SEC Shortens Syndicate Account Settlement Times for Corporate Debt Securities

The SEC approved a proposal to FINRA Rule 11880 ("Settlement of Syndicate Accounts") to shorten the permitted syndicate account settlement timeframe for corporate debt offerings.

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

For purposes of the revised rule, a "corporate debt security" means a debt security that is U.S. dollar-denominated and issued by a U.S. or foreign private issuer, including a "securitized product" as defined in FINRA Rule 6710(m) and excluding a "money market instrument" as defined in FINRA Rule 6710(o).

The anticipated effective date for the amendments is January 1, 2023.