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Federal Register / Vol. 86, No. 104 / Wednesday, June 2, 2021 / Notices 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 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. 359 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. 360 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. 361
The Exchange agrees with these statements by the Commission and has therefore proposed BSTX Rule 25100d in a form that would promote the benefits of shorter settlement cycles for Securities without imposing burdens on other national securities exchanges or market participants that are not BSTX
Participants.
With respect to consideration 4
above, as previously noted, market participants would not be limited in their ability to trade Securities OTC
because Securities could be traded OTC, including Thinly Traded Securities for which UTP has been suspended, and would be cleared and settled in the same manner as other NMS stocks through the facilities of a registered clearing agency. Thus, the Exchange does not believe that its proposal will place any new burden on competition with respect to OTC trading, given that trading, clearance and settlement will 359 See
supra n. 8891 and accompanying text.

360 Id.
361 Id.

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take place in the same manner as for other NMS stocks.
With respect to consideration 5
noted above regarding other exchanges extending UTP to Securities that are not Thinly Traded Securities and for which the issuer elected to suspend UTP, the Exchange does not believe that the proposed Rules would impose a burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. This is because, with the exception of Thinly Traded Securities described below, other national securities exchanges would be able to extend UTP to Securities in accordance with Commission rules just as they can regarding any other NMS stock.
Regarding consideration 6 and suspensions of UTP for Thinly Traded Securities, the Exchange believes that proposed BSTX Rule 25150 would impose a burden on competition as described below. However, for the reasons described below the Exchange believes that the degree of the burden on competition is justified under the Exchange Act because it is necessary and appropriate to promote other express objectives of the Exchange Act.
If an operating company that is an issuer of a Security gives written notice to the Exchange under BSTX Rule 25150b that it elects a suspension of UTP and the Exchange determines that the Security qualifies as a Thinly Traded Security, the Thinly Traded Security would be eligible to trade only on BSTX and OTC while the suspension of UTP is in effect. This would burden competition regarding other national securities exchanges for the time that the suspension of UTP is in effect because it would mean that the exchanges would not be permitted to extend UTP to the Thinly Traded Security and therefore the Thinly Traded Security would only trade on BSTX and OTC. The Exchange believes, however, that this burden on other exchanges is appropriately limited to the subset of Securities that are Thinly Traded Securities because it would only apply i in the event that the Security meets the average daily trading volume thresholds in BSTX Rule 25150 and ii the issuer elects to notify the Exchange in writing that it wishes to suspend UTP. Therefore, the burden on other exchanges would never apply regarding a Security that is not a Thinly Traded Security.
As also described in Item 3, Part II.H, the Exchange believes that this limited burden on other exchanges would be offset and necessary and appropriate under Section 6b8 of the Exchange
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Act 362 because the suspension of UTP
has the potential to help solve market quality problems for Thinly Traded Securities that have been publicly identified by the Commission, Commission staff, the U.S. Department of Treasury, academics, and a broad spectrum of market participants.363 The Exchange agrees with the views expressed in the related publications that the current one-size-fits-all equity market structure, as largely governed under Regulation NMS, may not be optimal for thinly traded securities 364 and that more needs to be done to promote liquidity and to improve the listing and trading environment for thinly traded stocks. 365 The Commission noted that the secondary market for thinly traded securities faces liquidity challenges that can have a negative effect on both investors and issuers traded securities faces liquidity challenges that can have a negative effect on both investors and issuer including wider spreads and less displayed size relative to securities that trade in greater volume, often resulting in higher transaction costs for investors. 366 These concerns have been echoed in statements by former Commission Chairman Jay Clayton, former Director of the Division of Trading and Market Brett Redfearn, the Commissions Small Business Advisory Committee and demonstrated through empirical analyses by the Division of Trading and Markets Office of Analytics and Research OAR and academics.367 A frequently discussed potential solution to these liquidity and poor market quality issues facing thinly traded securities has been the suspension of UTP for such securities, allowing for displayed liquidity to be concentrated on a single exchange.368
The Exchange has thus proposed the suspension of UTP in response to these concerns. The Exchange notes that it proposes to use the same criteria as used by OAR i.e., an ADV of less than 100,000 shares 369 to distinguish thinly traded securities from more actively traded securities with the additional conditions that only the Securities of an operating company and must have a market capitalization of less than $1
362 15

U.S.C. 78fb8.
supra n. 4250 and accompanying text.

363 See 364 Id.
365 Id.
366 Id.
367 Id.
368 See
supra note 5152.
supra note 56 noting the immaterial difference between the construction used by OAR
of an ADV of less than 100,000 shares versus the Exchanges proposed construction of an ADV of 100,000 shares or less.
369 See
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