[Federal Register Volume 59, Number 222 (Friday, November 18, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28494]
[[Page Unknown]]
[Federal Register: November 18, 1994]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-34966; File No. SR-NASD-94-56]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Notice of Filing of Proposed Rule Change Relating to the
Three Business Day Settlement of Securities Transactions
November 10, 1994.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ notice is hereby given that on October 12, 1994, the
National Association of Securities Dealers, Inc. (``NASD'') filed with
the Securities and Exchange Commission (``Commission'') the proposed
rule change as described in Items I, II, and III below, which Items
have been prepared primarily by the NASD. On November 9, 1994, the NASD
filed with the Commission Amendment No. 1, which is incorporated in the
description of Items I, II, and II.\2\ The Commission is publishing
this notice to solicit comments on the proposed rule change from
interested persons.
---------------------------------------------------------------------------
\1\15 U.S.C. Sec. 78s(b)(1) (1988).
\2\Letter from Suzanne E. Rothwell, Associate General Counsel,
NASD, to Mark Barracca, Branch Chief, Division of Market Regulation,
Over-the-Counter Regulation, Commission (November 8, 1994).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The NASD is proposing to amend Sections 5, 6, 12, 46, 64, and 65 of
the Uniform Practice Code (``UPC'') and Sections 1 and 26 of the Rules
of Fair Practice (``RFP'') to implement three business day (``T+3'')
settlement for securities transactions.
II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, the NASD included statements
concerning the purpose of and basis for the proposed rule change and
discussed any comments it received on the proposed rule change. The
text of these statements may be examined at the places specified in
Item IV below. The NASD has prepared summaries, set forth in sections
(A), (B), and (C) below, of the most significant aspects of such
statements.
(A) Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
The NASD has determined that the following amendments to the UPC
and the RFP are necessary in order to conform the NASD's rules to the
T+3 settlement cycle mandated by Rule 15c6-1.\3\
---------------------------------------------------------------------------
\3\On October 6, 1993, the Commission adopted Rule 15c6-1 under
the Act, which establishes three business days after trade date
(``T+3'') instead of five business days (``T+5'') as the standard
settlement time frame for most broker-dealer transactions.
Securities Exchange Act Release No. 33023 (October 6, 1993), 58 FR
52891. By Commission order, the rule becomes effective June 7, 1995.
Securities Exchange Act Release No. 34952 (November 9, 1994).
---------------------------------------------------------------------------
Uniform Practice Code
Sections 5 and 6
Sections 5 and 6 of the UPC prescribe the formula for establishing
ex-dates for securities following dividends or other distributions.\4\
The proposed rule change will shorten all the time frames contained in
these sections by two business days.
---------------------------------------------------------------------------
\4\The ex-date indicates the interval between the announcement
and payment of a distribution during which time an investor who
purchases shares is not entitled to the distribution.
---------------------------------------------------------------------------
Section 12
Seciton 12 prescribes delivery dates for various transaction
circumstances. Subsection 12(b) currently states that for a ``regular
way'' transaction delivery shall be made on, but not before, the fifth
business day following the trade date. The proposed rule change will
shorten the delivery requirement to on, but not before, the third
business day following the trade date. In addition, the proposed rule
change will provide that in ``seller's option'' transactions delivery
may be made by the seller on any business day after the third business
day, rather than the fifth business day, following the trade date.
Section 46
Seciton 46 currently requires that interest to be added to the
prices of interest-paying securities be calculated up to but not
including the fifth business day following the date of the transaction.
The proposed rule change will shorten the time to the third business
day.
Section 64
Subsection 64(a)(3) currently requires members accepting an order
whereby payment or delivery is to be made to or by an agent of the
customer to deliver a confirmation no later than one day after the
trade date (``T+1''). The proposed rule change will shorten this time
limit to trade date (``T+0''). The NASD believes that this change will
result in nearly universal utilization of interactive electronic
confirmation delivery systems.
Subsection 64(a)(4) currently requires that the customer in such a
transaction must agree to furnish instructions to the agent no later
than ``T+4'' if the customer is buying on a receipt versus payment
basis or T+3 if the customer is selling on a delivery versus payment
basis. The proposed rule change will shorten the time period for
furnishing such instructions to T+1 for both buying and selling
customers.
Section 65
The NASD also is proposing amendments to UPC Section 65 which sets
forth the procedures for the transfer of customer accounts from one
broker-dealer (``carrying member'') to another broker-dealer
(``receiving member''). The proposed rule changed for Section 65 was
developed in conjunction with the New York Stock Exchange, National
Securities Clearing Corporation (``NSCC''), and the SIA Customer
Account Division. Under the proposed language of Section 65, upon
receipt from the customer of a signed account transfer instructions a
receiving member must immediately submit the transfer instructions to
the carrying member. The proposal will reduce from five to three
business days the timeframe for the carrying member to either validate
or take exception to the transfer instructions for all accounts
including Retirement Plan Accounts for which the timeframe for
validating or taking exception to transfer instructions currently is
ten days. The proposal will require the completion of all transfers be
accomplished in four rather than five business days. The Proposal also
will (1) more clearly define the reasons why the carrying member may
take exception to account transfer instructions; (2) require the use of
an automated facility for the transfer of mutual fund positions and
residual credits when both the carrying and the receiving members are
participants in a registered clearing agency which automated facilities
for such transfers; (3) set forth timeframes for resolution of claims;
(4) require that partial transfers be processed through automated
facilities of a registered clearing agency; and (5) require that
members transfer residual credit balances within ten business days
after accrual for a six month period.
On September 2, 1994, the Commission approved the NYSE's proposed
rule change to implement corresponding changes to the NYSE's procedures
for transferring customer accounts.\5\ The NYSE amendments relating to
the automated transfer of mutual fund positions and residual credit
processing become effective 180 days from approval (i.e., on March 3,
1995) while all other provisions become effective 90 days from approval
(i.e., on December 2, 1994). The NASD believes that it is in the best
interests of the public for the NASD's amendments to it customer
account transfer procedures to become effective simultaneously with the
NYSE's amendments.\6\ The NASD therefore requests that Sections
65(m)(2) and 65(m)(3), relating to automated transfer of mutual fund
positions and residual credit processing, be effective on March 3,
1995, and that all other provisions of Section 65 be effective on
December 2, 1994.
---------------------------------------------------------------------------
\5\Securities Exchange Act Release No. 34633 (September 2,
1994), 59 FR 46872.
\6\Supra note 2.
---------------------------------------------------------------------------
Rules of Fair Practice
Article III, Section 1
The Prompt Receipt and Delivery Interpretation of the Board of
Governors currently requires a member to make an affirmative
determination that the customer owns the security and will deliver it
in good deliverable form within five business days of the execution of
an order in connection with a long sale. The interpretation also states
that to satisfy the requests for an ``affirmative determination,'' a
member must note on the order ticket at the time of the order the
customer's ability to delivery the securities within five business
days. The proposed rule change will change these time limits from five
business days to three business days.
Article III, Section 26(m)(1)
Article III, Section 26(m)(1) requires members to transmit payments
received from customers for the purchase of investment company shares
to the payees by the fifth business day after receipt of such
customers' purchase orders or one business day following receipt of
customers' payments, whichever is later. The proposed rule change will
shorten the five business day transmittal requirement to three business
days and will leave the one day alternative unchanged.
The NASD has agreed to an implementation plan for transition to a
T+3 settlement cycle proposed by the NSCC for early June 1995.\7\ The
NASD proposes that the proposed rule change (other than Section 65, as
discussed above) be effective on June 7, 1995, the day the NSCC
transitional settlement plan is scheduled to be completed.
---------------------------------------------------------------------------
\7\The NSCC plan is to double up settlement for two trade dates
in order to move from T+5 to T+4 and then repeat the process to move
from T+4 to T+3. Thus, for trade date Friday, June 2, trades will
settle on the following Friday, June 9 (T+5), and for trade date
Monday, June 5, trades also will settle on Friday, June 9 (T+4). The
same doubled up settlement will be used for trade dates Tuesday,
June 6 and Wednesday, June 7, which will both have a settlement date
of Monday, June 12.
---------------------------------------------------------------------------
The NASD believes that the proposed rule change is consistent with
the provisions of Section 15A(b)(6)\8\ of the Act which requires that
the rules of the NASD be designed to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, to remove impediments to and perfect the mechanism of a
free and open market and a national market system, and, in general, to
protect investors and the public interest in that the proposed rule
change will implement the T+3 settlement cycle mandated by Rule 15c6-1.
---------------------------------------------------------------------------
\8\15 U.S.C. Sec. 78o-3.
---------------------------------------------------------------------------
(B) Self-Regulatory Organization's Statement on Burden on Competition
The proposed rule change is intended to implement the transition to
a three day settlement cycle specified in Rule 15c6-1, to be effective
June 7, 1995, which the Commission adopted in furtherance of the
purposes of the Act, as amended. Therefore, to the extent the basis for
the adoption of rule 15c6-1 remains unchanged, the NASD 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, as amended.
(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
Within thirty-five days of the date of publication of this notice
in the Federal Register or within such longer period (i) as the
Commission may designate up to ninety days of such date if it finds
such longer period to be appropriate and publishes its reasons for so
finding or (ii) as to which the self-regulatory organization consents,
the Commission will:
A. By order approve such proposed rule change or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing. Persons making written submissions
should file six copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
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. Sec. 552, will be available for inspection and copying in
the Commission's Public Reference Room. Copies of such filing will also
be available for inspection and copying at the principal office of the
NASD. All submissions should refer to the File No. SR-NASD-94-56 and
should be submitted by December 9, 1994.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-28494 Filed 11-17-94; 8:45 am]
BILLING CODE 8010-01-M