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DTC Eligibility The managing underwriter applies for DTC eligibility, which means that the new issue will be qualified to receive DTC’s distribution, settlement and depository services, which are described earlier in this document. The lead manager sends the completed Eligibility Questionnaire to the underwriting department of DTC. The information that is requested in the questionnaire includes issue information such as the asset class and whether the issue is exempt from SEC registration under Rule 144A or Reg S; issuer name and issue description; contact information for underwriter, transfer agent (trustee) and issuer’s counsel; and delivery instructions such as whether the issue is a FAST issue. The hard copy questionnaire may be sent electronically via fax or e-mail, provided the document has a signature affixed to it. However, the preferred method of submission is via the PTS function PUND or the web application WUN as this streamlines the process and creates greater processing efficiencies. DTC sends an electronic confirmation to verify that the issue was received.
DTC expects to receive the questionnaire along with the preliminary offering documents (prospectus or private placement memorandum) as early in the process as possible so that basic information can be set up. Pricing information and/or changes made to the preliminary information should be communicated to the Underwriting department as soon as that information is available.
B. Closing Date (“Settlement”)
The lead manager prepares for settlement by determining allocations to the underwriting group and setting up delivery instructions of the allotments to the accounts of syndicate members. The lead manager verifies it has instructions from the issuer regarding where
To make sure that all parties are in agreement of the closing terms, there is a conference call with the issuer’s counsel, underwriter’s counsel, transfer agent (usually the same as trustee) and lead manager to discuss the final terms of the deal, which are then documented in the “closing memo”. This conference call is known as a “closing call”.
Following the closing call, the funds are released to issuer with proof that money was sent. The lead manager and the issuer or its agent (either trustee or the paying agent, which often are the same financial institution) instruct DTC to release the bonds. DTC then places the bonds in the lead manager’s account, after which it is the responsibility of the lead manager to deliver the bonds to the syndicate members’ accounts. The delivery is done electronically through DTC. The syndicate members then deliver the bonds to the investors’ accounts.
C. Syndicate Processing Activities
There is a significant amount of syndicate processing activities that take place during the order period, as well as on and after the trade date and settlement date. During the order period the lead manager allots bonds to other syndicate members, who in turn take orders from institutions for the new issue. Right after the issue has been priced, the syndicate members process the IOIs (preliminary orders) and allocate bonds to institutions and their sub-accounts. If the underwriting syndicate uses a pot system to distribute bonds, all or a specified percentage of the securities are allocated to institutions by the lead manager who is in charge of running the central order book for the syndicate. Syndicate members contribute orders to the pot, but it is the lead manager that controls the final allocation of the bonds. The pot system is currently used for most institutional corporate bond deals in the U.S. and it is gaining popularity in European syndicates.
After the settlement, the lead underwriter has up to 90 days to close the syndicate account and compile all deal expenses. The lead underwriter usually sends a settlement letter, along with an expense summary to the members of the syndicate. The lead underwriter also sends a check to the syndicate members for their participation in the deal less any applicable expenses (i.e. legal expense, CUSIP, DTC).
The Bond Market Association and DTCC will continue to work together in identifying possible market efficiency opportunities. By virtue of this plain English document, the industry can be further educated on the processing of new issue corporate bonds. In addition, the Association and DTCC believe that by leveraging automated processes, significant cost savings can be achieved and operational risk mitigated.
Corporate Bond Operational Underwriting Process 17 Business Practices in “Plain English” December 9, 2004 Appendix 1 This plain English document is based on conversations and interviews conducted by The Bond Market Association and DTCC staff with members of the Corporate Bond Underwriting Focus Group. The goal of this focus group, which consists of Association members and others named below, was to create a document describing the corporate underwriting process that would help to streamline current industry practices in connection with the process. The focus group is enthusiastic to continue to offer their input and to help analyze any opportunities that would make the underwriting process more efficient. Anyone interested in learning more about this focus group or willing to participate should contact Association Executive Vice President Joseph Sack at tel. 1The Bond Market Association and DTCC would like to thank the following Association
members for their input and dedication to this industry initiative:
Mary Ann Cribbin, A.G. Edwards & Sons, Inc.
Sean McClenin, ABN AMRO Inc.
Liz Chan, ABN AMRO Inc.
David Herman, Citigroup Anna-Maria Freeman, Merrill Lynch Ben Bartolotta, Morgan Stanley James Gannon, Morgan Stanley Michael Torregrossa, Morgan Stanley The Association and DTCC would also like to thank the following individuals for their
Janet McGrath, Euroclear Jeff Delaney, Pillsbury Winthrop The Association welcomes any comments and feedback regarding this document. To offer your input please contact Elisa Nuottajarvi of the Association’s staff at firstname.lastname@example.org.
Corporate Operational Underwriting Process Draft Flowchart Diagram of Business Practices
IntroductionThe Bond Market Association (TBMA) and The Depository Trust and Clearing Corporation (DTCC), in conjunction with industry firms, have created this flowchart to help individuals and firms understand the corporate bond underwriting process. This flowchart is based upon TBMA and DTCC’s Plain English document (copy attached) that depicts the underwriting process.
This flowchart diagrams the role of the underwriter and issuer, the sequence of steps in the corporate bond underwriting process, the means of communication between parties and the flow of information between issuers, underwriters and utilities.
Lead Manager determines allocations to the underwriting group and sets up delivery instructions of allotments to the syndicate members’ accounts.