[Federal Register Volume 60, Number 5 (Monday, January 9, 1995)]
[Notices]
[Pages 2417-2418]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-383]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35176; File No. SR-Phlx-94-55]


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

December 29, 1994.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''),\1\ notice is hereby given that on November 14, 1994, the 
Philadelphia Stock Exchange, Inc. (``PHLX'') 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 PHLX. 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) (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 PHLX's rules 
to accommodate a three business day settlement standard for securities 
transactions.

II. Self-Regulatory Organization's Statements Regarding the Proposed 
Rule Change

    In its filing with the Commission, the PHLX 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 PHLX 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

    In October 1993 the Commission adopted Rule 15c6-1 under the Act. 
The rule which will become effective June 7, 1995.\2\ Rule 15c6-1 will 
establish three business days following the trade date (``T+3'') as the 
standard settlement time frame for most broker-dealer transactions. In 
the release adopting Rule 15c6-1, the Commission concluded that a T+3 
settlement cycle, as compared to the current five-day settlement cycle 
(``T+5''), will reduce credit and liquidity risks and increase 
efficiency in broker-dealer and clearing agency operations.

    \2\Securities 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 the effective date of Rule 15c6-
1].
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    The PHLX has identified those rules which require amendment to 
provide for operations by members within a T+3 settlement cycle. The 
rules are described below.
    Rule 113(b) defines ``regular way'' dealings in stock as requiring 
delivery on the fifth business day following the day of the 
contract.\3\ ``Fifth'' will be changed to ``third.'' Similarly, the 
language in Rule 113(c) defining a seller's option dealing will be 
changed from requiring delivery in not less than six days to in not 
less than four days.

    \3\As proposed, the rule will include in a T+3 environment 
transaction in securities exempted under Rule 15c6-1(b)(2). 
Specifically, under the proposal, securities sold pursuant to a firm 
commitment offering registered under the Securities Act of 1933 must 
settle within three business days.
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    Rule 114(b) defines ``regular way'' dealings in bonds (except 
convertible bonds and United States government securities) as requiring 
delivery on the fifth business day following the day of the contract. 
``Fifth'' will be changed to ``third.'' Rule 114 also provides that for 
bonds sold for delayed delivery, delivery is due on the seventh day 
following contract day. ``Seventh'' will be changed to ``fifth.'' 
Similarly, the language in Rule 114(c) defining a seller's option 
dealing will be changed from requiring delivery in not less than eight 
days to in not less than four days.
    Rule 115(b) defines ``regular way'' to require dealings in 
convertible bonds to require delivery on the fifth business day 
following the day of the contract. ``Fifth'' will be changed to 
``third.'' Similarly, the language in Rule 115(b) defining seller's 
option dealing will be changed from requiring delivery in not less than 
six days to in not less than four days.
    Rule 117 (a) and (b) require notice of early delivery of securities 
sold pursuant to seller's option or regular way delayed delivery to be 
submitted before 4:00 p.m. at least one day prior to delivery and may 
not be given until the fifth business day after the date of 
[[Page 2418]] the contract. ``Fifth'' will be changed to ``third.''
    Rule 291 requires, unless otherwise agreed, securities loaned to be 
delivered on the fifth business day following the day of the loan. 
``Fifth'' will be changed to ``third.'' Rule 294 will be amended to 
change the return date for securities loaned from the fifth full 
business day following the date the notice is given to the third full 
business day.
    Rule 362 will require the contract price of bonds dealt in ``and 
interest'' and made ``regular way delayed delivery'' to include 
interest computed only up to but not including the third business day 
rather than the fifth business day following the day of the contract. 
Rule 371(a) states that with ``delayed delivery'' contracts in bonds 
dealt in ``and interest'' made prior to the fifth business day 
preceding the interest payment date for delivery on or after the 
interest payment date, there will be a cash adjustment for coupons 
paid. The rule will be changed to prior to the third business day 
preceding the interest payment date. Similarly, Rule 371(b) will 
require that ``seller's option'' contracts in bonds dealt in ``and 
interest'' made prior to the third business day, instead of the fifth 
business day, preceding the interest payment date for delivery on or 
after the payment date will have a cash adjustment for coupons paid.
    Rule 431 states that transactions (except those made for ``cash'') 
shall be ex-dividend or ex-rights on the fourth business day preceding 
the record date. This will be changed to the second business day. With 
regard to a record date on other than a business day, the transaction 
shall be ex-dividend or ex-rights on the third preceding business day 
rather than on the fifth preceding business day. Rule 432 prescribes 
when ex-warrant trading will begin. The ex-warrant period will be 
changed from the fourth business day preceding date of expiration of 
warrants to the second business day. When warrant expiration occurs on 
a day other than a business day, the ex-warrant period will be changed 
from fifth business day preceding expiration date to third business 
day.
    Rule 823 requires that all transactions effected on the PHLX will 
be settled pursuant to the ``five day delivery plan'' which requires 
regular way transactions to settle on the fifth business day after the 
transaction date. The proposed rule change will change all references 
from five to three.\4\

    \4\Rule 823 also demonstrates the ``five day delivery plan'' by 
stating that a transaction that occurs on Monday will settle on the 
Monday of the following week. This language will be changed to be 
consistent with the ``three day delivery plan.''
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    Rule 825(b) provides that the ex-dividend date for transactions in 
stock for which there exists a transfer facility in Philadelphia is the 
fourth business day preceding the record date. The reference to fourth 
business day will be changed to second business day. In the event the 
record date is not a business day, the ex-dividend date will be changed 
from the fifth preceding business day to the third preceding business 
day. Rule 825(c) establishes the equivalent ex-dividend record date for 
those stocks with transfer facilities outside Philadelphia. For these 
stocks, the ex-dividend date will be the second business day, instead 
of the fourth business day, preceding the equivalent Philadelphia 
record date.
    The PHLX's implementation of these rule changes will be consistent 
with the June 1995 conversion schedule which the Stock Clearing 
Corporation of Philadelphia and National Securities Clearing 
Corporation have developed for industry use. The schedule is as 
follows:

------------------------------------------------------------------------
                                        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.     
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    If the Commission determines to alter the exemptions currently 
provided in Rule 15c6-1, the PHLX may need to submit additional rule 
amendments. It is intended that the proposed rule change will become 
effective 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 will require 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

    The PHLX does not believe that the proposed rule change will impose 
any inappropriate burden on competition.

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 or such date if it finds 
such longer period to be appropriate and publishes its reasons for so 
finding or (ii) as to which the PHLX 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. 20549. Copies of such filing also will be available 
for inspection and copying at the principal office of the PHLX. All 
submissions should refer to File No. SR-Phlx-94-55 and should be 
submitted by January 30, 1995.

    For the Commission by the Division of Market Regulation, 
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-383 Filed 1-6-95; 8:45 am]
BILLING CODE 8010-01-M