[Federal Register Volume 60, Number 68 (Monday, April 10, 1995)]
[Notices]
[Pages 18161-18163]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-8709]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35553; File No. SR-Amex-94-57]


Self-Regulatory Organizations; American Stock Exchange, Inc.; 
Order Approving Proposed Rule Change Relating to Implementation of a 
Three-Day Settlement Standard

March 31, 1995.
    On December 23, 1994, the American Stock Exchange, Inc. (``Amex'') 
filed a proposed rule change (File No. SR-Amex-94-57) 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. 35197 (January 6, 1995), 
60 FR 3007.
    \3\Letter from P. Howard Edelstein, President Electronic 
Settlements Group, 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 
which will become effective June 7, 1995.\4\ The rule 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. Several of the Amex's rules are interrelated with the T+5 
settlement time frame. The purpose of the proposed rule change is to 
amend Amex's rules consistent with a T+3 [[Page 18162]] settlement 
standard for securities transactions.

    \4\Securities Exchange Act Release Nos. 33023 (October 6, 1993), 
58 FR 52891 (adopting Rule 15c6-1) and 34952 (November 9, 1994), 59 
FR 59137 (changing the effective date from June 1, 1995, to June 7, 
1995).
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    Rule 124(c) specifies the delivery date for regular way 
transactions which will be shortened to T+3. The references to a 
seller's option delivery to be made not less than six business days 
after the trade date contained in Rules 124(d) and 205C(2) will be 
changed to not less than four business days.
    Rules 17(b) and 179(a) will require that all transactions and 
orders entered on a specialist's book in an issue of rights shall be 
made ``next day'' during the three business days preceding the final 
day for dealings in an issue of rights. Rules 17(c) and 179(b) will 
require all transactions and orders entered on a specialist's book in 
warrants shall be made for cash during the three final business days 
for trading in such issue. Rule 179(c) will require an order in an 
expiring equity securities entered on a specialist's book to be for 
``next day'' delivery during the final three business days preceding 
the final day for trading.
    The proposal will shorten by two days the time frames contained in 
Rule 423(4) for delivery of agent instructions with respect to receipt 
versus payment (``RVP'') or delivery versus payment (``DVP'') customer 
transactions. The proposal will shorten by two days the time frames 
contained in Rule 830 for the ex-divident period and the ex-rights 
period (if the terms of the subscription are known sufficiently in 
advance) for stock transactions not made in cash. In addition, the 
proposal eliminates the separate ex-dividend and ex-right periods for 
transfers outside of New York.
    Rule 858 directs settlement in contracts in bonds dealt in ``and 
interest.'' The proposal will amend Rule 858 to provide that with 
respect to seller's option contracts, there shall be added to the 
contract price interest on the principle amount at the rate specified 
in the bond, which shall be computed up to but not including the day 
when delivery would have been due if the contract had been made 
``regular way.''
    Rule 862 will require that the return of loans of securities must 
be made on the third business day following the day on which notice is 
given. Rule 866 will require a loan of securities to be deliverable on 
the third business day following the day of the loan unless otherwise 
agreed to by the parties. Rule 882 will require that a seller deliver 
to the buyer a due-bill for dividends or rights to subscribe within 
three days after the record date if a security is sold before it is ex-
dividend or ex-rights and delivery is made after the record date. The 
references in Rule 882 to the equivalent New York record date will be 
eliminated.
    Amex has requested that the proposed rule change become effective 
on the same date as Rule 15c6-1.\5\ Rule 15c6-1 is scheduled to become 
effective on June 7, 1995. The transition from T+5 settlement to T+3 
settlement will occur over a four day period.\6\

    \5\Letter from Ivonne Nagy, Special Counsel, Amex, to Michele 
Bianco, Attorney, Office of Securities Processing, Division of 
Market Regulation, Commission (December 30, 1994).
    \6\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 regulatory 
changes may be necessary to implement T+3 settlement.\7\ Thomson 
believes that the Amex should amend Rule 423(5) which requires the use 
of the facilities of a securities depository for confirmation and 
acknowledgement of all depository-eligible transactions.

    \7\Letter from P. Howard Edelstein, President, Electronic 
Settlement Group, Thomson Trading Services, Inc., to Jonathan G. 
Katz, Secretary, Commission (January 30, 1995).
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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. Amex's 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 15c6-1. As a result, the Amex's current rules 
providing for a T+5 settlement cycle will be inconsistent with 
Commission rules. This proposal will amend the Amex's rules to 
harmonize them with 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 the risk to clearing 
corporations, their members, and public investors which is 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 adopting release stated, ``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 Amex's efforts to shorten the 
settlement cycle for securities transactions, Thomson believes that the 
Amex should amend Rule 423(5), which requires the use of the facilities 
of a securities depository for the confirmation and acknowledgement of 
all DVP and RVP depository-eligible transactions. 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, DTC, and the Securities Industry Association. The Commission 
will continue to work with the industry to address Thomson's concerns. 
However, if the proposed rule change is not approved prior to the June 
7, 1995, effective date of Rule 15c6-1, the Amex rules will conflict 
with the Commission Rule 15c6-1.
    The Thomson letter suggests that approval of the proposed rule 
change without amendments to Rule 423 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 
the anticompetitive effects pointed to by Thomson, if in fact there are 
any anticompetitive effects, are not caused by the proposed rule change 
approved by this order but rather by an existing Amex 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 [[Page 18163]] efficient 
clearance and settlement of securities.

IV. Conclusion

    For the reasons stated above, the Commission finds that Amex's 
proposal is consistent with Section 6 of the Act.\10\

    \10\15 U.S.C. Sec. 78f (1988).
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    It Is Therefore Ordered, pursuant to Section 19(b)(2) of the 
Act,\11\ that the proposed rule change (File No. SR-Amex-94-57) be and 
hereby is approved, effective June 7, 1995.

    \11\15 U.S.C. Sec. 78s(b)(2) (1988).

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\12\

    \12\17 CFR 200.30(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-8709 Filed 4-7-95; 8:45 am]
BILLING CODE 8010-01-M