[Federal Register Volume 60, Number 56 (Thursday, March 23, 1995)]
[Notices]
[Pages 15315-15316]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7138]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35502; File No. SR-PSE-94-27]
Self-Regulatory Organizations; The Pacific Stock Exchange
Incorporated; Order Approving Proposed Rule Change Relating to
Implementation of a Three-Day Settlement Standard
March 16, 1995.
On December 19, 1994, The Pacific Stock Exchange Incorporated
(``PSE'') filed a proposed rule change (File No. SR-PSE-94-27) 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 12, 1995
to solicit comments from interested persons.\2\ The Commission received
one written comment.\3\ As discussed below, this order approves the
proposed rule change.
\1\15 U.S.C. Sec. 78s(b) (1988).
\2\Securities Exchange Act Release No. 35193 (January 4, 1995),
60 FR 3015.
\3\Letter from P. Howard Edelstein, President, Electronic
Settlements Group, Thomson Trading Services, Inc., to Jonathan G.
Katz, Secretary, Commission (February 1, 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 PSE's rules are interrelated
with the standard settlement time frame. The purpose of the proposed
rule change is to amend PSE'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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Under PSE Rule 5.7, transactions in stocks traded ``regular'' will
be ``ex-dividend'' or ``ex-rights,'' as the case may be, on the second
business day preceding the record date fixed by the company or the date
of the closing of transfer books, except when PSE's board of directors
rules otherwise. Rule 5.7 also provides that should such record date or
such closing of transfer books occur upon a day other than a business
day, this rule applies for the third preceding business day.
Under Rule 5.9(a)(2), transactions in securities admitted to
dealings on an ``issued'' basis settling ``regular way'' will be for
delivery on the third business day following the day of the contract.
Rule 5.9(a)(3) provides that transactions on a ``seller's option''
basis will be made for delivery at the option of the seller within the
time specified in the option, which time may not be less than four
business days following the date of the contract. Rule 5.9(a)(4)
provides that transactions in rights and warrants may be made on a
``next day'' basis only during the three business days preceding the
final day for trading therein.
Rule 9.12(a)(4) requires that no member organization may grant
delivery versus payment (``DVP'') or receipt versus payment (``RVP'')
privileges to a customer without obtaining an agreement from the
customer to provide instructions to its agent no later than the second
day after the trade date for RVP trades or no later than the first
business day after trade date for DVP trades.
PSE 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 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 regulatory
changes may be necessary to implement T+3 [[Page 15316]] settlement.\7\
Thomas believes that the PSE should amend Rule 9.12(a)(5) which
requires the use of the facilities of a registered securities
depository for confirmation and acknowledgement of all transaction in
depository-eligible securities.
\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 PSE rules and other
self-regulatory organizations' rules currently establish the 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 15cb-1. As a result, the PSE's current rule providing
for a T+5 settlement cycle will be inconsistent with the Commission
rule. This proposal will amend the PSE's rules to harmonize them with
the Commission's Rule 15cb-1 and a T+3 settlement cycle.
\8\15 U.S.C. Sec. 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 Thomson's letter supports the PSE's efforts to shorten the
settlement cycle for securities transactions, Thomson believes that the
PSE should amend Rule 9.12(a)(5), which requires the use of the
facilities of a registered securities depository for the confirmation
and acknowledgement of all transactions in depository-eligible
securities where payment for securities purchased or delivery of
securities sold is to be made by or to an agent of the customer. 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 self-regulatory organization
rules should continue to preclude use of private vendor systems for
confirmation/affirmation services in DVP/RVP trades. However, if the
PSE'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 PSE rules
will conflict with the Commission's Rule 15c6-1.
\10\Securities Exchange Act Release No. 35332 (February 3,
1995), 60 FR 8102 (notice of proposed rule filing).
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The Thomson letter suggests that approval of the proposed rule
change without amendments to Rule 9.12(a)(5) raises competitive
concerns. Under the Act, the Commission's responsibility is 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 PSE 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 PSE's
proposal is consistent with Section 6 of the Act.\11\
\11\15 U.S.C. Sec. 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-PSE-94-27) be and
hereby is approved and will become effective on June 7, 1995.
\12\15 U.S.C. Sec. 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. 95-7138 Filed 3-22-95; 8:45 am]
BILLING CODE 8010-01-M