
[Federal Register Volume 82, Number 171 (Wednesday, September 6, 2017)]
[Notices]
[Pages 42203-42205]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-18795]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81501; File No. SR-Phlx-2017-71]


Self-Regulatory Organizations; NASDAQ PHLX LLC; Notice of Filing 
and Immediate Effectiveness of Proposed Rule Change to Rules 431, 432, 
and 835 To Conform Them to Securities Exchange Act Rule 15c6-1(a), 
Which Shortens the Settlement Cycle to Two Dates After the Trade Date, 
and To Interpret the Amended Rules To Exclude September 5, 2017 as the 
First Ex-Dividend Date Thereunder

August 30, 2017.
    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 August 22, 2017, NASDAQ PHLX LLC (``Phlx'' or ``Exchange'') filed 
with the Securities and Exchange Commission (``SEC'' or ``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 PHLX Rules 431, 432, and 825 to 
conform them to SEA Rule 15c6-1(a) 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'') and the industry-led initiative to shorten the 
settlement cycle from T+3 to T+2. The proposal also addresses the 
application of these Rules as they relate to establishing ex-dividend 
dates in connection with the implementation of the T+2 settlement cycle 
on September 5, 2017.
    The Exchange requests that the Commission waive the five-day pre-
filing requirement and the 30-day operative delay period contained in 
Exchange Act Rule 19b-4(f)(6)(iii).\3\ While these amendments are 
effective upon filing, the Exchange has designated the proposed 
amendments to be operative on September 5, 2017.
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    \3\ 17 CFR 240.19b-4(f)(6)(iii).
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    The text of the proposed rule change is available on the Exchange's 
Web site at http://nasdaqphlx.cchwallstreet.com/, 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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
Background
    On March 22, 2017, the SEC adopted amendments to SEA Rule 15c6-1(a) 
to shorten the standard settlement cycle for U.S. secondary market 
transactions in equities, corporate and municipal bonds, unit 
investment trusts and financial instruments composed of these products, 
from T+3 to T+2.\4\ The industry-wide initiative is designed to reduce 
a number of risks, including credit risk, market risk, and liquidity 
risk and, as a result, reduce systemic risk for U.S. market 
participants.\5\ The compliance date for the rule amendments is 
September 5, 2017.
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    \4\ See Securities Exchange Act Release No. 80295 (March 22, 
2017), 82 FR 15564 (March 29, 2017) (Securities Transaction 
Settlement Cycle) (File No. S7-22-16) (stating that, as amended, SEA 
Rule 15c6-1(a) will prohibit broker-dealers from effecting or 
entering into a contract for the purchase or sale of a security 
(other than an exempted security, government security, municipal 
security, commercial paper, bankers' acceptances or commercial 
bills) that provides for payment of funds and delivery of securities 
later than the second business day after the date of the contract, 
unless otherwise expressly agreed to by the parties at the time of 
the transaction).
    \5\ See id.
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    The Exchange [sic] proposing changes to its Rules pertaining to 
securities settlement to conform them to SEA Rule 15c6-1(a), as 
amended, and to conform them to similar changes that other exchanges 
have made.\6\
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    \6\ See, e.g., Securities Exchange Act Release No. 34-80640 (May 
16, 2017), 82 FR 22598 (May 10, 2017) (Order Approving File No. SR-
NASDAQ-2017-13).
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    Specifically, the Exchange proposes to amend Rule 431 (Ex-dividend, 
Ex-rights), which presently provides that transactions in stocks 
(except for those made for cash) 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 thereof. It 
also provides that if the record date or closing of transfer books 
occurs on a day other than a business day, the transaction will be ex-
dividend or ex-rights on the third preceding business day. The Exchange 
proposes to amend this Rule to provide that: (1) The transactions shall 
be ex-dividend or ex-rights on the first business day preceding the 
record date fixed by the corporation or the date of the closing of 
transfer books thereof; and (2) the transaction will be ex-dividend or 
ex-rights on the second preceding business day if the record date or 
closing of transfer books occurs on a day other than a business day.
    Similarly, the Exchange proposes to amend Rule 432 (Ex-warrants), 
which presently provides that transactions in securities which 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 will be ex-warrants on 
the third business day preceding the date of expiration. The proposal 
will amend this Rule to provide that transactions in securities which 
have subscription warrants attached (except those made for cash) shall 
be ex-warrants on the first 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 will be ex-
warrants on the second business day preceding the date of expiration.
    Third, the Exchange proposes to amend Rule 825 (Ex-dividend 
Procedure), which sets forth the ex-dividend rules for transactions in 
securities subject to unlisted trading privileges. The Rule presently 
provides that transactions in stocks (except those made for cash) are 
ex-dividend on the second business day preceding the record date and 
that, if the record date selected is not a business day, then the stock 
will be quoted ex-dividend on the

[[Page 42204]]

third preceding business day. The proposal would amend this Rule by 
providing instead that that transactions in stocks (except those made 
for cash) are ex-dividend on the first business day preceding the 
record date and that, if the record date selected is not a business 
day, then the stock will be quoted ex-dividend on the second preceding 
business day.
    Lastly, the Exchange proposes to implement the foregoing Rules in a 
manner that avoids confusion and accords with the proposals of other 
exchanges and self-regulatory organizations (``SROs''). Consistent with 
the compliance date of the amendments to SEA Rule 15c6-1(a), the 
industry adopted Tuesday, September 5, 2017 as the transition date to 
the T+2 settlement cycle.\7\ In the lead-up to this transition date, 
however, the industry and SROs, including The Depository Trust Company 
(``DTC''), have raised concern that the September 5, 2017 industry-wide 
transition date from T+3 to T+2 will result in September 7, 2017 being 
a ``double'' settlement date for trades that occur on September 1, 2017 
(under T+3 and reflecting the Labor Day holiday on September 4, 2017) 
and trades that occur on September 5, 2017 (under T+2), which generally 
will result in investors who trade on either date being deemed a record 
holder of September 7, 2017.\8\ In order to avoid this confusion about 
the proper settlement date, the Exchange proposes to interpret its 
Rules so that the first record date to which the new ex-dividend date 
determination will be applied will be Thursday, September 7, 2017. The 
ex-dividend dates for ``regular'' distributions during the transition 
to T+2 will be as follows:
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    \7\ See Nasdaq Equity Trader Alert 2017-174 (July 28, 2017).
    \8\ See, e.g., Nasdaq Issuer Alert 2017-001, Changes to Ex-
dividend Procedures Effective September 5, 2017 to Accommodate T+2 
Settlement, http://nasdaq.cchwallstreet.com/nasdaq/pdf/nasdaq-issalerts/2017/2017-001.pdf; NYSE, NYSE MKT, NYSE ARCA: Changes 
Related to the Shortened Settlement Cycle (T+2) (July 11, 2017), 
https://www.nyse.com/trader-update/history#110000069618.
    \9\ The last day of the T+3 settlement cycle.
    \10\ The first day of the T+2 settlement cycle.
    \11\ Monday, September 4, 2017 is Labor Day, a Federal holiday.
    \12\ See id.

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                Record date                            Ex-date
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Friday, September 1, 2017 \9\.............  Wednesday, August 30, 2017.
Tuesday, September 5, 2017 \10\...........  Thursday, August 31,
                                             2017.\11\
Wednesday, September 6, 2017..............  Friday, September 1,
                                             2017.\12\
Thursday, September 7, 2017 \13\..........  Wednesday, September 6,
                                             2017.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\ in particular, in that it is designed to 
promote just and equitable principles of trade, to remove impediments 
to and perfect the mechanism of a free and open market and a national 
market system, and, in general to protect investors and the public 
interest.
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    \13\ The date on which previous trades settling on a T+3 
settlement cycle and current trades on the T+2 settlement cycle will 
be processed.
    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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    The Exchange believes that the proposed rule change supports the 
[sic] supports [sic] the industry-led initiative to shorten the 
settlement cycle to two business days. Moreover, the proposed rule 
change is consistent with the SEC's amendment to SEA Rule 15c6-1(a) to 
require standard settlement no later than T+2. The Exchange believes 
that the proposed rule change will provide the regulatory certainty to 
facilitate the industry-led move to a T+2 settlement cycle.
    Similarly, the Exchange believes that the proposal to address the 
application of Rules 341 [sic], 342 [sic], and 825 to exclude September 
5, 2017 as an ex-dividend date for distributions supports the 
collective effort among the industry and SROs to mitigate the potential 
confusion concerning proper settlement during the transition from the 
T+3 settlement cycle to the T+2 settlement cycle.

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 proposed rule change makes 
changes to rules pertaining to securities settlement and is intended to 
facilitate the implementation of the industry-led transition to a T+2 
settlement cycle. Moreover, the proposed rule changes are consistent 
with the SEC's amendment to SEA Rule 15c6-1(a) to require standard 
settlement no later than T+2.
    Meanwhile, the proposal to interpret the Rules to exclude an ex-
dividend date of September 5, 2017 will minimize potential confusion 
about proper settlement that may arise during the transition to the T+2 
settlement cycle.\16\ The Exchange believes that the proposal would not 
impose any additional costs on the industry.
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    \16\ As a result of the September 5, 2017 transition date for 
regular-way settlement from T+3 to T+2, September 7, 2017 will be a 
``double'' settlement date for trades that occur on September 1, 
2017 (under T+3 and reflecting the Labor Day holiday on September 4, 
2017) and trades that occur on September 5, 2017 (under T+2).
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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 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, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \17\ and Rule 19b-4(f)(6) 
thereunder.\18\
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    \17\ 15 U.S.C. 78s(b)(3)(A).
    \18\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of 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 
Commission has waived this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \19\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\20\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative in time for the compliance date of September 5, 
2017 for the T+2 settlement cycle. The Commission believes that waiving 
the 30-day operative delay is consistent with the protection of 
investors and the public interest so that the proposed rule change and 
interpretation will be operative as the industry moves to a T+2 
settlement cycle on September 5, 2017. The Commission notes that the 
proposed rule change would amend Exchange rules to conform to the 
amendment that the Commission has adopted to Rule 15c6-1(a) under the 
Act \21\ and support a move to a T+2 standard settlement cycle. The 
Commission further notes that the interpretation regarding the

[[Page 42205]]

proper settlement date in connection with the transition to the T+2 
settlement cycle on September 5, 2017 would help to avoid the confusion 
that could arise if ``regular'' distributions were to be ex-dividend on 
that date and is consistent with the rules of other self-regulatory 
organizations.\22\ Accordingly, the Commission hereby waives the 30-day 
operative delay requirement and designates the proposed rule change as 
operative upon filing.\23\
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    \19\ 17 CFR 240.19b-4(f)(6).
    \20\ 17 CFR 240.19b-4(f)(6)(iii).
    \21\ See supra note 4.
    \22\ See Securities Exchange Act Release Nos. 81448 (August 21, 
2017), 82 FR 40610 (August 25, 2017) (SR-FINRA-2017-026) and 81446 
(August 21, 2017), 82 FR 40604 (August 25, 2017) (SR-NASDAQ-2017-
084).
    \23\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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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 (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-Phlx-2017-71 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-Phlx-2017-71. 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 Web site (http://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 Web site 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 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-Phlx-2017-71, and should be 
submitted on or before September 27, 2017.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\24\
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    \24\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2017-18795 Filed 9-5-17; 8:45 am]
 BILLING CODE 8011-01-P


