81 FR 96545 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To Shorten the Settlement Cycle From T+3 to T+2
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 81, Issue 251 (December 30, 2016)
Federal Register Volume 81, Issue 251 (December 30, 2016)
| Page Range | 96545-96550 | |
| FR Document | 2016-31679 |
[Federal Register Volume 81, Number 251 (Friday, December 30, 2016)] [Notices] [Pages 96545-96550] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2016-31679] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-79687; File No. SR-NASDAQ-2016-183] Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing of Proposed Rule Change To Shorten the Settlement Cycle From T+3 to T+2 December 23, 2016. 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 December 22, 2016, The NASDAQ Stock Market LLC (``Nasdaq'' 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. --------------------------------------------------------------------------- \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 Nasdaq Rules 11140 (Transactions in Securities ``Ex-Dividend,'' ``Ex-Rights'' or ``Ex-Warrants''), 11150 (Transactions ``Ex-Interest'' in Bonds Which Are Dealt in ``Flat''), 11210 (Sent by Each Party), 11320 (Dates of Delivery), 11620 (Computation of Interest), and IM-11810 (Sample Buy-In Forms), to conform to the Commission's proposed amendment 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.\3\ --------------------------------------------------------------------------- \3\ See Securities Exchange Act Release No. 78962 (September 28, 2016), 81 FR 69240 (October 5, 2016) (Amendment to Securities Transaction Settlement Cycle) (File No. S7-22-16) (``SEC Proposing Release''). --------------------------------------------------------------------------- The text of the proposed rule change is available on the Exchange's Web site at http://nasdaq.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 [[Page 96546]] 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 SEC Proposing Release On September 28, 2016, the Commission proposed amending SEA Rule 15c6-1(a) to shorten the standard settlement cycle for most broker- dealer transactions from T+3 to T+2 on the basis that the shorter settlement cycle would reduce the risks that arise from the value and number of unsettled securities transactions prior to the completion of settlement, including credit, market, and liquidity risk directly faced by U.S. market participants.\4\ The proposed rule amendment was published for comment in the Federal Register on October 5, 2016.\5\ --------------------------------------------------------------------------- \4\ See Securities and Exchange Commission Press Release 2016- 200: ``SEC Proposes Rule Amendment to Expedite Process for Settling Securities Transactions'' (September 28, 2016). \5\ See supra note 3. --------------------------------------------------------------------------- Background In 1995, the standard U.S. trade settlement cycle for equities, municipal and corporate bonds, and unit investment trusts, and financial instruments composed of these products was shortened from five business days after the trade date (``T+5'') to T+3.\6\ Accordingly, Nasdaq and other self-regulatory organizations (``SROs'') amended their respective rules to conform to the T+3 settlement cycle.\7\ Since that time, the SEC and the financial services industry have continued to explore the idea of shortening the settlement cycle even further.\8\ --------------------------------------------------------------------------- \6\ In 1993, the Commission adopted SEA Rule 15c6-1 which became effective in 1995. See Securities Exchange Act Release Nos. 33023 (October 6, 1993), 58 FR 52891 (October 13, 1993) and 34952 (November 9, 1994), 59 FR 59137 (November 16, 1994). SEA Rule 15c6- 1(a) provides, in relevant part, that ``a broker or dealer shall not effect or enter 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 third business day after the date of the contract unless otherwise expressly agreed to by the parties at the time of the transaction.'' 17 CFR 240.15c6-1(a). Although not covered by SEA Rule 15c6-1, in 1995, the Commission approved the Municipal Securities Rulemaking Board's rule change requiring transactions in municipal securities to settle by T+3. See Securities Exchange Act Release No. 35427 (February 28, 1995), 60 FR 12798 (March 8, 1995) (Order Approving File No. SR-MSRB-94-10). \7\ See, e.g., Securities Exchange Act Release No. 35507 (March 17, 1995), 60 FR 15616 (March 24, 1995) (Order Approving File No. SR-NASD-94-56); Securities Exchange Act Release No. 35506 (March 17, 1995), 60 FR 15618 (March 24, 1995) (Order Approving File No. SR- NYSE-94-40); and Securities Exchange Act Release No. 35553 (March 31, 1995), 60 FR 18161 (April 10, 1995) (Order Approving File No. SR-Amex-94-57). \8\ See, e.g., Securities Industry Association (``SIA''), ``SIA T+1 Business Case Final Report'' (July 2000); Concept Release: Securities Transactions Settlement, Securities Exchange Act Release No. 49405 (March 11, 2004), 69 FR 12922 (March 18, 2004); and Depository Trust & Clearing Corporation, ``Proposal to Launch a New Cost-Benefit Analysis on Shortening the Settlement Cycle'' (December 2011). --------------------------------------------------------------------------- In April 2014, the Depository Trust & Clearing Corporation (``DTCC'') published its formal recommendation to shorten the standard U.S. trade settlement cycle to T+2 and announced that it would partner with market participants and industry organizations to devise the necessary approach and timelines to achieve T+2.\9\ --------------------------------------------------------------------------- \9\ See DTCC, ``DTCC Recommends Shortening the U.S. Trade Settlement Cycle'' (April 2014). --------------------------------------------------------------------------- In an effort to improve the overall efficiency of the U.S. settlement system by reducing the attendant risks in T+3 settlement of securities transactions, and to align U.S. markets with other major global markets that have already moved to T+2, DTCC, in collaboration with the financial services industry, formed an Industry Steering Committee (``ISC'') and an industry working group and sub-working groups to facilitate the move to T+2.\10\ In June 2015, the ISC published a White Paper outlining the activities and proposed time frames that would be required to move to T+2 in the U.S.\11\ Concurrently, the Securities Industry and Financial Markets Association (``SIFMA'') and the Investment Company Institute (``ICI'') jointly submitted a letter to SEC Chair White, expressing support of the financial services industry's efforts to shorten the settlement cycle and identifying SEA Rule 15c6-1(a) and several SRO rules that they believed would require amendments for an effective transition to T+2.\12\ In March 2016, the ISC announced the industry target date of September 5, 2017 for the transition to a T+2 settlement cycle to occur.\13\ --------------------------------------------------------------------------- \10\ The ISC includes, among other participants, DTCC, the Securities Industry and Financial Markets Association and the Investment Company Institute. \11\ See ``Shortening the Settlement Cycle: The Move to T+2'' (June 18, 2015). \12\ See Letter from ICI and SIFMA to Mary Jo White, Chair, SEC, dated June 18, 2015. See also Letter from Mary Jo White, Chair to Kenneth E. Bentsen, Jr., President and CEO, SIFMA, and Paul Schott Stevens, President and CEO, ICI, dated September 16, 2015 (expressing her strong support for industry efforts to shorten the trade settlement cycle to T+2 and commitment to developing a proposal to amend SEA Rule 15c6-1(a) to require standard settlement no later than T+2). \13\ See ISC Media Alert: ``US T+2 ISC Recommends Move to Shorter Settlement Cycle On September 5, 2017'' (March 7, 2016). --------------------------------------------------------------------------- Proposed Rule Change In light of the SEC Proposing Release that would amend SEA Rule 15c6-1(a) to require standard settlement no later than T+2 and similar proposals from other SROs,\14\ Nasdaq is proposing changes to its rules pertaining to securities settlement by, among other things, amending the definition of ``standard'' settlement as occurring on T+2. SEA Rule 15c6-1(a) currently establishes ``standard'' settlement as occurring no later than T+3 for all securities, other than an exempt security, government security, municipal security, commercial paper, bankers' acceptances, or commercial bills.\15\ Nasdaq is proposing changes to rules pertaining to securities settlement to support the industry-led initiative to shorten the standard settlement cycle to two business days. Most of the rules that Nasdaq has identified for these changes are successors to provisions under the legacy NASD Rules of Fair Practice and NASD Uniform Practice Code (``UPC'') that were amended when the Commission adopted SEA Rule 15c6-1(a), which established T+3 as the standard settlement cycle.\16\ As such, Nasdaq is proposing to amend Nasdaq Rules 11140 (Transactions in Securities ``Ex-Dividend,'' ``Ex-Rights'' or ``Ex-Warrants''), 11150 (Transactions ``Ex- Interest'' in Bonds Which Are Dealt in ``Flat''), 11320 (Dates of Delivery), and 11620 (Computation of Interest). In addition, Nasdaq is proposing to amend [[Page 96547]] Nasdaq Rules 11210 (Sent by Each Party) and IM-11810 (Sample Buy-In Forms) to conform provisions, where appropriate, to the T+2 settlement cycle.\17\ --------------------------------------------------------------------------- \14\ See, e.g., Securities Exchange Act Release No. 77744 (April 29, 2016), 81 FR 26851 (May 4, 2016) (Order Approving File No. SR- MSRB-2016-04). \15\ See supra note 7. \16\ The legacy NASD rules that were changed to conform to the move from T+5 to T+3 included Section 26 (Investment Companies) of the Rules of Fair Practice, and Section 5 (Transactions in Securities ``Ex-Dividend,'' ``Ex-Rights'' or ``Ex- Warrants''), Section 6 (Transactions ``Ex-Interest'' in Bonds Which Are Dealt in ``Flat''), Section 12 (Dates of Delivery), Section 46 (Computation of Interest) and Section 64 (Acceptance and Settlement of COD Orders) of the UPC. See Securities Exchange Act Release No. 35507 (March 17, 1995), 60 FR 15616 (March 24, 1995) (Order Approving File No. SR-NASD-94-56). See also Notice to Members 95-36 (May 1995) (enumerating the various sections under the NASD Rules of Fair Practice and UPC that were amended to implement T+3 settlement for securities transactions). \17\ Nasdaq Rules 11210 and IM-11810 are successors to legacy NASD UPC Section 9 (Sent by Each Party) and 59 (``Buying-in''), respectively, which remained unchanged during the transition from T+5 to T+3. See supra note 17 [sic]. --------------------------------------------------------------------------- The details of the proposed rule change are described below. (1) Nasdaq Rule 11140 (Transactions in Securities ``Ex-Dividend,'' ``Ex- Rights'' or ``Ex-Warrants'') Rule 11140(b)(1) provides that for dividends or distributions, and the issuance or distribution of warrants, that are less than 25 percent of the value of the subject security, if definitive information is received sufficiently in advance of the record date, the date designated as the ``ex-dividend date'' shall be the second business day preceding the record date if the record date falls on a business day, or the third business day preceding the record date if the record date falls on a day designated by Nasdaq Regulation as a non-delivery date. Nasdaq is proposing to shorten the time frames in Rule 11140(b)(1) by one business day. (2) Nasdaq Rule 11150 (``Ex-Interest'' in Bonds Which Are Dealt in ``Flat'') Rule 11150(a) prescribes the manner for establishing ``ex-interest dates'' for transactions in bonds or other similar evidences of indebtedness which are traded ``flat.'' Such transactions are ``ex- interest'' on the second business day preceding the record date if the record date falls on a business day, on the third business day preceding the record date if the record date falls on a day other than a business day, or on the third business day preceding the date on which an interest payment is to be made if no record date has been fixed. Nasdaq is proposing to shorten the time frames in Rule 11150(a) by one business day. (3) Nasdaq Rule 11210 (Sent by Each Party) Paragraphs (c) and (d) of Rule 11210 set forth the ``Don't Know'' (``DK'') voluntary procedures for using ``DK Notices'' or other forms of notices, respectively. Depending upon the notice used, a confirming member may follow the ``DK'' procedures when it sends a comparison or confirmation of a trade (other than one that clears through the National Securities Clearing Corporation (``NSCC'') or other registered clearing agency), but does not receive a comparison or confirmation or a signed ``DK'' from the contra-member by the close of four business days following the trade date of the transaction (``T+4''). The procedures generally provide that after T+4, the confirming member shall send a ``DK Notice'' (or similar notice) to the contra-member. The contra-member then has four business days after receipt of the confirming member's notice to either confirm or ``DK'' the transaction. Nasdaq is proposing to amend paragraphs (c) and (d) of Rule 11210 to provide that the ``DK'' procedures may be used by the confirming member if it does not receive a comparison or confirmation or signed ``DK'' from the contra-member by the close of one business day following the trade date of the transaction, rather than the current T+4.\18\ In addition, Nasdaq is proposing amendments to paragraphs (c)(2)(A), (c)(3), and (d)(5) of Rule 11210 to adjust the time in which a contra-member has to respond to a ``DK Notice'' (or similar notice) from four business days after the contra-member's receipt of the notice to two business days. --------------------------------------------------------------------------- \18\ As stated above, the time frames in Rule 11210 remained unchanged during the transition from T+5 to T+3. In light of the industry-led initiative to shorten the standard settlement cycle and the SEC Proposing Release to amend SEA Rule 15c6-1(a) to establish T+2 as the standard settlement for most broker dealer transactions, the Exchange believes that the current time frames in Rule 11210 are more protracted than necessary even in a T+3 environment and as such, the Exchange is proposing to amend these time frames to reflect more current industry practices. --------------------------------------------------------------------------- (4) Nasdaq Rule 11320 (Dates of Delivery) Rule 11320 prescribes delivery dates for various transactions. Paragraph (b) states that for a ``regular way'' transaction, delivery must be made on, but not before, the third business day after the date of the transaction. Nasdaq is proposing to amend Rule 11320(b) to change the reference to third business day to second business day. Paragraph (c) provides that in a ``seller's option'' transaction, delivery may be made by the seller on any business day after the third business day following the date of the transaction. Nasdaq is proposing to amend Rule 11320(c) to change the reference to third business day to second business day. (5) Nasdaq Rule 11620 (Computation of Interest) In the settlement of contracts in interest-paying securities other than for cash, Rule 11620(a) requires the calculation of interest at the rate specified in the security up to, but not including, the third business day after the date of the transaction. The proposed amendment would shorten the time frame to the second business day. In addition, the proposed amendment would make non-substantive technical changes to the title of paragraph (a). (6) Nasdaq Rule IM-11810 (Sample Buy-In Forms) Rule IM-11810(i)(1)(A) sets forth the fail-to-deliver and liability notice procedures where a securities contract is for warrants, rights, convertible securities or other securities which have been called for redemption; are due to expire by their terms; are the subject of a tender or exchange offer; or are subject to other expiring events such as a record date for the underlying security and the last day on which the securities must be delivered or surrendered is the settlement date of the contract or later.\19\ --------------------------------------------------------------------------- \19\ Rule IM-11810(i) is the successor to legacy NASD UPC Section 59(i) (Failure to Deliver and Liability Notice Procedures). When this provision was added to NASD's existing close-out procedures in 1984, it was drafted to be similar to the liability notice provisions adopted by the NSCC so that members that were also participants in NSCC could use the same procedures for both ex- clearing and NSCC cleared transactions, thereby simplifying members' back office procedures. --------------------------------------------------------------------------- Under Rule IM-11810(i)(1)(A), the receiving member delivers a liability notice to the owing counterparty. The liability notice sets a cutoff date for the delivery of the securities by the counterparty and provides notice to the counterparty of the liability attendant to its failure to deliver the securities in time. If the owing counterparty, or delivering member, delivers the securities in response to the liability notice, it has met its delivery obligation. If the delivering member fails to deliver the securities on the expiration date, it will be liable for any damages that may accrue thereby. Rule IM-11810(i)(1)(A) further provides that when both parties to a contract are participants in a registered clearing agency that has an automated liability notification service, transmission of the liability notice must be accomplished through such system.\20\ When the parties to a contract are not both participants in a registered clearing agency that has an automated liability notification service, such notice must be issued using written or comparable [[Page 96548]] electronic media having immediate receipt capabilities not 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 by the Rule.\21\ --------------------------------------------------------------------------- \20\ In 2007, NYSE Rule 180 was amended to require that when the parties to a failed contract were both participants in a registered clearing agency that had an automated service for notifying a failing party of the liability that will be attendant to a failure to deliver and the contract was to be settled through the facilities of that registered clearing agency, the transmission of the liability notification must be accomplished through the use of the registered clearing agency's automated liability notification system. See Securities Exchange Act Release No. 55132 (January 19, 2007), 72 FR 3896 (January 26, 2007) (Order Approving File No. SR- NYSE-2006-57). \21\ While Rule IM-11810 has undergone amendments over the years, the one-day time frame in paragraph (j) has remained unchanged. The one-day time frame also appears in comparable provisions of other SROs. See, e.g., NSCC Rules & Procedures, Procedure X (Execution of Buy-Ins) (Effective August 10, 2016); NYSE Rule 282.65 (Fail to Deliver and Liability Notice Procedures). See also infra note 28 and accompanying text. --------------------------------------------------------------------------- Given the proposed shortened settlement cycle, Nasdaq is proposing to amend Rule IM-11810(i)(1)(A) in situations where both parties to a contract are not participants of a registered clearing agency with an automated notification service, by extending the time frame for delivery of the liability notice. Rule IM-11810(i)(1)(A) would be amended to provide that in such cases, the receiving member must send the liability notice to the delivering member 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 to obtain the protection provided by the Rule. Nasdaq believes that extending the time given to the receiving member to transmit liability notifications will maintain the efficiency of the notification process while mitigating the possible overuse of such notifications. Currently, Nasdaq understands that the identity of the counterparty, or delivering member, becomes known to the receiving member by mid-day on the business day after trade date (``T+1''), and by that time, the receiving member will generally also know which transactions are subject to an event identified in Rule IM- 11810(i)(1)(A) that would prompt the receiving member to issue a liability notice to the delivering member. Nasdaq believes that the receiving member regularly issues liability notices to the seller or other parties from which the securities involved are due when the security is subject to an event identified in Rule IM-11810(i)(1)(A) during the settlement cycle as a way to mitigate the risk of a potential fail-to-deliver. In the current T+3 settlement environment, the one business day time frame gives the receiving member the requisite time needed to identify the parties involved and undertake the liability notification process. However, Nasdaq believes that the move to a T+2 settlement environment will create inefficiencies in the liability notification process under Rule IM-11810(i)(1)(A) when both parties to a contract are not participants in a registered clearing agency with an automated notification service. The shorter settlement cycle, with the loss of one business day, would not afford the receiving member sufficient time to: (1) ascertain that the securities are subject to an event listed in Rule IM-11810(i)(1)(A) during the settlement cycle; (2) identify the delivering member and other parties from which the securities involved are due; and (3) determine the likelihood that such parties may fail to deliver. Where the receiving member has sufficient time (e.g., one business day after), it can transmit liability notices as needed to the right parties. However, as a consequence of the shortened settlement cycle, the receiving member would be compelled to issue liability notices proactively to all potentially failing parties as a matter of course to preserve its rights against such parties without the benefit of knowing which transactions would actually necessitate the delivery of such notice. This would create a significant increase in the volume of liability notices members send and receive, many of which may be unnecessary. Members would then have to manage this overabundance of liability notices, increasing the possibility of errors, which would adversely impact the efficiency of the process. Therefore, Nasdaq believes its proposal to extend the time for the receiving member to deliver a liability notice when the parties to a contract are not both participants in a registered clearing agency with an automated notification service would help alleviate the potential burden on the liability notification process in a T+2 settlement environment. Implementation Nasdaq will announce the effective date of the proposed rule change in an Equity Regulatory Alert, which date would correspond with the industry-led transition to a T+2 standard settlement, and the effective date of the Commission's proposed amendment to SEA Rule 15c6-1(a) to require standard settlement no later than T+2.\22\ --------------------------------------------------------------------------- \22\ See supra note 3. --------------------------------------------------------------------------- 2. Statutory Basis The Exchange believes that its proposal is consistent with Section 6(b) of the Act,\23\ in general, and furthers the objectives of Section 6(b)(5) of the Act,\24\ in particular, in that it is designed 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, and, in general, to protect investors and the public interest. The Exchange believes that the proposed rule change supports the 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 proposed amendment to SEA Rule 15c6-1(a) to require standard settlement no later than T+2. Nasdaq believes that the proposed rule change will provide the regulatory certainty to facilitate the industry-led move to a T+2 settlement cycle. As noted herein, upon approval, Nasdaq will announce the effective date of the proposed rule change in an Equity Regulatory Alert, which date would correspond with the industry-led transition to a T+2 standard settlement, and the effective date of the Commission's proposed amendment to SEA Rule 15c6-1(a) to require standard settlement no later than T+2. --------------------------------------------------------------------------- \23\ 15 U.S.C. 78f(b). \24\ 15 U.S.C. 78f(b)(5). --------------------------------------------------------------------------- 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 proposed amendment to SEA Rule 15c6-1(a) to require standard settlement no later than T+2. Accordingly, Nasdaq believes that the proposed changes do not impose any burdens on the industry in addition to those necessary to implement amendments to SEA Rule 15c6- 1(a) as described and enumerated in the SEC Proposing Release.\25\ --------------------------------------------------------------------------- \25\ See supra note 3. --------------------------------------------------------------------------- These conforming changes include changes to rules that specifically establish the settlement cycle as well as rules that establish time frames based on settlement dates, including for certain post-settlement rights and obligations. Nasdaq believes that the proposed changes set forth in the filing are necessary to support a standard settlement cycle across the U.S. for secondary market transactions in equities, corporate and municipal bonds, unit investment trusts, and financial instruments composed of these [[Page 96549]] products, among other things.\26\ A standard U.S. settlement cycle for such products is critical for the operation of fair and orderly markets. --------------------------------------------------------------------------- \26\ See supra note 3. --------------------------------------------------------------------------- C. Self-Regulatory Organization's Statement on Comments on the Proposed Rule Change Received From Members, Participants, or Others A previous version of the proposed rule change was published for comment in Equity Regulatory Alert 2016-4 on May 18, 2016. Two comments were received in response to the Regulatory Alert.\27\ A copy of the Regulatory Alert is attached as Exhibit 2a. A list of comments is attached as Exhibit 2b [sic] and copies of the comment letters received in response to the Regulatory Notice are attached as Exhibits 2c [sic]. --------------------------------------------------------------------------- \27\ See Letter from Martin A. Burns, Chief Industry Operations Officer, Investment Company Institute to John Zecca, Senior Vice President, Marketwatch dated June 8, 2016 (``ICI''); letter from Thomas F. Price, Managing Director, Operations, Securities Industry and Financial Markets Association, to John Zecca, Senior Vice President Market Watch dated June 8, 2016 (``SIFMA''). --------------------------------------------------------------------------- Both of the letters received expressed support for the industry led move to T+2 stating, among other benefits, that the move will align U.S. markets with international markets that already work in the T+2 environment, improve the overall efficiency and liquidity of the securities markets, and the stability of the financial system by reducing counterparty risk and pro-cyclical and liquidity demands, and decreasing clearing capital requirements. SIFMA also provided their view on the proposed amendments to two rules under the Nasdaq Rule 11800 Series (Buying In). Nasdaq Rule IM-11810(i)--Sample Buy-In Forms In its comment letter, SIFMA raised a concern with the one-day time frame in Rule IM-11810(i)(1)(A), asserting that the requirement for the delivering member to deliver a liability notice to the receiving member 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 by the Rule may no longer be appropriate in a T+2 environment in some situations such as where the delivery obligation is transferred to another party as a result of continuous net settlement, settlements outside of the NSCC, and settlements involving a third party that is not a Nasdaq member firm. SIFMA noted that NYSE Rule 180 (Failure to Deliver) includes a similar requirement for NYSE member firms that are participants in a registered clearing agency to transmit liability notification through an automated notification service and proposed amending Rule IM-11810(i)(1)(A) to omit the reference to a notification time frame, which would align with NYSE Rule 180.\28\ In the alternative, SIFMA proposed amending Rule IM-11810(i)(1)(A) to require that the liability notice be delivered in a ``reasonable amount of time'' ahead of the settlement obligation in light of facts and circumstances. SIFMA maintained that under either proposed amendment to paragraph (j), the delivering member would be liable for any damages caused by its failure to deliver in a timely fashion. --------------------------------------------------------------------------- \28\ See NYSE Rule 180 (Failure to Deliver) providing in part that ``[w]hen the parties to a contract are both participants in a registered clearing agency which has an automated service for notifying a failing party of the liability that will be attendant to a failure to deliver and that contract was to be settled through the facilities of said registered clearing agency, the transmission of the liability notification must be accomplished through use of said automated notification service.'' Nasdaq notes that NYSE Rule 180 does not address the transmission of the liability notification for parties to a contract that are not both participants in a registered clearing agency (or non-participants). The transmission of the liability notification for non-participants is addressed under NYSE Rule 282.65 (Failure to Deliver and Liability Notice Procedures). See supra note 22. --------------------------------------------------------------------------- While Nasdaq did not initially propose amendments to Rule IM-11810 for the T+2 initiative,\29\ in light of SIFMA's concern regarding Rule IM-11810(i)(1)(A), Nasdaq is proposing to amend the Rule to provide that, where both parties to a contract are not participants of a registered clearing agency with an automated notification service, the receiving member must send the liability notice to the delivering member 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 to obtain the protection provided by the Rule.\30\ --------------------------------------------------------------------------- \29\ See Equity Regulatory Alert 2016-4. \30\ Nasdaq expects similar amendments to other comparable SRO provisions in NYSE Rule 282.65 (Fail to Deliver and Liability Notice Procedures) and FINRA Rule 11810 (Buying-in), and NSCC Rules & Procedures, Procedure X (Execution of Buy-Ins) to address SIFMA's concern about the one-day notification time frame. --------------------------------------------------------------------------- III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action Within 45 days of the date of publication 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 Exchange consents, the Commission shall: (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-NASDAQ-2016-183 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-NASDAQ-2016-183. 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 such 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- [[Page 96550]] NASDAQ-2016-183 and should be submitted on or before January 20, 2017. --------------------------------------------------------------------------- \31\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\31\ Robert W. Errett, Deputy Secretary. [FR Doc. 2016-31679 Filed 12-29-16; 8:45 am] BILLING CODE 8011-01-P
![Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Notices 96545
liquidity is being maintained, and will The issuer has represented to the SECURITIES AND EXCHANGE
consider taking appropriate steps in Exchange that it will advise the COMMISSION
order to maintain adequate liquidity if, Exchange of any failure by the Fund to
[Release No. 34–79687; File No. SR–
through a change in values, net assets, comply with the continued listing NASDAQ–2016–183]
or other circumstances, more than 15% requirements, and, pursuant to its
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illiquid assets. Illiquid assets include Act, the Exchange will monitor for NASDAQ Stock Market LLC; Notice of
securities subject to contractual or other compliance with the continued listing Filing of Proposed Rule Change To
restrictions on resale and other requirements.38 If the Fund is not in Shorten the Settlement Cycle From
instruments that lack readily available compliance with the applicable listing T+3 to T+2
markets as determined in accordance requirements, the Exchange will
with Commission staff guidance. December 23, 2016.
commence delisting procedures under Pursuant to Section 19(b)(1) of the
(14) The Fund’s investments, NYSE Arca Equities Rule 5.5(m). Securities Exchange Act of 1934
including derivatives, will be consistent
This approval order is based on all of (‘‘Act’’),1 and Rule 19b–4 thereunder,2
with the Fund’s investment objective
the Exchange’s representations, notice is hereby given that on December
and will not be used to enhance
including those set forth above and in 22, 2016, The NASDAQ Stock Market
leverage (although certain derivatives
the Notice,39 Amendment Nos. 1, 2 and LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed
may result in leverage). That is, while
3 to the proposed rule change,40 and the with the Securities and Exchange
the Fund will be permitted to borrow as
Exchange’s description of the Fund. The Commission (‘‘SEC’’ or ‘‘Commission’’)
permitted under the 1940 Act, the
Commission notes that the Fund and the the proposed rule change as described
Fund’s investments will not be used to
Shares must comply with the in Items I and II below, which Items
seek performance that is the multiple or
requirements of NYSE Arca Equities have been prepared by the Exchange.
inverse multiple (i.e., 2Xs and 3Xs) of
Rule 8.600 to be listed and traded on the The Commission is publishing this
the Fund’s primary broad-based
notice to solicit comments on the
securities benchmark index (as defined Exchange on an initial and continued
proposed rule change from interested
in Form N–1A). basis.
persons.
(15) Investments in derivative For the foregoing reasons, the
instruments will be made in accordance Commission finds that the proposed I. Self-Regulatory Organization’s
with the 1940 Act and consistent with rule change, as modified by Amendment Statement of the Terms of Substance of
the Fund’s investment objective and Nos. 1, 2, and 3 thereto, is consistent the Proposed Rule Change
policies. To limit the potential risk with Section 6(b)(5) of the Act 41 and the The Exchange proposes to amend
associated with such transactions, the rules and regulations thereunder Nasdaq Rules 11140 (Transactions in
Fund will segregate or ‘‘earmark’’ assets applicable to a national securities Securities ‘‘Ex-Dividend,’’ ‘‘Ex-Rights’’
determined to be liquid by the Adviser exchange. or ‘‘Ex-Warrants’’), 11150 (Transactions
in accordance with procedures ‘‘Ex-Interest’’ in Bonds Which Are Dealt
established by the Trust’s Board of IV. Conclusion in ‘‘Flat’’), 11210 (Sent by Each Party),
Trustees and in accordance with the 11320 (Dates of Delivery), 11620
1940 Act (or, as permitted by applicable It is therefore ordered, pursuant to
(Computation of Interest), and IM–
regulation, enter into certain offsetting Section 19(b)(2) of the Act,42 that the 11810 (Sample Buy-In Forms), to
positions) to cover its obligations under proposed rule change (SR–NYSEArca– conform to the Commission’s proposed
derivative instruments. These 2016–82), as modified by Amendment amendment to SEA Rule 15c6–1(a) to
procedures have been adopted Nos. 1, 2, and 3 thereto, be, and it shorten the standard settlement cycle
consistent with Section 18 of the 1940 hereby is, approved. for most broker-dealer transactions from
Act and related Commission guidance. For the Commission, by the Division of three business days after the trade date
In addition, the Fund will include Trading and Markets, pursuant to delegated (‘‘T+3’’) to two business days after the
appropriate risk disclosure in its authority.43 trade date (‘‘T+2’’) and the industry-led
offering documents, including Robert W. Errett, initiative to shorten the settlement cycle
leveraging risk. Leveraging risk is the from T+3 to T+2.3
Deputy Secretary.
risk that certain transactions of the The text of the proposed rule change
[FR Doc. 2016–31683 Filed 12–29–16; 8:45 am]
Fund, including the Fund’s use of is available on the Exchange’s Web site
derivatives, may give rise to leverage, BILLING CODE 8011–01–P at http://nasdaq.cchwallstreet.com, at
causing the Fund to be more volatile the principal office of the Exchange, and
38 The Commission notes that certain other
than if it had not been leveraged.37 at the Commission’s Public Reference
proposals for the listing and trading of Managed
The Exchange also represents that all Fund Shares include a representation that the
Room.
statements and representations made in exchange will ‘‘surveil’’ for compliance with the II. Self-Regulatory Organization’s
this filing regarding (a) the description continued listing requirements. See, e.g., Securities
Exchange Act Release No. 78005 (Jun. 7, 2016), 81
Statement of the Purpose of, and
of the portfolio, (b) limitations on FR 38247 (Jun. 13, 2016) (SR–BATS–2015–100). In Statutory Basis for, the Proposed Rule
portfolio holdings or reference assets, or the context of this representation, it is the Change
(c) the applicability of Exchange rules Commission’s view that ‘‘monitor’’ and ‘‘surveil’’
both mean ongoing oversight of a fund’s compliance In its filing with the Commission, the
and surveillance procedures shall
Exchange included statements
srobinson on DSK5SPTVN1PROD with NOTICES
with the continued listing requirements. Therefore,
constitute continued listing the Commission does not view ‘‘monitor’’ as a more
requirements for listing the Shares of or less stringent obligation than ‘‘surveil’’ with 1 15 U.S.C. 78s(b)(1).
the Fund on the Exchange. respect to the continued listing requirements. 2 17 CFR 240.19b–4.
39 See supra note 3.
3 See Securities Exchange Act Release No. 78962
40 See supra notes 4, 7, and 8.
37 To mitigate leveraging risk, the Adviser will (September 28, 2016), 81 FR 69240 (October 5,
41 15 U.S.C. 78f(b)(5).
segregate or ‘‘earmark’’ liquid assets or otherwise 2016) (Amendment to Securities Transaction
42 Id.
cover the transactions that may give rise to such Settlement Cycle) (File No. S7–22–16) (‘‘SEC
risk. 43 17 CFR 200.30–3(a)(12). Proposing Release’’).
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Nasdaq Rules 11210 (Sent by Each close of four business days following the time frame to the second business day.
Party) and IM–11810 (Sample Buy-In trade date of the transaction (‘‘T+4’’). In addition, the proposed amendment
Forms) to conform provisions, where The procedures generally provide that would make non-substantive technical
appropriate, to the T+2 settlement after T+4, the confirming member shall changes to the title of paragraph (a).
cycle.17 send a ‘‘DK Notice’’ (or similar notice)
The details of the proposed rule (6) Nasdaq Rule IM–11810 (Sample Buy-
to the contra-member. The contra-
change are described below. member then has four business days In Forms)
after receipt of the confirming member’s Rule IM–11810(i)(1)(A) sets forth the
(1) Nasdaq Rule 11140 (Transactions in
notice to either confirm or ‘‘DK’’ the fail-to-deliver and liability notice
Securities ‘‘Ex-Dividend,’’ ‘‘Ex- Rights’’
transaction. procedures where a securities contract
or ‘‘Ex-Warrants’’)
Nasdaq is proposing to amend is for warrants, rights, convertible
Rule 11140(b)(1) provides that for paragraphs (c) and (d) of Rule 11210 to securities or other securities which have
dividends or distributions, and the provide that the ‘‘DK’’ procedures may been called for redemption; are due to
issuance or distribution of warrants, that be used by the confirming member if it expire by their terms; are the subject of
are less than 25 percent of the value of does not receive a comparison or a tender or exchange offer; or are subject
the subject security, if definitive confirmation or signed ‘‘DK’’ from the to other expiring events such as a record
information is received sufficiently in contra-member by the close of one date for the underlying security and the
advance of the record date, the date business day following the trade date of last day on which the securities must be
designated as the ‘‘ex-dividend date’’ the transaction, rather than the current delivered or surrendered is the
shall be the second business day T+4.18 In addition, Nasdaq is proposing settlement date of the contract or later.19
preceding the record date if the record amendments to paragraphs (c)(2)(A), Under Rule IM–11810(i)(1)(A), the
date falls on a business day, or the third (c)(3), and (d)(5) of Rule 11210 to adjust receiving member delivers a liability
business day preceding the record date the time in which a contra-member has notice to the owing counterparty. The
if the record date falls on a day to respond to a ‘‘DK Notice’’ (or similar liability notice sets a cutoff date for the
designated by Nasdaq Regulation as a notice) from four business days after the delivery of the securities by the
non-delivery date. Nasdaq is proposing contra-member’s receipt of the notice to counterparty and provides notice to the
to shorten the time frames in Rule two business days. counterparty of the liability attendant to
11140(b)(1) by one business day. its failure to deliver the securities in
(4) Nasdaq Rule 11320 (Dates of
(2) Nasdaq Rule 11150 (‘‘Ex-Interest’’ in time. If the owing counterparty, or
Delivery)
Bonds Which Are Dealt in ‘‘Flat’’) delivering member, delivers the
Rule 11320 prescribes delivery dates securities in response to the liability
Rule 11150(a) prescribes the manner for various transactions. Paragraph (b) notice, it has met its delivery obligation.
for establishing ‘‘ex-interest dates’’ for states that for a ‘‘regular way’’ If the delivering member fails to deliver
transactions in bonds or other similar transaction, delivery must be made on, the securities on the expiration date, it
evidences of indebtedness which are but not before, the third business day will be liable for any damages that may
traded ‘‘flat.’’ Such transactions are ‘‘ex- after the date of the transaction. Nasdaq accrue thereby.
interest’’ on the second business day is proposing to amend Rule 11320(b) to Rule IM–11810(i)(1)(A) further
preceding the record date if the record change the reference to third business provides that when both parties to a
date falls on a business day, on the third day to second business day. Paragraph contract are participants in a registered
business day preceding the record date (c) provides that in a ‘‘seller’s option’’ clearing agency that has an automated
if the record date falls on a day other transaction, delivery may be made by liability notification service,
than a business day, or on the third the seller on any business day after the transmission of the liability notice must
business day preceding the date on third business day following the date of be accomplished through such system.20
which an interest payment is to be made the transaction. Nasdaq is proposing to When the parties to a contract are not
if no record date has been fixed. Nasdaq amend Rule 11320(c) to change the both participants in a registered clearing
is proposing to shorten the time frames reference to third business day to agency that has an automated liability
in Rule 11150(a) by one business day. second business day. notification service, such notice must be
(3) Nasdaq Rule 11210 (Sent by Each (5) Nasdaq Rule 11620 (Computation of issued using written or comparable
Party) Interest) 19 Rule IM–11810(i) is the successor to legacy
Paragraphs (c) and (d) of Rule 11210 In the settlement of contracts in NASD UPC Section 59(i) (Failure to Deliver and
set forth the ‘‘Don’t Know’’ (‘‘DK’’) interest-paying securities other than for Liability Notice Procedures). When this provision
voluntary procedures for using ‘‘DK cash, Rule 11620(a) requires the was added to NASD’s existing close-out procedures
Notices’’ or other forms of notices, in 1984, it was drafted to be similar to the liability
calculation of interest at the rate notice provisions adopted by the NSCC so that
respectively. Depending upon the notice specified in the security up to, but not members that were also participants in NSCC could
used, a confirming member may follow including, the third business day after use the same procedures for both ex-clearing and
the ‘‘DK’’ procedures when it sends a the date of the transaction. The NSCC cleared transactions, thereby simplifying
comparison or confirmation of a trade members’ back office procedures.
proposed amendment would shorten the 20 In 2007, NYSE Rule 180 was amended to
(other than one that clears through the
require that when the parties to a failed contract
National Securities Clearing Corporation 18 As stated above, the time frames in Rule 11210 were both participants in a registered clearing
(‘‘NSCC’’) or other registered clearing remained unchanged during the transition from T+5 agency that had an automated service for notifying
agency), but does not receive a to T+3. In light of the industry-led initiative to a failing party of the liability that will be attendant
srobinson on DSK5SPTVN1PROD with NOTICES
comparison or confirmation or a signed shorten the standard settlement cycle and the SEC to a failure to deliver and the contract was to be
Proposing Release to amend SEA Rule 15c6–1(a) to settled through the facilities of that registered
‘‘DK’’ from the contra-member by the establish T+2 as the standard settlement for most clearing agency, the transmission of the liability
broker dealer transactions, the Exchange believes notification must be accomplished through the use
17 Nasdaq Rules 11210 and IM–11810 are that the current time frames in Rule 11210 are more of the registered clearing agency’s automated
successors to legacy NASD UPC Section 9 (Sent by protracted than necessary even in a T+3 liability notification system. See Securities
Each Party) and 59 (‘‘Buying-in’’), respectively, environment and as such, the Exchange is Exchange Act Release No. 55132 (January 19, 2007),
which remained unchanged during the transition proposing to amend these time frames to reflect 72 FR 3896 (January 26, 2007) (Order Approving
from T+5 to T+3. See supra note 17 [sic]. more current industry practices. File No. SR–NYSE–2006–57).
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![96548 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Notices
electronic media having immediate 11810(i)(1)(A) when both parties to a trade, to foster cooperation and
receipt capabilities not later than one contract are not participants in a coordination with persons engaged in
business day prior to the latest time and registered clearing agency with an regulating, clearing, settling, processing
the date of the offer or other event in automated notification service. The information with respect to, and
order to obtain the protection provided shorter settlement cycle, with the loss of facilitating transactions in securities,
by the Rule.21 one business day, would not afford the and, in general, to protect investors and
Given the proposed shortened receiving member sufficient time to: (1) the public interest. The Exchange
settlement cycle, Nasdaq is proposing to ascertain that the securities are subject believes that the proposed rule change
amend Rule IM–11810(i)(1)(A) in to an event listed in Rule IM– supports the supports [sic] the industry-
situations where both parties to a 11810(i)(1)(A) during the settlement led initiative to shorten the settlement
contract are not participants of a cycle; (2) identify the delivering cycle to two business days. Moreover,
registered clearing agency with an member and other parties from which the proposed rule change is consistent
automated notification service, by the securities involved are due; and (3) with the SEC’s proposed amendment to
extending the time frame for delivery of determine the likelihood that such SEA Rule 15c6–1(a) to require standard
the liability notice. Rule IM– parties may fail to deliver. Where the settlement no later than T+2. Nasdaq
11810(i)(1)(A) would be amended to receiving member has sufficient time believes that the proposed rule change
provide that in such cases, the receiving (e.g., one business day after), it can will provide the regulatory certainty to
member must send the liability notice to transmit liability notices as needed to facilitate the industry-led move to a T+2
the delivering member as soon as the right parties. However, as a settlement cycle. As noted herein, upon
practicable but not later than two hours consequence of the shortened settlement approval, Nasdaq will announce the
prior to the cutoff time set forth in the cycle, the receiving member would be effective date of the proposed rule
instructions on a specific offer or other compelled to issue liability notices change in an Equity Regulatory Alert,
event to obtain the protection provided proactively to all potentially failing which date would correspond with the
by the Rule. Nasdaq believes that parties as a matter of course to preserve industry-led transition to a T+2
extending the time given to the its rights against such parties without standard settlement, and the effective
receiving member to transmit liability the benefit of knowing which date of the Commission’s proposed
notifications will maintain the transactions would actually necessitate amendment to SEA Rule 15c6–1(a) to
efficiency of the notification process the delivery of such notice. This would require standard settlement no later
while mitigating the possible overuse of create a significant increase in the than T+2.
such notifications. volume of liability notices members B. Self-Regulatory Organization’s
Currently, Nasdaq understands that send and receive, many of which may Statement on Burden on Competition
the identity of the counterparty, or be unnecessary. Members would then
delivering member, becomes known to have to manage this overabundance of The Exchange does not believe that
the receiving member by mid-day on the liability notices, increasing the the proposed rule change will impose
business day after trade date (‘‘T+1’’), possibility of errors, which would any burden on competition not
and by that time, the receiving member adversely impact the efficiency of the necessary or appropriate in furtherance
will generally also know which process. Therefore, Nasdaq believes its of the purposes of the Act. The
transactions are subject to an event proposal to extend the time for the proposed rule change makes changes to
identified in Rule IM–11810(i)(1)(A) receiving member to deliver a liability rules pertaining to securities settlement
notice when the parties to a contract are and is intended to facilitate the
that would prompt the receiving
not both participants in a registered implementation of the industry-led
member to issue a liability notice to the
clearing agency with an automated transition to a T+2 settlement cycle.
delivering member. Nasdaq believes that
notification service would help alleviate Moreover, the proposed rule changes are
the receiving member regularly issues
the potential burden on the liability consistent with the SEC’s proposed
liability notices to the seller or other
amendment to SEA Rule 15c6–1(a) to
parties from which the securities notification process in a T+2 settlement
require standard settlement no later
involved are due when the security is environment.
than T+2. Accordingly, Nasdaq believes
subject to an event identified in Rule Implementation that the proposed changes do not
IM–11810(i)(1)(A) during the settlement
Nasdaq will announce the effective impose any burdens on the industry in
cycle as a way to mitigate the risk of a addition to those necessary to
potential fail-to-deliver. In the current date of the proposed rule change in an
Equity Regulatory Alert, which date implement amendments to SEA Rule
T+3 settlement environment, the one 15c6–1(a) as described and enumerated
business day time frame gives the would correspond with the industry-led
transition to a T+2 standard settlement, in the SEC Proposing Release.25
receiving member the requisite time These conforming changes include
needed to identify the parties involved and the effective date of the
Commission’s proposed amendment to changes to rules that specifically
and undertake the liability notification establish the settlement cycle as well as
process. SEA Rule 15c6–1(a) to require standard
settlement no later than T+2.22 rules that establish time frames based on
However, Nasdaq believes that the settlement dates, including for certain
move to a T+2 settlement environment 2. Statutory Basis post-settlement rights and obligations.
will create inefficiencies in the liability Nasdaq believes that the proposed
notification process under Rule IM– The Exchange believes that its
proposal is consistent with Section 6(b) changes set forth in the filing are
necessary to support a standard
srobinson on DSK5SPTVN1PROD with NOTICES
21 While Rule IM–11810 has undergone of the Act,23 in general, and furthers the
amendments over the years, the one-day time frame objectives of Section 6(b)(5) of the Act,24 settlement cycle across the U.S. for
in paragraph (j) has remained unchanged. The one- in particular, in that it is designed to secondary market transactions in
day time frame also appears in comparable promote just and equitable principles of equities, corporate and municipal
provisions of other SROs. See, e.g., NSCC Rules & bonds, unit investment trusts, and
Procedures, Procedure X (Execution of Buy-Ins)
(Effective August 10, 2016); NYSE Rule 282.65 (Fail
22 See supra note 3. financial instruments composed of these
23 15 U.S.C. 78f(b).
to Deliver and Liability Notice Procedures). See also
infra note 28 and accompanying text. 24 15 U.S.C. 78f(b)(5). 25 See supra note 3.
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![Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Notices 96549
products, among other things.26 A clearing agency to transmit liability shall: (a) by order approve or disapprove
standard U.S. settlement cycle for such notification through an automated such proposed rule change, or (b)
products is critical for the operation of notification service and proposed institute proceedings to determine
fair and orderly markets. amending Rule IM–11810(i)(1)(A) to whether the proposed rule change
omit the reference to a notification time should be disapproved.
C. Self-Regulatory Organization’s frame, which would align with NYSE
Statement on Comments on the Rule 180.28 In the alternative, SIFMA IV. Solicitation of Comments
Proposed Rule Change Received From proposed amending Rule IM–
Members, Participants, or Others Interested persons are invited to
11810(i)(1)(A) to require that the
submit written data, views, and
A previous version of the proposed liability notice be delivered in a
rule change was published for comment ‘‘reasonable amount of time’’ ahead of arguments concerning the foregoing,
in Equity Regulatory Alert 2016–4 on the settlement obligation in light of facts including whether the proposed rule
May 18, 2016. Two comments were and circumstances. SIFMA maintained change is consistent with the Act.
received in response to the Regulatory that under either proposed amendment Comments may be submitted by any of
Alert.27 A copy of the Regulatory Alert to paragraph (j), the delivering member the following methods:
is attached as Exhibit 2a. A list of would be liable for any damages caused Electronic Comments
comments is attached as Exhibit 2b [sic] by its failure to deliver in a timely
and copies of the comment letters fashion. • Use the Commission’s Internet
received in response to the Regulatory While Nasdaq did not initially comment form (http://www.sec.gov/
Notice are attached as Exhibits 2c [sic]. propose amendments to Rule IM–11810 rules/sro.shtml); or
Both of the letters received expressed for the T+2 initiative,29 in light of
SIFMA’s concern regarding Rule IM– • Send an email to rule-comments@
support for the industry led move to sec.gov. Please include File Number SR–
T+2 stating, among other benefits, that 11810(i)(1)(A), Nasdaq is proposing to
amend the Rule to provide that, where NASDAQ–2016–183 on the subject line.
the move will align U.S. markets with
international markets that already work both parties to a contract are not Paper Comments
in the T+2 environment, improve the participants of a registered clearing
overall efficiency and liquidity of the agency with an automated notification • Send paper comments in triplicate
securities markets, and the stability of service, the receiving member must to Secretary, Securities and Exchange
the financial system by reducing send the liability notice to the Commission, 100 F Street NE.,
counterparty risk and pro-cyclical and delivering member as soon as Washington, DC 20549–1090.
liquidity demands, and decreasing practicable but not later than two hours
prior to the cutoff time set forth in the All submissions should refer to File
clearing capital requirements. SIFMA Number SR–NASDAQ–2016–183. This
also provided their view on the instructions on a specific offer or other
event to obtain the protection provided file number should be included on the
proposed amendments to two rules subject line if email is used. To help the
under the Nasdaq Rule 11800 Series by the Rule.30
Commission process and review your
(Buying In). III. Date of Effectiveness of the comments more efficiently, please use
Nasdaq Rule IM–11810(i)—Sample Buy- Proposed Rule Change and Timing for only one method. The Commission will
In Forms Commission Action post all comments on the Commission’s
In its comment letter, SIFMA raised a Within 45 days of the date of Internet Web site (http://www.sec.gov/
concern with the one-day time frame in publication of this notice in the Federal rules/sro.shtml). Copies of the
Rule IM–11810(i)(1)(A), asserting that Register or within such longer period submission, all subsequent
up to 90 days (i) as the Commission may amendments, all written statements
the requirement for the delivering
designate if it finds such longer period with respect to the proposed rule
member to deliver a liability notice to
to be appropriate and publishes its change that are filed with the
the receiving member no later than one
reasons for so finding or (ii) as to which Commission, and all written
business day prior to the latest time and
the Exchange consents, the Commission communications relating to the
the date of the offer or other event in
order to obtain the protection provided proposed rule change between the
28 See NYSE Rule 180 (Failure to Deliver)
by the Rule may no longer be providing in part that ‘‘[w]hen the parties to a
Commission and any person, other than
appropriate in a T+2 environment in contract are both participants in a registered those that may be withheld from the
some situations such as where the clearing agency which has an automated service for public in accordance with the
notifying a failing party of the liability that will be provisions of 5 U.S.C. 552, will be
delivery obligation is transferred to attendant to a failure to deliver and that contract
another party as a result of continuous was to be settled through the facilities of said available for Web site viewing and
net settlement, settlements outside of registered clearing agency, the transmission of the printing in the Commission’s Public
the NSCC, and settlements involving a liability notification must be accomplished through Reference Room, 100 F Street NE.,
use of said automated notification service.’’ Nasdaq
third party that is not a Nasdaq member notes that NYSE Rule 180 does not address the
Washington, DC 20549, on official
firm. SIFMA noted that NYSE Rule 180 transmission of the liability notification for parties business days between the hours of
(Failure to Deliver) includes a similar to a contract that are not both participants in a 10:00 a.m. and 3:00 p.m. Copies of such
requirement for NYSE member firms registered clearing agency (or non-participants). The filing also will be available for
transmission of the liability notification for non-
that are participants in a registered participants is addressed under NYSE Rule 282.65 inspection and copying at the principal
(Failure to Deliver and Liability Notice Procedures). office of the Exchange. All comments
srobinson on DSK5SPTVN1PROD with NOTICES
26 See supra note 3. See supra note 22. received will be posted without change;
27 See Letter from Martin A. Burns, Chief Industry 29 See Equity Regulatory Alert 2016–4.
the Commission does not edit personal
Operations Officer, Investment Company Institute 30 Nasdaq expects similar amendments to other
to John Zecca, Senior Vice President, Marketwatch comparable SRO provisions in NYSE Rule 282.65 identifying information from
dated June 8, 2016 (‘‘ICI’’); letter from Thomas F. (Fail to Deliver and Liability Notice Procedures) submissions. You should submit only
Price, Managing Director, Operations, Securities and FINRA Rule 11810 (Buying-in), and NSCC information that you wish to make
Industry and Financial Markets Association, to John Rules & Procedures, Procedure X (Execution of Buy-
Zecca, Senior Vice President Market Watch dated Ins) to address SIFMA’s concern about the one-day
available publicly. All submissions
June 8, 2016 (‘‘SIFMA’’). notification time frame. should refer to File Number SR–
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![96550 Federal Register / Vol. 81, No. 251 / Friday, December 30, 2016 / Notices
NASDAQ–2016–183 and should be statements may be examined at the Options Market Makers, primarily as a
submitted on or before January 20, 2017. places specified in Item IV below. The competitive measure to attract Firm
For the Commission, by the Division of Exchange has prepared summaries, set order flow. The Exchange believes that
Trading and Markets, pursuant to delegated forth in sections A, B, and C below, of this measure is no longer necessary, and
authority.31 the most significant aspects of such thus believes it is appropriate to
Robert W. Errett, statements. increase the Firm transaction fee rate to
Deputy Secretary. the same rate charged for other market
A. Self-Regulatory Organization’s
participants who are not Priority
[FR Doc. 2016–31679 Filed 12–29–16; 8:45 am] Statement of the Purpose of, and the
Customers or MIAX Options Market
BILLING CODE 8011–01–P Statutory Basis for, the Proposed Rule
Makers. This proposed change brings
Change
the Exchange’s Firm transaction fee in
SECURITIES AND EXCHANGE 1. Purpose line and comparable with similar fees of
COMMISSION The Exchange proposes to amend its other competing options exchanges.8
Fee Schedule to increase the fees In addition, the Exchange proposes to
[Release No. 34–79685; File No. SR–MIAX– continue to offer Members the
2016–48] charged to Exchange Members 3 for
simple and complex order executions in opportunity to reduce their Firm
Self-Regulatory Organizations; Miami standard options classes in the Penny transaction fees by $0.02 per executed
International Securities Exchange LLC; Pilot Program 4 (‘‘Penny Pilot’’) for contract resulting from simple order
Notice of Filing and Immediate Firms.5 Specifically, the Exchange executions in standard options in the
Effectiveness of a Proposed Rule proposes to increase the fees charged to Penny Pilot.9 In order to accomplish
Change To Amend Its Fee Schedule To Members for simple and complex order this reduction, any Member, including
Modify the Exchange’s Other Market executions in standard options in the any Affiliate 10 of the Member, that
Participant Transaction Fees Penny Pilot for Firms from $0.45 to qualifies for the Priority Customer
$0.47 per contract executed. The Rebate Program (‘‘PCRP’’) volume tiers 3
December 23, 2016. Exchange believes that this proposed fee or higher,11 will be assessed a reduced
Pursuant to the provisions of Section increase is reasonable, equitable and not Firm transaction fee of $0.45 per
19(b)(1) of the Securities Exchange Act unfairly discriminatory because it contract resulting from simple order
of 1934 (‘‘Act’’) 1 and Rule 19b–4 makes the transaction fee consistent executions in standard options in the
thereunder,2 notice is hereby given that among the Exchange’s market Penny Pilot. The Exchange believes that
on December 15, 2016, Miami participants who are not Priority this continuing incentive will encourage
International Securities Exchange LLC Customers 6 or MIAX Options Market Members to send their Firm order flow
(‘‘MIAX Options’’ or ‘‘Exchange’’) filed Makers 7 by charging all such to the Exchange.
with the Securities and Exchange The Exchange proposes to implement
participants the same rate for
Commission (‘‘Commission’’) a the proposed change to the Fee
transactions for simple and complex
proposed rule change as described in Schedule effective as of January 1, 2017.
order executions in standard options in
Items I, II, and III below, which Items the Penny Pilot. The Exchange has 2. Statutory Basis
have been prepared by the Exchange. historically kept the Firm transaction
The Commission is publishing this The Exchange proposes to amend its
fee at a lower rate than the transaction Fee Schedule to increase the fees
notice to solicit comments on the fee for other market participants who
proposed rule change from interested charged to Exchange Members 12 for
are not Priority Customers or MIAX simple and complex order executions in
persons.
3 The term ‘‘Member’’ means an individual or
standard options classes in the Penny
I. Self-Regulatory Organization’s Pilot Program 13 (‘‘Penny Pilot’’) for
organization approved to exercise the trading rights
Statement of the Terms of Substance of associated with a Trading Permit. Members are
the Proposed Rule Change deemed ‘‘members’’ under the Exchange Act. See 8 See, for example, NASDAQ PHLX LLC Pricing
Exchange Rule 100. Schedule, Section II.
The Exchange is filing a proposal to 4 See Securities Exchange Act Release Nos. 78080 9 See Securities Exchange Release Nos. 72988
amend the MIAX Options Fee Schedule (June 15, 2016), 81 FR 40377 (June 21, 2016) (SR– (September 4, 2014), 79 FR 53808 (September 10,
(the ‘‘Fee Schedule’’). MIAX–2016–16); 79432 (November 30, 2016), 81 FR 2014) (SR–MIAX–2014–46); 72989 (September 4,
The text of the proposed rule change 87990 (December 6, 2016) (SR–MIAX–2016–45). 2014), 79 FR 53792 (September 10, 2014) (SR–
is available on the Exchange’s Web site 5 A ‘‘Firm’’ transaction fee is assessed on a MIAX MIAX–2014–47); 74478 (March 11, 2015), 80 FR
Options Electronic Exchange Member ‘‘EEM’’ that 13938 (March 17, 2015) (SR–MIAX–2015–16);
at http://www.miaxoptions.com/filter/ 76674 (December 17, 2015), 80 FR 79986 (December
enters an order that is executed for an account
wotitle/rule_filing, at MIAX’s principal identified by the EEM for clearing in the Options 23, 2015) (SR–MIAX–2015–70); 79157 (October 28,
office, and at the Commission’s Public Clearing Corporation (‘‘OCC’’) ‘‘Firm’’ range. See 2016), 81 FR 75885 (November 1, 2016) (SR–MIAX–
Reference Room. Fee Schedule, Section 1)a)ii. 2016–38).
6 The term ‘‘Priority Customer’’ means a person 10 For purposes of the MIAX Options Fee
II. Self-Regulatory Organization’s or entity that (i) is not a broker or dealer in Schedule, the term ‘‘Affiliate’’ means an affiliate of
Statement of the Purpose of, and securities, and (ii) does not place more than 390 a Member of at least 75% common ownership
orders in listed options per day on average during between the firms as reflected on each firm’s Form
Statutory Basis for, the Proposed Rule BD, Schedule A (‘‘Affiliate’’). See Fee Schedule note
a calendar month for its own beneficial account(s).
Change A ‘‘Priority Customer Order’’ means an order for the 1.
11 Under the PCRP, a Member receives certain
In its filing with the Commission, the account of a Priority Customer. See Exchange Rule
100. transaction fee discounts provided the Member
Exchange included statements 7 The term ‘‘Market Makers’’ refers to Lead Market meets certain percentage thresholds in a month as
srobinson on DSK5SPTVN1PROD with NOTICES
concerning the purpose of and basis for Makers (‘‘LMMs’’), Primary Lead Market Makers described in the PCRP table. See Fee Schedule,
the proposed rule change and discussed (‘‘PLMMs’’), and Registered Market Makers Section (1)(a)(iii).
12 The term ‘‘Member’’ means an individual or
any comments it received on the (‘‘RMMs’’) collectively. See Exchange Rule 100. A
Directed Order Lead Market Maker (‘‘DLMM’’) and organization approved to exercise the trading rights
proposed rule change. The text of these associated with a Trading Permit. Members are
Directed Primary Lead Market Maker (‘‘DPLMM’’) is
a party to a transaction being allocated to the LMM deemed ‘‘members’’ under the Exchange Act. See
31 17 CFR 200.30–3(a)(12). or PLMM and is the result of an order that has been Exchange Rule 100.
1 15 U.S.C. 78s(b)(1). directed to the LMM or PLMM. See Fee Schedule 13 See Securities Exchange Act Release Nos.
2 17 CFR 240.19b–4. note 2. 78080 (June 15, 2016), 81 FR 40377 (June 21, 2016)
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Document Created: 2016-12-30 05:16:19
Document Modified: 2016-12-30 05:16:19
| 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 96545 |
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