82 FR 40604 - Self-Regulatory Organizations; The NASDAQ Stock Market LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change To Address the Application of Rule 11140 in Connection With the Implementation of the Shortened Settlement Cycle (T+2) on September 5, 2017

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 82, Issue 164 (August 25, 2017)

[Federal Register Volume 82, Number 164 (Friday, August 25, 2017)]
[Notices]
[Pages 40604-40606]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2017-17999]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-81446; File No. SR-NASDAQ-2017-084]


Self-Regulatory Organizations; The NASDAQ Stock Market LLC; 
Notice of Filing and Immediate Effectiveness of Proposed Rule Change To 
Address the Application of Rule 11140 in Connection With the 
Implementation of the Shortened Settlement Cycle (T+2) on September 5, 
2017

August 21, 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 August 18, 2017, 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.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to address the application of Rule 11140 as 
it relates to

[[Page 40605]]

the ex-dividend date in connection with the implementation of the T+2 
settlement cycle on September 5, 2017.
    No change to the text of Rule 11140 is required by this proposal.

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 
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 the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange is proposing to address the application of Rule 11140 
(Transactions in Securities ``Ex-Dividend,'' ``Ex-Rights'' or ``Ex-
Warrants'') as it relates to the ex-dividend date in connection with 
the implementation of the trade date plus two business days (T+2) 
settlement cycle on September 5, 2017.
    On September 28, 2016, following a recommendation by the securities 
industry, the Commission proposed amending Exchange Act Rule 15c6-1(a) 
\3\ to shorten the standard settlement cycle for most broker-dealer 
transactions from trade date plus three business days (T+3) to T+2.\4\ 
The rationale for this proposal was 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.\5\ The SEC adopted the proposed changes to 
Rule 15c6-1(a) on March 22, 2017.\6\
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    \3\ 17 CFR 240.15c6-1(a).
    \4\ 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).
    \5\ Id.
    \6\ See Securities Exchange Act Release No. 80295 (March 22, 
2017), 82 FR 15564 (March 29, 2017) (File No. S7-22-16).
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    In connection with the amendments to Rule 15c6-1(a) and the 
adoption of the shortened settlement cycle, Nasdaq submitted a proposed 
rule change implementing the new settlement cycle and making 
corresponding changes to its applicable rules, including Rule 
11140(b).\7\
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    \7\ See Securities Exchange Act Release No. 79687 (December 23, 
2016), 81 FR 96545 (December 30, 2016) (Order approving SR-NASDAQ-
2016-183).
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    The industry and self-regulatory organizations (``SROs''), 
including The Depository Trust Company (``DTC''), which processes 
corporate action events, have raised concern that the September 5, 2017 
industry-wide transition date from T+3 to T+2 will result in September 
7, 2017 being a ``double'' settlement date for trades that occur on 
September 1, 2017 (under T+3 and reflecting the Labor Day holiday on 
September 4, 2017) and trades that occur on September 5, 2017 (under 
T+2), which generally will result in investors who trade on either date 
being deemed a record holder of September 7, 2017. In order to avoid 
confusion about the proper settlement date and to coordinate with other 
SROs, Nasdaq and the other SROs have agreed that no securities will be 
ex-dividend on September 5, 2017.
    The Exchange is therefore now proposing to address the application 
of Rule 11140(b) as it relates to the ex-dividend date in connection 
with the implementation of the T+2 settlement cycle on September 5, 
2017.
    The ex-dividend date is the date on which a security is first 
traded without the right to receive a distribution of cash, stock or 
warrants. Rule 11140(b)(1) establishes the ``ex-dividend date'' for 
``normal'' distributions of cash, stock or warrants. The rule provides 
that, in respect to cash dividends or distributions, or stock 
dividends, and the issuance or distribution of warrants, which are less 
than 25% of the value of the subject security, if the definitive 
information is received sufficiently in advance of the record date,\8\ 
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.
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    \8\ The record date is ``the date fixed by the trustee, 
registrar, paying agent or issuer for the purpose of determining the 
holders of equity securities, bonds, similar evidences of 
indebtedness or unit investment trust securities entitled to receive 
dividends, interest or principal payments or any other 
distributions.'' See Rule 11120(e).
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    Rule 11140(b)(2) establishes the ex-dividend date with respect to 
``large'' distributions, e.g., cash dividends or distributions, stock 
dividends and/or splits, and the distribution of warrants, which are 
25% or greater of the value of the subject security. In this case, the 
ex-dividend date is the first business day following the payable 
date.\9\
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    \9\ The payable date is the date on which a declared stock 
dividend is scheduled to be paid.
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    Consistent with the compliance date of the amendments to Rule 15c6-
1(a), the securities industry has adopted Tuesday, September 5, 2017 as 
the implementation date of the T+2 settlement cycle.\10\ With the 
implementation of the T+2 settlement cycle, the ex-dividend date for 
``normal'' distributions pursuant to Rule 11140(b)(1) will be the first 
business day before the record date.\11\ Accordingly, Nasdaq proposes 
to interpret Rule 11140(b)(1) so that the first record date to which 
this new ex-dividend date rationale will be applied will be Thursday, 
September 7, 2017. During the implementation of the T+2 settlement 
cycle, the ``regular'' ex-dividend dates will be as follows:
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    \10\ See Securities Exchange Act Release No. 80295 (March 22, 
2017), 82 FR 15564 (March 29, 2017) (File No. S7-22-16).
    \11\ See Securities Exchange Act Release No. 79687 (December 23, 
2016), 81 FR 96545 (December 30, 2016).

Record Date 9/1/2017 Ex date 8/30/2017
Record Date 9/5/2017 Ex date 8/31/2017
Record Date 9/6/2017 Ex date 9/1/2017
Record Date 9/7/2017 Ex date 9/6/2017 \12\
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    \12\ September 4, 2017 is Labor Day and not a business day.

    As described above, the ex-dividend date for ``large'' 
distributions under Rule 11140(b) is the first business day following 
the payable date. This provision was not amended in connection with the 
adoption of the T+2 settlement cycle. In order to ensure that no 
securities will be ex-dividend on September 5, 2017 for purposes of 
``large'' distributions, Nasdaq similarly proposes to interpret Rule 
11140(b) so that, if an issuer sets September 1, 2017 as the payment 
date for a large distribution, the ex-dividend date would be September 
6, 2017, not September 5, 2017.
    Nasdaq notes that it previously issued an Issuer Alert addressing 
the application of the T+2 implementation date on Rule 11140(b).\13\
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    \13\ See Nasdaq Issuer Alert 2017-001 (Changes to Ex-dividend 
Procedures Effective September 5, 2017 to Accommodate T+2 
Settlement), available at http://nasdaq.cchwallstreet.com/nasdaq/pdf/nasdaq-issalerts/2017/2017-001.pdf.
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2. Statutory Basis
    The Exchange believes that its proposal is consistent with Section 
6(b) of the Act,\14\ in general, and furthers the objectives of Section 
6(b)(5) of the Act,\15\

[[Page 40606]]

in particular, in that it is designed to promote just and equitable 
principles of trade, to remove impediments to and perfect the mechanism 
of a free and open market and a national market system, and, in general 
to protect investors and the public interest. In the interest of 
minimizing potential confusion about proper settlement in connection 
with the implementation of the T+2 settlement cycle on September 5, 
2017, the SROs have agreed that no securities will be ex-dividend on 
September 5, 2017. This proposal is consistent with the Act because it 
interprets the application of Rule 11140(b) on September 5, 2017 so 
that neither ``normal'' nor ``large'' distributions will be ex-divided 
on that date, thereby interpreting the application of the Rule on that 
date while minimizing the possibility of additional operational 
complexity and potential confusion about settlement that could occur if 
the rule were interpreted differently.
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    \14\ 15 U.S.C. 78f(b).
    \15\ 15 U.S.C. 78f(b)(5).
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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. As noted above, the SROs, 
including DTC, have collectively agreed that no securities will be ex-
dividend on September 5, 2017 in order to minimize confusion about 
proper settlement. Accordingly, the proposed rule change interprets the 
application of Rule 11140(b) on September 5, 2017 so that neither 
``normal'' nor ``large'' distributions will be ex-divided on that date.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were either solicited or received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    Because the proposed rule change does not (i) significantly affect 
the protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative for 30 
days from the date on which it was filed, or such shorter time as the 
Commission may designate, the proposed rule change has become effective 
pursuant to Section 19(b)(3)(A) of the Act \16\ and Rule 19b-4(f)(6) 
thereunder.\17\
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    \16\ 15 U.S.C. 78s(b)(3)(A).
    \17\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii) 
requires the Exchange to give the Commission written notice of the 
Exchange's intent to file the proposed rule change, along with a 
brief description and text of the proposed rule change, at least 
five business days prior to the date of filing of the proposed rule 
change, or such shorter time as designated by the Commission. The 
Exchange has satisfied this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative for 30 days after the date of filing. 
However, pursuant to Rule 19b-4(f)(6)(iii),\19\ the Commission may 
designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative upon filing. The Exchange has stated that the 
purpose of the proposed rule change is to minimize confusion about 
proper settlement that may arise during the transition to the T+2 
settlement cycle on September 5, 2017. The Commission believes that 
waiving the 30-day operative delay is consistent with the protection of 
investors and the public interest to avoid the confusion that could 
arise in connection with the transition to the T+2 settlement cycle on 
September 5, 2017, if normal or large distributions were to be ex-
dividend on that date. Accordingly, the Commission hereby waives the 
30-day operative delay requirement and designates the proposed rule 
change as operative upon filing.\20\
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has also considered the proposed rule's impact on 
efficiency, competition, and capital formation. See 15 U.S.C. 
78c(f).
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    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. If the Commission 
takes such action, the Commission shall institute proceedings to 
determine whether the proposed rule should be approved or 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 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-NASDAQ-2017-084 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-2017-084. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549, on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of the filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-NASDAQ-2017-084, and should 
be submitted on or before September 15, 2017.
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    \21\ 17 CFR 200.30-3(a)(12).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2017-17999 Filed 8-24-17; 8:45 am]
 BILLING CODE 8011-01-P