[Federal Register Volume 60, Number 56 (Thursday, March 23, 1995)]
[Notices]
[Pages 15318-15320]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7137]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35503; File No. SR-Phlx-94-55]
Self-Regulatory Organizations; the Philadelphia Stock Exchange,
Inc., Order Approving Proposed Rule Change Relating to Implementation
of a Three-Day Settlement Standard
March 16, 1995.
On November 14, 1994, the Philadelphia Stock Exchange, Inc.,
(``Phlx'') filed a proposed rule change (File No. SR-Phlx-94-55) with
the Securities and Exchange Commission (``Commission'') pursuant to
Section 19(b) of the Securities Exchange Act of 1934 (``Act'').\1\
Notice of the proposal was published in the Federal Register on January
9, 1995 to solicit comments from interested persons.\2\ The Commission
received one comment letter.\3\ As discussed below, this order approves
the proposed rule change.
\1\15 U.S.C. 78s(b) (1988).
\2\Securities Exchange Act Release No. 35176 (December 29,
1994), 60 FR 2417.
\3\Letter from Dr. Keith B. Jarrett, President, Thomson Trading
Services, Inc., to Jonathan G. Katz, Secretary, Commission (January
30, 1995).
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I. Description
In October 1993, the Commission adopted Rule 15c6-1 under the
Act\4\ which establishes three business days after the trade date
(``T+3''), instead of five business days (``T+5''), as the standard
settlement cycle for most securities transactions. The rule will become
effective June 7, 1995.\5\ Several of the Phlx's rules are interrelated
with the T+5 settlement time frame. The [[Page 15319]] purpose of the
proposed rule change is to amend Phlx's rules to be consistent with a
T+3 settlement standard for securities transactions.
\4\17 CFR 240.15c6-1 (1994).
\5\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 (changing effective date from June 1, 1995, to
June 7, 1995).
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Rule 113(b), 114(b), and 115(b) specify the delivery date for
regular way transactions in stocks, bonds, and convertible bonds,
respectively. The time frames contained in each rule is being shortened
to reflect a T+3 settlement environment. Similarly, Rules 113(c),
114(c), and 115(b) are being amended to provide that a seller's option
cannot require delivery in less than four days. Rule 114(b) also is
being amended to provide that bonds sold for delayed delivery must be
delivered on T+5. Under the amendments to rule 117 (a) and (b), a
seller's notice of next day delivery of securities sold pursuant to a
seller's option or regular way delayed delivery may not be given until
the third day following the date of the contract.
As amended, Rule 291 requires, unless otherwise agreed, securities
loaned to be delivered on the third business day following the day of
the loan, As amended, Rule 294 requires the return of securities loaned
on the third full business day following the date the notice for the
return is given.
Under Rule 362, the contract price of bonds dealt in ``and
interest'' and made regular way delayed delivery will include interest
computed on up to but not including T+3. As amended, Rule 371 (a) and
(b) provides that there will be a cash adjustment for coupons paid
during the pendency of delayed delivery contracts and seller's option
contracts in bonds dealt in ``and interest'' made prior to the third
business day preceding the interest payment date and delivered on or
after the interest payment date.
Rule 431 is being amended to require transactions in stock to be
ex-dividend or ex-rights on the second business day preceding the
record date. With regard to a record date on other than a business day,
the transaction will be ex-dividend or ex-right on the third preceding
business day. Under Rule 432, the ex-warrant period will begin on the
second business day preceding the date of expiration of warrants. When
warrant expiration occurs on a day other than a business day, the ex-
warrant period will begin on the third business day preceding
expiration date.
Rule 823 is being amended to require all transactions effected on
Phlx to be settled pursuant to the three day delivery plan which will
require regular way transactions to settle on the third business day
after the transaction. Rule 825(b) is being amended to state that the
ex-dividend period for transactions in stock for which there exists a
transfer facility in Philadelphia begins on the second business day
preceding the record date. In the event the record date is not a
business day, the ex-dividend date will be the third preceding business
day. Under Rule 825(c), regular way transactions for stocks with
transfer facilities only outside Philadelphia will be ex-dividend on
the second business day preceding the equivalent Philadelphia record
date.
The Phlx has requested that the proposed rule change become
effective on the same date as Rule 15c6-1. Rule 15c6-1 will become
effective on June 7, 1995.\6\
\6\The transition from five day settlement to three day
settlement will occur over a four day period. Friday, June 2, will
be the last trading day with five business day settlement. Monday,
June 5, and Tuesday, June 6, will be trading days with four business
day settlement. Wednesday, June 7, will be the first trading day
with three business day settlement. As a result, trades from June 2
and June 5 will settle on Friday, June 9. Trades from June 6 and
June 7 will settle on Monday, June 12.
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II. Written Comment
The Commission received one comment letter from Thomson Trading
Services, Inc. (``Thomson'') suggesting that additional rule changes
may be necessary to implement T+3 settlement.\7\ Thomson believes that
the Phlx should amend Rule 274(b) which requires the use of the
facilities of a registered securities depository for confirmation and
acknowledgement of all payment on delivery transactions in depository-
eligible securities when the member organization, its agent, the
customer, and its agent are participants in a securities depository.
\7\Supra note 3.
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III. Discussion
The Commission believes the proposal is consistent with the
requirements of Section 6 of the Act.\8\ Specifically, Section 6(b)(5)
states that the rules of the exchange must be designed to foster
cooperation and coordination with persons engaged in regulating,
clearing, settling, and processing information. The Phlx rules and
other self-regulatory organizations' rules provide a standard time
frame for settlement of securities transactions. On June 7, 1995, the
new settlement cycle of T+3 will be established as mandated by the
Commission's Rule 15c6-1. As a result, the Phlx's current rules
providing for a T+5 settlement cycle will be inconsistent with the
Commission's rule. This proposal will amend the Phlx's rules to
harmonize them with the Commission's Rule 15c6-1 and a T+3 settlement
cycle.
\8\15 U.S.C. 78f (1988).
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In addition, the Commission believes that 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 risks to clearing
corporations, their members, and public investors which are inherent in
settling securities transactions. The reduction of the time period for
settlement of most securities transactions will correspondingly
decrease the number of unsettled trades in the clearance and settlement
system at any given time. Thus fewer unsettled trades will be subject
to credit and market risk, and there will be less time between trade
execution and settlement for the value of those trades to
deteriorate.\9\
\9\The Commission release adopting Rule 15c6-1 stated that ``the
value of securities positions can change suddenly causing a market
participant to default on unsettled positions. Because the markets
are interwoven through common members, default at one clearing
corporation or by a major market participant or end-user could
trigger additional failures resulting in risk to the national
clearance and settlement system.'' Securities Exchange Act Release
No. 33023 (October 6, 1993), 58 FR 52891.
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While the Thomson letter supports the Phlx's efforts to shorten the
settlement cycle for securities transactions, Thomson believes that the
Phlx should amend Rule 274(b), which requires the use of the facilities
of a registered securities depository for the confirmation and
acknowledgement of all payment on delivery transactions in depository-
eligible securities when the member organization, its agent, the
customer, and its agent are participants in a securities depository.
The Commission believes that the issue raised by the Thomson letter
need not be resolved prior to the approval of the proposed rule change.
Discussions regarding Thomson's concerns are underway among the
Commission, Thomson, and DTC. DTC has submitted a rule filing that will
establish a linkage between DTC and vendors such as Thomson.\10\ The
Commission intends to consider whether a self-regulatory organization
rule should continue to preclude use of private vendor systems for
confirmation/affirmation services in DVP/RVP trades. However, if the
Phlx's proposed rule change being approved by this order is not
approved prior to the June 7, 1995, effective date of Rule 15c6-1, the
Phlx rules will conflict with Commission Rule 15c6-1.
\10\Securities Exchange Act Release No. 35332 (February 3,
1995), 60 FR 8102 (notice of filing of proposed rule change)
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The Thomson letter suggests that approval of the proposed rule
change without amendments to Rule 274(b) raises competitive concerns.
Under the Act, the Commission's responsibility is [[Page 15320]] to
balance the perceived anticompetitive effects of a regulatory policy or
decision against the purpose of the Act that would be advanced by the
policy or decisions and the costs associated therewith. The Commission
notes that any anticompetitive effects pointed to by Thomson are not
caused by the proposed rule change being approved by this order but
rather by an existing Phlx rule. The Commission is reviewing Thomson's
claim but does not believe that approval of this proposal will itself
create any burdens on competition. Moreover, as discussed above, the
rule advances fundamental purposes under the Act, namely the efficient
clearance and settlement of securities.
IV. Conclusion
For the reasons stated above, the Commission finds that Phlx's
proposal is consistent with Section 6 of the Act.\11\
\11\15 U.S.C. 78f (1988).
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It Is Therefore Ordered, pursuant to Section 19(b)(2) of the
Act,\12\ that the proposed rule change (File No. SR-Phlx-94-55) be and
hereby is approved and will become effective June 7, 1995.
\12\15 U.S.C. 78s(b)(2) (1988).
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For the Commission by the Division of Market Regulation,
pursuant to delegated authority.\13\
\13\17 CFR 200.30(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-7137 Filed 3-22-95; 8:45 am]
BILLING CODE 8010-01-M