[Federal Register Volume 60, Number 100 (Wednesday, May 24, 1995)]
[Notices]
[Pages 27578-27579]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-12697]



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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-35724; File No. SR-CSE-95-04]


Self-Regulatory Organizations; The Cincinnati Stock Exchange 
Incorporated; Order Approving Proposed Rule Change Relating to 
Implementation of a Three-Day Settlement Standard

May 17, 1995.
    On April 4, 1995, The Cincinnati Stock Exchange Incorporated 
(``CSE'') filed a proposed rule change (File No. SR-CSE-95-04) 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 April 17, 1995, 
to solicit comments from interested persons.\2\ The Commission did not 
receive any comments. As discussed below, this order approves the 
proposed rule change.

    \1\ 15 U.S.C. 78s(b) (1988).
    \2\ Securities Exchange Act Release No. 35580 (April 7, 1995), 
60 FR 19312.
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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.\3\ 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 CSE's rules are interrelated with the 
standard settlement time frame. The purpose of the proposed rule change 
is to amend CSE's rules in order that they are consistent with a T+3 
settlement standard for securities transactions.

    \3\ 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 effective date from June 1, 1995, to 
June 7, 1995).
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    The following changes to CSE rules are needed to implement the new 
settlement standard established by Rule 15c6-1. Rule 3.8(b)(1)(iii) 
will require that members receive reasonable assurance from the 
customer that a security will be delivered within three business days 
of the execution of the order. Rule 3.8(b)(2) will require that members 
note on order tickets that the customer has the ability to deliver 
stock within three business days. Rule 11.4 will provide that 
transactions in stocks (other than those made for ``cash'') shall be 
``ex-dividend'' or ``ex-rights'' on the second business day preceding 
the record date fixed by the company or the date of the closing of 
transfer books except when the Board of Trustees of CSE rules 
otherwise. When the record date or closing of transfer books occur upon 
a day other than a business day, transactions in stocks shall be ``ex-
dividend'' or ``ex-rights'' on the third preceding business day.
    CSE has requested that the proposed rule change become effective on 
the same date as Rule 15c6-1, which will be June 7, 1995. The 
transition from five day settlement to three day settlement will occur 
over a four day period.\4\

    \4\ 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. Discussion

    The Commission believes the proposal is consistent with the 
requirements of Section 6 of the Act.\5\ 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. 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 CSE's current rules based on 
a T+5 settlement cycle will be inconsistent with this rule. This 
proposal will amend the CSE's rules to harmonize them with the 
Commission Rule 15c6-1 and with a T+3 settlement cycle.

    \5\ 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.\6\

    \6\ The release adopting Commission Rule 15c6-1 stated, ``[T]he 
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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IV. Conclusion

    For the reasons stated above, the Commission finds that CSE's 
proposal is consistent with Section 6 of the Act.\7\

    \7\15 U.S.C. 78f (1988). [[Page 27579]] 
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    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\8\ that the proposed rule change (File No. SR-CSE-95-04) be and 
hereby is approved, effective June 7, 1995.

    \8\ 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.\9\

    \9\ 17 CFR 200.30(a)(12) (1994).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-12697 Filed 5-23-95; 8:45 am]
BILLING CODE 8010-01-M