FINRA proposes to shorten deadlines for settling union accounts for debt securities

FINRA has proposed changes to FINRA Rule 11880 (“Settlement of Union Accounts”) to shorten the time allowed for settlement of union accounts for corporate debt offerings.

The proposed changes include a two-step syndicate settlement approach that would require syndicate managers to (i) remit at least 70% of the gross amount owed to each member within the first 30 days of settlement and (ii) pay any outstanding balance remaining within 90 days of payment. FINRA stressed that these changes would only apply to corporate debt offerings. FINRA said it does not plan to shorten the settlement period for public equity offerings.

FINRA noted that the MSRB shortened the settlement period from 90 days to 30 days in 2009 to help reduce credit risk and potential credit default. FINRA said the proposed changes will benefit syndicate members by reducing a syndicate manager’s credit risk exposure during pending settlements. Additionally, FINRA said the proposal would allow syndicate members to gain quicker access to funds earned through a bid without significantly increasing the risk of relocation.

The proposed effective date is January 1, 2023 and, if approved, will be published in a FINRA notice.


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John A. Bogar