the securities 
involved in the transaction promptly upon receipt by the customer of 
each confirmation, or the relevant data as to each execution, relating 
to such order, and that in any event the customer will assure that such 
instructions are delivered to its agent no later than the close of 
business on the first business day after the date of execution of a COD 
or POD order.
    In light of the Commission's recent adoption of final Exchange Act 
Rule 15c6-2, FINRA is proposing to amend Rule 11860(a)(4) to provide 
that prior to accepting a COD or POD order, the member shall have 
entered into the written agreement, or established the written policies 
and procedures, required by SEA Rule 15c6-2 with respect to any 
resulting transaction.
FINRA Rule 11893. Clearly Erroneous Transactions in OTC Equity 
Securities
    Rule 11893 governs clearly erroneous determinations involving 
transactions in OTC Equity Securities. Pursuant to Rule 11893(a), a 
FINRA officer may declare any transaction involving an OTC Equity 
Security arising out of or reported through a trade reporting system 
owned or operated by FINRA or FINRA Regulation and authorized by the 
Commission null and void if the officer determines that (1) the 
transaction is clearly erroneous, or (2) such actions are necessary for 
the maintenance of a fair and orderly market or the protection of 
investors and the public interest; provided, however, that the officer 
shall take action pursuant to this paragraph as soon as possible after 
becoming aware of the transaction, but in all cases by 3:00 p.m., 
Eastern Time, on the next trading day following the date of the 
transaction(s) at issue. FINRA is proposing to amend Rule 11893(a) to 
require a FINRA officer to take action as soon as possible after 
becoming aware of the transaction, but in all cases no later than the 
start of trading on the day following the date of the transaction(s) at 
issue. FINRA is proposing this change to the rule so that, in the new 
T+1 environment, a determination regarding whether a transaction is 
null and void is made before the trade settles. The proposed change 
also closely aligns the timeframe for a FINRA officer to take action 
with respect to the review of a clearly erroneous transaction in OTC 
Equity Securities with the timeframe for such action in exchange-listed 
securities provided in FINRA Rule 11892 (Clearly Erroneous Transactions 
in Exchange-Listed Securities).
FINRA Rule 11894. Review by the Uniform Practice Code (``UPC'') 
Committee
    Rule 11894 governs the appeal to the UPC Committee of a FINRA 
officer's determination to declare an execution null and void. Under 
the rule, an appeal must be made in writing and must be received by 
FINRA within 30 minutes after the person making the appeal is given the 
notification of the determination being appealed. If the appeal 
pertains to OTC Equity Securities, Rule 11894(b)(2) requires the UPC 
committee to render a determination as soon as practicable, but in no 
case later than two trading days following the date of the execution(s) 
under review. In connection with the shortening of the settlement cycle 
to T+1, FINRA is proposing to amend Rule 11894(b)(2) to

[[Page 85682]]

require the UPC Committee to render a determination as soon as 
practicable, but in no case later than the trading day following the 
date of the execution(s) under review. This proposed rule change also 
more closely aligns the timeframe for UPC Committee determinations with 
respect to OTC Equity Securities with those for exchange-listed 
securities set forth in Rule 11894(b)(1).
Effective Date of Proposed Rule Change
    FINRA has filed the proposed rule change for immediate 
effectiveness. The operative date of the proposed rule change will be 
May 28, 2024, or such later date as may be announced by the Commission 
for compliance for Exchange Act Rules 15c6-1 and 15c6-2.
2. Statutory Basis
    FINRA believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act,\20\ which requires, among 
other things, that FINRA rules must be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in regulating, clearing, settling, processing 
information with respect to, and facilitating transactions in 
securities, and, in general, to protect investors and the public 
interest. FINRA believes that the proposed rule change will minimize 
potential confusion and help industry participants comply with the T+1 
settlement cycle by harmonizing FINRA rules with final Exchange Act 
Rules 15c6-1 and 15c6-2. FINRA further believes that by defining 
``regular way'' settlement as occurring on T+1, the proposed rule 
change will result in a reduction of the overall level of systemic risk 
in the financial system and an increase in operational and capital 
efficiency of the clearance and settlement process. In addition, FINRA 
believes that the shortening of the settlement cycle will benefit 
investors by more quickly providing them access to the proceeds of 
their securities transactions.
---------------------------------------------------------------------------

    \20\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------

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

    FINRA does not believe that the proposed rule change will result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.
Economic Impact Assessment
    FINRA has undertaken an economic impact assessment, as set forth 
below, to analyze the potential economic impacts of the proposed rule 
change, including anticipated costs, benefits, and distributional and 
competitive effects, relative to current baseline, and the alternatives 
FINRA considered in assessing how best to meet FINRA's regulatory 
objectives.
1. Regulatory Need
    The proposed rule change will harmonize FINRA rules with final 
Exchange Act Rules 15c6-1 and 15c6-2, minimizing potential confusion 
and helping industry participants comply with the T+1 settlement cycle.
2. Economic Baseline
    The economic baseline for the proposed rule change consists of 
current FINRA Rules 2341, 4515, 6282, 6380A, 6380B, 6622, 7140, 7240A, 
7340, 11140, 11150, 11210, 11320, 11620, 11860, 11893, and 11894 as 
well as the amendments adopted by the SEC in final Rules 15c6-1 and 
15c6-2.
3. Economic Impacts
    The proposed changes to FINRA rules conform trade processing and 
asset servicing activities to the shortened settlement cycle and do not 
impose any burdens on industry beyond those that industry must incur to 
implement the SEC's final rules pertaining to a T+1 settlement 
cycle.\21\
---------------------------------------------------------------------------

    \21\ The proposed rule changes are also largely consistent with 
recommendations by industry trade groups. See supra note 13.
---------------------------------------------------------------------------

4. Alternatives Considered
    An alternative to the proposed changes to FINRA Rule 11860 to 
shorten the relevant timeframes to facilitate the transition to T+1 
consistent with final Exchange Act Rule 15c6-2 (no later than the end 
of the day on trade date) is to specify the exact hours on the trade 
date by which a member must deliver a confirmation and a customer must 
deliver instructions on the receipt or delivery of the securities. 
While this alternative would create more uniform practices, we [sic] 
believe that the proposed changes to FINRA Rule 11860 would provide 
greater flexibility and allow members and customers to establish the 
timelines that are more suitable for their operational capacities and 
constraints.

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

    Written comments were neither solicited nor received.

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

    Because the foregoing proposed rule change does not: (i) 
significantly affect the protection of investors or the public 
interest; (ii) impose any significant burden on competition; and (iii) 
become operative for 30 days from the date on which it was filed, or 
such shorter time as the Commission may designate, it has become 
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) thereunder.\23\
---------------------------------------------------------------------------

    \22\ 15 U.S.C. 78s(b)(3)(A).
    \23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the self-regulatory organization to give the Commission 
written notice of the self-regulatory organization's intent to file 
the proposed rule change, along with a brief description and text of 
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. FINRA has satisfied this requirement.
---------------------------------------------------------------------------

    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 necessary or 
appropriate in the public interest, for the protection of investors, or 
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

     Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
file number SR-FINRA-2023-017 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-FINRA-2023-017. This 
file

[[Page 85683]]

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 website (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 website 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 
a.m. and 3 p.m. Copies of the filing also will be available for 
inspection and copying at the principal office of FINRA. Do not include 
personal identifiable information in submissions; you should submit 
only information that you wish to make available publicly. We may 
redact in part or withhold entirely from publication submitted material 
that is obscene or subject to copyright protection. All submissions 
should refer to file number SR-FINRA-2023-017 and should be submitted 
on or before December 29, 2023.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
---------------------------------------------------------------------------

    \24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-26928 Filed 12-7-23; 8:45 am]
BILLING CODE 8011-01-P
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.