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Federal Register / Vol. 86, No. 104 / Wednesday, June 2, 2021 / Notices open market.84 All else being equal, the Exchange believes that a BSTX
participant may find that between two otherwise identical stocks, one for which it may be able to settle the transaction more quickly is more attractive than one that settles over a longer duration and potentially requires collateral to be held for a longer period.
The Exchange notes that the proposed potential for shortened settlement timing for an Order with a T+0
Preference or an Order with a T+1
Preference will in no way impact or prevent any market participant that desires to effect a trade in a Security on BSTX from doing so. This is because under proposed Rule 25060h, any Order with a T+1 Preference or Order with a T+0 Preference will continue to interact with any other order in the Security against which it is marketable including any order in the Security that does not include a parameter indicating a preference for settlement faster than T+2 and a resulting execution will always settle using the latest settlement timing associated with two matching orders. Accordingly, non-BSTX
Participants seeing a quote in a Security on BSTX will remain able to execute against that quote posted on BSTX even if that quote includes a latent parameter for a preference for T+0 or T+1
settlement where consistent with the rules, policies and procedures of a registered clearing agency. In this way, the Exchange believes that the proposal is fully compatible with the current market structure and would help perfect the mechanism of a free and open market by allowing for shorter settlement times than T+2 where consistent with the rules, policies and procedures of a registered clearing agency and where both parties to a transaction in a Security indicate a preference for faster settlement than T+2.
Finally, because all orders in Securities submitted to BSTX would at the time of the order entry be presumed to settle on a regular way T+2 basis and would interact with any other order against which the order is marketable, the Exchange believes that Orders with a T+0 Preference and Orders with a T+1
Preference would be considered protected within the meaning of Rule 611 of the Exchange Act.85 Orders with a T+0 Preference and Orders with a T+1
Preference would not fall within the exception for protected quotation status set forth in Rule 611b2 of the Exchange Act because they will only settle more quickly than T+2 where all 84 Id.
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of the conditions in Rule 25060h are met, as described above, where settlement faster than T+2 is consistent with the rules, policies and procedures of a registered clearing agency.86
In adopting amendments to SEC Rule 15c61 in 2017 to shorten the standard settlement cycle for most broker-dealer transactions in securities from T+3 to T+2, the Commission stated its belief that the shorter settlement cycle would have positive effects regarding the liquidity risks and costs faced by members in a clearing agency, like NSCC, that performs central counterparty 87 CCP services, and that it would also have positive effects for other market participants.
Specifically, the Commission stated its belief that the resulting reduction in the amount of unsettled trades and the period of time during which the CCP is exposed to risk would reduce the amount of financial resources that the CCP members may have to provide to support the CCPs risk management process . . . and that this reduction in the potential need for financial resources should, in turn, reduce the liquidity costs and capital demands clearing broker-dealers face . . . and allow for improved capital utilization. 88 The Commission went on to state its belief that shortening the settlement cycle would also lead to benefits to other market participants, including introducing broker-dealers, institutional investors, and retail investors such as quicker access to funds and securities following trade execution and reduced margin charges and other fees that clearing broker-dealers may pass down to other market participants. 89 The Commission also noted that a move to a T+1 standard settlement cycle could have similar qualitative benefits of market, credit, and liquidity risk reduction for market participants. 90
BSTX agrees with these statements by the Commission and has therefore proposed BSTX Rules 25060h and 25100d in a form that would promote the benefits of available, shorter settlement cycles.91
86 17

CFR 242.611b2.
17 CFR 240.17Ad22a2 defining the term central counterparty to mean a clearing agency that interposes itself between the counterparties to securities transactions, acting functionally as the buyer to every seller and the seller to every buyer.
88 Exchange Act Release No. 80295 March 22, 2017, 82 FR 15564, 1557071 March 29, 2017.
89 Id. at 15571.
90 Id. at 15582.
91 As described in this Part II.I, an order for a Security marked for T+0 or T+1 could still interact with any other order, including an order with the default T+2 settlement, with settlement to occur at 87 See
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Proposed BSTX Rules The discussion in this Part III
addresses the proposed BSTX Rules that would be adopted as Rule Series 17000
through 29000.
General Provisions of BSTX and Definitions Rule 17000 Series The Exchange proposes to adopt as its Rule 17000 Series General Provisions of BSTX a set of general provisions relating to the trading of Securities and other rules governing participation on BSTX. Proposed Rule 17000 sets forth the defined terms used throughout the BSTX Rules. The majority of the proposed definitions are substantially similar to defined terms used in other equities exchange rulebooks, such as with respect to the term customer. 92
The Exchange proposes to set forth new definitions for certain terms to specifically identify systems, agreements, or persons as they relate to BSTX and as distinct from other Exchange systems, agreements, or persons that may be used in connection with the trading of other options on the Exchange.93 The Exchange also proposes to define certain unique terms relating to the trading of Securities, including the term Security itself 94
and Thinly Traded Securities, 95 as well as for other features of BSTX such the later of any two matched orders e.g., if a T+1
order matches with a T+2 order, the orders would settle T+2. Only where an order marked for a shorter settlement time matches with another order similarly marked would a shorter settlement time occur. Consequently, the proposed use of shorter settlement times would not adversely impact any market participant seeking T+2 settlement in a transaction for a Security.
92 Proposed Rule 17000a17 defines the term customer to not include a broker or dealer, which parallels the same definition in other exchange rulebooks. See e.g., IEX Rule 1.160j. Similarly, the Exchange proposes to define the term Regular Trading Hours as the time between 9:30 a.m. and 4:00 p.m. Eastern Time. See proposed Rule 17000a29 cf. IEX Rule 1.160gg defining Regular Market Hours in the same manner.
93 For example, the Exchange proposes to define the term BSTX to mean the facility of the Exchange for executing transaction in Securities, the term BSTX Participant to mean a Participant or Options Participant as those terms are defined in the Exchanges Rule 100 Series that is authorized to trade Securities, and the term BSTX
System to mean the automated trading system used by BSTX for the trading of Securities. See proposed Rule 17000a8, 11, and 15.
94 Proposed Rule 17000a31 provides that the term Security means a NMS stock, as defined in Rule 600b47 of the Exchange Act, trading on the BSTX System. The proposed definition further specifies that references to a security or securities in the Rules may include Securities.
95 Proposed Rule 17000a32 provides that the term Thinly Traded Security is defined in Rule 25150. See Part II.H for further discussion of Thinly Traded Securities and the definition set forth in proposed Rule 25150.

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