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Federal Register / Vol. 86, No. 104 / Wednesday, June 2, 2021 / Notices
exchanges for innovative approaches to improve the market for thinly traded securities, including requests for suspension of UTP.76
Accordingly, the Exchange plans to submit an application for the suspension of UTP for Thinly Traded Securities, as described above, to the Commission pursuant to Rule 12f3 of the Exchange Act, which rule allows issuers, broker-dealers who make markets in a security admitted to UTP, or any other person having a bona fide interest in the question of termination or suspension of such unlisted trading privileges to submit an application for the suspension of UTP consistent with certain specified requirements.77 The Exchange believes that there is good cause for the suspension of UTP to promote efficiency, competition, and capital formation 78 by facilitating the trading of Thinly Traded Securities in a manner that addresses structural market quality challenges in todays markets for such securities.

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Ability for BSTX Participants To Include a Parameter for a Preference for Settlement of Transactions in Securities Faster Than T+2
As described above in Section II.E.5., BSTX believes that NSCC already has authority under its rules, policies and procedures to clear certain trades on a T+1 or T+0 basis, which are shorter settlement cycles than the longest settlement cycle of T+2 that is generally permitted under SEC Rule 15c61 for a security trade that involves a brokerdealer.79 Furthermore, BSTX
understands that NSCC does already clear trades in accordance with this authority.
The Exchange proposes that BSTX
Participants would be able to include in their orders in Securities that are submitted to BSTX certain parameters to indicate a preference for settlement on a same day T+0 or next trading day T+1 basis when certain conditions are met.80 Any such orders would at the time of order entry represent orders that would be regular-way and would be presumed to settle on a T+2 basis just like any other order submitted by a BSTX Participant that does not include a parameter indicating a preference for faster settlement. As described in greater detail below, however, orders in a Security that include a parameter indicating a preference for settlement on 76 Commission Statement on Thinly Traded Securities at 56956.
77 17 CFR 240.12f3.
78 15 U.S.C. 78cf.
79 See supra note 28.
80 See proposed Rule 25060h.

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a T+0 basis Order with a T+0
Preference or on a T+1 basis Order with a T+1 Preference would only result in executions that would actually settle more quickly than on a T+2 basis if, and only if, all of the conditions in Rule 25060h are met and the execution that is transmitted to NSCC is eligible for T+0 or T+1 settlement under the rules, policies and procedures of a registered clearing agency.81 Any such preference included by a BSTX
Participant would only become operative if the order happens to execute against another order from a BSTX Participant that also includes a parameter indicating a preference for settlement on a T+0 or T+1 basis, as described in more detail below. This means that at the time of order entry all orders in Securities would be regular way orders that would be presumed to settle on a T+2 basis. Faster settlement consistent with the rules, policies and procedures of a registered clearing agency would occur if and only if two orders execute against each other in a manner that meets the conditions in Rule 25060h.
As proposed, an Order with a T+0
Preference will execute against any order against which it is marketable with settlement occurring on a standard settlement cycle T+2 except where: i The Order with a T+0 Preference executes against another Order with a T+0 Preference, in which case settlement shall occur on the trade date, or ii the Order with a T+0 Preference executes against an Order with a T+1
Preference, in which case settlement shall occur the next trading day after the trade date i.e., T+1. Similarly, as proposed, an Order with a T+1
Preference will execute against any order against which it is marketable with settlement occurring on a standard settlement cycle T+2 except where: i The Order with a T+1 Preference executes against another Order with a T+1 Preference or an Order with a T+0
Preference, in which case settlement occurs on the next trading day after the trade date i.e., T+1. In all cases, an order not marked with a preference for either T+0 or T+1 settlement would be assured under the settlement timing logic in proposed Rule 25060h of settlement on T+2. The possibility of a shortened settlement time would have no impact on the Exchanges proposed price time priority structure for order matching.82
81 See
proposed Rule 25100d.
example, assume Order A is marked as an Order with a T+0 Preference and it is sent to BSTX
and is marketable against both resting Order B
standard T+2 settlement, with time priority over 82 For
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As a result of this structure, all orders in Securities would be eligible to match and execute against any order against which they are marketable with settlement to occur at the later settlement date of any two matching orders. Only where an Order with a T+1
Preference or an Order with a T+0
Preference match with another Order with a T+1 Preference or Order with a T+0 Preference will those orders or matching portions thereof be eligible to settle more quickly than the standard settlement cycle of T+2. As previously noted in Part II.E, the Exchange believes that the clearance and settlement processes at NSCC and DTC are already capable of facilitating such shortened settlement times.
The Exchange believes that facilitating shorter settlement cycles as permitted under the rules, policies, and procedures of a registered clearing agency is consistent with Section 6b5
of the Exchange Act 83 because it is in the public interest and furthers the protection of investors as well as helps perfect the mechanism of a free and open market and the national market system. Specifically, the Exchange believes that BSTX Participants have an interest in being able to access riskreducing market functionality that is presently available and compatible with market structure, such as shorter settlement cycles, and that this can reduce costs for market participants settling trading obligations in that Security and reduce settlement risk. For example, market participants settling trades in a Security on a T+2 basis must post margin collateral to NSCC for two trading days. The margin collateral cannot otherwise be used until settlement on T+2. In addition, by shortening the timing of settlement from T+2 to T+1 or T+0, the risk horizon for a potential default in settling the trade is correspondingly shortened as well.
This means that market participants engaged in a transaction settling transactions on shorter settlement cycles than T+2 receive the benefits of not having to encumber collateral assets for as long and facing a shorter period of settlement risk. The Exchange believes that these benefits in turn free up assets to be used elsewhere in financial markets, thereby helping to promote the efficient allocation of capital and perfecting the mechanism of a free and Order C and resting Order C marked as an Order with a T+0 Preference but with priority second to that of Order B. Order A will interact first with Order B, notwithstanding that Order C is also marketable against Order A and is also marked as an Order with a T+0 Preference.
83 15 U.S.C. 78fb5.

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