Working with BDA, a coalition of women-, minority-, and veteran-owned broker-dealers has requested that the SEC provide targeted relief from the net capital rule for comanagers in corporate underwriting syndicates.
You can read the BDA’s letter to the SEC here.
FINRA’s syndicate closing rule (FINRA Uniform Practice Code Rule 11880) specifies that book-running managers on corporate bond underwriting syndicates have up to 90 days to close the syndicate account and pay comanagers their share of underwriting revenues, and lead managers almost always take the full 90 days. While comanagers are waiting for their funds, the SEC’s Net Capital Rule specifies that syndicate receivables cannot count towards regulatory capital. So for 90 days after deal closing, comanagers’ revenue is tied up at the book-runner, not earning float and not able to be counted as capital.
The coalition of firms has asked the SEC to provide relief from the net capital rule on the basis that short-term syndicate receivables pose little counterparty risk to comanagers and therefore should be treated as capital. Both the FINRA syndicate rule and the SEC net capital rule have been on the books since the 80s, with no change to the relevant provisions.
While this issue acutely affects women- and minority-owned firms–because they’re seeing more corporate comanager business in recent months–it affects any firm that serves as a comanager on corporate transactions.
BDA will continue to work with these firms and the SEC to address this longstanding issue.
