81 FR 85295 - Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing of Proposed Rule Change To Reduce the Response Times in the Block Mechanism, Facilitation Mechanism, Solicited Order Mechanism and Price Improvement Mechanism
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 227 (November 25, 2016)
Federal Register Volume 81, Issue 227 (November 25, 2016)
| Page Range | 85295-85299 | |
| FR Document | 2016-28310 |
[Federal Register Volume 81, Number 227 (Friday, November 25, 2016)] [Notices] [Pages 85295-85299] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-28310] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79354; File No. SR-ISEMercury-2016-21] Self-Regulatory Organizations; ISE Mercury, LLC; Notice of Filing of Proposed Rule Change To Reduce the Response Times in the Block Mechanism, Facilitation Mechanism, Solicited Order Mechanism and Price Improvement Mechanism November 18, 2016. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on November 8, 2016, ISE Mercury, LLC (the ``Exchange'' or the ``ISE Mercury'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I and II below, which Items have [[Page 85296]] been prepared by the self-regulatory organization. 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). \2\ 17 CFR 240.19b-4. --------------------------------------------------------------------------- I. Self-Regulatory Organization's Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend Rules 716 (Block Trades) and 723 (Price Improvement Mechanism for Crossing Transactions) to reduce the response times in the Block Order Mechanism, Facilitation Mechanism, Solicited Order Mechanism, and Price Improvement Mechanism. The text of the proposed rule change is available on the Exchange's Web site at http://www.ise.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 self-regulatory organization 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 The purpose of the proposed rule change is to amend the time period allowed for member submission of responses in the Block Order Mechanism, Facilitation Mechanism, Solicited Order Mechanism, and Price Improvement Mechanism (``PIM'') from 500 milliseconds (\1/2\ of one second) to a time period designated by the Exchange of no less than 100 milliseconds (\1/10\ of one second) and no more than 1 second.\3\ --------------------------------------------------------------------------- \3\ While the Exchange intends to decrease the time period allowed for responses, the proposed rule would also allow the Exchange to increase this time period up to 1 second, which is the time period previously allowed for the submission of responses on its affiliated market, the International Securities Exchange, LLC (``ISE''). See Securities Exchange Act Release No. 58224 (July 25, 2008), 73 FR 44303 (July 30, 2008) (SR-ISE-2007-94). --------------------------------------------------------------------------- Rule 716 contains the requirements applicable to the execution of orders using the Block Order Mechanism, Facilitation Mechanism, and Solicited Order Mechanism. The Block Order Mechanism allows members to obtain liquidity for the execution of a block-size order,\4\ and the Facilitation and Solicited Order Mechanisms allow members to enter cross transactions seeking price improvement.\5\ Rule 723 contains the requirements applicable to the execution of orders using the PIM. The PIM allows members to enter cross transactions of any size. The Facilitation, Solicited Order Mechanisms and PIM allow for members to designate certain customer orders for price improvement and submit such orders into one of the mechanisms with a matching contra order. Once the order is submitted, the Exchange commences an auction by broadcasting a message to all members that includes the series, price, size and side of the market.\6\ Further, responses within the PIM (i.e., Improvement Orders), are also broadcast to market participants during the auction. Orders entered into any of these mechanisms currently are exposed to all market participants for 500 milliseconds, giving them an opportunity to enter additional trading interest before the orders are automatically executed. Under the proposal, the Exchange would determine an appropriate exposure period for each of the four auction mechanisms that is no less than 100 milliseconds and no more than 1 second, consistent with exposure periods permitted on other exchanges such as NASDAQ BX (``BX'') and NASDAQ PHLX (``Phlx'').\7\ When approving the previous change to exposure periods in these mechanisms on its affiliated market, ISE, the Securities and Exchange Commission concluded that reducing these time periods was consistent with the Securities Exchange Act of 1934 (the ``Act'').\8\ --------------------------------------------------------------------------- \4\ Block-size orders are orders for 50 contracts or more. See Rule 716(a). \5\ Only block-size orders can be entered into the Facilitation Mechanism, whereas only orders for 500 contracts or more can be entered into the Solicited Order Mechanism. See Rule 716(d) and (e). \6\ Members may choose to hide the size, side, and price when entering orders into the Block Order Mechanism. \7\ See Securities Exchange Act Release No. 76301 (October 29, 2015), 80 FR 68347 (November 4, 2015) (SR-BX-2015-032) and Securities Exchange Act Release No. 77557 (April 7, 2016), 81 FR 21935 (April 13, 2016) (SR-PHLX-2016-40). \8\ See Exchange Act Release No. 68849 (February 6, 2013), 78 FR 9973 (February 12, 2013) (SR-ISE-2012-100). --------------------------------------------------------------------------- The Exchange is not proposing any change to the requirement in Rule 717(d) and (e) that requires an Electronic Access Member (``EAM'') to expose its customer's order on the book for at least one second before either executing such agency order as principal or against orders solicited from members and non-members, unless the EAM submits the agency order to the Facilitation Mechanism, Solicited Order Mechanism, or PIM.\9\ The Exchange believes this exception for the Facilitation Mechanism, Solicited Order Mechanism and PIM is appropriate because the customer order is guaranteed an execution at the National Best Bid/ Offer (``NBBO'') or a better price through the Facilitation Mechanism, Solicited Order Mechanism and PIM. Additionally, members are informed about the agency order starting the auction through receipt of the broadcast. Members have the opportunity to compete for participation in the execution of the customer order by responding to the broadcast with their best priced responses. --------------------------------------------------------------------------- \9\ Since EAMs submitting orders into the Block Mechanism do not have the contra order, Rule 717(d) and (e) does not apply. --------------------------------------------------------------------------- With respect to the Facilitation Mechanism, Solicited Order Mechanism, and PIM, the Exchange believes the proposed rule change could provide more customer orders an opportunity for price improvement because it will reduce the market risk for all members executing trades in these mechanisms. Members that submit orders into such mechanisms to initiate an auction (``Initiating Members'') are required to guarantee an execution at the NBBO or a better price, and are subject to market risk while the order is exposed in one of the mechanisms to other members. While other members are also subject to market risk, the Initiating Member is most exposed because the market can move against them during the auction period and they have guaranteed the customer an execution at the NBBO or better based on the market prices prior to the commencement of the auction. In today's fast-paced markets, big price changes can occur in 100 milliseconds or less, leaving the Initiating Members vulnerable to trading losses due to their choice to seek price improvement for their customer. The Initiating Member acts in a critical role in the price improvement process and their willingness to guarantee the customer an execution at the NBBO or a better price is keystone to the customer order gaining the opportunity for price improvement. Therefore, limiting Initiating Members' market risk by reducing the exposure time in the mechanisms should increase the likelihood that an Initiating Member [[Page 85297]] would seek price improvement for its customer by entering such orders into one of the mechanisms. Additionally, the Exchange does not believe that requiring the auction to run for 500 milliseconds is necessary in today's market where, generally, members' systems have the capability to respond within 100 milliseconds or faster. As such, reducing the response time in the Block Order Mechanism is appropriate as members no longer need 500 milliseconds to respond to the auction. Reducing the auction time for the Block Order Mechanism from 500 milliseconds to as low as 100 milliseconds will allow members the opportunity to seek out liquidity in an expedient manner that is consistent with system capabilities. Furthermore, although the Exchange currently plans to reduce the time period allowed for the submission of auction responses to 100 milliseconds, the Exchange believes that it is appropriate to provide the flexibility to choose a response period of up to 1 second as this is consistent with the rules of other options markets.\10\ --------------------------------------------------------------------------- \10\ See note 7 supra. --------------------------------------------------------------------------- The Exchange's members operate electronic systems that enable them to react and respond to orders in a meaningful way in fractions of a second. The Exchange anticipates that its members will continue to compete within the proposed auction duration designated by the Exchange. In particular, the Exchange believes that the proposed auction response times--which will be no less than 100 milliseconds and no more than 1 second--will continue to provide members with sufficient time to respond to, compete for, and provide price improvement for orders, and will provide investors and other market participants with more timely executions, and reduce their market risk. Reducing the duration of the auctions from 500 milliseconds to as low as 100 milliseconds will benefit members trading in the mechanisms. It is in these members' best interest to minimize the auction time while continuing to allow members adequate time to electronically respond. Both the order being exposed and the members' responses are subject to market risk during the auction. While a limited number of members wait to respond until later in the auction, presumably to minimize their market risk, in more than 94% of executions occurring in the mechanisms members respond within the first 100 milliseconds. The Exchange believes that an auction time as low as 100 milliseconds will continue to provide market participants with sufficient time to respond, compete, and provide price improvement for orders and will provide investors and other market participants with more timely executions, thereby reducing their market risk.\11\ --------------------------------------------------------------------------- \11\ With Block Orders, the member enters one side of the order in an effort to find contra-side liquidity. While this order is exposed, the member is exposed to market risk. Therefore, reducing the exposure time will reduce the market risk for Block Orders just as it will reduce the market risk with respect to orders entered into the Facilitation Mechanism, Solicited Order Mechanism, and PIM. --------------------------------------------------------------------------- To substantiate that members can receive, process, and communicate a response to an auction broadcast within 100 milliseconds, the Exchange surveyed all International Securities Exchange, LLC (``ISE'') and ISE Gemini, LLC (``ISE Gemini'') members that responded to an auction in the period beginning July 1, 2015 and ending January 15, 2016.\12\ The Exchange received responses from all of the 21 ISE and ISE Gemini members surveyed, and each member confirmed that they can receive, process, and communicate a response back to the Exchange within 100 milliseconds. The Exchange believes that the survey results apply equally to ISE Mercury as all current ISE Mercury members are also members of the ISE and/or ISE Gemini, and the same functionality for responses offered on ISE Mercury is also offered on these affiliated exchanges. In addition, the Exchange notes that the ISE Mercury trading system has comparable latency to both ISE and ISE Gemini. As a result, the Exchange does not believe that ISE Mercury members will have any difficulty in responding to an auction broadcast within the 100 milliseconds permitted under this proposed rule change. --------------------------------------------------------------------------- \12\ ISE Mercury launched on February 16, 2016 after the survey had been completed. ISE and ISE Gemini are affiliates of ISE Mercury that also offer the auction functionality described in this filing. --------------------------------------------------------------------------- Also in consideration of this proposed rule change, the Exchange reviewed all executions occurring in the mechanisms by its Members from March 28, 2016-April 25, 2016. This review of executions in the mechanisms indicates that approximately 98% of responses that resulted in price improving executions at the conclusion of an auction were submitted within 500 milliseconds. Approximately 94% of responses that resulted in price improving executions at the conclusion of an auction were submitted within 100 milliseconds of the initial order, and 83% were submitted within 50 milliseconds of the initial order. Accordingly, the Exchange believes that an auction time as low as 100 milliseconds will continue to provide members with sufficient time to respond to, compete for, and provide price improvement for orders, and will provide investors and other market participants with more timely executions, and reduce their market risk. Moreover, Supplementary Material .04 to Rule 723 provides that the PIM will not run simultaneously with or overlap another PIM in the same series. As a result, members may be unable to initiate PIMs on behalf of their customers. Reducing the auction time to as low as 100 milliseconds will decrease the likelihood that an auction is underway when a customer order is received. Accordingly, the Exchange believes it is likely that the number of PIM transactions will increase, thereby providing customers a greater opportunity to benefit from price improvement. The Exchange believes that the information outlined above regarding price improving transactions in the mechanisms and the feedback provided by members provides substantial support for its assertion that reducing the auction from 500 milliseconds to as low as 100 milliseconds will continue to provide members with sufficient time to ensure competition for orders entered into the mechanisms, and could provide customer orders with additional opportunities for price improvement. With regard to the impact of this proposal on system capacity, the Exchange has analyzed its capacity and represents that it has the necessary systems capacity to handle the potential additional traffic associated with the additional transactions that may occur with the implementation of the proposed reduction in the auction duration to no less than 100 milliseconds. Additionally, the Exchange represents that its systems will be able to sufficiently maintain an audit trail for order and trade information with the reduction in the auction duration. Further, although the Exchange and its members are fully capable of handling a response time of 100 milliseconds, the Exchange proposes to reduce the auction time over a period of weeks ending at 100 milliseconds. This will ensure a smooth implementation of the faster timers and that the Exchange's and its members' systems are working properly given the faster response times. Upon effectiveness of the proposal, and at least six weeks prior to implementation of the proposed rule change, the Exchange will issue a circular to members, informing them of [[Page 85298]] the implementation date of the reduction of the auction from 500 milliseconds to the auction time designated by the Exchange to allow members the opportunity to perform systems changes. This will give members an opportunity to make any necessary modifications to coincide with the implementation date. The Exchange also represents that it will issue a circular at least four weeks prior to any future changes, as permitted by its rules, to the auction time. 2. Statutory Basis The Exchange believes that the proposed rule change is consistent with the requirements of the Act, and the rules and regulations thereunder that are applicable to a national securities exchange, and, in particular, with the requirements of Section 6(b) of the Act.\13\ In particular, the proposal is consistent with Section 6(b)(5) of the Act,\14\ because it is designed to promote just and equitable principles of trade, remove impediments to and perfect the mechanisms of a free and open market and a national market system and, in general, to protect investors and the public interest. --------------------------------------------------------------------------- \13\ 15 U.S.C. 78f(b). \14\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- In particular, the proposed rule change will provide investors with more timely execution of their options orders, while ensuring that there is an adequate exposure of orders in the mechanisms. Additionally, the proposed change will allow more investors the opportunity to receive price improvement through the mechanisms, and will reduce market risk for members using the mechanisms. Finally, as mentioned above, other exchanges such as BX and Phlx, have already amended their rules to permit response times consistent with those proposed here--i.e., no less than 100 milliseconds and no more than 1 second.\15\ As such, the Exchange believes the proposed rule change would help perfect the mechanism for a free and open national market system, and generally help protect investors' and the public's interest. --------------------------------------------------------------------------- \15\ See note 7 supra. --------------------------------------------------------------------------- The Exchange believes the proposed rule change is not unfairly discriminatory because the auction duration would be the same for all members. All members in the mechanisms have today, and will continue to have, an equal opportunity to receive the broadcast and respond with their best prices during the auction. Additionally, the Exchange believes the reduction in the auction duration reduces the market risk for all members. The reduction in time period reduces the market risk for the Initiating Member as well as any members providing orders in response to a broadcast. Moreover, based on the feedback the Exchange received from its members, the Exchange believes that a reduction in the auction period to a low of 100 milliseconds would not impair members' ability to compete in the mechanisms. The Exchange believes these results support the assertion that a reduction in the auction duration would not be unfairly discriminatory and would benefit investors. B. Self-Regulatory Organization's Statement on Burden on Competition The Exchange believes the proposal is consistent with Section 6(b)(8) of the Act \16\ in that it does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act. The proposed rule change is not designed to address any aspect of competition, but instead would continue to provide market participants with sufficient time to respond, compete, and provide price improvement for orders in the Exchange's auction mechanisms. The proposed rule also provides investors and other market participants with more timely executions, thereby reducing their market risk. As proposed, the rule does not impose an undue burden on members because they are all currently capable of responding to these mechanisms in under 100 milliseconds. Finally, the proposed rule change offers the same exposure period to all members and would not impose a competitive burden on any particular participant. --------------------------------------------------------------------------- \16\ 15 U.S.C. 78f(b)(8). --------------------------------------------------------------------------- C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others The Exchange has not solicited, and does not intend to solicit, comments on this proposed rule change. The Exchange has not received any unsolicited written comments from members or other interested parties. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the publication date of this notice in the Federal Register or within such longer period up to 90 days (i) as the Commission may designate 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 or disapprove 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, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic CommentsUse the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-ISEMercury-2016-21 on the subject line. Paper Comments Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. All submissions should refer to File Number SR-ISEMercury-2016-21. 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-ISEMercury-2016-21 and should be [[Page 85299]] submitted on or before December 16, 2016. For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\17\ --------------------------------------------------------------------------- \17\ 17 CFR 200.30-3(a)(12). --------------------------------------------------------------------------- Brent J. Fields, Secretary. [FR Doc. 2016-28310 Filed 11-23-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 227 / Friday, November 25, 2016 / Notices 85295
recognizes the unique nature of the fund V. Conclusion of notice of the filing of a proposed rule
industry in treating distributions with It is therefore ordered, pursuant to change, or within such longer period up
respect to a common group of Section 19(b)(2) of the Exchange Act 55 to 90 days as the Commission may
shareholders as a single distribution for that the proposed rule change (SR– designate if it finds such longer period
purposes of the fee tiers. NYSE–2016–55) be, and hereby is, to be appropriate and publishes its
approved. reasons for so finding, or as to which the
The Commission understands that, in
self-regulatory organization consents,
setting the reimbursement rates in Rule For the Commission, by the Division of the Commission shall either approve the
451.90, the Exchange balances the Trading and Markets, pursuant to delegated
proposed rule change, disapprove the
competing interests of issuers who must authority.56
proposed rule change, or institute
pay for distributions of shareholder Brent J. Fields,
proceedings to determine whether the
reports and brokers who need assurance Secretary. proposed rule change should be
of adequate reimbursement for making [FR Doc. 2016–28311 Filed 11–23–16; 8:45 am] disapproved. The 45th day after
such distributions on their behalf.52 The BILLING CODE 8011–01–P publication of the notice for this
Commission notes that all commenters proposed rule change is November 25,
broadly supported NYSE’s proposal.53 2016. The Commission is extending this
As discussed above, two commenters SECURITIES AND EXCHANGE 45-day time period.
expressed some concern with assessing COMMISSION In order to provide the Commission
the details of the NYSE’s proposal [Release No. 34–79351; File No. SR–DTC– with sufficient time to consider the
before a final decision is made on 2016–008] proposed rule change, the Commission
proposed Rule 30e-3. However, given finds that it is appropriate to designate
that the Exchange’s rule is applicable to Self-Regulatory Organizations; The a longer period within which to take
the ‘‘distribution of investment Depository Trust Company; Notice of action on the proposed rule change.
Designation of a Longer Period for Accordingly, the Commission, pursuant
company shareholder reports pursuant
Commission Action on Proposed Rule to Section 19(b)(2) of the Act,6
to any ‘notice and access’ rules adopted
Change Relating to Processing of designates January 9, 2017 as the date
by the [Commission] in relation to such by which the Commission shall either
Transactions in Money Market
distributions’’ as well as the functional Instruments approve, disapprove, or institute
similarities between notice and access proceedings to determine whether to
processing for proxy and investment November 18, 2016. disapprove the proposed rule change
company report distributions,54 the On September 23, 2016, The (File No. SR–DTC–2016–008).
Commission believes, for the reasons Depository Trust Company (‘‘DTC’’)
filed with the Securities and Exchange For the Commission, by the Division of
discussed above, that it is appropriate at Trading and Markets, pursuant to delegated
this time to approve substantially Commission (‘‘Commission’’) proposed authority.7
similar reimbursement rates, with the rule change SR–DTC–2016–008
Brent J. Fields,
proposed amendments described herein, pursuant to Section 19(b)(1) of the
Secretary.
which should establish a reasonable and Securities Exchange Act of 1934
[FR Doc. 2016–28307 Filed 11–23–16; 8:45 am]
practical reimbursement structure, if (‘‘Act’’),1 and Rule 19b–4 thereunder,2
to establish a change in the processing BILLING CODE 8011–01–P
notice and access distribution of
investment company shareholder of transactions in money market
instruments.3 The proposed rule change
reports is authorized. SECURITIES AND EXCHANGE
was published for comment in the
For the reasons discussed above, the COMMISSION
Federal Register on October 11, 2016.4
Commission believes that the proposed To date, the Commission has not [Release No. 34–79354; File No. SR–
rule change is consistent with the received any comments on the proposed ISEMercury–2016–21]
Exchange Act. rule change.
Section 19(b)(2) of the Act 5 provides Self-Regulatory Organizations; ISE
52 The Commission notes that the Exchange and that, within 45 days of the publication Mercury, LLC; Notice of Filing of
certain commenters suggested that FINRA may be Proposed Rule Change To Reduce the
better positioned than the Exchange to perform the 55 15 U.S.C. 78f(b)(2). Response Times in the Block
regulatory role of setting the reimbursement rates 56 17 CFR 200.30–3(a)(12). Mechanism, Facilitation Mechanism,
for mutual fund report distributions. See Notice, 81 1 15 U.S.C. 78s(b)(1). Solicited Order Mechanism and Price
FR at 56718; see also ICI Letter; Ariel Letter; T.
Rowe Letter; MFS Letter; Invesco Letter;
2 17 CFR 240.19b–4.
Improvement Mechanism
3 On September 23, 2016, DTC also filed this
Dimensional Letter; Columbia Letter. The issue of
proposed rule change as an advance notice (SR– November 18, 2016.
whether FINRA would be better positioned than the
DTC–2016–802) with the Commission pursuant to Pursuant to Section 19(b)(1) of the
Exchange to perform this regulatory role is outside
Section 806(e)(1) of the Dodd-Frank Wall Street
the scope of the Commission’s consideration of
Reform and Consumer Protection Act entitled the
Securities Exchange Act of 1934 (the
whether to approve the Exchange’s proposed rule Payment, Clearing, and Settlement Supervision Act ‘‘Act’’),1 and Rule 19b–4 thereunder,2
change. See Section 19(b)(2)(C) of the Exchange Act of 2010, 12 U.S.C. 5465(e)(1), and Rule 19b– notice is hereby given that on November
(‘‘The Commission shall approve a proposed rule 4(n)(1)(i) of the Act, 17 CFR 240.19b–4(n)(1)(i).
change of a self-regulatory organization if it finds
8, 2016, ISE Mercury, LLC (the
Notice of filing of and extension of the review
that such proposed rule change is consistent with period of the advance notice was published for
‘‘Exchange’’ or the ‘‘ISE Mercury’’) filed
asabaliauskas on DSK3SPTVN1PROD with NOTICES
the requirements of this title and the rules and comment in the Federal Register on November 9, with the Securities and Exchange
regulations applicable to such organization.’’). 2016. Securities Exchange Act Release No. 79224 Commission (‘‘Commission’’) the
53 See supra note 4. (November 3, 2016), 81 FR 78884 (November 9, proposed rule change as described in
54 See Broadridge Letter (stating that processing 2016) (SR–DTC–2016–802). The Commission shall
have until January 21, 2017 to object or not object
Items I and II below, which Items have
work for investment company shareholder report
distribution using notice and access is functionally to the advance notice.
4 See Securities Exchange Act Release No. 79046 6 Id.
similar in many respects to proxy report
7 17 CFR 200.30–3(a)(31).
distribution through notice and access, although (October 5, 2016), 81 FR 70200 (October 11, 2016)
many of the underlying systems and production (SR–DTC–2016–008). 1 15 U.S.C. 78s(b)(1).
operations would be different). 5 15 U.S.C. 78s(b)(2). 2 17 CFR 240.19b–4.
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submitted on or before December 16, The proposed rule change would not connection with shortening the standard
2016. become effective until NSCC has settlement cycle to T+2. Further, certain
For the Commission, by the Division of submitted a subsequent proposed rule timeframes or cutoff times in the Rules
Trading and Markets, pursuant to delegated change under Rule 19b–4.5 Therefore, key off the current settlement date of
authority.17 NSCC would not implement this version T+3, either expressly or indirectly. In
Brent J. Fields, of the Rules until an effective date is such cases, these timeframes and cutoff
Secretary. established by the subsequent proposed times would also need to be amended in
rule change.6 connection with the Shortened
[FR Doc. 2016–28310 Filed 11–23–16; 8:45 am]
Settlement Cycle. Therefore, to facilitate
BILLING CODE 8011–01–P II. Clearing Agency’s Statement of the the anticipated industry-wide move to
Purpose of, and Statutory Basis for, the the Shortened Settlement Cycle, NSCC
Proposed Rule Change proposes to make certain amendments
SECURITIES AND EXCHANGE
In its filing with the Commission, the to the Rules.
COMMISSION
clearing agency included statements
(ii) Proposed Changes to the Rules
[Release No. 34–79356; File No. SR–NSCC– concerning the purpose of and basis for
2016–007] the proposed rule change and discussed The primary purpose of the proposed
any comments it received on the rule change is to modify the Rules to
Self-Regulatory Organizations; proposed rule change. The text of these accommodate the anticipated industry-
National Securities Clearing statements may be examined at the wide move to a two-day settlement
Corporation; Notice of Filing of places specified in Item IV below. The cycle.9 While the core functions of
Proposed Rule Change To clearing agency has prepared NSCC will continue to operate in the
Accommodate Shorter Standard summaries, set forth in sections A, B, same way in the Shortened Settlement
Settlement Cycle and Make Other and C below, of the most significant Cycle, NSCC has determined that the
Changes aspects of such statements. move to T+2 would necessitate certain
amendments to the Rules because
November 18, 2016. (A) Clearing Agency’s Statement of the currently the Rules are designed to
Pursuant to Section 19(b)(1) of the Purpose of, and Statutory Basis for, the accommodate a T+3 settlement cycle. In
Securities Exchange Act of 1934 Proposed Rule Change particular, NSCC has identified and is
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 proposing to change (i) rules that have
notice is hereby given that on November 1. Purpose
timeframes and/or cutoff times that are
7, 2016, National Securities Clearing (i) Background tied to the standard settlement cycle and
Corporation (‘‘NSCC’’) filed with the (ii) rules affected by process changes
The standard settlement cycle has not
Securities and Exchange Commission relating to the Shortened Settlement
changed since 1993, when the
(‘‘Commission’’) the proposed rule Cycle. In addition, NSCC is proposing to
Commission adopted the current
change as described in Items I, II and III make a number of technical changes and
version of Rule 15c6–1(a) under the
below, which Items have been prepared corrections to the Rules.
Securities Exchange Act of 1934, as
by the clearing agency. The Commission
amended (the ‘‘Act’’), which (subject to A. Rules Tied to the Standard
is publishing this notice to solicit
certain exceptions) prohibits any broker- Settlement Cycle
comments on the proposed rule change
dealer from entering into a contract for
from interested persons. Certain provisions in the Rules are
the purchase or sale of a security that
I. Clearing Agency’s Statement of the provides for payment and delivery later tied to the standard settlement cycle
Terms of Substance of the Proposed than three business days after the trade because they reference timeframes and/
Rule Change date, unless otherwise expressly agreed or cutoff times that are based on the
to by the parties at the time of the timing of settlement. These are
The proposed rule change consists of provisions that (i) directly track the
amendments to NSCC’s Rules & transaction.7
In an effort to reduce counterparty timeframe and/or Settlement Date of the
Procedures (‘‘Rules’’) 3 in order to standard settlement cycle, (ii) address
risk, decrease clearing capital
ensure that the Rules are consistent with non-standard settlement cycles or (iii)
requirements, reduce liquidity demands
the anticipated industry-wide move to a provide for timeframes and/or cutoff
and harmonize the settlement cycle
shorter standard settlement cycle for times that are connected to or are
globally, the financial services industry
certain securities 4 from the third affected by the timing of the standard
has been working on shortening the
business day after the trade date (‘‘T+3’’) settlement cycle, and they would need
standard settlement cycle from T+3 to
to the second business day after the to be changed in order to accommodate
T+2. In connection therewith, the
trade date (‘‘T+2’’), as described below. the Shortened Settlement Cycle. As an
Commission has proposed a rule change
to shorten the standard settlement cycle example, the Rules contain a number of
17 17 CFR 200.30–3(a)(12).
from T+3 to T+2.8 provisions that refer to ‘‘three days’’ or
1 15 U.S.C. 78s(b)(1).
2 17 CFR 240.19b–4. A number of provisions in the Rules ‘‘T+3’’ as the timeframe and Settlement
3 Capitalized terms not defined herein are defined currently define ‘‘regular way’’ Date of the standard settlement cycle.
in the Rules, available at http://dtcc.com/∼/media/ settlement as occurring on T+3 and, as These provisions would need to be
Files/Downloads/legal/rules/nscc_rules.pdf. such, would need to be amended in updated to reflect ‘‘two days’’ or ‘‘T+2’’
to be in conformance with the
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4 The financial services industry, in coordination
with its regulators, is planning to shorten the 5 17 Shortened Settlement Cycle. Similarly, a
standard settlement cycle for equities, corporate CFR 240.19b–4.
and municipal bonds, unit investment trusts and
6 NSCC will post a version of the relevant sections number of provisions in the Rules refer
financial instruments comprised of the foregoing of the Rules reflecting the changes as they would to timeframes and Settlement Dates that
products traded on the secondary market from T+3 appear upon the effectiveness of the subsequent are intended to be shorter or earlier, as
to T+2 (the ‘‘Shortened Settlement Cycle’’). See proposed rule change mentioned above and will
include a note on the cover page of the Rules to applicable, than the timeframe and/or
Securities Exchange Act Release No. 78962
(September 28, 2016), 81 FR 69240 (October 5, advise Members of these changes. Settlement Date of the standard
7 17 CFR 240.15c6–1.
2016) (S7–22–16) (Amendment to Securities
Transaction Settlement Cycle). 8 Supra note 4. 9 Id.
VerDate Sep<11>2014 18:57 Nov 23, 2016 Jkt 241001 PO 00000 Frm 00096 Fmt 4703 Sfmt 4703 E:\FR\FM\25NON1.SGM 25NON1](https://thefederalregister.org/doc/81_FR_85522/page/5.svg)
Document Created: 2016-11-23 23:17:49
Document Modified: 2016-11-23 23:17:49
| Category | Regulatory Information | |
| Collection | Federal Register | |
| sudoc Class | AE 2.7: GS 4.107: AE 2.106: | |
| Publisher | Office of the Federal Register, National Archives and Records Administration | |
| Section | Notices | |
| FR Citation | 81 FR 85295 |
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