FINRA Manual: Contents
|View Whole Section||Text only||Print Manager||Link|
95-36 SEC Approves T+3-Related Amendments To The NASD Uniform Practice Code And Rules Of Fair Practice
On March 17, 1995, the Securities and Exchange Commission (SEC) approved the NASD's amendments to Sections 5, 6, 12,46, and 64 of the Uniform Practice Code (the UPC) and Sections 1 and 26 of the Rules of Fair Practice (the RFP) to conform the NASD's rules to the three-day settlement cycle (T+3 settlement) mandated in SEC Rule 15c6–1, scheduled to take effect on June 7, 1995.1 The amendments to the NASD's rules will also take effect on June 7, 1995.
Description Of Amendments
Following the SEC's adoption of Rule 15c6–1 mandating settlement of securities transactions no later than three days after trade date (T+3), the NASD adopted amendments to the Association's UPC and the RFP. To conform the NASD's rules to the T+3 settlement cycle mandated by Rule 15c6–1, these amendments, which the SEC approved on March 17, 1995, take effect on June 7, 1995. The amendments are described below.
Uniform Practice Code Sections 5 And 6
The amendments to Sections 5 and 6 of the UPC, which prescribe the formula for establishing ex-dates for securities following dividends or other distributions, shorten all the time frames under the Sections by two business days.
Section 12 prescribes delivery dates for various transaction circumstances. Subsection 12(b) states that for a "regular way" transaction, delivery must be made on, but not before, the fifth business day after the trade date. The amendment shortens the delivery requirement to the third business day. In addition, the amendment provides that in "seller's option" transactions delivery may be made by the seller on any business day following the third business day after the trade date, rather than the fifth business day.
Section 46 requires the calculation of interest up to, but not including, the fifth business day after the trade date. The amendment shortens the time to the third business day.
Subsection 64(a)(4) states that in a transaction whereby payment or delivery is to be made to or by an agent of the customer, the customer must agree to furnish instructions to the agent no later than T+4 if the customer is buying COD, or T+3 if the customer is selling POD. The amendments shorten the time period for furnishing such instructions to T+2 and T+l, respectively.
Rules Of Fair Practice
Article m, Section 1
The Prompt Receipt and Delivery Interpretation requires a member to make an affirmative determination, in connection with a long sale, that the customer owns the security and will deliver it in good deliverable form within five business days of order execution. The interpretation also contains a definition of the term "affirmative determination," which applies to long sales and which requires members to note the customer's ability to delivery the securities within five business days. The amendment changes the time limit to three days.
Article III, Section 26(m)(1)
Article III, Section 26(m)(1) requires members to transmit payments received from customers for the purchase of investment company shares by the fifth business day after receipt of a customer's order, or one business day after receipt of a customer's payment, whichever is later. The amendment shortens the five-day transmittal requirement to three days and leaves the one-day alternative unchanged.
The NASD has agreed to an implementation plan for transition to a T+3 settlement cycle proposed by the National Securities Clearing Corporation (NSCC) for early June 1995.2
Questions regarding this Notice may be directed to Nasdaq Market Operations at (203) 375–9609.
1 The rule filing also included amendments to Section 65 of the UPC relating to customer account transfers. The SEC approved the amendments to Section 65 on November 30, 1995, to coincide with improvements in the Automated Customer Account Transfer System (ACATS). The amendments to Section 65 are not in this Notice, but were published in the NASD Manual and distributed to on-line vendors of the Manual.
2 The NSCC plan is to double-up settlement for two trade dates to move from T+5 to T+4 and then repeat the process to move from T+4 to T+3. Thus, for trade date Friday, June 2, trades will settle on the following Friday, June 9 (T+5), and for trade date Monday, June 5, trades will also settle on Friday, June 9 (T+4). The same doubled-up settlement will be used for trade dates Tuesday, June 6 and Wednesday, June 7, both of which will settle on Monday, June 12.
Text Of Amendments To The Uniform Practice Code And The Rules Of Fair Practice
(Note: New text is underlined; deletions are in brackets.)
UNIFORM PRACTICE CODE
Sec. 1 through Sec. 4 No change.
Transactions in Securities "Ex-Dividend," "Ex-Rights" or "Ex-Warrants"
Designation of ex-date
Transactions "Ex-Interest" in Bonds Which Are Dealt in "Flat"
Normal ex-interest dates
Sec. 7 through Sec. 11 No change.
Sec. 12. Dates of Delivery For "cash"
Sec. 13 through Sec. 45 No change.
Computation of Interest Sec. 46.
Interest to be added to the dollar price
Sec. 47 through Sec. 63 No change.
Acceptance and Settlement of COD Orders
RULES OF FAIR PRACTICE ARTICLE III
Interpretation of the Board of Governors
Prompt Receipt and Delivery of Securities
Prompt Payment for Investment Company Shares