The Loan Syndications and Trading Association (LSTA) today unveiled revisions to its proposed new delayed compensation regime, which is designed to reduce settlement times in the secondary loan market. The new regime will be implemented in two phases, with the first phase effective Sept. 1.
As it currently stands, delayed compensation begins accruing to a buyer at T+7 in most circumstances in which a trade doesn’t close in that time frame. The LSTA is revising delayed compensation from a “no-fault” regime to a requirements-based regime. In short, the buyer will only receive delayed comp if it has taken certain steps and is ready to pay once the administrative agent is ready to close the trade, subject to certain exceptions.
The LSTA last month delayed the launch of the new regime until Sept. 1 to guarantee ample opportunity for stakeholder input. As before, the new regime targets a minimum of T+7 settlement for loans that trade on par documentation, but now the buyer will be required to execute the confirmation and assignment agreement by T+5 in order to receive delayed comp, which is a day earlier than originally proposed. The change is designed to accommodate some market participants who need a one-day lead time—the time between when the agent is ready to close and when the buyer can make funds available—to settle some trades, said the LSTA’s General Counsel, Elliot Ganz.
To provide market participants with time to adjust to the change, the new regime will be implemented in two phases. In the first phase, which will be effective Sept. 1, the buyer will be required to execute the confirmation and assignment agreement by T+6 and select a settlement date of T+7 or earlier to receive delayed comp; buyers won’t be penalized for longer designated lead times on their electronic settlement platforms.
In the second phase, which begins Nov. 1, the confirmation and assignment agreement will need to be executed by T+5 and lead times longer than one day will not be permissible.
For additional details, please see the LSTA’s memorandum, which is attached. — Staff reports
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