[Federal Register Volume 60, Number 228 (Tuesday, November 28, 1995)]
[Notices]
[Pages 58695-58697]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28932]



-----------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-36496; File No. SR-NASD-95-50]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Association of Securities Dealers, Inc. Amending the 
Buy-in Procedures in Section 59 of the Uniform Practice Code to Clarify 
the Appropriate Delivery Deadlines for Buy-in Notices

November 20, 1995.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act''), 15 U.S.C. 78s(b)(1), notice is hereby given that on November 
15, 1995, the National Association of Securities Dealers, Inc. 
(``NASD'' or ``Association'') filed with the Securities and Exchange 
Commission (``SEC'' or ``Commission'') the proposed rule change as 
described in Items I, II, and III below, which Items have been prepared 
by the NASD \1\ The Commission is publishing this notice to solicit 
comments on the proposed rule change from interested persons.

    \1\ The proposal was originally filed with the Commission on 
October 26, 1995. The NASD subsequently submitted Amendment No. 1 to 
the filing. This document provides notice of the filing as amended. 
Letter from Elliot Curzon, Assistant General Counsel, NASD, to Karl 
J. Varner, Over-the-Counter Regulation, Division of Market 
Regulation, SEC, dated November 15, 1995.
---------------------------------------------------------------------------

I. Self-Regulatory Organization's Statement of the Terms of 
Substance of the Proposed Rule Change

    Pursuant to the provisions of Section 19(b)(1) of the Act, the NASD 
is herewith filing a proposed rule change to amend Section 59 of the 
Uniform Practice Code (``UPC'' or ``Code'') to revise the buy-in 
procedures to clarify the appropriate delivery deadlines for buy-in 
notices. Below is the text of the proposed rule change. Proposed new 
language is italicized; proposed deletions are in brackets.
Uniform Practice Code
Close-Out Procedure
``Buying-in''
Sec. 59.

    A contract which has not been completed by the seller according to 
its terms may be closed by the buyer not sooner than the third business 
day following the date delivery was due, in accordance with the 
following procedure:
Notice of ``buy-in''
    (a)(1) Written notice of ``buy-in'' shall be delivered to the 
seller at his office not later than 12 noon, his time, two business 
days preceding the executing of the proposed ``buy-in.''
    (2) For purposes of this rule written notice shall include an 
electronic notice through a medium that provides for an immediate 
return receipt capability. Such electronic media shall include but not 
be limited to facsimile transmission, a computerized network facility, 
etc.
Information contained in ``buy-in'' notice
    (b)(1) Every notice of ``buy-in'' shall state the date of the 
contract to be closed, the quantity and contract price of the 
securities covered by said contract, the settlement date of said 
contract and any other information deemed necessary to properly 
identify the contract to be closed. Such notice shall state further 
that unless delivery is effected at or before a certain specified time, 
which may not be prior to 11:30 a.m. local time in the community where 
the buyer maintains his office, the security may be ``bought-in'' on 
the date specified for the account of the seller. If the originator of 
a ``buy-in'' in a depository eligible security is a participant in a 
registered securities 

[[Page 58696]]
depository, the specified delivery time may not be prior to 3:30 p.m. 
Eastern Time and the ``buy-in'' may not be executed prior to [2:30] 
3:00 p.m., Eastern Time. Each ``buy-in'' notice shall also state the 
name and telephone number of the individual authorized to pursue 
further discussions concerning the buy-in.
    (2) Notice may be redelivered immediately to another broker/dealer 
from whom the securities involved are due in the form of a re-
transmitted notice (``re-transmit''). Ar[R]e-transmitted notice of buy-
in must be delivered to subsequent broker/dealers not later than 12 
noon, recipient's local time, on the [one] business day preceding the 
time and date of execution of the proposed buy-in, and the time 
specified for delivery may not be prior to the time specified in the 
original notice.

II. Self-Regulatory Organization's Statement of the Purpose of and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the NASD 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 NASD 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

    Under Section 59 of the Code, when the seller has not completed a 
contract of sale of securities by delivering the securities called for 
in the contract on settlement day, the buyer may close the contract by 
purchasing the subject securities in the open market (``buying-in''). 
When securities are bought in to complete a contract, the seller in 
liable for any difference between the contract price and the buy-in 
price.
    Pursuant to subsection 59(a) of the Code, a buy-in is initiated by 
the buyer delivering a notice of buy-in to the seller at his office not 
later than 12 noon, the seller's time, two business days preceding the 
execution of the proposed buy-in. Subsection 59(b) provides that the 
notice must include the terms of the contract to be closed and must 
state that unless delivery is effected at or before a certain specified 
time not earlier than 11:30 A.M., the buyer's local time, the security 
may be bought in for the account of the seller (meaning the seller 
assumes the liability for the market price of the security bought in). 
Subsection 59(b) also provides that if the originator of the buy-in 
notice is a participant in a registered securities depository, and the 
security to be bought in is a depository eligible security, the buy-in 
may not be executed before 2:30 P.M. Eastern Time.
    The NASD has identified an inconsistency in subsection 59(b) in 
that the provisions permit a buy-in notice to specify a delivery 
deadline no earlier than 11:39 A.M., local time, yet the buy-in may not 
be executed before 2:30 P.M., Eastern Time. If the seller obtained 
securities and tendered them for delivery after the notice deadline but 
before the buy-in was executed, the provisions of the rule and the 
notice could permit the buyer to refuse delivery and subject the seller 
to the risk of an execution at a price higher than the original 
contract price.
    In order to resolve this anomaly, the NASD is proposing to amend 
subsection 59(b) of the UPC to modify the delivery times permitted to 
be specified in the buy-in notice. With respect to buy-in notices for 
depository eligible securities where the originator is a depository 
participant, the NASD is proposing to amend subsection 59(b) to provide 
that the notice may not specify a delivery time earlier than 3:00 P.M. 
Eastern Time.\2\ By limiting this restriction to depository eligible 
securities and depository participants, the rule retains the current 
provision permitting broker-to-broker buy-ins specifying an earlier 
delivery time (no earlier than 11:30 A.M. local time).

    \2\ The NASD notes that with the advent of same day funds 
settlement (SDFS) in early 1996 and the new settlement time frames 
associated with the Depository Trust Company's SDFS System, the 
appropriate buy-in execution time in Section 59(b) should not be 
prior to 3:00 P.M. Eastern Time.
---------------------------------------------------------------------------

    In addition, the NASD is proposing to amend subsection 59(b)(2), 
which permits the recipient of a buy-in notice to re-transmit the 
notice to another broker/dealer from whom the subject securities are 
due. The proposed amendment to subsection 59(b)(2) provides that a re-
transmitted buy-in notice must be delivered to the recipient not later 
than 12 noon, seller's local time, on the business day preceding the 
buy-in date and that the specified delivery time in the re-transmitted 
notice must not be earlier than the time specified in the original 
notice. This amendment clarifies the existing language and will ensure 
that the recipient of the retransmitted notice has at least one full 
business day's notice.\3\

    \3\ The NASD notes that because subsection 59(b)(1) permits the 
buy-in notice to specify a delivery deadline of 11:30 A.M. local 
time for broker-to-broker buy-ins in non-depository eligible 
securities, it is possible that a buy-in notice retransmitted at 12 
noon the previous business day would afford the recipient 23\1/2\ 
hours to deliver. Nevertheless, the proposed amendment is an 
improvement to the current rule language which arguably permits 
retransmittal to occur at the end of the previous business day, 
affording the recipient as little as 18\1/2\ hours notice.
---------------------------------------------------------------------------

    The NASD believes that the proposed rule change is consistent with 
the provisions of Section 15A(b)(6) of the Act \4\ in that the proposed 
rules will facilitate the functioning of the clearance and settlement 
system by eliminating an inconsistencyin the buy-in process and 
refining the provisions of the Code relating to buy-ins to recognize 
new developments in the clearance and settlement system.

    \4\ 15 U.S.C. Sec. 78o-3.
---------------------------------------------------------------------------

(B) Self-Regulatory Organization's Statement on Burden on Completion

    The NASD does not believe that the proposed rule change will result 
in any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

(C) Self-Regulatory Organization's Statement on Comments on the 
Proposed Rule Change Received, from Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    Within 35 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 90 days of such date if if finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the self-regulatory organization 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 

[[Page 58697]]
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 Room. Copies of such filing will also be available for 
inspection and copying at the principal office of the NASD. All 
submissions should refer to SR-NASD-95-50 and should be submitted by 
December 19, 1995.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority, 17 CFR 200.30-3(a)(12).
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 95-28932 Filed 11-27-95; 8:45 am]
BILLING CODE 8010-01-M