82 FR 29598 - Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning the U.S. Market Transition to a Shortened Settlement Cycle
SECURITIES AND EXCHANGE COMMISSION Federal Register Volume 82, Issue 124 (June 29, 2017)
Federal Register Volume 82, Issue 124 (June 29, 2017)
| Page Range | 29598-29602 | |
| FR Document | 2017-13583 |
[Federal Register Volume 82, Number 124 (Thursday, June 29, 2017)] [Notices] [Pages 29598-29602] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2017-13583] ----------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION [Release No. 34-81008; File No. SR-OCC-2017-015] Self-Regulatory Organizations; The Options Clearing Corporation; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Concerning the U.S. Market Transition to a Shortened Settlement Cycle June 23, 2017. Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that on June 9, 2017, The Options Clearing Corporation (``OCC'') filed with the Securities and Exchange Commission (``Commission'') the proposed rule change as described in Items I, II and III below. Items I and II have been prepared primarily by OCC. OCC filed the proposed rule change pursuant to Section 19(b)(3)(A)(iii) of the Act \3\ and Rule 19b- 4(f)(4)(i) \4\ thereunder so that the proposal was effective upon filing with the Commission. 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. \3\ 15 U.S.C. 78s(b)(3)(A)(iii). \4\ 17 CFR 240.19b-4(f)(4)(i). --------------------------------------------------------------------------- I. Clearing Agency's Statement of the Terms of Substance of the Proposed Rule Change This proposed rule change by OCC concerns the amendment of OCC's By-Laws and Rules in connection with recent amendments adopted by the Commission to Rule 15c6-1(a) \5\ under the Act. The amendments to Rule 15c6-1(a) \6\ shorten the standard settlement cycle for most broker- dealer securities transactions from three business days after the trade date to two business days after the trade date. --------------------------------------------------------------------------- \5\ 17 CFR 240.15c6-1(a). \6\ Id. --------------------------------------------------------------------------- The proposed changes to OCC's By-Laws and Rules were included in Exhibits 5A and 5B of the filing, respectively. [[Page 29599]] II. Clearing Agency's Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, OCC 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. OCC has prepared summaries, set forth in sections (A), (B), and (C) below, of the most significant aspects of these statements. All terms with initial capitalization that are not otherwise defined herein have the same meaning as set forth in the OCC By-Laws and Rules.\7\ --------------------------------------------------------------------------- \7\ OCC's By-Laws and Rules can be found on OCC's public Web site: http://optionsclearing.com/about/publications/bylaws.jsp. --------------------------------------------------------------------------- (A) Clearing Agency'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 OCC's By-Laws and Rules in connection with recently adopted amendments to Commission Rule 15c6-1(a) to shorten the standard settlement cycle for most broker-dealer transactions regarding the purchase or sale of securities from three business days after the trade date (``T+3'') to two business days after the trade date (``T+2'').\8\ The compliance date regarding these amendments is September 5, 2017.\9\ --------------------------------------------------------------------------- \8\ Securities Exchange Act Release No. 80295 (March 22, 2017), 82 FR 15564 (March 29, 2017). \9\ Id. --------------------------------------------------------------------------- Background Commission Rule 15c6-1 establishes a standard settlement cycle for most purchases or sales of securities by broker-dealers. The Commission adopted Rule 15c6-1(a) \10\ in 1993 to establish T+3 as the standard trade settlement cycle (instead of five business days after the trade date), and it became effective in June of 1995.\11\ In March of 1995, the Commission approved changes to OCC's Rules that were proposed to ensure consistency with the new T+3 standard settlement cycle.\12\ --------------------------------------------------------------------------- \10\ 17 CFR 240.15c6-1(a). 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.'' \11\ Securities Exchange Act Release Nos. 33023 (October 6, 1993), 58 FR 52891 (final rule adopting Rule 15c6-1); 34952 (November 9, 1994), 59 FR 59137 (changing the effective date of the final rule from June 1, 1995 to June 7, 1995). \12\ Securities Exchange Act Release No. 35552 (March 30, 1995), 60 FR 17600 (April 6, 1995) (SR-OCC-94-11). --------------------------------------------------------------------------- Since the change to T+3, the Commission and the financial services industry have continued to explore the idea of shortening the settlement cycle even further.\13\ In April 2014, DTCC published a 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.\14\ To improve the efficiency of the U.S. settlement system by reducing the attendant risks in the T+3 settlement of securities transactions, and to align U.S. markets with the standard settlement cycles in 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.\15\ In June of 2015, the ISC published a White Paper outlining the activities and proposed timeframes that would be required to move to T+2 in the U.S.\16\ Concurrently, SIFMA and the ICI jointly submitted a letter to Commission Chair White expressing support of the financial service industry's efforts to shorten the settlement cycle and identified amendments to Rule 15c6-1(a) that they believed would be necessary for an effective transition to T+2.\17\ In March 2016, the ISC announced an industry target date of September 5, 2017, for the transition to T+2.\18\ --------------------------------------------------------------------------- \13\ See e.g., Securities Industry Association, ``SIA T+1 Business Case Final Report'' (July 2000); Securities Exchange Act Release No. 49405 (March 11, 2004), 69 FR 12922 (March 18, 2004) (Concept Release: Securities Transactions Settlement); The Depository Trust & Clearing Corporation (``DTCC''), ``Proposal to Launch a New Cost-Benefit Analysis on Shortening the Settlement Cycle'' (December 2011). \14\ See DTCC, ``DTCC Recommends Shortening the U.S. Trade Settlement Cycle'' (April 2014). \15\ The ISC includes, among other participants, DTCC, the Securities Industry and Financial Markets Association (``SIFMA'') and the Investment Company Institute (``ICI''). \16\ See ``Shortening the Settlement Cycle: The Move to T+2'' (June 18, 2015). \17\ 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 support for industry efforts to shorten the trade settlement cycle to T+2 and indicating a commitment to developing a proposal to amend Rule 15c6-1(a) to require standard settlement no later than T+2). \18\ See ISC Media Alert: ``US T+2 ISC Recommends Move to Shorter Settlement Cycle On September 5, 2017'' (March 7, 2016). --------------------------------------------------------------------------- On September 28, 2016, the Commission proposed amendments to Rule 15c6-1(a) to shorten the standard settlement cycle 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 completion of settlement, including credit, market and liquidity risks faced by U.S. market participants.\19\ On March 22, the Commission adopted the amendments to Rule 15c6-1(a) as proposed.\20\ In light of this action by the SEC, OCC is proposing amendments to its By-Laws and Rules in connection with the T+2 settlement cycle and to do so by the Commission's designated compliance date of September 5, 2017. --------------------------------------------------------------------------- \19\ Securities Exchange Act Release No. 78962 (September 28, 2016), 81 FR 69240 (October 5, 2016); see also Commission Press Release 2016-200: ``SEC Proposes Rule Amendment to Expedite Process for Settling Securities Transactions'' (September 28, 2016). \20\ Securities Exchange Act Release No. 80295, supra note 8. --------------------------------------------------------------------------- Proposed Changes to OCC By-Laws and Rules OCC is proposing changes to the following By-Laws and Rules in connection with the recently-amended Rule 15c6-1(a) and the particular changes are discussed in more detail below:OCC Rule 901 (Settlement Through Correspondent Clearing Corporations); \21\ --------------------------------------------------------------------------- \21\ Article I, Section 1.C.(33) of OCC's By-Laws defines the term ``correspondent clearing corporation'' to mean National Securities Clearing Corporation (``NSCC'') or any successor thereto which, ``by agreement with [OCC], provides facilities for settlements in respect of exercised option contracts or BOUNDs or in respect of delivery obligations arising from physically-settled stock futures.'' --------------------------------------------------------------------------- OCC Rule 903 (Obligation to Deliver); OCC Rule 1302 (Delivery of Underlying Securities); OCC Rule 1503 (Exercise Settlement Date for Event Options and Range Options); Article XXI of OCC's By-Laws (Stock Loan/Hedge Program); OCC Rule 2208 (Settlement Date); OCC Rule 2209A (Termination of Market Loans); and OCC Rule 2502 (Settlement Date for BOUNDs). First, OCC proposes to amend certain of its Rules that govern settlement of physically-settled options and futures through NSCC. Chapter IX of OCC's [[Page 29600]] Rules addresses delivery and payment obligations arising out of the exercise of physically-settled stock option contracts and the maturity of physically-settled stock futures contracts. Rule 901 requires that certain obligations be settled through the facilities of NSCC. Rule 901(d) permits OCC to revoke a specification in any Delivery Advice that settlement be made through the facilities of NSCC at any time prior to the opening of business on the delivery date by an appropriate notice to the Receiving and Delivering Clearing Members.\22\ In particular, Rule 901(d) allows specified OCC senior officers to extend or postpone the time for delivery to no more than three business days after the date that OCC revokes such a settlement specification. OCC proposes to amend this provision to make such an extension or postponement consistent with the new T+2 settlement cycle. Accordingly, under the proposed rule change, the amount of time that OCC has to extend or postpone the time of delivery would be changed to two business days. --------------------------------------------------------------------------- \22\ OCC recently proposed changes to existing Rule 901(d) in connection with advance notice and proposed rule change filings related to a new Stock Options and Futures Settlement Agreement between OCC and the National Securities Clearing Corporation. See SR-OCC-2017-013 and SR-OCC-2017-804. The proposed changes to Rule 901(d) currently pending Commission review in SR-OCC-2017-013 and SR-OCC-2017-804 are indicated in Exhibit 5B with double underlined and double strikethrough text. --------------------------------------------------------------------------- Rule 903 governs the obligation of a Clearing Member to deliver when either a Delivery Advice or OCC directs that settlement be made on a broker-to-broker basis. It currently specifies the delivery date for physically-settled options as the third business day following the day on which the exercise notice was, or is deemed to have been, properly tendered to OCC. Rule 903 also generally specifies the delivery date for physically settled security futures as the third business day following the maturity date. Under the proposed rule change, these references in Rule 903 to the ``third'' business day would be changed to the ``second'' business day. Second, OCC proposes to amend Rule 1302 concerning the delivery of underlying securities for physically-settled stock futures. With certain exceptions, Rule 1302 currently provides that the delivery date for a physically-settled stock future is the third business day following the maturity date of the applicable series. Under the proposed rule change, the reference to the ``third'' business day would be changed to ``second'' business day. Third, OCC proposes to amend Rule 1503 concerning the exercise settlement date for credit default options and credit default basket options. With certain exceptions, Rule 1503 currently provides that the exercise settlement date for a credit default option and credit default basket option is the third business day following the date on which the option is deemed to have been exercised. Under the proposed rule change, the reference to the ``third'' business day would be changed to ``second'' business day. Fourth, OCC proposes to amend a provision of its By-Laws and certain Rules concerning its two Stock Loan Programs: The Hedge Program and Market Loan Program. In the Hedge Program, OCC acts as the guarantor for Stock Loans that are initiated bilaterally between Clearing Members through The Depository Trust Company (``DTC''). Under Article XXI, Section 2(c) of OCC's By-Laws, OCC may terminate outstanding Hedge Loans under certain conditions. If any Hedge Loans are so terminated by OCC, it is required to provide written notice thereof to all affected Hedge Clearing Members to specify the date on which such termination is to become effective, which shall be at least three stock loan business days after the date of such notice. OCC proposes to amend this provision to make the effective date of such a termination consistent with the new T+2 settlement cycle. OCC therefore proposes to amend Section 2(c) of Article XXI to change the minimum number of days between notice and termination from three to two. Rule 2208(a) currently provides the settlement date for the termination of a Hedge Loan shall be the earlier of: (1) The date on which the Borrowing Clearing Member initiates the termination or (2) the date that is three stock loan business days after the date on which the Lending Clearing Member initiates the termination. OCC proposes to amend Rule 2208(a) to change ``three'' stock loan business days to ``two'' stock loan business days. In the Market Loan Program, OCC acts as the guarantor for Market Loans that are initiated through the matching of bids and offers that are either agreed upon by the Market Loan Clearing Members or matched anonymously through a Loan Market. Typically, a Market Loan is terminated through the process of a Market Loan Clearing Member providing notice to the Loan Market to call for the recall or return of a specified quantity of Loaned Stock. The Loan Market sends details of the matched return or recall transaction to OCC, and OCC validates the transaction and sends a pair of delivery orders to DTC for settlement in connection with the recall or return. Rule 2209A(a)(3) currently provides that if a recall transaction fails to settle by the Settlement Time on the third stock loan business day following the day that the transaction was first submitted, the Lending Clearing Member may choose to execute a buy-in of the Loaned Stock. OCC proposes to change the reference to ``third'' stock loan business day to ``second'' stock loan business day. Under Rule 2209A(d), OCC may terminate outstanding Market Loans under certain conditions. If any Market Loans are so terminated by OCC, it is required to provide written notice thereof to all affected Market Loan Clearing Members to specify the date on which such termination is to become effective, which shall be at least three stock loan business days after the date of such notice. OCC proposes to amend this provision to make the effective date of such a termination consistent with the new T+2 settlement cycle. OCC therefore proposes to amend Rule 2209A(d) to change the minimum number of days between notice and termination from three to two. Fifth, OCC proposes to amend Rule 2502 concerning the settlement date for BOUNDs in Chapter XXV of OCC's Rules. Rule 2502 currently provides the settlement date for a BOUND is the third business day following the expiration date. Under the proposed rule change, the settlement would be changed to the second business day following the expiration date. Implementation OCC would implement the proposed rule change in coordination with the Commission's September 5, 2017, compliance date for the amendments to Rule 15c6-1(a) and the transition to T+2 and would provide advance notice to Clearing Members of the implementation through an Information Memo. OCC will include a footnote in its By-Laws and Rules with each rule that will change under this proposed rule change noting that each such rule will be updated on September 5, 2017, to reflect the transition to the new T+2 settlement cycle. As part of that footnote, OCC will also include a link to documents on OCC's public Web site that show the updates to OCC's rules that are being made in this proposed rule change. OCC intends for these updates to be self-executing on September 5, 2017. [[Page 29601]] 2. Statutory Basis OCC believes that the proposed rule change is consistent with Section 17A(b)(3)(F) of the Act \23\ and the rules thereunder applicable to OCC. Section 17A(b)(3)(F) requires, among other things, that rules of a clearing agency be designed ``to foster cooperation and coordination with persons engaged in the clearance and settlement of securities transactions, to remove impediments to and perfect the mechanism of a national system for the prompt and accurate clearance and settlement of securities transactions, and, in general, to protect investors and the public interest[.]'' \24\ OCC believes the proposed rule change is consistent with these requirements because it would coordinate the terms of certain OCC rules with the Commission's amendments to Rule 15c6-1(a) to support a T+2 standardized settlement cycle. Specifically, where a current OCC By-Law or Rule is based upon or otherwise references the T+3 standardized securities settlement cycle, the provision would be changed to support T+2. Harmonizing OCC's By-Laws and Rules with the new T+2 standardized settlement cycle would also remove impediments to and perfect the mechanism of a national system for the prompt and accurate clearance and settlement of securities transactions by, for example, ensuring that OCC's By-laws and Rules that are related to T+2 are consistent with the rules concerning the standardized settlement cycle that are maintained by the exchanges for which OCC clears and settles transactions and the rules of clearing agencies, such as NSCC and DTC, that provide clearance and settlement services for securities transactions that underlie physically-settled stock option and physically-settled stock future contracts cleared by OCC. OCC believes that conforming certain of its By-Laws and Rules to the Commission's new standardized settlement cycle would also protect investors and the public interest by ensuring that OCC provides clearance and settlement services in a manner that supports the Commission's requirements for the T+2 standardized settlement cycle. --------------------------------------------------------------------------- \23\ 15 U.S.C. 78q-1(b)(3)(F). \24\ Id. --------------------------------------------------------------------------- OCC believes the proposed changes are also consistent with the requirements in Commission Rule 17Ad-22(e)(1).\25\ The changes are designed to modify OCC's By-Laws and Rules that would otherwise become outdated upon the change to the T+2 standardized settlement cycle. Therefore, OCC believes that the proposed changes promote compliance and consistency with the requirements in Rule 17Ad-22(e)(1) to establish, implement, maintain and enforce written policies and procedures reasonably designed to provide for a well-founded, clear, transparent and enforceable legal basis. Maintaining provisions in OCC's publicly available By-Laws and Rules that are consistent at all times with the standardized settlement cycle that is specified in Commission Rule 15c6-1(a) helps ensure that OCC's By-Laws and Rules remain well-founded, clear, transparent and enforceable. --------------------------------------------------------------------------- \25\ 17 CFR 240.17Ad-22(e)(1). --------------------------------------------------------------------------- The proposed rule change is not inconsistent with the existing rules of OCC, including any other rules proposed to be amended. (B) Clearing Agency's Statement on Burden on Competition Section 17A(b)(3)(I) of the Act requires that the rules of a clearing agency not impose any burden on competition not necessary or appropriate in furtherance of the purposes of the Act.\26\ OCC does not believe that the proposed rule change would impose any burden or have any impact on competition. The proposed rule change would implement conforming changes within OCC's By-Laws and Rules to ensure consistency with amendments recently adopted by the Commission in Rule 15c6-1(a) to change the standard securities settlement cycle to T+2. All Clearing Members would be equally subject to these conforming changes, and the proposed changes would not provide any Clearing Member with a competitive advantage over any other Clearing Member. This proposed rule change would also not inhibit access to OCC's services or disadvantage or favor any particular user in relationship to another. As a result, OCC believes the proposed rule change would not impact or impose a burden on competition. --------------------------------------------------------------------------- \26\ 15 U.S.C. 78q-1(b)(3)(I). --------------------------------------------------------------------------- (C) Clearing Agency's Statement on Comments on the Proposed Rule Change Received From Members, Participants or Others Written comments were not and are not intended to be solicited with respect to the proposed rule change, and none have been received. III. Date of Effectiveness of the Proposed Rule Change and Timing for Commission Action The foregoing rule change has become effective pursuant to Section 19(b)(3)(A)(iii) of the Act \27\ and paragraph (f)(4)(i) of Rule 19b-4 \28\ thereunder. At any time within 60 days of the filing of the proposed rule change, the Commission summarily may temporarily suspend such rule change if it appears to the Commission that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act.\29\ --------------------------------------------------------------------------- \27\ 15 U.S.C. 78s(b)(3)(A)(iii). \28\ 17 CFR 240.19b-4(f)(4)(i). \29\ Notwithstanding its immediate effectiveness, implementation of this rule change will be delayed until this change is deemed certified under CFTC Regulation Sec. 40.6. --------------------------------------------------------------------------- IV. Solicitation of Comments Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods: Electronic Comments Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or Send an email to [email protected]. Please include File Number SR-OCC-2017-015 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-OCC-2017-015. 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 [[Page 29602]] 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 OCC and on OCC's Web site at http://www.theocc.com/components/docs/legal/rules_and_bylaws/sr_occ_17_015.pdf. 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-OCC-2017-015 and should be submitted on or before July 20, 2017. --------------------------------------------------------------------------- \30\ 17 CFR 200.30-3(a)(12). For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.\30\ Eduardo A. Aleman, Assistant Secretary. [FR Doc. 2017-13583 Filed 6-28-17; 8:45 am] BILLING CODE 8011-01-P
![29598 Federal Register / Vol. 82, No. 124 / Thursday, June 29, 2017 / Notices
minimum of 18 months to a minimum FINRA stated that it will announce For the Commission, by the Division of
of six months.8 the effective date of the proposed rule Trading and Markets, pursuant to delegated
FINRA has stated that researchers and change in a Regulatory Notice to be authority.18
other non-dealers have been the primary published no later than 60 days Eduardo A. Aleman,
subscribers to Historic TRACE Data. following Commission approval. The Assistant Secretary.
FINRA has attributed the lack of usage effective date will be no later than 120 [FR Doc. 2017–13586 Filed 6–28–17; 8:45 am]
by dealers to the minimum 18-month days following publication of the BILLING CODE 8011–01–P
delay period for including transactions Regulatory Notice.
in the Corporate and Agency Historic
TRACE Data. FINRA has stated that it is III. Discussion SECURITIES AND EXCHANGE
not aware of any complaints regarding COMMISSION
information leakage under the current After carefully consideration, the
18-month delay, and that market Commission finds that the proposed
[Release No. 34–81008; File No. SR–OCC–
participants have indicated that a rule change is consistent with the 2017–015]
reduction in the minimum delay to six requirements of the Act and the rules
months would make the product more and regulations thereunder applicable to Self-Regulatory Organizations; The
useful. a national securities association.15 In Options Clearing Corporation; Notice
FINRA believes that a minimum six- particular, the Commission finds that of Filing and Immediate Effectiveness
month delay would promote the goal of the proposed rule change is consistent of Proposed Rule Change Concerning
increased transparency for transactions with Section 15A(b)(6) of the Act,16 the U.S. Market Transition to a
in TRACE-Eligible Securities while which requires, among other things, that Shortened Settlement Cycle
continuing to address information FINRA rules be designed to prevent
June 23, 2017.
leakage concerns.9 In support of that fraudulent and manipulative acts and
belief, FINRA conducted a sampling practices, to promote just and equitable Pursuant to Section 19(b)(1) of the
analysis of past transactions in both Securities Exchange Act of 1934
principles of trade, to remove
corporate and agency bonds to assess (‘‘Act’’) 1 and Rule 19b–4 thereunder,2
impediments to and perfect the
whether positions or strategies of market notice is hereby given that on June 9,
mechanism of a free and open market
participants could be identified if the 2017, The Options Clearing Corporation
and a national market system, and, in (‘‘OCC’’) filed with the Securities and
Corporate and Agency Historic TRACE general, to protect investors and the
Data had included transactions that Exchange Commission (‘‘Commission’’)
public interest. the proposed rule change as described
were aged only six months.10 Based on
this analysis, FINRA concluded that The Commission notes that, because in Items I, II and III below. Items I and
‘‘the proposed rule, if it had been in the proposed rule change does not II have been prepared primarily by OCC.
place, would have provided little require firms to provide FINRA with OCC filed the proposed rule change
additional information to the public any additional data, it will not have any pursuant to Section 19(b)(3)(A)(iii) of
relative to these positions’’ 11 and that a operational impact on firms. the Act 3 and Rule 19b–4(f)(4)(i) 4
reduction of the delay would be ‘‘a Furthermore, the purchase of TRACE thereunder so that the proposal was
limited risk for smaller issues that are data products is optional for members effective upon filing with the
held by a limited number of market and others. Finally, in light of FINRA’s Commission. The Commission is
participants.’’ 12 analysis of past transactions in publishing this notice to solicit
To further address concerns about corporate and agency debt securities comments on the proposed rule change
information leakage, FINRA solicited and the revisions that FINRA made to from interested persons.
comment from its members on an earlier its first iteration of the proposal, the I. Clearing Agency’s Statement of the
iteration of the proposed rule change.13 Commission believes that reducing the Terms of Substance of the Proposed
FINRA received four comment letters period before which transactions in Rule Change
and made certain revisions to its initial such securities are included in the
proposal to respond to those concerns This proposed rule change by OCC
Historic TRACE Data from a minimum concerns the amendment of OCC’s By-
before filing the current proposal with of 18 months to six months is
the Commission.14 The Commission Laws and Rules in connection with
reasonably designed to promote recent amendments adopted by the
notes that it has received no comments transparency and respond to consumer
on the version of the proposed rule Commission to Rule 15c6–1(a) 5 under
demand for a more useful market data the Act. The amendments to Rule 15c6–
change published by the Commission. product, while minimizing the potential 1(a) 6 shorten the standard settlement
8 FINRA has not proposed to change the 18-
for information leakage. cycle for most broker-dealer securities
month delay for transactions included in the IV. Conclusion transactions from three business days
Historic Securitized Product Data Set. after the trade date to two business days
9 FINRA noted that the Municipal Securities
It is therefore ordered pursuant to after the trade date.
Rulemaking Board (‘‘MSRB’’) disseminates in real
time the exact par value on all transactions with a Section 19(b)(2) of the Act 17 that the The proposed changes to OCC’s By-
par value of $5 million or less, and includes an proposed rule change (SR–FINRA– Laws and Rules were included in
indicator (‘‘MM+’’) in place of the exact par value 2017–012) be, and hereby is, approved. Exhibits 5A and 5B of the filing,
on transactions where the par value is greater than respectively.
sradovich on DSK3GMQ082PROD with NOTICES
$5 million until the fifth business day. MSRB
disseminates the exact par value for each
18 17 CFR 200.30–3(a)(12).
transaction on the fifth day after the transaction.
15 Inapproving this proposed rule change, the
See MSRB Rule G–14. 1 15 U.S.C. 78s(b)(1).
10 See Notice, 82 FR 23387–89. Commission has considered the proposed rule 2 17 CFR 240.19b–4.
11 Id. at 23388. change’s impact on efficiency, competition, and 3 15 U.S.C. 78s(b)(3)(A)(iii).
12 Id. at 23389. capital formation. See 15 U.S.C. 78c(f). 4 17 CFR 240.19b–4(f)(4)(i).
13 See supra note 4. 16 15 U.S.C. 78o–3(b)(6). 5 17 CFR 240.15c6–1(a).
14 See Notice, 82 FR at 23389. 17 15 U.S.C. 78s(b)(2). 6 Id.
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II. Clearing Agency’s Statement of the were proposed to ensure consistency September 5, 2017, for the transition to
Purpose of, and Statutory Basis for, the with the new T+3 standard settlement T+2.18
Proposed Rule Change cycle.12 On September 28, 2016, the
In its filing with the Commission, Since the change to T+3, the Commission proposed amendments to
OCC included statements concerning Commission and the financial services Rule 15c6–1(a) to shorten the standard
the purpose of and basis for the settlement cycle to T+2 on the basis that
industry have continued to explore the
proposed rule change and discussed any the shorter settlement cycle would
idea of shortening the settlement cycle
comments it received on the proposed reduce the risks that arise from the
even further.13 In April 2014, DTCC
rule change. The text of these statements value and number of unsettled
published a recommendation to shorten securities transactions prior to
may be examined at the places specified the standard U.S. trade settlement cycle
in Item IV below. OCC has prepared completion of settlement, including
to T+2 and announced that it would credit, market and liquidity risks faced
summaries, set forth in sections (A), (B), partner with market participants and
and (C) below, of the most significant by U.S. market participants.19 On March
industry organizations to devise the 22, the Commission adopted the
aspects of these statements. All terms
necessary approach and timelines to amendments to Rule 15c6–1(a) as
with initial capitalization that are not
achieve T+2.14 To improve the proposed.20 In light of this action by the
otherwise defined herein have the same
meaning as set forth in the OCC By- efficiency of the U.S. settlement system SEC, OCC is proposing amendments to
Laws and Rules.7 by reducing the attendant risks in the its By-Laws and Rules in connection
T+3 settlement of securities with the T+2 settlement cycle and to do
(A) Clearing Agency’s Statement of the transactions, and to align U.S. markets so by the Commission’s designated
Purpose of, and Statutory Basis for, the with the standard settlement cycles in compliance date of September 5, 2017.
Proposed Rule Change other major global markets that have
already moved to T+2, DTCC, in Proposed Changes to OCC By-Laws and
1. Purpose Rules
collaboration with the financial services
The purpose of the proposed rule OCC is proposing changes to the
change is to amend OCC’s By-Laws and industry, formed an Industry Steering
Committee (‘‘ISC’’) and an industry following By-Laws and Rules in
Rules in connection with recently
working group and sub-working groups connection with the recently-amended
adopted amendments to Commission
to facilitate the move to T+2.15 In June Rule 15c6–1(a) and the particular
Rule 15c6–1(a) to shorten the standard
of 2015, the ISC published a White changes are discussed in more detail
settlement cycle for most broker-dealer
Paper outlining the activities and below:
transactions regarding the purchase or
proposed timeframes that would be • OCC Rule 901 (Settlement Through
sale of securities from three business
required to move to T+2 in the U.S.16 Correspondent Clearing
days after the trade date (‘‘T+3’’) to two
Concurrently, SIFMA and the ICI jointly Corporations); 21
business days after the trade date
submitted a letter to Commission Chair • OCC Rule 903 (Obligation to
(‘‘T+2’’).8 The compliance date
White expressing support of the Deliver);
regarding these amendments is
• OCC Rule 1302 (Delivery of
September 5, 2017.9 financial service industry’s efforts to
Underlying Securities);
shorten the settlement cycle and
Background • OCC Rule 1503 (Exercise Settlement
identified amendments to Rule 15c6–
Commission Rule 15c6–1 establishes Date for Event Options and Range
1(a) that they believed would be
a standard settlement cycle for most Options);
necessary for an effective transition to • Article XXI of OCC’s By-Laws
purchases or sales of securities by T+2.17 In March 2016, the ISC
broker-dealers. The Commission (Stock Loan/Hedge Program);
announced an industry target date of • OCC Rule 2208 (Settlement Date);
adopted Rule 15c6–1(a) 10 in 1993 to
establish T+3 as the standard trade • OCC Rule 2209A (Termination of
12 Securities Exchange Act Release No. 35552
settlement cycle (instead of five Market Loans); and
(March 30, 1995), 60 FR 17600 (April 6, 1995) (SR–
business days after the trade date), and OCC–94–11). • OCC Rule 2502 (Settlement Date for
it became effective in June of 1995.11 In 13 See e.g., Securities Industry Association, ‘‘SIA BOUNDs).
March of 1995, the Commission T+1 Business Case Final Report’’ (July 2000); First, OCC proposes to amend certain
Securities Exchange Act Release No. 49405 (March of its Rules that govern settlement of
approved changes to OCC’s Rules that 11, 2004), 69 FR 12922 (March 18, 2004) (Concept
Release: Securities Transactions Settlement); The
physically-settled options and futures
7 OCC’s By-Laws and Rules can be found on Depository Trust & Clearing Corporation (‘‘DTCC’’), through NSCC. Chapter IX of OCC’s
OCC’s public Web site: http://optionsclearing.com/ ‘‘Proposal to Launch a New Cost-Benefit Analysis
about/publications/bylaws.jsp. on Shortening the Settlement Cycle’’ (December 18 See ISC Media Alert: ‘‘US T+2 ISC
8 Securities Exchange Act Release No. 80295 2011). Recommends Move to Shorter Settlement Cycle On
(March 22, 2017), 82 FR 15564 (March 29, 2017). 14 See DTCC, ‘‘DTCC Recommends Shortening the September 5, 2017’’ (March 7, 2016).
9 Id. U.S. Trade Settlement Cycle’’ (April 2014). 19 Securities Exchange Act Release No. 78962
10 17 CFR 240.15c6–1(a). Rule 15c6–1(a) provides, 15 The ISC includes, among other participants, (September 28, 2016), 81 FR 69240 (October 5,
in relevant part, that ‘‘a broker or dealer shall not DTCC, the Securities Industry and Financial 2016); see also Commission Press Release 2016–
effect or enter into a contract for the purchase or Markets Association (‘‘SIFMA’’) and the Investment 200: ‘‘SEC Proposes Rule Amendment to Expedite
sale of a security (other than an exempted security, Company Institute (‘‘ICI’’). Process for Settling Securities Transactions’’
government security, municipal security, 16 See ‘‘Shortening the Settlement Cycle: The (September 28, 2016).
commercial paper, bankers’ acceptances, or Move to T+2’’ (June 18, 2015). 20 Securities Exchange Act Release No. 80295,
commercial bills) that provides for payment of 17 See Letter from ICI and SIFMA to Mary Jo supra note 8.
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funds and delivery of securities later than the third White, Chair, SEC, dated June 18, 2015; see also 21 Article I, Section 1.C.(33) of OCC’s By-Laws
business day after the date of the contract unless Letter from Mary Jo White, Chair to Kenneth E. defines the term ‘‘correspondent clearing
otherwise expressly agreed to by the parties at the Bentsen, Jr. President and CEO, SIFMA, and Paul corporation’’ to mean National Securities Clearing
time of the transaction.’’ Schott Stevens, President and CEO, ICI, dated Corporation (‘‘NSCC’’) or any successor thereto
11 Securities Exchange Act Release Nos. 33023 September 16, 2015 (expressing support for which, ‘‘by agreement with [OCC], provides
(October 6, 1993), 58 FR 52891 (final rule adopting industry efforts to shorten the trade settlement cycle facilities for settlements in respect of exercised
Rule 15c6–1); 34952 (November 9, 1994), 59 FR to T+2 and indicating a commitment to developing option contracts or BOUNDs or in respect of
59137 (changing the effective date of the final rule a proposal to amend Rule 15c6–1(a) to require delivery obligations arising from physically-settled
from June 1, 1995 to June 7, 1995). standard settlement no later than T+2). stock futures.’’
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![Federal Register / Vol. 82, No. 124 / Thursday, June 29, 2017 / Notices 29601
2. Statutory Basis standardized settlement cycle. III. Date of Effectiveness of the
OCC believes that the proposed rule Therefore, OCC believes that the Proposed Rule Change and Timing for
change is consistent with Section proposed changes promote compliance Commission Action
17A(b)(3)(F) of the Act 23 and the rules and consistency with the requirements The foregoing rule change has become
thereunder applicable to OCC. Section in Rule 17Ad–22(e)(1) to establish, effective pursuant to Section
17A(b)(3)(F) requires, among other implement, maintain and enforce 19(b)(3)(A)(iii) of the Act 27 and
things, that rules of a clearing agency be written policies and procedures paragraph (f)(4)(i) of Rule 19b–4 28
designed ‘‘to foster cooperation and reasonably designed to provide for a thereunder. At any time within 60 days
coordination with persons engaged in well-founded, clear, transparent and of the filing of the proposed rule change,
the clearance and settlement of enforceable legal basis. Maintaining the Commission summarily may
securities transactions, to remove provisions in OCC’s publicly available temporarily suspend such rule change if
impediments to and perfect the By-Laws and Rules that are consistent at it appears to the Commission that such
mechanism of a national system for the all times with the standardized action is necessary or appropriate in the
prompt and accurate clearance and settlement cycle that is specified in public interest, for the protection of
settlement of securities transactions, Commission Rule 15c6–1(a) helps investors, or otherwise in furtherance of
and, in general, to protect investors and ensure that OCC’s By-Laws and Rules the purposes of the Act.29
the public interest[.]’’ 24 OCC believes remain well-founded, clear, transparent IV. Solicitation of Comments
the proposed rule change is consistent and enforceable.
with these requirements because it Interested persons are invited to
would coordinate the terms of certain The proposed rule change is not submit written data, views, and
OCC rules with the Commission’s inconsistent with the existing rules of arguments concerning the foregoing,
amendments to Rule 15c6–1(a) to OCC, including any other rules including whether the proposed rule
support a T+2 standardized settlement proposed to be amended. change is consistent with the Act.
cycle. Specifically, where a current OCC Comments may be submitted by any of
(B) Clearing Agency’s Statement on
By-Law or Rule is based upon or the following methods:
Burden on Competition
otherwise references the T+3 Electronic Comments
standardized securities settlement cycle, Section 17A(b)(3)(I) of the Act
the provision would be changed to requires that the rules of a clearing • Use the Commission’s Internet
support T+2. Harmonizing OCC’s By- comment form (http://www.sec.gov/
agency not impose any burden on
Laws and Rules with the new T+2 rules/sro.shtml); or
competition not necessary or • Send an email to rule-comments@
standardized settlement cycle would appropriate in furtherance of the
also remove impediments to and perfect sec.gov. Please include File Number SR–
purposes of the Act.26 OCC does not OCC–2017–015 on the subject line.
the mechanism of a national system for believe that the proposed rule change
the prompt and accurate clearance and would impose any burden or have any Paper Comments
settlement of securities transactions by, impact on competition. The proposed • Send paper comments in triplicate
for example, ensuring that OCC’s By- rule change would implement to Secretary, Securities and Exchange
laws and Rules that are related to T+2
conforming changes within OCC’s By- Commission, 100 F Street NE.,
are consistent with the rules concerning
Laws and Rules to ensure consistency Washington, DC 20549–1090.
the standardized settlement cycle that
with amendments recently adopted by All submissions should refer to File
are maintained by the exchanges for
which OCC clears and settles the Commission in Rule 15c6–1(a) to Number SR–OCC–2017–015. This file
transactions and the rules of clearing change the standard securities number should be included on the
agencies, such as NSCC and DTC, that settlement cycle to T+2. All Clearing subject line if email is used. To help the
provide clearance and settlement Members would be equally subject to Commission process and review your
services for securities transactions that these conforming changes, and the comments more efficiently, please use
underlie physically-settled stock option proposed changes would not provide only one method. The Commission will
and physically-settled stock future any Clearing Member with a post all comments on the Commission’s
contracts cleared by OCC. OCC believes competitive advantage over any other Internet Web site (http://www.sec.gov/
that conforming certain of its By-Laws Clearing Member. This proposed rule rules/sro.shtml). Copies of the
and Rules to the Commission’s new change would also not inhibit access to submission, all subsequent
standardized settlement cycle would OCC’s services or disadvantage or favor amendments, all written statements
also protect investors and the public any particular user in relationship to with respect to the proposed rule
interest by ensuring that OCC provides another. As a result, OCC believes the change that are filed with the
clearance and settlement services in a Commission, and all written
proposed rule change would not impact
manner that supports the Commission’s communications relating to the
or impose a burden on competition.
requirements for the T+2 standardized proposed rule change between the
settlement cycle. (C) Clearing Agency’s Statement on Commission and any person, other than
OCC believes the proposed changes Comments on the Proposed Rule those that may be withheld from the
are also consistent with the Change Received From Members, public in accordance with the
requirements in Commission Rule Participants or Others provisions of 5 U.S.C. 552, will be
available for Web site viewing and
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17Ad–22(e)(1).25 The changes are
designed to modify OCC’s By-Laws and Written comments were not and are printing in the Commission’s Public
Rules that would otherwise become not intended to be solicited with respect
outdated upon the change to the T+2 to the proposed rule change, and none 27 15 U.S.C. 78s(b)(3)(A)(iii).
28 17 CFR 240.19b–4(f)(4)(i).
have been received.
29 Notwithstanding its immediate effectiveness,
23 15 U.S.C. 78q–1(b)(3)(F). implementation of this rule change will be delayed
24 Id.
until this change is deemed certified under CFTC
25 17 CFR 240.17Ad–22(e)(1). 26 15 U.S.C. 78q–1(b)(3)(I). Regulation § 40.6.
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![29602 Federal Register / Vol. 82, No. 124 / Thursday, June 29, 2017 / Notices
Reference Room, 100 F Street NE., office of FINRA and at the Time TRACE transaction data. Today,
Washington, DC 20549, on official Commission’s Public Reference Room. the actual par value traded is available
business days between the hours of in the short-term only for transactions
II. Self-Regulatory Organization’s
10:00 a.m. and 3:00 p.m. Copies of such with sizes up to the applicable
Statement of the Purpose of, and
filing also will be available for Statutory Basis for, the Proposed Rule dissemination cap.6 Transactions with
inspection and copying at the principal Change sizes over the capped amount become
office of OCC and on OCC’s Web site at available only after 18 months as part of
http://www.theocc.com/components/ In its filing with the Commission, the Historic TRACE Data product.
docs/legal/rules_and_bylaws/sr_occ_17_ FINRA included statements concerning The proposed TRACE Security
015.pdf. the purpose of and basis for the Activity Report would provide insight
All comments received will be posted proposed rule change and discussed any into the level of activity in CA Bonds
without change; the Commission does comments it received on the proposed during a given month. Specifically, in
not edit personal identifying rule change. The text of these statements addition to overall aggregate par value
information from submissions. You may be examined at the places specified volume, the proposed TRACE Security
should submit only information that in Item IV below. FINRA has prepared Activity Report would provide
you wish to make available publicly. summaries, set forth in sections A, B, information on the par value volume of
All submissions should refer to File and C below, of the most significant customer buys, the par value volume of
Number SR–OCC–2017–015 and should aspects of such statements. customer sells and the par value volume
be submitted on or before July 20,2017. A. Self-Regulatory Organization’s of inter-dealer transactions. The
For the Commission, by the Division of Statement of the Purpose of, and proposed TRACE Security Activity
Trading and Markets, pursuant to delegated Statutory Basis for, the Proposed Rule Report would reflect par value volume
authority.30 Change information using either capped
Eduardo A. Aleman, amounts or actual par value volume, as
Assistant Secretary.
1. Purpose follows. For uncapped transactions, the
[FR Doc. 2017–13583 Filed 6–28–17; 8:45 am] Rule 7730 (Trade Reporting and proposed TRACE Security Activity
BILLING CODE 8011–01–P Compliance Engine (TRACE)), among Report would reflect the actual trade
other things, sets forth the TRACE data size of each transaction (i.e., the
products offered by FINRA in transaction size disseminated in Real-
SECURITIES AND EXCHANGE connection with TRACE-Eligible Time TRACE transaction data). If there
COMMISSION Securities.3 FINRA is proposing to are six or more capped transactions
amend Rule 7730 to make available a disseminated during the calendar
[Release No. 34–81007; File No. SR–FINRA–
2017–021]
new TRACE Security Activity Report, month, the aggregate par value volume
which would provide aggregated would reflect the actual trade size of
Self-Regulatory Organizations; statistics by security for TRACE-Eligible each transaction, as well as the par
Financial Industry Regulatory Securities that are corporate or agency value traded that falls within specified
Authority, Inc.; Notice of Filing of a bonds (collectively ‘‘CA Bonds’’).4 size categories (e.g., the aggregate par
Proposed Rule Change To Amend The proposed TRACE Security value traded for transactions with a size
FINRA Rule 7730 To Make Available a Activity Report would contain basic greater than the dissemination cap up to
New TRACE Security Activity Report descriptive security elements for each $10 million and the aggregate par value
CA Bond (such as the issuer’s name and traded for transactions with a size
June 23, 2017. the security’s coupon and maturity greater than $10 million).7
Pursuant to Section 19(b)(1) of the date). In addition, the proposed report However, if there are fewer than six
Securities Exchange Act of 1934 would provide subscribers with disseminated capped transactions
(‘‘Act’’) 1 and Rule 19b–4 thereunder,2 transaction totals, a measure of market during the calendar month, the TRACE
notice is hereby given that on June 19, concentration to indicate the extent to Security Activity Report would reflect
2017, Financial Industry Regulatory which activity in the security is the capped volumes disseminated in
Authority, Inc. (‘‘FINRA’’) filed with the concentrated within a few market Real-Time TRACE transaction data.
Securities and Exchange Commission participant identifiers (MPIDs),5 and Accordingly, the report would only
(‘‘SEC’’ or ‘‘Commission’’) the proposed more detailed aggregate par value reflect the actual par value traded (i.e.,
rule change as described in Items I, II, volume information in a particular CA the amount reported by the member to
and III below, which Items have been Bond than would be available in Real- TRACE) where there have been at least
prepared by FINRA. The Commission is
publishing this notice to solicit 3 Rule 6710 (Definitions) provides that a ‘‘TRACE- 6 Due to transaction confidentiality concerns,
comments on the proposed rule change Eligible Security’’ is a debt security that is United FINRA has applied ‘‘dissemination caps’’ for
from interested persons. States (‘‘U.S.’’) dollar-denominated and issued by a purposes of dissemination. Specifically, for
U.S. or foreign private issuer, and, if a ‘‘restricted transactions in investment grade corporate bonds
I. Self-Regulatory Organization’s security’’ as defined in Securities Act Rule and in agency bonds over a 5 million dollar par
144(a)(3), sold pursuant to Securities Act Rule value, TRACE disseminates the size as ‘‘5MM+.’’
Statement of the Terms of Substance of 144A; or is a debt security that is U.S. dollar- For transactions in non-investment grade corporate
the Proposed Rule Change denominated and issued or guaranteed by an bonds over a 1 million dollar par value, TRACE
FINRA is proposing to amend FINRA Agency as defined in paragraph (k) or a disseminates the size as ‘‘1MM+.’’
Government-Sponsored Enterprise as defined in 7 If the SEC approves this proposal, the size
Rule 7730 to make available a new paragraph (n); or a U.S. Treasury Security as categories will be announced in the Regulatory
sradovich on DSK3GMQ082PROD with NOTICES
TRACE Security Activity Report. defined in paragraph (p). ‘‘TRACE-Eligible Notice announcing the effective date of the new
The text of the proposed rule change Security’’ does not include a debt security that is TRACE Security Activity Report. The size category
is available on FINRA’s Web site at issued by a foreign sovereign or a Money Market thresholds will be based on a multiple of the
Instrument as defined in paragraph (o). dissemination cap, e.g., up to or over $10 million,
http://www.finra.org, at the principal 4 FINRA intends to establish a fee for the TRACE
which would be two times the investment grade
Security Activity Report prior to the effective date dissemination cap. The number of size categories
30 17 CFR 200.30–3(a)(12). of the instant proposed rule change. The fee will be also may be adjusted (e.g., up to $10 million; over
1 15 U.S.C. 78s(b)(1). established pursuant to a separate rule filing. $10 million up to $20 million; over $20 million)
2 17 CFR 240.19b–4. 5 One member may use multiple MPIDs. based on FINRA’s experience with the data product.
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Document Created: 2018-11-14 10:16:49
Document Modified: 2018-11-14 10:16:49
| 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 | 82 FR 29598 |
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