[Federal Register Volume 88, Number 223 (Tuesday, November 21, 2023)]
[Notices]
[Pages 81154-81156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-25667]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-98954; File No. SR-NASDAQ-2023-046]
Self-Regulatory Organizations; The Nasdaq Stock Market LLC;
Notice of Filing and Immediate Effectiveness of a Proposed Rule Change
To Shorten the Standard Settlement Cycle
November 15, 2023.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on November 13, 2023, The Nasdaq Stock Market LLC (``Nasdaq'' or
``Exchange'') filed with the Securities and Exchange Commission
(``Commission'') the proposed rule change as described in Items I and
II below, which Items have been prepared by the Exchange. The
Commission is publishing this notice to solicit comments on the
proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
The Exchange proposes to amend Nasdaq Rules 11140 (Transactions in
Securities ``Ex-Dividend,'' ``Ex-Rights'' or ``Ex-Warrants''), 11150
(Transactions ``Ex-Interest'' in Bonds Which Are Dealt in ``Flat''),
11210 (Sent by Each Party), 11320 (Dates of Delivery), and 11620
(Computation of Interest), to conform them to the Commission's
amendment to Rule 15c6-1(a) of the Act \3\ to shorten the standard
settlement cycle for most broker-dealer transactions from two business
days after the trade date (``T+2'') to one business days after the
trade date (``T+1'').
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\3\ See Securities Exchange Act Release No. 96930, Investment
Advisers Act Release No. 6239 (February 15, 2023), 88 FR 13872
(March 6, 2023) (``T+1 Adopting Release'').
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The text of the proposed rule change is available on the Exchange's
website at https://listingcenter.nasdaq.com/rulebook/nasdaq/rules, at
the principal office of the Exchange, and at the Commission's Public
Reference Room.
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 Exchange 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 Exchange 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
1. Purpose
Effective May 5, 2023, the Commission adopted rule amendments to
shorten the standard settlement cycle for most broker-dealer
transactions from T+2 to T+1.\4\ In light of the recently adopted rule
amendments to Rule 15c6-1(a) of the Act to require standard settlement
no later than T+1, Nasdaq proposes to amend its rules pertaining to
securities settlement by, among other things, amending the definition
of ``standard'' settlement as occurring on T+1.
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\4\ See supra note 3.
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Specifically, Nasdaq proposes to amend the following Rules: 11140
(Transactions in Securities ``Ex-Dividend,'' ``Ex-Rights'' or ``Ex-
Warrants''), 11150 (Transactions ``Ex-Interest'' in Bonds Which Are
Dealt in ``Flat''), 11210 (Sent by Each Party), 11320 (Dates of
Delivery), and 11620 (Computation of Interest). The details of the
proposed rule changes are described below.
Nasdaq Rule 11140
Rule 11140(b)(1) currently provides that for dividends or
distributions, and the issuance or distribution of warrants, that are
less than 25 percent of the value of the subject security, if
definitive information is received sufficiently in advance of the
record date, the date designated as the ``ex-dividend date'' shall be
the first business day preceding the record date if the record date
falls on a business day, or the second business day preceding the
record date if the record date falls on a day designated by Nasdaq
Regulation as a non-delivery date. Nasdaq proposes to amend Rule
11140(b)(1) to shorten the time frames by one business day. With this
change the ex-dividend date would be the same business day as the
record date if the record date falls on a business day, or the first
business day preceding the record date if the record date falls on a
day designated by Nasdaq Regulation as a non-delivery date.
Rule 11150
Rule 11150(a) currently prescribes the manner for establishing
``ex-interest dates'' for transactions in bonds or other similar
evidence of indebtedness which are traded ``flat.'' Such transactions
are ``ex-interest'' on the first business day preceding the record date
if the record date falls on a business day, on the second business day
preceding the record date if the record date falls on a day other than
a business day, or on the third business day preceding the date on
which an interest payment is to be made if no record date has been
fixed. Nasdaq proposes to amend Rule 11150(a) to shorten the time
frames by one business day.
Rule 11210
Paragraphs (c) and (d) of Rule 11210 set forth the ``Don't Know''
(``DK'') voluntary procedures for using ``DK Notices'' or other forms
of notices, respectively. When a party to a transaction sends a
comparison or confirmation of a trade, but does not receive a
comparison or confirmation or a signed DK, from the contra-member by
the close of one business day following the trade date of the
transaction, the confirming member shall send a DK Notice to the
contra-member. Thereafter, the contra-member has two business
[[Page 81155]]
days after receipt of the confirming member's notice to either confirm
or ``DK'' the transaction.
Nasdaq proposes to amend paragraphs (c) and (d) of Rule 11210 to
provide that the ``DK'' procedures may be used by the confirming member
if it does not receive a comparison or confirmation or signed ``DK''
from the contra-member by the close of the business day of the trade
date of the transaction, rather than the current time frame of one day
after the trade date. In addition, Nasdaq proposes to amend paragraphs
(c)(2)(A), (c)(3), and (d)(5) of Rule 11210 to adjust the time in which
a contra-member has to respond to a ``DK Notice'' (or similar notice)
from two business days after the contra-member's receipt of the notice
to one business day after the contra-member's receipt of the notice.
Rule 11320
Rule 11320 currently prescribes delivery dates for various
transactions. Currently, paragraph (b) states that for a ``regular
way'' transaction, delivery must be made on, but not before, the second
business day after the date of the transaction. Nasdaq proposes to
amend Rule 11320(b) to change the reference from the second business
day to the first business day following the date of the transaction.
Currently, paragraph (c) provides that in a ``seller's option''
transaction, delivery may be made by the seller on any business day
after the second business day following the date of the transaction.
Nasdaq proposes to amend Rule 11320(c) to change the reference from the
second business day to the first business day following the date of the
transaction and prior to the expiration of the option.
Rule 11620
In the settlement of contracts in interest-paying securities other
than for cash, Rule 11620(a) currently requires the calculation of
interest at the rate specified in the security up to but not including
the second business day after the date of the transaction. The proposed
amendment would shorten the time frame to the first business day
following the date of the transaction.
Implementation
The operative date of this proposed rule change will be Tuesday,
May 28, 2024, which is the compliance date specified in the
Commission's amendment to Rule 15c6-1(a) of the Act \5\ to require
standard settlement no later than T+1.\6\ With the implementation of
the T+1 settlement cycle, the ex-dividend date for ``normal''
distributions pursuant to Rule 11140(b)(1) will be the same business
day as the record date. Accordingly, Nasdaq proposes to interpret Rule
11140(b)(1) so that the first record date to which this new ex-dividend
date rationale will be applied will be Wednesday, May 29, 2024. During
the implementation of the T+1 settlement cycle, the ``regular'' ex-
dividend dates will be as follows:
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\5\ See supra note 3.
\6\ See supra note 3. Transactions with a trade date of Friday,
May 24, 2024 would settle on Wednesday, May 29, 2024 because these
transactions occurred before the rule was effective and continue to
settle two days after the trade date. Additionally, transactions
with a trade date of Tuesday, May 28, 2024 would also settle on
Wednesday, May 29, 2024 because these transactions occurred when the
T + 1 rule was effective and would settle one day after the trade
date. Of note, May 27, 2024 is Memorial Day and not a business day
counted for purposes of settlement.
Record Date May 24, 2024--Ex date May 23, 2024
Record Date May 28, 2024--Ex date May 24, 2024
Record Date May 29, 2024--Ex date May 29, 2024 *
* May 27, 2024 is Memorial Day and not a business day.
By way of explanation, a record date of Friday, May 24, 2024 would
be a date prior to the effective date of the adopted T + 1 rules.
Current Rule 1140(b) [sic] would apply to this record date, and,
therefore, the ``ex-dividend date'' would be the first business day
preceding the record date or Thursday, May 23, 2024. Monday, May 27,
2024 is Memorial Day is a federal holiday and not a business day; there
would be no record date on a holiday. As noted above, Nasdaq proposes
to interpret Rule 11140(b)(1) so that the first record date to which
this new ex-dividend date rationale will be applied would be Wednesday,
May 29, 2024. Therefore, a record date of Tuesday, May 28, 2024 would
fall under current Rule 1140(b) [sic] and the first business day
preceding the record date would be Friday, May 24, 2024. Finally, as
noted above, Wednesday, May 29, 2024 is the first record date pursuant
to the new T + 1 rules, therefore, proposed Rule 1140(b) [sic] applies
to this date and the ``ex-dividend date'' would be the same business
day as the record date (May, 29, 2024).
The ex-dividend date for ``large'' distributions under Rule
11140(b)(2) is not being amended with the adoption of the T+1
settlement cycle. Therefore, the ex-dividend date for large''
distributions under Rule 11140(b)(2) will continue to be the first
business day following the payable date as provided in the current rule
text. In order to ensure that no securities will be ex-dividend on May
28, 2024 for purposes of ``large'' distributions, Nasdaq similarly
proposes to interpret Rule 11140(b) so that, if an issuer sets May 28,
2024 as the payment date for a large distribution, the ex-dividend date
would be May 29, 2024, not May 28, 2024. Nasdaq will issue an Issuer
Alert addressing the application of the T+1 implementation date on Rule
11140(b).
2. Statutory Basis
The Exchange believes that its proposal is consistent with Section
6(b) of the Act,\7\ in general, and furthers the objectives of Section
6(b)(5) of the Act,\8\ in particular, in that it is designed to promote
just and equitable principles of trade, to foster cooperation and
coordination with persons engaged in regulating, clearing, settling,
processing information with respect to, and facilitating transactions
in securities, and, in general, to protect investors and the public
interest. The proposed rule change seeks to conform Nasdaq's rules with
the adopted rule amendments to shorten the standard settlement cycle
for most broker-dealer transactions from T+2 to T+1.\9\ The proposal is
consistent with the Commission's amendment to Rule 15c6-1(a) of the Act
to require standard settlement no later than T+1. This proposal will
provide Nasdaq members with regulatory certainty as to the settlement
cycle that will be utilized to settle transactions executed on the
Exchange.
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\7\ 15 U.S.C. 78f(b).
\8\ 15 U.S.C. 78f(b)(5).
\9\ See supra note 3.
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As noted herein, Nasdaq will announce the operative date of the
proposed rule change in an Equity Regulatory Alert, which date would
correspond with the industry-led transition to a T+1 standard
settlement, and the compliance date of the Commission's amendment to
Rule 15c6-1(a) of the Act to require standard settlement no later than
T+1.
B. Self-Regulatory Organization's Statement on Burden on Competition
The Exchange does not believe that the proposed rule change will
impose any burden on competition not necessary or appropriate in
furtherance of the purposes of the Act. The proposal amends Nasdaq's
rules pertaining to securities settlement and is intended to facilitate
the implementation of the industry-led transition to a T+1 settlement
cycle. The shortened settlement cycle will apply uniformly to all
contracts for the purchase or sale of a security (other than exempted
[[Page 81156]]
securities) that provide for payment of funds and delivery of
securities that occur on Nasdaq or other self-regulatory
organizations.\10\ Moreover, the proposal is consistent with the
Commission's amendment to Rule 15c6-1(a) of the Act to require standard
settlement no later than T+1. Accordingly, Nasdaq believes that the
proposed amendments do not impose any intra-market or inter-market
burdens on competition because the amendments conform Nasdaq's rules
with the adopted rule amendments to shorten the standard settlement
cycle for most broker-dealer transactions from T+2 to T+1.\11\
Specifically, the proposed amendments include changes to rules that
specifically establish the settlement cycle as well as rules that
establish time frames based on settlement dates, including for certain
post-settlement rights and obligations.
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\10\ Of note, pursuant to (a) and (d) of Rule 15c6-1, the
parties may expressly agree to a different settlement date at the
time of the transaction.
\11\ See supra note 3.
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C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
No written comments were either solicited or received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing proposed rule change does not: (i)
significantly affect the protection of investors or the public
interest; (ii) impose any significant burden on competition; and (iii)
become operative for 30 days from the date on which it was filed, or
such shorter time as the Commission may designate, it has become
effective pursuant to Section 19(b)(3)(A)(iii) of the Act \12\ and
subparagraph (f)(6) of Rule 19b-4 thereunder.\13\
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\12\ 15 U.S.C. 78s(b)(3)(A)(iii).
\13\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)
requires a self-regulatory organization to give the Commission
written notice of its intent to file the proposed rule change at
least five business days prior to the date of filing of the proposed
rule change, or such shorter time as designated by the Commission.
The Exchange has satisfied this requirement.
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At any time within 60 days of the filing of the proposed rule
change, the Commission summarily may temporarily suspend such rule
change if it appears to the Commission that such action is necessary or
appropriate in the public interest, for the protection of investors, or
otherwise in furtherance of the purposes of the Act. If the Commission
takes such action, the Commission shall institute proceedings to
determine whether the proposed rule should be approved or disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:
Electronic Comments
Use the Commission's internet comment form (https://www.sec.gov/rules/sro.shtml); or
Send an email to [email protected]. Please include
file number SR-NASDAQ-2023-046 on the subject line.
Paper Comments
Send paper comments in triplicate to Secretary, Securities
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.
All submissions should refer to file number SR-NASDAQ-2023-046. This
file number should be included on the subject line if email is used. To
help the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's internet website (https://www.sec.gov/rules/sro.shtml). Copies of the 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 website viewing and
printing in the Commission's Public Reference Room, 100 F Street NE,
Washington, DC 20549, on official business days between the hours of 10
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of the Exchange. Do not
include personal identifiable information in submissions; you should
submit only information that you wish to make available publicly. We
may redact in part or withhold entirely from publication submitted
material that is obscene or subject to copyright protection. All
submissions should refer to file number SR-NASDAQ-2023-046 and should
be submitted on or before December 12, 2023.
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\14\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\14\
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-25667 Filed 11-20-23; 8:45 am]
BILLING CODE 8011-01-P