Self-Regulatory Organizations; Philadelphia 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. 34-35176; File No. SR-Phlx-94-55]

Self-Regulatory Organizations; Philadelphia Stock Exchange, Inc.;

Notice of Filing of a Proposed Rule Change Relating to Implementation

of a Three-Day Settlement Standard

December 29, 1994.

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

(``Act''),\1\ notice is hereby given that on November 14, 1994, the

Philadelphia Stock Exchange, Inc. (``PHLX'') 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 PHLX. 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).

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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 PHLX's rules

to accommodate a three business day settlement standard for securities

transactions.

II. Self-Regulatory Organization's Statements Regarding the Proposed

Rule Change

In its filing with the Commission, the PHLX 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 PHLX 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

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

The rule which will become effective June 7, 1995.\2\ Rule 15c6-1 will

establish three business days following the trade date (``T+3'') as the

standard settlement time frame for most broker-dealer transactions. In

the release adopting Rule 15c6-1, the Commission concluded that a T+3

settlement cycle, as compared to the current five-day settlement cycle

(``T+5''), will reduce credit and liquidity risks and increase

efficiency in broker-dealer and clearing agency operations.

\2\Securities 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 the effective date of Rule 15c6-

1].

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The PHLX has identified those rules which require amendment to

provide for operations by members within a T+3 settlement cycle. The

rules are described below.

Rule 113(b) defines ``regular way'' dealings in stock as requiring

delivery on the fifth business day following the day of the

contract.\3\ ``Fifth'' will be changed to ``third.'' Similarly, the

language in Rule 113(c) defining a seller's option dealing will be

changed from requiring delivery in not less than six days to in not

less than four days.

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

transaction in securities exempted under Rule 15c6-1(b)(2).

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

commitment offering registered under the Securities Act of 1933 must

settle within three business days.

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Rule 114(b) defines ``regular way'' dealings in bonds (except

convertible bonds and United States government securities) as requiring

delivery on the fifth business day following the day of the contract.

``Fifth'' will be changed to ``third.'' Rule 114 also provides that for

bonds sold for delayed delivery, delivery is due on the seventh day

following contract day. ``Seventh'' will be changed to ``fifth.''

Similarly, the language in Rule 114(c) defining a seller's option

dealing will be changed from requiring delivery in not less than eight

days to in not less than four days.

Rule 115(b) defines ``regular way'' to require dealings in

convertible bonds to require delivery on the fifth business day

following the day of the contract. ``Fifth'' will be changed to

``third.'' Similarly, the language in Rule 115(b) defining seller's

option dealing will be changed from requiring delivery in not less than

six days to in not less than four days.

Rule 117 (a) and (b) require notice of early delivery of securities

sold pursuant to seller's option or regular way delayed delivery to be

submitted before 4:00 p.m. at least one day prior to delivery and may

not be given until the fifth business day after the date of

[[Page 2418]] the contract. ``Fifth'' will be changed to ``third.''

Rule 291 requires, unless otherwise agreed, securities loaned to be

delivered on the fifth business day following the day of the loan.

``Fifth'' will be changed to ``third.'' Rule 294 will be amended to

change the return date for securities loaned from the fifth full

business day following the date the notice is given to the third full

business day.

Rule 362 will require the contract price of bonds dealt in ``and

interest'' and made ``regular way delayed delivery'' to include

interest computed only up to but not including the third business day

rather than the fifth business day following the day of the contract.

Rule 371(a) states that with ``delayed delivery'' contracts in bonds

dealt in ``and interest'' made prior to the fifth business day

preceding the interest payment date for delivery on or after the

interest payment date, there will be a cash adjustment for coupons

paid. The rule will be changed to prior to the third business day

preceding the interest payment date. Similarly, Rule 371(b) will

require that ``seller's option'' contracts in bonds dealt in ``and

interest'' made prior to the third business day, instead of the fifth

business day, preceding the interest payment date for delivery on or

after the payment date will have a cash adjustment for coupons paid.

Rule 431 states that transactions (except those made for ``cash'')

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

the record date. This will be changed to the second business day. With

regard to a record date on other than a business day, the transaction

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

rather than on the fifth preceding business day. Rule 432 prescribes

when ex-warrant trading will begin. The ex-warrant period will be

changed from the fourth business day preceding date of expiration of

warrants to the second business day. When warrant expiration occurs on

a day other than a business day, the ex-warrant period will be changed

from fifth business day preceding expiration date to third business

day.

Rule 823 requires that all transactions effected on the PHLX will

be settled pursuant to the ``five day delivery plan'' which requires

regular way transactions to settle on the fifth business day after the

transaction date. The proposed rule change will change all references

from five to three.\4\

\4\Rule 823 also demonstrates the ``five day delivery plan'' by

stating that a transaction that occurs on Monday will settle on the

Monday of the following week. This language will be changed to be

consistent with the ``three day delivery plan.''

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Rule 825(b) provides that the ex-dividend date for transactions in

stock for which there exists a transfer facility in Philadelphia is the

fourth business day preceding the record date. The reference to fourth

business day will be changed to second business day. In the event the

record date is not a business day, the ex-dividend date will be changed

from the fifth preceding business day to the third preceding business

day. Rule 825(c) establishes the equivalent ex-dividend record date for

those stocks with transfer facilities outside Philadelphia. For these

stocks, the ex-dividend date will be the second business day, instead

of the fourth business day, preceding the equivalent Philadelphia

record date.

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

with the June 1995 conversion schedule which the Stock Clearing

Corporation of Philadelphia and National Securities Clearing

Corporation have developed for industry use. The schedule is as

follows:

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Settlement

Trade date cycle Settlement date

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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.

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If the Commission determines to alter the exemptions currently

provided in Rule 15c6-1, the PHLX may need to submit additional rule

amendments. It is intended that the proposed rule change will become

effective 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 will require 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

The PHLX does not believe that the proposed rule change will impose

any inappropriate burden on competition.

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 or such date if it finds

such longer period to be appropriate and publishes its reasons for so

finding or (ii) as to which the PHLX 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. 20549. Copies of such filing also will be available

for inspection and copying at the principal office of the PHLX. All

submissions should refer to File No. SR-Phlx-94-55 and should be

submitted by January 30, 1995.

For the Commission by the Division of Market Regulation,

pursuant to delegated authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 95-383 Filed 1-6-95; 8:45 am]

BILLING CODE 8010-01-M