The Loan Syndications and Trading Association pushed the industry to allow settlement times to overrun in order to encourage liquidity and not penalize firms struck by the terror attack on the World Trade Center. The request came at a Sept. 14 meeting between board members of the LSTA and representatives from leading banks. Allison Taylor, executive director, said market players were eager to show solidarity and ensure liquidity is there, pricing is accurate and available and settlement procedures are adjusted to allow for companies that are displaced and may be unavailable to meet settlement deadlines. "People want business to return, though not necessarily as usual," Taylor noted.
Because many of the institutions have moved to disaster recovery sites, settlement is expected to be delayed, Taylor said. For trades before Sept. 17, where a delay is attributable to the events of the terrorist attacks, the LSTA recommends that delay compensation is suspended. The delay compensation is triggered when a trade takes longer than the agreed time to settle, T+10 for par and T+20 for distressed, said Taylor. The accruing interest is the usual compensation as well as all facility and commitment fees on the amount sold, running from the time of standard settlement to the actual settlement date. After Sept. 17, counterparties to each trade should decide whether to increase the settlement cycle times and whether delay compensation should apply. The specifics of the agreement should be put in the trade confirmation agreement.
Taylor said that as far as she knows, the suspension of delayed compensation has not been needed on trades, meaning settlement is functioning better than originally anticipated. But a banker who declined to be named said that as far as he is aware, banks that had to relocate are having difficulty settling on time. "All banks are making allowances for the trades that are not settling," he added. "There are banks that have not had systems for a week," he said. "Of course it depends on the counterparties, with some systems completely down, it would be ridiculous to expect them to settle on time."
Colin Lambert, treasurer, Royal Bank of Canada, and a member of the LSTA board who was not at the meeting, said these are extraordinary times, and so the market is adhering to the recommendations. The LSTA is an advisory body, not a regulatory authority, so the emphasis is on market participants to act reasonably and not to take advantage of the situation, Taylor explained. There are no contractual agreements in place, just recommendations, but the LSTA does however find that, "in almost all cases, the market adopts our policies and procedures," she added.
Ten of the 14 members of the board were present at the meeting, as well as representatives from Citicorp, Taylor said. The board comprises loan market officials such as Robert Hevner, from Deutsche Bank, Neil Brisson of Merrill Lynch, Don Pollard of Credit Suisse First Boston, Peter Santry, Bank of America, Eric Rosen,J.P. Morgan, Marcia Banks of BANK ONE and Howard Tiffen of Van Kampen.