Notice2022-24887
Self-Regulatory Organizations; Financial Industry Regulatory Authority, Inc.; Order Approving Proposed Rule Change To Amend FINRA Rule 11880 (Settlement of Syndicate Accounts) To Revise the Syndicate Account Settlement Timeframe for Corporate Debt Offerings
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
November 16, 2022
Issuing agencies
Securities and Exchange Commission
Full Text
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<title>Federal Register, Volume 87 Issue 220 (Wednesday, November 16, 2022)</title>
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[Federal Register Volume 87, Number 220 (Wednesday, November 16, 2022)]
[Notices]
[Pages 68783-68784]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2022-24887]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-96279; File No. SR-FINRA-2022-025]
Self-Regulatory Organizations; Financial Industry Regulatory
Authority, Inc.; Order Approving Proposed Rule Change To Amend FINRA
Rule 11880 (Settlement of Syndicate Accounts) To Revise the Syndicate
Account Settlement Timeframe for Corporate Debt Offerings
November 9, 2022.
I. Introduction
On August 5, 2022, the Financial Industry Regulatory Authority,
Inc. (``FINRA'') filed with the Securities and Exchange Commission
(``Commission''), pursuant to Section 19(b)(1) of the Securities
Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 thereunder,\2\ a
proposed rule change to amend FINRA Rule 11880 (Settlement of Syndicate
Accounts) to revise the syndicate account settlement timeframe for
corporate debt offerings. The proposed rule change was published for
comment in the Federal Register on August 18, 2022.\3\ On September 28,
2022, pursuant to Section 19(b)(2) of the Act,\4\ the Commission
designated a longer period within which to approve the proposed rule
change, disapprove the proposed rule change, or institute proceedings
to determine whether to disapprove the proposed rule change.\5\ The
Commission received comment letters on the proposal.\6\ This order
approves the proposed rule change.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ See Securities Exchange Act Release No. 95494 (Aug. 12,
2022), 87 FR 50896 (Aug. 18, 2022) (``Notice'').
\4\ 15 U.S.C. 78s(b)(2).
\5\ See Securities Exchange Act Release No. 95937 (Sept. 28,
2022), 87 FR 60230 (Oct. 4, 2022).
\6\ Comments received on the proposed rule change are available
at <a href="https://www.sec.gov/comments/sr-finra-2022-025/srfinra2022025.htm">https://www.sec.gov/comments/sr-finra-2022-025/srfinra2022025.htm</a>.
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II. Description of the Proposed Rule Change
In its filing, FINRA states that underwriting groups ordinarily
form syndicate accounts to process the income and expenses of the
syndicate.\7\ The syndicate manager is responsible for maintaining
syndicate account records and must provide to each selling syndicate
member an itemized statement of syndicate expenses no later than the
date of the final settlement of the syndicate account.\8\ Syndicate
members record the expected payments from the syndicate manager as
``receivables'' on their books and records but generally syndicate
managers do not provide the payments for up to 90 days after the
syndicate settlement date.\9\ FINRA Rule 11880(b) provides that the
syndicate manager in a public offering of corporate securities must
effect the final settlement of syndicate accounts within 90 days
following the ``syndicate settlement date.'' \10\
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\7\ See Notice, 87 FR at 50896.
\8\ See id.
\9\ See id.
\10\ See FINRA Rule 11880(a)(4) (defining ``syndicate settlement
date'' as ``the date upon which corporate securities of a public
offering are delivered by the issuer to or for the account of the
syndicate members'').
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FINRA is proposing to amend FINRA Rule 11880 (Settlement of
Syndicate Accounts) to revise the syndicate account settlement
timeframe for corporate debt offerings. Specifically, FINRA is
proposing to establish a two-stage syndicate account settlement
approach whereby the syndicate manager for corporate debt offerings
would be required to remit to each syndicate member at least 70 percent
of the gross amount due to such syndicate member within 30 days
following the syndicate settlement date, with any final balance due
remitted within 90 days following the syndicate settlement date.
FINRA states its belief that the proposed rule change will benefit
syndicate members by reducing the exposure of syndicate members to the
credit risk of the syndicate manager during the pendency of account
settlements.\11\ FINRA also states that the proposed rule change will
benefit syndicate members, including capital-constrained small firms,
by allowing them to obtain earlier access to the funds earned from an
offering without significantly increasing the risks of
resettlements.\12\ In addition, FINRA states that the proposed staged
approach will provide these benefits to syndicate members while easing
compliance for syndicate managers by permitting them to retain 30
percent of the gross amount earned by syndicate members to cover
expenses and remit any balance due to the syndicate members within the
current 90-day period following the syndicate settlement date.\13\
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\11\ See Notice, 87 FR at 50896-7.
\12\ See id. at 50897.
\13\ See id.
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FINRA has stated that it will announce an effective date for the
rule change of January 1, 2023 in a Regulatory Notice.\14\
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\14\ See id.
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[[Page 68784]]
III. Discussion and Commission Findings
After careful review of the proposal and the comment letters, the
Commission finds that the proposed rule change is consistent with the
requirements of the Act and the rules and regulations thereunder
applicable to a national securities association.\15\ In particular, the
Commission finds that the proposed rule change is consistent with
Section 15A(b)(6) of the Act,\16\ which requires, among other things,
that the rules of a national securities association be designed to
prevent fraudulent and manipulative acts and practices, to promote just
and equitable principles of trade, and, in general, to protect
investors and the public interest.
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\15\ In approving this proposal, the Commission has considered
the proposed rule's impact on efficiency, competition, and capital
formation. See 15 U.S.C. 78c(f); infra Section III.
\16\ 15 U.S.C. 78o-3(b)(6).
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The Commission believes that the proposed rule change is reasonably
designed to reduce a number of risks associated with syndicate debt
issuances, including counterparty and liquidity risk. Specifically, it
would reduce the exposure of syndicate members to the potential
deterioration of the credit of syndicate managers during the pendency
of account settlement. Further, a shorter syndicate settlement
timeframe would result in lower liquidity risk for certain syndicate
members by providing syndicate members with earlier access to capital
and improve the syndicate member's liquidity position where their own
net capital is limited. Additionally, because the proposed rule change
is expected to benefit smaller firms, especially those that are
capital-constrained, the Commission believes that the proposed rule
change is reasonably designed to have positive effects on competition
and thereby to remove impediments to, and perfect the mechanism of a
free and open market. Alleviation of liquidity constraints would create
opportunities for the syndicate members, especially those that are
capital-constrained, to participate in more new offerings and enhance
their ability to compete with other firms, maintain business
operations, or use the funds for other purposes. This may reduce
barriers to entering the corporate debt underwriting market and could
ultimately result in an increase in the supply of underwriters and
lower costs for corporate debt issuers and investors.
At the same time, the Commission believes that the proposed rule
change is reasonably designed not to impact negatively the ability of
syndicate managers to run the syndicate settlement account process or
unduly burden syndicate managers, given the technological advances that
have been made since the 90-day syndicate account settlement timeframe
was adopted in 1987, such as electronic order entry and accounting
systems.\17\ Specifically, FINRA stated that in more than 95% of
offerings from 2016 to 2018, the debt security is priced, allocated to
investors, and starts trading in the secondary market all within the
same day, meaning a large part of syndicate income can be accounted for
within days after the date of issuance.\18\
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\17\ See Notice, 87 FR at 50900.
\18\ See id. at 50898.
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Commenters supported approval of the proposed rule change \19\ and
some commenters encouraged the Commission to act quickly to approve it
so that FINRA can meet its proposed January 1, 2023 effective date.
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\19\ See Letter from Michael Decker, Senior Vice President for
Public Policy, Bond Dealers of America, to Secretary, Commission,
dated September 8, 2022; Letter from Joseph Corcoran, Managing
Director, Associate General Counsel, SIFMA, to Vanessa Countryman,
Secretary, Commission, dated September 8, 2022; Letter from
Anonymous, dated October 12, 2022.
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For the reasons noted above, the Commission finds that the proposed
rule change is consistent with the Act.
IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the
Act,\20\ that the proposed rule change (SR-FINRA-2022-025) be, and
hereby is, approved.
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\20\ 15 U.S.C. 78s(b)(2).
\21\ 17 CFR 200.30-3(a)(12).
For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\21\
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-24887 Filed 11-15-22; 8:45 am]
BILLING CODE 8011-01-P
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