New rules designed to reduce the time it takes to settle trades of below investment grade corporate loans appear to be working.

Buyers must now demonstrate that they are prepared to bring cash to the table within five days or forfeit accrued interest they would normally earn during a delay; "well over 90%" of trades in September were compliant, according to the Loan Syndications and Trading Association.

As a result, the median in September was cut to nine days, compared with 12 days for all trades in the first eight months of the year. And 37% of September trades settled within seven days.

“The progress that we have seen since September is a positive first step in implementing the new delayed comp regime and advancing our goal of improving settlement times,” Bram Smith, the trade group’s executive director, said in a statement published Monday.

According to the statistics from ClearPar, the secondary loan electronic trading platform for IHS Markit, 94% of trades after Sept. 1 (including those that didn’t eventually settle) were compliant with the new rules, making the buyers eligible for delayed compensation. The figures also show 98% of all settled trades that entered into the September window were compliant.

 “The data demonstrates that settlement times for those trades are significantly lower and showing measurable progress towards the goal of the LSTA and loan market participants to decrease settlement times,” a release from the LSTA stated.

Two months ago, the LSTA began requiring buyers of loans to provide funds within five days of a purchase agreement in order to receive the “delayed comp” – the accumulated interest payments on a loan between the purchase agreement date and settling the trade.

The organization allowed for the extension of "T+" times if settlement times due to agent freezes or agent consent requirementsduring the initial introductory phase of the new rules in September.

A stricter, second phase of enforcement began Monday, which will now require settlement within five days, period.

The new rules governing delayed compensation were initially planned for July, but were delayed until September to work out loopholes that allowed international loan buyers to evade the strict time limit due to lead times in clearing international funds transfers.

Under the old process, critics lamented that buyers were incentivized to drag their feet on trade settlements since no upfront money was required before the settlement date.

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