
[Federal Register Volume 82, Number 31 (Thursday, February 16, 2017)]
[Notices]
[Pages 10931-10933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-03110]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-80021; File No. SR-NYSE-2016-87]


Self-Regulatory Organizations; New York Stock Exchange LLC; Order 
Granting Approval of a Proposed Rule Change To Conform to Proposed 
Amendment to Rule 15c6-1(a) Under the Securities Exchange Act of 1934 
To Shorten the Standard Settlement Cycle for Most Broker-Dealer 
Transactions From Three Business Days After the Trade Date (``T+3'') to 
Two Business Days After the Trade Date (``T+2'')

February 10, 2017.

I. Introduction

    On December 15, 2016, New York Stock Exchange LLC (``NYSE'' or 
``Exchange'') filed with the Securities and Exchange Commission 
(``Commission''), pursuant to Section 19(b)(1) of the Securities 
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a 
proposed rule change to conform its rules to an amendment proposed by 
the Commission to Rule 15c6-1(a) under the Act to shorten the standard 
settlement cycle for most broker-dealer transactions from three 
business days after the trade date (``T+3'') to two business days after 
the trade date (``T+2'').\3\ The proposed rule change was published for 
comment in the Federal Register on December 29, 2016.\4\ The Commission 
received two comments on the proposal, each of which supports the 
proposed rule change.\5\ This order approves the proposed rule change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 78962 (Sept. 28, 
2016), 81 FR 69240 (Oct. 5, 2016) (File No. S7-22-16) (``T+2 
Proposing Release'').
    \4\ See Securities Exchange Act Release No. 79659 (Dec. 22, 
2016), 81 FR 84635 (Dec. 29, 2016).
    \5\ See Letters from Manisha Kimmel, Chief Regulatory Officer, 
Wealth Management, Thomson Reuters, dated January 19, 2017; and 
Thomas F. Price, Managing Director, Operations, Technology & BCP, 
Securities Industry and Financial Markets Association (``SIFMA''), 
dated January 19, 2017.

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[[Page 10932]]

II. Description of the Proposal

    The Exchange proposes to adopt Rules 14T (Non-Regular Way 
Settlement Instructions for Orders); Dealings and SettlementsT (Rules 
45-299C); 64T (Bonds, Rights and 100-Share-Unit Stocks); 235T (Ex-
Dividend, Ex-Rights); 236T (Ex-Warrants); 257T (Deliveries After ``Ex'' 
Date); 282.65T (Failure to Deliver and Liability Notice Procedures); 
and Section 703.02T (part 2) of the Listed Company Manual (Stock Split/
Stock Rights/Stock Dividend Listing Process) in order to conform the 
Exchange's rulebook to the Commission's proposed amendment to Rule 
15c6-1(a) under the Act, which would shorten the standard settlement 
cycle from T+3 to T+2 for most broker-dealer transactions.
    Exchange Rule 14 defines ``non-regular way'' settlement 
instructions as instructions that allow for settlement other than 
``regular way'' (i.e., other than settlement on the third business day 
following trade date for securities other than U.S. Government 
Securities). Proposed Exchange Rule 14T would amend this definition to 
replace ``third business day'' with ``second business day.''
    The Exchange proposes similar changes to Exchange rules related to 
Dealing and Settlements. Exchange rules related to Dealing and 
Settlements define ``regular way'' as ``due on the third business day 
following the day of the contract.'' Proposed Exchange Rule Dealing and 
SettlementsT would replace ``third business day'' with ``second 
business day.''
    Similarly, Exchange Rule 64(a) defines ``regular way'' as ``for 
delivery on the third business day following the day of the contract.'' 
Proposed Exchange Rule 64T(a) would replace ``third business day'' with 
``second business day.'' Exchange Rule 64(a)(ii) currently provides 
that on the second and third business days preceding the final day for 
subscription, bids and offers in rights to subscribe shall be made only 
``next day.'' To conform with the move to a T+2 settlement cycle, 
proposed Exchange Rule 64T(a)(ii) would delete the reference to the 
third business day preceding the final day for subscription, because in 
a T+2 settlement cycle, bids and offers in rights to subscribe on that 
day would simply be subject to ``regular way'' settlement. Under 
Current Rule 64(c), all ``seller's option'' trades, for delivery 
between 2 and 60 business days, should be reported to the tape only in 
calendar days. The Exchange proposes to amend Exchange Rule 64T(c) to 
replace the reference to ``two'' with a reference to ``three.''
    Exchange Rule 235 provides that transactions in stocks, except 
those made for ``cash'' as prescribed in Exchange Rule 14, shall be ex-
dividend or ex-rights on the second business day preceding the record 
date fixed by the corporation or the date of the closing of transfer 
books. The Exchange proposes in Exchange Rule 235T to change ``second 
business day preceding'' to ``business day preceding.'' The current 
Exchange Rule 235 further provides that, if the record date or closing 
of transfer books occurs upon a day other than a business day, Exchange 
Rule 235 shall apply for the third preceding business day. The Exchange 
proposes to change ``third preceding business day'' to ``second 
preceding business day'' in proposed Exchange Rule 235T.
    Exchange Rule 236 pertaining to ex-warrants similarly provides that 
transactions in securities that have subscription warrants attached, 
except those made for cash, shall be ex-warrants on the second business 
day preceding the date of expiration of the warrants, except that when 
the date of expiration occurs on a day other than a business day, the 
transactions shall be ex-warrants on the third business day preceding 
the date of expiration. The Exchange proposes to adopt proposed 
Exchange Rule 236T and change the warrant period to the business day 
preceding expiration of the warrants instead of the second business 
day. Under proposed Exchange Rule 236T, when warrant expiration does 
not occur on a business day, the ex-warrant period will begin on the 
second business day preceding the expiration date instead of on the 
third business day.
    Exchange Rule 257 prescribes that the time frame for delivery of 
dividends or rights for securities sold before the ``ex'' date but 
delivered after the record date must occur within three days after the 
record date. Proposed Exchange Rule 257T would shorten the time frame 
to two days.
    Subdivision (1)(A) of Supplementary Material .65 to current 
Exchange Rule 282 provides that, when a liability notice is sent by 
parties to a contract who are not both participants in a Qualified 
Clearing Agency that has an automated service for notifying a failing 
party of the liability that will be attendant to a failure to deliver, 
that notice must be issued no later than one business day prior to the 
latest time and the date of the offer or other event in order to obtain 
the protection provided under Exchange Rule 282. The Exchange proposes 
to amend the Supplementary Material so that Exchange Rule 282.65T(1)(A) 
would provide that, to obtain the protection provided by Exchange Rule 
282, the receiving member organization must send the liability notice 
to the delivering member organization as soon as practicable but not 
later than two hours prior to the cutoff time set forth in the 
instructions on a specific offer or other event.
    Finally, Section 703.02 (part 2) of the Listed Company Manual 
prescribes that a distribution of less than 25% of a company's common 
stock is traded ``ex'' on or after the second business day after the 
record date. This procedure is based on the Exchange's current three-
day delivery rule in which contracts made on the Exchange for the 
purchase and sale of securities are settled by delivery on the third 
business day after the contract is made, unless other terms of 
settlement are specified at the time the contract is made. The Exchange 
proposes to adopt Section 703.02T (part 2) to provide that a 
distribution of less than 25% of a company's common stock is traded 
``ex'' on and after the business day prior to the record date.
    The Exchange proposes to adopt the rules but delay making the rules 
operative until the compliance date of any amendment to Rule 15c6-1(a) 
under the Act that the Commission adopts. The Exchange proposes to add 
preambles to each amended rule, and to the rule it would replace, to 
provide that (1) the existing rule will remain operative until the 
Exchange files separate proposed rule changes as necessary to establish 
the operative date of the revised rule, to delete the current rule and 
proposed preamble, and to remove the preamble text from the revised 
rule; and (2) in addition to filing the necessary proposed rule 
changes, the Exchange will announce via Information Memo the operative 
date of the deletion of the current rule and implementation of the 
proposed rule designated with a T.

III. Discussion and Commission's Findings

    After careful review of the proposed rule change and the comments, 
the Commission finds that the proposal is consistent with the 
requirements of the Act and the rules and regulations thereunder that 
are applicable to a national securities exchange.\6\ Specifically, the 
Commission finds that the rule change is consistent with Section 
6(b)(5) of the Act,\7\ which requires that the rules of a national 
securities exchange be designed, among

[[Page 10933]]

other things, to prevent fraudulent and manipulative acts and 
practices, 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, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and to protect investors and the public interest.
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    \6\ In approving this proposed rule change, the Commission has 
considered the rule's impact on efficiency, competition, and capital 
formation. See 15 U.S.C. 78c(f).
    \7\ 15 U.S.C. 78f(b)(5).
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    As noted above, the Commission received two comment letters on the 
proposed rule change.\8\ Both comment letters express support for 
Commission approval of the proposed rule change.
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    \8\ See supra note 5.
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    The Commission notes that the proposal would amend the Exchange's 
rules to conform to the amendment that the Commission has proposed to 
Rule 15c6-1(a) under the Act \9\ and support a move to a T+2 standard 
settlement cycle. In the T+2 Proposing Release the Commission stated 
its preliminary belief that shortening the standard settlement cycle 
from T+3 to T+2 will result in a reduction of credit, market, and 
liquidity risk,\10\ and as a result a reduction in systemic risk for 
U.S. market participants.\11\ The Commission also notes that it has not 
yet adopted the proposed amendment to Rule 15c6-1(a) under the Act and 
that the Exchange has, accordingly, not proposed to make its amended 
rules operative at present. Instead, the Exchange has proposed to 
announce the operative date of the Exchange's proposal via Information 
Memo and by filing a separate proposed rule change. The Commission 
expects that the operative date of the proposed rule change would 
correspond with the compliance date of any amendment to Rule 15c6-1(a) 
that is adopted by the Commission. The Commission notes that, in 
October 2014, Depository Trust and Clearing Corporation, in 
collaboration with the Investment Company Institute, SIFMA, and other 
market participants, formed an Industry Steering Group (``ISC'') and an 
industry working group to facilitate the transition to a T+2 settlement 
cycle for U.S. trades in equities, corporate and municipal bonds, and 
unit investment trusts.\12\ The ISC has identified September 5, 2017, 
as the target date for the transition to a T+2 settlement cycle to 
occur.\13\
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    \9\ See supra note 3.
    \10\ Credit risk refers to the risk that the credit quality of 
one party to a transaction will deteriorate to the extent that it is 
unable to fulfill its obligations to its counterparty on settlement 
date. Market risk refers to the risk that the value of securities 
bought and sold will change between trade execution and settlement 
such that the completion of the trade would result in a financial 
loss. Liquidity risk describes the risk that an entity will be 
unable to meet financial obligations on time due to an inability to 
deliver funds or securities in the form required though it may 
possess sufficient financial resources in other forms. See T+2 
Proposing Release, supra note 3, 81 FR at 69241 n. 3.
    \11\ See T+2 Proposing Release, supra note 3, 81 FR at 69241.
    \12\ See Press Release, DTCC, Industry Steering Committee and 
Working Group Formed to Drive Implementation of T+2 in the U.S. 
(Oct. 2014), http://www.dtcc.com/news/2014/october/16/ust2.aspx.
    \13\ See Press Release, ISC, US T+2 ISC Recommends Move to 
Shorter Settlement Cycle On September 5, 2017 (Mar. 7, 2016), http://www.ust2.com/pdfs/T2-ISC-recommends-shorter-settlement-030716.pdf.
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    For the reasons noted above, the Commission finds that the proposal 
is consistent with the requirements of the Act and would foster 
cooperation and coordination with persons engaged in regulating, 
clearing, settling, processing information with respect to, and 
facilitating transactions in securities, to remove impediments to and 
perfect the mechanism of a free and open market and a national market 
system, and to protect investors and the public interest.

IV. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the 
Act,\14\ that the proposed rule change (SR-NYSE-2016-87), be and hereby 
is, approved.
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    \14\ 15 U.S.C. 78s(b)(2).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-03110 Filed 2-15-17; 8:45 am]
BILLING CODE 8011-01-P


