[Federal Register Volume 59, Number 246 (Friday, December 23, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31602]


[[Page Unknown]]

[Federal Register: December 23, 1994]


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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35110; File No. SR-NYSE-94-40]

 

Self-Regulatory Organizations; New York Stock Exchange, Inc.; 
Notice of Filing of a Proposed Rule Change Relating to Implementation 
of a Three-Day Settlement Standard

December 16, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 3, 1994, the New 
York Stock Exchange, Inc. (``NYSE'') filed with the Securities and 
Exchange Commission (``Commission'') a proposed rule change as 
described in Items I, II, and III below, which items have been prepared 
primarily by the NYSE. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\15 U.S.C. 78s(b)(1) (1988).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The purpose of this proposed rule change is to amend NYSE's rules 
to accommodate the implementation of a three business day settlement 
standard 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 NYSE included statements 
concerning the purpose of and basis for the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. The NYSE 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 Purposed Rule Change

    In October 1993 the Commission adopted Rule 15c6-1 under the Act 
which will become effective June 7, 1995.\2\ The rule establishes three 
business days after the trade date (``T+3), instead of five business 
days (``T+5), as the standard cycle for most securities transactions. 
In order to accommodate the implementation of T+3, NYSE has identified 
those rules which requires amendment to provide for compliance with 
Rule 15c6-1 by members and member organizations. The rules are 
described below.
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    \2\Securities and Exchange Act Release Nos. 33023 (October 6, 
1993), 58 FR 52891 (order adopting Rule 15c6-1) and 34952 (November 
9, 1994), 59 FR 59137 (order changing effective date from June 1, 
1995, to June 7, 1995).
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Rule 64--``Bonds, Rights and 100-Share-Unit Stocks''

    Rule 64(a)(3) currently defines ``regular way'' dealings as those 
requiring delivery on the fifth business day of the contract. ``Fifth'' 
business day will be changed to ``third'' business day.\3\ Rule 
64(a)(5) currently provides that on the second, third, fourth, and 
fifth business days preceding the final day for subscription, bids, and 
offers in rights to subscribe shall be made only for delivery next day. 
Paragraph (a)(5) will be amended to eliminate references to the fourth 
and fifth business days. Rule 64(c) will be amended to provide that 
seller's option trades cannot settle on the third business day, rather 
than the fifth business day, after the trade date.
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    \3\As proposed, the rule will include in a T+3 environment sales 
of securities exempted under Commission Rule 15c6-1(b)(2). 
Specifically, under the proposal, securities sold pursuant to a firm 
commitment offering registered under the Securities Act of 1993 will 
have to be settled within three business days.
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Rule 65--``Less Than 100-Share-Unit Stocks''

    Rule 65(b) will require that an odd lot of stock sold by an odd lot 
dealer for its own account shall be delivered on the third business day 
following the day of the transaction rather than permitting delivery 
between the fifth business day and the fourteenth day following the 
transaction.

Rule 85--``Cabinet Securities''

    Rule 85(d)(3) will require that with respect to ten share unit 
stocks dealt in by use of cabinets and odd lot sold by a dealer for its 
own account shall be delivered on the third business day following the 
day of the transaction rather than between the fifth business day and 
the fourteenth day following the transaction date.

Rule 123A--``Miscellaneous Requirements''

    Rule 123A.32 currently states that the liability of a specialist 
shall not extend beyond the closing price on the third business day 
where it is deemed that the specialist did not send out a report. It is 
proposed to delete the word ``third'' and add the language ``following 
the day of the transaction'' after reference to ``the business day'' in 
the last paragraph.

Rule 123B--``Exchange Automated Order Routing Systems''

    The amendments will shorten the time frames contained in Rule 
123B(b)(2)(A) and (B) for correcting execution reports. Rule 
123B(b)(2)(A) will require that for most transaction between brokers, 
if a purchase or sale has been reported in error and a transaction has 
appeared on the tape at the price of the erroneous report, the broker 
who made the error will be required to render a corrected report not 
later than noon on T+1 rather than one hour after the opening on T+2. 
Rule 123B(b)(2)(B) will require that for orders received by the 
specialist through the Designated Order Turnaround System or the Limit 
Order System, if the subscribing member organization requests a 
correction from the specialist prior to the opening of the second 
business day, rather than third business day, following the 
transaction, the specialist shall correct the report. Rule 
123B(b)(2)(B) also will require that if the erroneous report is at a 
price more than one-half point away from the execution price, the 
specialist must render a corrected report not later than noon on T+1 
rather than one hour after the opening on T+2.

Rule 128--``Publications of Changes, Corrections, Cancellations or 
Omissions and Verification of Transactions''

     Rule 128B.10, .12 and .13 apply to tape corrections and other 
errors. Rule 128B.10 will require that in the event that publication of 
a change, correction, or cancellation of a transaction which previously 
appeared on the tape or of a transaction omitted from the tape is not 
made on the tape on the day of the transaction, such change, 
correction, cancellation, or omission may be published in the ``sales 
sheet'' within three business days, rather than within seven calendar 
days, of the date of the transaction with the approval of both the 
buying and selling members and a floor official. Rule 128B.12 will 
require that erroneous publications made on the tape due to mechanical 
or system troubles or clerical errors may be corrected in the sales 
sheet within three business days, rather than within seven calendar 
days, of the date of the transaction under the direction of an 
authorized NYSE employee. Rule 128B.13 will require that any other 
errors in the amount of a transaction reported erroneously to a 
reporter by a party to the transaction may be published on the sales 
sheet within three business days, rather than within seven calendar 
days, of the date of the transaction with the approval of a floor 
official.

Rule 235--``Ex-Dividend, Ex-Rights''

    Rule 235 will be amended to provide that transactions in stocks 
shall be ex-dividend or ex-rights on the second business day preceding 
the record date rather than on the fourth business day. With regard to 
a record date on other than a business day, transactions in stocks 
shall be ex-dividend or ex-rights on the third preceding business day 
rather than on the fifth preceding business day.

Rule 236--``Ex-Warrants''

    Rule 236 prescribes when ex-warrant trading will begin. The ex-
warrant period will be changed to the second business day preceding the 
date of expiration of the warrants instead of the fourth business day. 
When warrant expiration occurs on other than a business day, the ex-
warrant period will begin on the third business day preceding the 
expiration date instead of on the fifth business day.

Rule 257--``Deliveries After `Ex' Date''

    Rule 257 provides for the delivery of dividends or rights after the 
``ex'' date or due-bill-check. The seller will be required to deliver 
dividend or rights three days after record date rather than five days.

Rule 387--``COD Orders''

    Rule 387(a)(4) requires a member to obtain an agreement from its 
customer to deliver instructions to its agent with respect to receipt 
and delivery of securities within certain time periods. In the case of 
a purchase by the customer where the agent is to receive the securities 
against payment (COD), a customer must agree to furnish its agent with 
instructions no later than the close of business on the second business 
day, rather than the fourth business day, after the date of execution 
of the trade as to which the particular confirmation relates. In the 
case of a sale by the customer where the agent is to deliver the 
securities against payment (POD), a customer must agree to deliver to 
its agent instructions by the close of the business on the first day, 
rather than the third business day, after the date of execution of the 
trade as to which the particular confirmation relates.
    The NYSE's implementation of these rule changes will be consistent 
with the ``T+3'' conversion schedule which the National Securities 
Clearing Corporation has developed for industry use. The schedule is as 
follows:

                 ``T+3'' Conversion Schedule--June 1995                 
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                                       Settlement                       
             Trade date                   cycle        Settlement date  
------------------------------------------------------------------------
June 2 Friday.......................  5 day.......  June 9 Friday.      
June 5 Monday.......................  4 day.......  June 9 Friday.      
June 6 Tuesday......................  4 day.......  June 12 Monday.     
June 7 Wednesday....................  3 day.......  June 12 Monday.     
------------------------------------------------------------------------

    If the Commission determines to alter the exemptions currently 
provided in Rule 15c6-1, the NYSE may need to undertake additional rule 
amendments. It is intended that the proposed rule changes are to become 
effective on the same date as Commission Rule 15c6-1.
    The proposed rule change is consistent with Section 6(b)(5) of the 
Act in that it protects investors and the public interest by reducing 
the risk to clearing corporations, their members, and public investors 
which is inherent in settling securities transactions. This is 
accomplished by reducing the time period for settlement of most 
securities transactions which will correspondingly decrease the number 
of unsettled trades in the clearance and settlement system at any given 
time. The proposed change also is consistent with Commission Rule 15c6-
1 which requires brokers or dealers to settle most securities 
transactions no 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.

(B) Self-Regulatory Organization's Statement on Burden on Competition

    NYSE believes that the proposed rule change will not impose any 
burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act.

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

    No written comments were either solicited or 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. 552, will be available for inspection and copying in the 
Commission's Public Reference Section, 450 Fifth Street, N.W., 
Washington, D.C. Copies of such filing also will be available for 
inspection and copying at the principal office of the NYSE. All 
submissions should refer to the File No. SR-NYSE-94-40 and should be 
submitted by January 13, 1995.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-31602 Filed 12-22-94; 8:45 am]
BILLING CODE 8010-01-M