April 4, 2024

NYSE: Rule Changes to Implement T+1

In late March, NYSE filed a proposal with the SEC seeking to amend NYSE rules and the Listed Company Manual to conform to the recent changes to Rule 15c6-1(a) to shorten the standard settlement cycle to T+1. The SEC issued its notice of filing and immediate effectiveness of the amendments early this week. The amendments relate to Rules 235 (Ex-Dividend, Ex-Rights) & 236 (Ex-Warrants) and the following sections of the Listed Company Manual: Section 204.12 (Dividends and Stock Distributions), Section 703.02 (Stock Split/Stock Rights/Stock Dividend Listing Process) and Section 703.03 (Short-Term Rights Offerings Relating to Listed Securities Listing Process).

NYSE’s filing describes the amendments, and I’ve excerpted a few descriptions below:

Under Dealings and Settlements, Delivery Dates on Exchange Contracts currently provides that a “Regular Way” contract for sale of securities is due on the second business day following the day of the contract. The Exchange proposes to delete the word “second” from this rule to reflect settlement on T+1, rather than T+2.

Current Rule 235 provides that transactions in stocks shall be ex-dividend or ex-rights on the business day preceding the record date fixed by the corporation or the date of the closing of transfer books. The Exchange proposes to delete the phrase “the business day preceding,” such that the rule would provide that these transactions would be ex-dividend or ex-rights on the record date. The current rule further provides that if the record date or closing of transfer books occurs upon a day other than a business day, Rule 235 shall apply for the second preceding business day. The Exchange proposes to delete the word “second” from this portion of the rule to conform to a T+1 settlement cycle.

Current Section 204.12 of the Listed Company Manual (Dividends and Stock Distributions) requires the Exchange to arrange for and give advance notice of changes in dealings in the stock to an “ex-dividend” basis, which is generally two business days prior to the record date. The Exchange proposes to amend Section 204.12 to provide that an “ex-dividend” basis would generally be on the record date to reflect a T+1 settlement cycle.

The operative date for the rule change is May 28, with the following specific implementation schedule:

Accordingly, the Exchange proposes that Wednesday, May 29, 2024 would be the first date to which the proposed rules described herein would apply (i.e., the first record date to which the new ex-dividend date rationale will be applied). During the implementation of the T+1 settlement cycle, the Exchange proposes that the ex-dividend dates will be as follows:

Record Date           Ex-Dividend Date
May 24, 2024          May 23, 2024
May 28, 2024          May 24, 2024
May 29, 2024          May 29, 2024

A record date of Friday, May 24, 2024 would be a date prior to the effective date of the amendments to Rule 15c6-1(a) of the Act to shorten the standard settlement cycle for most broker-dealer transactions from T+2 to T+1.8 The rules described above would apply to this record date in their current form and, thus, the “ex-dividend date” would be the first business day preceding the record date or Thursday, May 23, 2024. Monday, May 27, 2024 is Memorial Day, which is an Exchange holiday; accordingly, there would be no record date on a holiday. A record date of Tuesday, May 28, 2024 would also fall under the Exchange’s current rules, and the first business day preceding such record date would be Friday, May 24, 2024. On Wednesday, May 29, 2024, the proposed rules described above would apply, such that, for the record date of May 29, 2024, the “exdividend date” would be the same business day.

Meredith Ervine