Market Flash - Revised LSTA New Par/Near Par Delayed Compensation Rules

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August 18, 2016

On August 5th, the LSTA issued a revised version of its recently proposed “requirements-based”  par/near par delayed compensation rules, which are intended to replace the current “no-fault” regime.  The stated goal of the LSTA remains decreasing par loan trading settlement times to T+7 in order to increase liquidity in the market, draw in a broader range of investors, and demonstrate to regulators that the secondary loan market possesses the ability to effectively self-regulate itself. 

Following the initial introduction by the LSTA in June of the revised delay compensation rules, the LSTA received numerous comments from market participants and service providers, most of which focused on operational issues, mainly concerning (i) the accelerated implementation schedule for the new rules would make timely compliance difficult and (ii) unintentional errors, technical glitches or delays caused by regulatory requirements would result in outsized and unintended financial penalty to market participants.  As a result of these comments and concerns, the LSTA has further modified the par/near par delayed compensation proposal.  

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