Notice2023-26928
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Notice of Filing and Immediate Effectiveness of a Proposed Rule Change To Amend FINRA Rules To Conform to Exchange Act Rules 15c6-1 and 15c6-2 To Shorten the Standard Settlement Cycle for Most Broker-Dealer Transactions From Two Business Days After the Trade Date to One Business Day After the Trade Date
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
December 8, 2023
Issuing agencies
Securities and Exchange Commission
Full Text
<html>
<head>
<title>Federal Register, Volume 88 Issue 235 (Friday, December 8, 2023)</title>
</head>
<body><pre>
[Federal Register Volume 88, Number 235 (Friday, December 8, 2023)]
[Notices]
[Pages 85678-85683]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-26928]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-99075; File No. SR-FINRA-2023-017]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Notice of Filing and Immediate Effectiveness of a
Proposed Rule Change To Amend FINRA Rules To Conform to Exchange Act
Rules 15c6-1 and 15c6-2 To Shorten the Standard Settlement Cycle for
Most Broker-Dealer Transactions From Two Business Days After the Trade
Date to One Business Day After the Trade Date
December 4, 2023.
Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of
1934 (``Act'') and Rule 19b-4 thereunder,\2\ notice is hereby given
that on November 28, 2023, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') 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 FINRA. FINRA
has designated the proposed rule change as constituting a ``non-
controversial'' rule change under paragraph (f)(6) of Rule 19b-4 under
the Act,\3\ which renders the proposal effective upon receipt of this
filing by 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\ 17 CFR 240.19b-4(f)(6).
---------------------------------------------------------------------------
I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change
FINRA is proposing to amend FINRA Rules 2341 (Investment Company
Securities), 4515 (Approval and Documentation of Changes in Account
Name or Designation), 6282 (Transactions Reported by Members to the
ADF), 6380A (Transaction Reporting), 6380B (Transaction Reporting),
6622 (Transaction Reporting), 7140 (Trade Report Processing), 7240A
(Trade Report Processing), 7340 (Trade Report Processing), 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), 11860 (COD Orders), 11893
(Clearly Erroneous Transactions in OTC Equity Securities), and 11894
(Review by the Uniform Practice Code (``UPC'') Committee) to conform to
the Commission's final amendments to Exchange Act Rule 15c6-1 and
adoption of Exchange Act Rule 15c6-2 to shorten the standard settlement
cycle for most broker-dealer transactions from two business days after
the trade date (``T+2'') to one business day after the trade date
(``T+1'').\4\
---------------------------------------------------------------------------
\4\ See Securities Exchange Act Release No. 96930 (February 15,
2023), 88 FR 13872 (March 6, 2023) (File No. S7-05-22) (Shortening
the Securities Transaction Settlement Cycle) (``SEC T+1 Adopting
Release''). The effective date of final Exchange Act Rules changes
is May 5, 2023, and the compliance date is May 28, 2024.
---------------------------------------------------------------------------
The text of the proposed rule change is available on FINRA's
website at <a href="http://www.finra.org">http://www.finra.org</a>, at the principal office of FINRA 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, FINRA 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. FINRA 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
Background
In October 1993, the Commission adopted Exchange Act Rule 15c6-1 to
shorten the standard U.S. trade settlement cycle for most securities
transactions from five business days after the trade date (``T+5'') to
three business days after the trade date (``T+3'').\5\ In March 2017,
the Commission amended Exchange Act Rule 15c6-1 to further shorten the
trade settlement cycle from T+3 to T+2.\6\ On both occasions, FINRA
amended its settlement-related rules to conform to the Commission's
changes to the trade settlement cycle.\7\
---------------------------------------------------------------------------
\5\ See Securities Exchange Act Release No. 33023 (October 6,
1993), 58 FR 52891 (October 13, 1993) (File No. S7-5-93). The
implementation date of Exchange Act Rule 15c6-1 was June 7, 1995.
See Securities Exchange Act Release No. 34592 (November 9, 1994), 59
FR 59137 (November 16, 1994) (File No. S7-5-93). When adopted,
Exchange Act Rule 15c6-1 prohibited broker-dealers from effecting or
entering 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. Although not covered by Exchange Act Rule 15c6-1,
in 1995, the Commission approved the Municipal Securities Rulemaking
Board's (``MSRB'') 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).
\6\ See Securities Exchange Act Release No. 80295 (March 22,
2017), 82 FR 15564 (March 29, 2017) (File No. S7-22-16). The
compliance date for the T+2 settlement cycle was September 5, 2017.
In April 2016, the Commission approved the MSRB's rule change
requiring transactions in municipal securities to settle by T+2. See
Securities Exchange Act Release No. 77744 (April 29, 2016), 81 FR
26851 (May 4, 2016) (Order Approving File No. SR-MSRB-2016-04).
\7\ See 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. 80004 (February 9,
2017), 82 FR 10835 (February 15, 2017) (Order Approving File No. SR-
FINRA-2016-047) and Securities Exchange Act Release No. 80004A
(March 6, 2017), 82 FR 13517 (March 13, 2017) (Correction to Order
Approving File No. SR-FINRA-2016-047). Other self-regulatory
organizations (``SROs''), including, as previously noted, the MSRB,
also amended their rules to conform to the shortening of the
settlement cycle to T+3 and then T+2.
---------------------------------------------------------------------------
[[Page 85679]]
Even before the adoption of the T+2 settlement cycle, the concept
of a T+1 settlement cycle already was being considered.\8\ In this
regard, the Depository Trust & Clearing Corporation (``DTCC'')
published a white paper in February 2021 highlighting the benefits of
moving to a T+1 settlement cycle, particularly in light of the
unprecedented market activity and volatility that had occurred in 2020
and early 2021.\9\ Following the publication of the DTCC White Paper,
the industry formed an Industry Steering Committee (``ISC'') \10\ and
an Industry Working Group (``IWG'') \11\ to develop an industry
consensus for the transition to a T+1 settlement cycle. In December
2021, SIFMA, ICI, DTCC, and Deloitte published a report summarizing the
work conducted by the ISC and IWG and setting forth the ISC's
recommendations for transitioning to a T+1 settlement cycle.\12\
Thereafter, in August 2022, SIFMA, ICI, and Deloitte published a T+1
implementation playbook to help market participants prepare for the
implementation of T+1 settlement.\13\
---------------------------------------------------------------------------
\8\ See, e.g., Deloitte & Touche LLP (``Deloitte''), T+2
Industry Implementation Playbook (12/18/2015), <a href="https://www.ust2.com/pdfs/T2-Playbook-12-21-15.pdf">https://www.ust2.com/pdfs/T2-Playbook-12-21-15.pdf</a>; Investor Advisory Committee, U.S.
Securities and Exchange Commission Recommendation of the Investor
Advisory Committee: Shortening the Settlement Cycle in U.S.
Financial Markets (February 12, 2015), <a href="https://www.sec.gov/spotlight/investor-advisory-committee-2012/settlement-cycle-recommendation-final.pdf">https://www.sec.gov/spotlight/investor-advisory-committee-2012/settlement-cycle-recommendation-final.pdf</a>.
\9\ See DTCC, Advancing Together: Leading the Industry to
Accelerated Settlement (February 2021) (``DTCC White Paper''),
<a href="https://www.dtcc.com/-/media/Files/PDFs/White%20Paper/DTCC-Accelerated-Settle-WP-2021.pdf">https://www.dtcc.com/-/media/Files/PDFs/White%20Paper/DTCC-Accelerated-Settle-WP-2021.pdf</a>.
\10\ Participants in the ISC include, among others, DTCC, the
Securities Industry and Financial Markets Association (``SIFMA''),
and the Investment Company Institute (``ICI''). See <a href="https://www.dtcc.com/ust1">https://www.dtcc.com/ust1</a>.
\11\ The IWG included over 800 subject matter advisors
representing over 160 firms from buy- and sell-side firms,
custodians, vendors, and clearinghouses. See infra note 12.
\12\ See SIFMA, ICI, DTCC & Deloitte, Accelerating the U.S.
Securities Settlement Cycle to T+1 (December 1, 2021), <a href="https://www.sifma.org/wp-content/uploads/2021/12/Accelerating-the-U.S.-Securities-Settlement-Cycle-to-T1-December-1-2021.pdf">https://www.sifma.org/wp-content/uploads/2021/12/Accelerating-the-U.S.-Securities-Settlement-Cycle-to-T1-December-1-2021.pdf</a>.
\13\ See SIFMA, ICI & Deloitte, T+1 Securities Settlement
Industry Implementation Playbook (August 2022), <a href="https://www.sifma.org/wp-content/uploads/2022/08/T1_Industry_Implementation_Playbook.pdf">https://www.sifma.org/wp-content/uploads/2022/08/T1_Industry_Implementation_Playbook.pdf</a>.
---------------------------------------------------------------------------
On February 9, 2022, the Commission published a proposal to shorten
the standard settlement cycle for most U.S. securities transactions
from T+2 to T+1.\14\ In the SEC T+1 Proposing Release, the Commission
noted its belief that shortening the settlement cycle from T+2 to T+1
can promote investor protection, reduce risk, and increase operational
and capital efficiency. Moreover, the Commission noted that two
episodes involving increased market volatility-the outbreak of the
COVID-19 pandemic in March 2020 and the ``meme'' stock phenomenon in
January 2021-refocused attention on a T+1 standard settlement cycle. In
the SEC T+1 Proposing Release, the Commission further noted that
substantial progress has been made toward identifying the technological
and operational changes that are necessary to establish a T+1
settlement cycle, including the industry-level changes that would be
necessary to transition from a T+2 standard to a T+1 standard
settlement cycle. In proposing new Exchange Act Rule 15c6-2, the
Commission stated that additional regulatory steps were ``necessary to
improve the processing of institutional transactions, advancing two
other longstanding objectives shared by the Commission and the
securities industry: the completion of trade allocations,
confirmations, and affirmations on trade date (an objective often
referred to as ``same-day affirmation'') and the straight-through
processing of securities transactions.'' \15\ The Commission received
numerous comment letters on the proposal, specifically regarding the
proposed amendments to Exchange Act Rule 15c6-1 and proposed new
Exchange Act Rule 15c6-2.\16\
---------------------------------------------------------------------------
\14\ See Securities Exchange Act Release No. 94196 (February 9,
2022), 87 FR 10436 (February 24, 2022) (File No. S7-05-22) (``SEC
T+1 Proposing Release'').
\15\ See SEC T+1 Adopting Release, supra note 4, 88 FR 13872,
13873.
\16\ Copies of all comment letters received by the Commission
are available at <a href="https://www.sec.gov/comments/s7-05-22/s70522.htm">https://www.sec.gov/comments/s7-05-22/s70522.htm</a>.
---------------------------------------------------------------------------
Following consideration of the comments, on February 15, 2023, the
Commission adopted final rules to shorten the standard settlement cycle
for most U.S. securities transactions from T+2 to T+1.\17\ In addition
to the amendments to Exchange Act Rule 15c6-1 to shorten the settlement
cycle, the Commission adopted new Exchange Act Rule 15c6-2 regarding
same-day allocations and affirmations.
---------------------------------------------------------------------------
\17\ See supra note 4.
---------------------------------------------------------------------------
Final Exchange Act Rule 15c6-1 requires most broker-dealer
transactions to settle by T+1, subject to certain exceptions. Final
Exchange Act Rule 15c6-2 addresses same day allocations, confirmations
and affirmations to improve institutional trades and straight-through
processing. Certain transactions, primarily involving institutional
trades, require post-trade exchange of confirmations and affirmations,
in order for the parties to compare trade details and facilitate
settlement with third-party custodians. In addition, investment
managers that effect block trades for the accounts of several customers
simultaneously need to provide post-trade underlying account allocation
instructions to the broker or custodian before these transactions can
settle. Final Exchange Act Rule 15c6-2 requires a broker-dealer to
either enter into a written agreement or establish, maintain, and
enforce written policies and procedures reasonably designed to ensure
the completion of allocations, confirmations, and affirmations (or any
combination thereof) as soon as technologically practicable and no
later than the end of trade date in order to complete settlement by
T+1.
Proposed Rule Change
Given the Commission's recent changes to shorten the standard
settlement cycle for most U.S. securities transactions from T+2 to T+1,
FINRA is proposing amendments to its rules to align them with the
changes set forth in the T+1 Adopting Release. As such, FINRA is
proposing to amend FINRA Rules 2341 (Investment Company Securities),
4515 (Approval and Documentation of Changes in Account Name or
Designation), 6282 (Transactions Reported by Members to the ADF), 6380A
(Transaction Reporting), 6380B (Transaction Reporting), 6622
(Transaction Reporting), 7140 (Trade Report Processing), 7240A (Trade
Report Processing), 7340 (Trade Report Processing), 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), 11860 (COD Orders), 11893 (Clearly Erroneous
Transactions in OTC Equity Securities), and 11894 (Review by the
Uniform Practice Code (``UPC'') Committee).
The details of the proposed rule change are described below.
FINRA Rule 2341 (Investment Company Securities)
Rule 2341(m)(1) requires members, including underwriters, that
engage in direct retail transactions for investment
[[Page 85680]]
company shares to transmit payments received from customers for the
purchase of investment company shares to the payee by the end of the
second business day after receipt of a customer's order to purchase
such shares, or by the end of one business day after receipt of a
customer's payment for such shares, whichever is later. FINRA is
proposing to amend Rule 2341(m)(1) to change the two-business day
transmittal requirement to one business day. FINRA is not proposing any
changes to the one-business day alternative.
4515 (Approval and Documentation of Changes in Account Name or
Designation)
Rule 4515 requires that, before a customer order is executed, the
account name or designation must be placed upon the order form or other
similar record for the transaction, and addresses the approval and
documentation procedures for changes in such account name or
designation. Additionally, Rule 4515.01 provides that when accepting
orders from investment advisers, the member firm may allow such
investment advisers to make allocations on their orders for customers
on whose behalf the investment advisers submit the orders, as long as
the firm receives specific account designations or customer names from
such investment advisers by noon of the next business day following the
trading session.\18\ FINRA is proposing to amend Rule 4515.01 to
provide that when accepting orders from investment advisers, a member
firm may allow such investment advisers to make allocations on their
orders for customers on whose behalf the investment advisers submit the
orders, as long as the member firm receives specific account
designations or customer names from such investment advisers by no
later than the end of the day on the trade date. FINRA is proposing to
amend the timeframe by which a member firm must receive the specific
account designations or customer names from the investment adviser to
conform Rule 4515.01 with the same-day confirmation, allocation, and
affirmation requirements of new Exchange Act Rule 15c6-2.
---------------------------------------------------------------------------
\18\ Rule 4515.01 applies only where there is more than one
customer for any particular order and it extends to investment
advisers that are registered under the Investment Advisers Act or
that, but for Investment Advisers Act Section 203(b) or 203A, would
be required to register under the Investment Advisers Act. In
addition, Rule 4515.01 clarifies that member firms may not knowingly
facilitate the allocation of orders from investment advisers in a
manner other than in compliance with both (i) the investment
adviser's intent at the time of trade execution to allocate shares
on a percentage basis to the participating accounts and (ii) the
investment adviser's fiduciary duty with respect to allocations for
such participating accounts, including but not limited to
allocations based on the performance of a transaction between the
time of execution and the time of allocation.
---------------------------------------------------------------------------
FINRA Rules 6282 (Transactions Reported by Members to the ADF), 6380A
(Transaction Reporting), 6380B (Transaction Reporting), 6622
(Transaction Reporting)
Rules 6282(a)(4)(D), 6380A(a)(5)(D), 6380B(a)(5)(D), and
6622(a)(5)(D) address transaction reporting with respect to the
Alternative Display Facility (``ADF''), the FINRA/Nasdaq Trade
Reporting Facility (``NQTRF''), the FINRA/NYSE Trade Reporting
Facility, and the Over-the-Counter Reporting Facility (``ORF''),
respectively. Specifically, these rules require a reporting firm to
identify a Next Day Trade by appending the appropriate modifier to a
last sale report. FINRA is proposing to delete Rules 6282(a)(4)(D),
6380A(a)(5)(D), 6380B(a)(5)(D), and 6622(a)(5)(D) because, upon
implementation of a T+1 trade settlement cycle, a Next Day Trade will
become a Regular Way Trade, which is the default settlement type for
transaction reporting and does not require a modifier.
FINRA Rules 7140 (Trade Report Processing), 7240A (Trade Report
Processing), and 7340 (Trade Report Processing)
Rules 7140(a)(3), 7240A(a)(3), and 7340(a)(3) address the automatic
lock-in of trades in the ADF, the NQTRF, and the ORF, respectively.
These rules provide that any trade that remains open at the end of its
entry day will be carried over and automatically locked-in by the
corresponding system. The trade is then submitted to the National
Securities Clearing Corporation (``NSCC'') at 2:30 p.m. Eastern Time
(``ET'') on the next business day. FINRA is proposing to amend Rules
7140(a)(3), 7240A(a)(3), and 7340(a)(3) to change the time a trade is
submitted to the NSCC from 2:30 p.m. ET to noon ET to allow for
sufficient time for NSCC to process the trade.
FINRA 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 first business day
preceding the record date if the record date falls on a business day,
or the second business day preceding the record date if the record date
falls on a day designated by FINRA's Uniform Practice Code Committee
(``Committee'') as a non-delivery date. FINRA is proposing to shorten
the timeframes in Rule 11140(b)(1) by one business day. As such, the
date designated as the ``ex-dividend date'' would be the record date if
the record date falls on a business day, or the first business day
preceding the record date if the record date falls on a day designated
by the Committee as a non-delivery date. In addition, the proposed rule
change would make a non-substantive technical change to the rule.
FINRA Rule 11150 (Transactions ``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 (1) the first business day preceding the record date if
the record date falls on a business day, (2) the second business day
preceding the record date if the record date falls on a day other than
a business day, or (3) the second business day preceding the date on
which an interest payment is to be made if no record date has been
fixed. FINRA is proposing to shorten the timeframes in Rule 11150(a) by
one business day. Therefore, the transactions would be ``ex-interest''
on (1) the record date if the record date falls on a business day, (2)
the first business day preceding the record date if the record date
falls on a day other than a business day, or (3) the first business day
preceding the date on which an interest payment is to be made if no
record date has been fixed.
FINRA Rule 11210 (Sent by Each Party)
Rule 11210(a) requires each party to a transaction, other than a
cash transaction, to send a Uniform Comparison or Confirmation of the
transaction on or before the first business day following the date of
the transaction. FINRA is proposing to shorten the timeframe in Rule
11210(a) and require the sending of the Uniform Comparison or
Confirmation of a transaction by the end of the day on the trade date.
In addition, the proposed rule change would clarify that, as a result
of this change, the timeframe for the exchange of comparisons or
confirmations for all transactions (cash and non-cash) would be the
same.
[[Page 85681]]
Paragraphs (c) and (d) of Rule 11210 set forth the ``Don't Know''
(``DK'') voluntary procedures for using ``DK Notices'' (FINRA Form No.
101) 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 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
one business day following the trade date of the transaction. The
procedures generally provide that after this time period, the
confirming member shall send a ``DK Notice'' (or similar notice) to the
contra-member. The contra-member then has two business days after
receipt of the confirming member's notice to either confirm or ``DK''
the transaction.
FINRA 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 end of the day on the trade date of the
transaction, rather than by the current close of one business day
following the trade date of the transaction. In addition, FINRA 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 two business days after the
contra-member's receipt of the notice to one business day after the
contra-member's receipt of the notice.
FINRA 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 second business day after the date
of the transaction. FINRA is proposing to amend Rule 11320(b) to change
the reference to the second business day following the date of the
transaction to the first business day following the date of the
transaction.
Rule 11320(c) provides that in a ``seller's option'' transaction,
delivery may be made by the seller on any business day after the second
business day following the date of the transaction and prior to the
expiration of the option. FINRA is proposing to amend Rule 11320(c) to
change the reference to the second business day following the date of
the transaction to the first business day following the date of the
transaction.
FINRA 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 second
business day after the date of the transaction. FINRA is proposing to
amend Rule 11620(a) to shorten the timeframe to the first business day
following the date of the transaction.
FINRA Rule 11860 (COD Orders)
Rule 11860(a) directs members to follow various procedures before
accepting collect on delivery (``COD'') or payment on delivery
(``POD'') orders.\19\ Rule 11860(a)(3) provides that the member must
deliver to the customer a confirmation, or all relevant data
customarily contained in a confirmation with respect to the execution
of the order, not later than the close of business on the next business
day after any such execution. FINRA is proposing to amend Rule
11860(a)(3) to shorten the timeframe for delivery in the rule to no
later than the end of the day on the trade date. In addition, the
proposed rule change would make a non-substantive technical change to
the rule.
---------------------------------------------------------------------------
\19\ A COD order is a purchase by the customer where the agent
is to receive the securities against payment for the purchase and a
POD order is a sale by the customer where the agent is to deliver
the securities against payment of the sale proceeds. Alternative
industry terms for COD and POD orders are delivery vs. payment
(``DVP'') and receipt vs. payment (``RVP'').
---------------------------------------------------------------------------
Rule 11860(a)(4) requires that the member have obtained an
agreement from the customer that the customer will furnish its agent
instructions with respect to the receipt or delivery of the securities
involved in the transaction promptly upon receipt by the customer of
each confirmation, or the relevant data as to each execution, relating
to such order, and that in any event the customer will assure that such
instructions are delivered to its agent no later than the close of
business on the first business day after the date of execution of a COD
or POD order.
In light of the Commission's recent adoption of final Exchange Act
Rule 15c6-2, FINRA is proposing to amend Rule 11860(a)(4) to provide
that prior to accepting a COD or POD order, the member shall have
entered into the written agreement, or established the written policies
and procedures, required by SEA Rule 15c6-2 with respect to any
resulting transaction.
FINRA Rule 11893. Clearly Erroneous Transactions in OTC Equity
Securities
Rule 11893 governs clearly erroneous determinations involving
transactions in OTC Equity Securities. Pursuant to Rule 11893(a), a
FINRA officer may declare any transaction involving an OTC Equity
Security arising out of or reported through a trade reporting system
owned or operated by FINRA or FINRA Regulation and authorized by the
Commission null and void if the officer determines that (1) the
transaction is clearly erroneous, or (2) such actions are necessary for
the maintenance of a fair and orderly market or the protection of
investors and the public interest; provided, however, that the officer
shall take action pursuant to this paragraph as soon as possible after
becoming aware of the transaction, but in all cases by 3:00 p.m.,
Eastern Time, on the next trading day following the date of the
transaction(s) at issue. FINRA is proposing to amend Rule 11893(a) to
require a FINRA officer to take action as soon as possible after
becoming aware of the transaction, but in all cases no later than the
start of trading on the day following the date of the transaction(s) at
issue. FINRA is proposing this change to the rule so that, in the new
T+1 environment, a determination regarding whether a transaction is
null and void is made before the trade settles. The proposed change
also closely aligns the timeframe for a FINRA officer to take action
with respect to the review of a clearly erroneous transaction in OTC
Equity Securities with the timeframe for such action in exchange-listed
securities provided in FINRA Rule 11892 (Clearly Erroneous Transactions
in Exchange-Listed Securities).
FINRA Rule 11894. Review by the Uniform Practice Code (``UPC'')
Committee
Rule 11894 governs the appeal to the UPC Committee of a FINRA
officer's determination to declare an execution null and void. Under
the rule, an appeal must be made in writing and must be received by
FINRA within 30 minutes after the person making the appeal is given the
notification of the determination being appealed. If the appeal
pertains to OTC Equity Securities, Rule 11894(b)(2) requires the UPC
committee to render a determination as soon as practicable, but in no
case later than two trading days following the date of the execution(s)
under review. In connection with the shortening of the settlement cycle
to T+1, FINRA is proposing to amend Rule 11894(b)(2) to
[[Page 85682]]
require the UPC Committee to render a determination as soon as
practicable, but in no case later than the trading day following the
date of the execution(s) under review. This proposed rule change also
more closely aligns the timeframe for UPC Committee determinations with
respect to OTC Equity Securities with those for exchange-listed
securities set forth in Rule 11894(b)(1).
Effective Date of Proposed Rule Change
FINRA has filed the proposed rule change for immediate
effectiveness. The operative date of the proposed rule change will be
May 28, 2024, or such later date as may be announced by the Commission
for compliance for Exchange Act Rules 15c6-1 and 15c6-2.
2. Statutory Basis
FINRA believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) of the Act,\20\ which requires, among
other things, that FINRA rules must be designed to prevent fraudulent
and manipulative acts and practices, 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. FINRA believes that the proposed rule change will minimize
potential confusion and help industry participants comply with the T+1
settlement cycle by harmonizing FINRA rules with final Exchange Act
Rules 15c6-1 and 15c6-2. FINRA further believes that by defining
``regular way'' settlement as occurring on T+1, the proposed rule
change will result in a reduction of the overall level of systemic risk
in the financial system and an increase in operational and capital
efficiency of the clearance and settlement process. In addition, FINRA
believes that the shortening of the settlement cycle will benefit
investors by more quickly providing them access to the proceeds of
their securities transactions.
---------------------------------------------------------------------------
\20\ 15 U.S.C. 78o-3(b)(6).
---------------------------------------------------------------------------
B. Self-Regulatory Organization's Statement on Burden on Competition
FINRA does not believe that the proposed rule change will result in
any burden on competition that is not necessary or appropriate in
furtherance of the purposes of the Act.
Economic Impact Assessment
FINRA has undertaken an economic impact assessment, as set forth
below, to analyze the potential economic impacts of the proposed rule
change, including anticipated costs, benefits, and distributional and
competitive effects, relative to current baseline, and the alternatives
FINRA considered in assessing how best to meet FINRA's regulatory
objectives.
1. Regulatory Need
The proposed rule change will harmonize FINRA rules with final
Exchange Act Rules 15c6-1 and 15c6-2, minimizing potential confusion
and helping industry participants comply with the T+1 settlement cycle.
2. Economic Baseline
The economic baseline for the proposed rule change consists of
current FINRA Rules 2341, 4515, 6282, 6380A, 6380B, 6622, 7140, 7240A,
7340, 11140, 11150, 11210, 11320, 11620, 11860, 11893, and 11894 as
well as the amendments adopted by the SEC in final Rules 15c6-1 and
15c6-2.
3. Economic Impacts
The proposed changes to FINRA rules conform trade processing and
asset servicing activities to the shortened settlement cycle and do not
impose any burdens on industry beyond those that industry must incur to
implement the SEC's final rules pertaining to a T+1 settlement
cycle.\21\
---------------------------------------------------------------------------
\21\ The proposed rule changes are also largely consistent with
recommendations by industry trade groups. See supra note 13.
---------------------------------------------------------------------------
4. Alternatives Considered
An alternative to the proposed changes to FINRA Rule 11860 to
shorten the relevant timeframes to facilitate the transition to T+1
consistent with final Exchange Act Rule 15c6-2 (no later than the end
of the day on trade date) is to specify the exact hours on the trade
date by which a member must deliver a confirmation and a customer must
deliver instructions on the receipt or delivery of the securities.
While this alternative would create more uniform practices, we [sic]
believe that the proposed changes to FINRA Rule 11860 would provide
greater flexibility and allow members and customers to establish the
timelines that are more suitable for their operational capacities and
constraints.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
Written comments were neither solicited nor received.
III. Date of Effectiveness of the Proposed Rule Change and Timing for
Commission Action
Because the foregoing 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, it has become
effective pursuant to Section 19(b)(3)(A) of the Act \22\ and Rule 19b-
4(f)(6) thereunder.\23\
---------------------------------------------------------------------------
\22\ 15 U.S.C. 78s(b)(3)(A).
\23\ 17 CFR 240.19b-4(f)(6). In addition, Rule 19b-4(f)(6)(iii)
requires the self-regulatory organization to give the Commission
written notice of the self-regulatory organization'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. FINRA has satisfied this requirement.
---------------------------------------------------------------------------
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
<bullet> Use the Commission's internet comment form (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>); or
<bullet> Send an email to <a href="/cdn-cgi/l/email-protection#7301061f165e101c1e1e161d0700330016105d141c05"><span class="__cf_email__" data-cfemail="95e7e0f9f0b8f6faf8f8f0fbe1e6d5e6f0f6bbf2fae3">[email protected]</span></a>. Please include
file number SR-FINRA-2023-017 on the subject line.
Paper Comments
<bullet> 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-FINRA-2023-017. This
file
[[Page 85683]]
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 website (<a href="https://www.sec.gov/rules/sro.shtml">https://www.sec.gov/rules/sro.shtml</a>). 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 website 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
a.m. and 3 p.m. Copies of the filing also will be available for
inspection and copying at the principal office of FINRA. Do not include
personal identifiable information in submissions; you should submit
only information that you wish to make available publicly. We may
redact in part or withhold entirely from publication submitted material
that is obscene or subject to copyright protection. All submissions
should refer to file number SR-FINRA-2023-017 and should be submitted
on or before December 29, 2023.
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\24\
---------------------------------------------------------------------------
\24\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------
Sherry R. Haywood,
Assistant Secretary.
[FR Doc. 2023-26928 Filed 12-7-23; 8:45 am]
BILLING CODE 8011-01-P
</pre><script data-cfasync="false" src="/cdn-cgi/scripts/5c5dd728/cloudflare-static/email-decode.min.js"></script></body>
</html>Indexed from Federal Register on December 8, 2023.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.