SEC Shortens Syndicate Settlement Deadlines for Corporate Debt

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The SEC has approved a proposal to FINRA Rule 11880 (“Settlement of Union Accounts”) to shorten the time allowed for settlement of union accounts for corporate debt offerings.

The amendments replace the current 90-day settlement period with a two-step approach that requires syndicate managers to (i) remit at least 70% of the gross amount owed to each syndicate member within the first 30 days of settlement and (ii) pay any remaining outstanding balance within 90 days of settlement. The changes apply only to corporate debt offerings, and FINRA said it is not currently considering shortening the settlement period for public equity offerings. FINRA said the changes will benefit syndicate members by reducing their exposure to syndicate manager credit risk while awaiting settlements. The changes may also increase opportunities for syndicate members, especially those who are capital constrained, to participate in more new offerings and improve their ability to compete with other companies.

For purposes of the revised rule, a “corporate debt obligation” means a debt obligation denominated in U.S. dollars and issued by a U.S. or foreign private issuer, including a “securitized product” as defined in Rule 6710( m) FINRA and excluding a “money market instrument” as defined in FINRA Rule 6710(o).

The planned effective date of the amendments is January 1, 2023.

Comment

These changes have been supported by SIFMA and, thanks to advances in technology since the rule was adopted in 1987, should not prove onerous as 95% of corporate debt offerings are now priced, allocated to investors and traded. on the secondary market on the same day. Moreover, these requirements are even less stringent than those for municipal debt securities which, since 2009, require final settlement of the syndicate’s accounts within 30 days of settlement.


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