SEC changes U.S. municipal bond syndicate rules

October 1, 2009

msrb-logo    WASHINGTON, Sept 30 (Reuters) – The Securities and Exchange Commission has shortened the time period when U.S. municipal bond underwriting syndicates and account managers settle their accounts and when they can sell in the secondary market.
   The SEC approves and enforces the rules written by the Municipal Securities Rulemaking Board, a self-regulatory organization made up of industry members.
   “The MSRB identified a need to bring municipal securities syndicate and other settlement rules up-to-date with a proposal that will reduce risk and not create a burden on dealers, given the efficiencies in the market today,” said MSRB Executive Director Lynnette Kelly Hotchkiss in a statement on Wednesday.
   Syndicates are groups of underwriters that purchase debt from issuers and then resell it to the public. The SEC posted its approval for the rule change on Monday.
   The Regional Bond Dealers Association had opposed the rule, saying it was targeting the wrong people.
   The rule was designed to prevent “flipping” where investors buy debt cheap in the primary market and then resell it rapidly in the secondary market for a profit, said the group.
   The SEC should focus on investors, instead of underwriters, said the association. It argued that the deadlines were too short and underwriters would be taxed in trying to meet them.
   But the MSRB determined that “any administrative burdens associated with the changes are more than outweighed by the significant reduction in credit risk to co-managers, especially in the case of smaller firms,” according to a filing from Margaret Henry, the board’s associate general counsel.
   The syndicates will have to settle accounts within 30 days of receiving the securities from the issuer, compared to a previous 60 days.
   Secondary market trading accounts will also have 30 days to settle accounts, instead of 60. And payment of designations, or amounts determined by the buyers to be paid to members of the syndicate, will now take place in 10 days instead of 20.
   (Reporting by Lisa Lambert; Editing by Kenneth Barry) ((; +1-202-898-8328; Reuters Messaging: Keywords: MUNICIPALS/SEC SYNDICATES
Wednesday, 30 September 2009 20:49:52RTRS [nN30223968] {C}ENDS

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