Self-Regulatory Organizations; New York Stock Exchange, Inc.; Notice of Filing of a Proposed Rule Change Relating to Implementation of a Three-Day Settlement Standard

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-35110; File No. SR-NYSE-94-40]

Self-Regulatory Organizations; New York Stock Exchange, Inc.;

Notice of Filing of a Proposed Rule Change Relating to Implementation

of a Three-Day Settlement Standard

December 16, 1994.

Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934

(``Act''),\1\ notice is hereby given that on November 3, 1994, the New

York Stock Exchange, Inc. (``NYSE'') filed with the Securities and

Exchange Commission (``Commission'') a proposed rule change as

described in Items I, II, and III below, which items have been prepared

primarily by the NYSE. The Commission is publishing this notice to

solicit comments on the proposed rule change from interested persons.

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

\1\15 U.S.C. 78s(b)(1) (1988).

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

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

of the Proposed Rule Change

The purpose of this proposed rule change is to amend NYSE's rules

to accommodate the implementation of a three business day settlement

standard for securities transactions.

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 NYSE included statements

concerning the purpose of and basis for the proposed rule change. The

text of these statements may be examined at the places specified in

Item IV below. The NYSE 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 Purposed Rule Change

In October 1993 the Commission adopted Rule 15c6-1 under the Act

which will become effective June 7, 1995.\2\ The rule establishes three

business days after the trade date (``T+3), instead of five business

days (``T+5), as the standard cycle for most securities transactions.

In order to accommodate the implementation of T+3, NYSE has identified

those rules which requires amendment to provide for compliance with

Rule 15c6-1 by members and member organizations. The rules are

described below.

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

\2\Securities and Exchange Act Release Nos. 33023 (October 6,

1993), 58 FR 52891 (order adopting Rule 15c6-1) and 34952 (November

9, 1994), 59 FR 59137 (order changing effective date from June 1,

1995, to June 7, 1995).

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

Rule 64--``Bonds, Rights and 100-Share-Unit Stocks''

Rule 64(a)(3) currently defines ``regular way'' dealings as those

requiring delivery on the fifth business day of the contract. ``Fifth''

business day will be changed to ``third'' business day.\3\ Rule

64(a)(5) currently provides that on the second, third, fourth, and

fifth business days preceding the final day for subscription, bids, and

offers in rights to subscribe shall be made only for delivery next day.

Paragraph (a)(5) will be amended to eliminate references to the fourth

and fifth business days. Rule 64(c) will be amended to provide that

seller's option trades cannot settle on the third business day, rather

than the fifth business day, after the trade date.

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

\3\As proposed, the rule will include in a T+3 environment sales

of securities exempted under Commission Rule 15c6-1(b)(2).

Specifically, under the proposal, securities sold pursuant to a firm

commitment offering registered under the Securities Act of 1993 will

have to be settled within three business days.

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

Rule 65--``Less Than 100-Share-Unit Stocks''

Rule 65(b) will require that an odd lot of stock sold by an odd lot

dealer for its own account shall be delivered on the third business day

following the day of the transaction rather than permitting delivery

between the fifth business day and the fourteenth day following the

transaction.

Rule 85--``Cabinet Securities''

Rule 85(d)(3) will require that with respect to ten share unit

stocks dealt in by use of cabinets and odd lot sold by a dealer for its

own account shall be delivered on the third business day following the

day of the transaction rather than between the fifth business day and

the fourteenth day following the transaction date.

Rule 123A--``Miscellaneous Requirements''

Rule 123A.32 currently states that the liability of a specialist

shall not extend beyond the closing price on the third business day

where it is deemed that the specialist did not send out a report. It is

proposed to delete the word ``third'' and add the language ``following

the day of the transaction'' after reference to ``the business day'' in

the last paragraph.

Rule 123B--``Exchange Automated Order Routing Systems''

The amendments will shorten the time frames contained in Rule

123B(b)(2)(A) and (B) for correcting execution reports. Rule

123B(b)(2)(A) will require that for most transaction between brokers,

if a purchase or sale has been reported in error and a transaction has

appeared on the tape at the price of the erroneous report, the broker

who made the error will be required to render a corrected report not

later than noon on T+1 rather than one hour after the opening on T+2.

Rule 123B(b)(2)(B) will require that for orders received by the

specialist through the Designated Order Turnaround System or the Limit

Order System, if the subscribing member organization requests a

correction from the specialist prior to the opening of the second

business day, rather than third business day, following the

transaction, the specialist shall correct the report. Rule

123B(b)(2)(B) also will require that if the erroneous report is at a

price more than one-half point away from the execution price, the

specialist must render a corrected report not later than noon on T+1

rather than one hour after the opening on T+2.

Rule 128--``Publications of Changes, Corrections, Cancellations or

Omissions and Verification of Transactions''

Rule 128B.10, .12 and .13 apply to tape corrections and other

errors. Rule 128B.10 will require that in the event that publication of

a change, correction, or cancellation of a transaction which previously

appeared on the tape or of a transaction omitted from the tape is not

made on the tape on the day of the transaction, such change,

correction, cancellation, or omission may be published in the ``sales

sheet'' within three business days, rather than within seven calendar

days, of the date of the transaction with the approval of both the

buying and selling members and a floor official. Rule 128B.12 will

require that erroneous publications made on the tape due to mechanical

or system troubles or clerical errors may be corrected in the sales

sheet within three business days, rather than within seven calendar

days, of the date of the transaction under the direction of an

authorized NYSE employee. Rule 128B.13 will require that any other

errors in the amount of a transaction reported erroneously to a

reporter by a party to the transaction may be published on the sales

sheet within three business days, rather than within seven calendar

days, of the date of the transaction with the approval of a floor

official.

Rule 235--``Ex-Dividend, Ex-Rights''

Rule 235 will be amended to provide that transactions in stocks

shall be ex-dividend or ex-rights on the second business day preceding

the record date rather than on the fourth business day. With regard to

a record date on other than a business day, transactions in stocks

shall be ex-dividend or ex-rights on the third preceding business day

rather than on the fifth preceding business day.

Rule 236--``Ex-Warrants''

Rule 236 prescribes when ex-warrant trading will begin. The ex-

warrant period will be changed to the second business day preceding the

date of expiration of the warrants instead of the fourth business day.

When warrant expiration occurs on other than a business day, the ex-

warrant period will begin on the third business day preceding the

expiration date instead of on the fifth business day.

Rule 257--``Deliveries After `Ex' Date''

Rule 257 provides for the delivery of dividends or rights after the

``ex'' date or due-bill-check. The seller will be required to deliver

dividend or rights three days after record date rather than five days.

Rule 387--``COD Orders''

Rule 387(a)(4) requires a member to obtain an agreement from its

customer to deliver instructions to its agent with respect to receipt

and delivery of securities within certain time periods. In the case of

a purchase by the customer where the agent is to receive the securities

against payment (COD), a customer must agree to furnish its agent with

instructions no later than the close of business on the second business

day, rather than the fourth business day, after the date of execution

of the trade as to which the particular confirmation relates. In the

case of a sale by the customer where the agent is to deliver the

securities against payment (POD), a customer must agree to deliver to

its agent instructions by the close of the business on the first day,

rather than the third business day, after the date of execution of the

trade as to which the particular confirmation relates.

The NYSE's implementation of these rule changes will be consistent

with the ``T+3'' conversion schedule which the National Securities

Clearing Corporation has developed for industry use. The schedule is as

follows:

``T+3'' Conversion Schedule--June 1995

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

Settlement

Trade date cycle Settlement date

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

June 2 Friday....................... 5 day....... June 9 Friday.

June 5 Monday....................... 4 day....... June 9 Friday.

June 6 Tuesday...................... 4 day....... June 12 Monday.

June 7 Wednesday.................... 3 day....... June 12 Monday.

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

If the Commission determines to alter the exemptions currently

provided in Rule 15c6-1, the NYSE may need to undertake additional rule

amendments. It is intended that the proposed rule changes are to become

effective on the same date as Commission Rule 15c6-1.

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. This is

accomplished by reducing the time period for settlement of most

securities transactions which will correspondingly decrease the number

of unsettled trades in the clearance and settlement system at any given

time. The proposed change also is consistent with Commission Rule 15c6-

1 which requires brokers or dealers to settle most securities

transactions no later than the third business day after the date of the

contract unless otherwise expressly agreed to by the parties at the

time of the transaction.

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

NYSE believes that the proposed rule change will not impose any

burden on competition that is not necessary or appropriate in

furtherance of the purposes of the Act.

(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

Within thirty-five 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 ninety days of such date if it 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 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 Section, 450 Fifth Street, N.W.,

Washington, D.C. Copies of such filing also will be available for

inspection and copying at the principal office of the NYSE. All

submissions should refer to the File No. SR-NYSE-94-40 and should be

submitted by January 13, 1995.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 94-31602 Filed 12-22-94; 8:45 am]

BILLING CODE 8010-01-M