The Securities Industry and Financial Markets Association (SIFMA) said it supported changes in Securities and Exchange Commission rules that would improve disclosure and reporting on asset-backed securities.
The rules, aimed at increasing "transparency" into what is contained in a given asset or pool of securities, would help revive markets in asset-backed securities, SIFMA said.
SIFMA specifically cited rules that would improve disclosure and reporting, allow more time for investors to review a preliminary prospectus before making an investment decision, and develop a better mechanism for enforcement of representations and warranties. However, SIFMA also notes that the SEC’s comprehensive proposal is too broad in some areas and imposes burdens which are heavier than justified in others.
“Improvements to standardization of asset-level disclosure and increased transparency are key to increasing investors’ level of comfort in committing capital to the ABS market, an essential factor in market recovery,” said Timothy Cameron, managing director and head of SIFMA’s Asset Management Group.
SIFMA’s comments, in summary form, are:
Securities Act Registration:
- SIFMA supports regulations that give investors sufficient time to review information about a securities offering before deciding whether to invest. But a five business day period to review a preliminary prospectus, as the SEC has proposed for shelf offerings, is longer than is needed in some ABS offerings, and five business days is generally more time than is needed to review a material change to a preliminary prospectus. SIFMA requests adjustments to these time periods.
- SIFMA urges the SEC not to prohibit shelf registration of ABS.
- SIFMA’s dealer and sponsor members are very concerned that the proposed certification of the chief executive officer of the depositor that would be required to be filed as an exhibit to the registration statement in each shelf offering of ABS is unreasonable, and that officers of many ABS issuers would be unwilling to sign it. SIFMA’s investor members, however, support a requirement for a meaningful certification of an officer of the depositor. SIFMA proposes an alternative form of certification which addresses disclosure included in the prospectus, rather than a belief as to future cash flows from the pool assets or as to the quality of the ABS.
- SIFMA’s investor members strongly favor improved mechanisms for enforcement of representations and warranties, particularly in residential mortgage-backed securities (RMBS) transactions, and worked together with our dealer and sponsor members to develop an alternative approach that will be more effective.
- SIFMA requests that the SEC modify the proposed penalties for noncompliance with shelf eligibility requirements. As proposed the penalties are extremely harsh, and could have a material adverse effect on a sponsor’s business even in the case of minor instances of noncompliance. SIFMA also requests limited, but important, changes in Form 8-K reporting requirements in order to avoid unnecessary suspension of issuers’ shelf eligibility.
- Although SIFMA’s dealer and sponsor members and our investor members have differing views regarding approaches to compliance with the SEC’s proposed asset level data (ALD) disclosure requirements, they agree on the importance of standardized asset-level information. SIFMA’s investor members believe the mandatory provision of ALD is a key component of the recovery of securitization markets, and strongly support the SEC’s proposal. While not disagreeing with the need for standardization of asset level disclosure at the principle level, SIFMA’s dealer and sponsor members are concerned that a rigid approach could render entire pools of assets unsecuritizable in the most liquid securitization markets due to a single or small number of unavailable data fields, which is not an outcome they believe to be appropriate, and therefore urge a more flexible, yet comprehensive, ALD disclosure regime.
- SIFMA also proposes changes in certain of the data fields, and raises important issues regarding application of the ALD requirements to assets originated before the effectiveness of the new rules. SIFMA expresses its members’ concerns regarding resecuritizations, data that may be unavailable to an issuer, what constitutes the appropriate measurement date, and other matters.
- SIFMA asks that the SEC reconsider the proposed requirement that grouped account data be filed in offerings of ABS backed by credit card or charge card receivables.
- SIFMA asks that the SEC clarify that the cash flow waterfall computer program that will be required to be filed by ABS issuers a as part of each ABS prospectus will be a simple cash flow program. The Proposing Release is ambiguous regarding precisely what sort of program must be filed. In addition, SIFMA’s investor members urge the SEC to ensure that the filed waterfall computer program is usable in conjunction with an available cash flow engine.
- SIFMA’s investor members request that Regulation AB be amended to require certain additional disclosure regarding representations and warranties and servicing practices.
Definition of Asset-Backed Security:
- SIFMA asks that the SEC permit 20 percent prefunding in ABS offerings on proposed Form SF-1 rather than the 10 percent limit that has been proposed
Exchange Act Reporting Proposals:
- SIFMA asks the SEC to reconsider its proposal to reduce from five percent to one percent the threshold for requiring the filing of a current report under Item 6.05 Form 8-K, and SIFMA asks the SEC not to add proposed Item 6.09 to Form 8-K.
- SIFMA urges the SEC to clarify that the amendment of Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) by the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) applies only prospectively.
- Privately Offered Structured Finance Products:
- SIFMA’s dealer and sponsor members and its investor members have disparate views on the SEC’s proposals for regulation of private offerings of structured finance products, as discussed in detail below. SIFMA’s investor members agree with the principle that disclosure in 144A/Reg D transactions should not differ from that of transactions executed under the Regulation AB regime, and therefore support the SEC’s approach. However, SIFMA’s dealer and sponsor members express significant concern regarding the impact of the proposed rule changes on the viability of the 144A and Reg D markets, and the resulting impact this may have on the provision of credit previously funded through the securitization process in these markets.