As the Chairman noted, “the benefits of better alignment of the interests of issuers and investors through a retention or ‘skin in the game’ requirement,” are fundamentally important.
The proposal includes requirements for “granular” and “timely” information about loans backing the securities; and that issuers and distributors, “for the first time give investors a minimum period of time–specifically five business days–to consider transaction-specific information, including the loan level data, before an ABS investment decision needs to be made.” It also requires that issuers provide the SEC with the “waterfall” information for the securities: “The waterfall is essentially the rules that dictate how the borrowers’ loan payments are distributed to investors in the ABS, how losses or lack of payment on those loans is divided among the investors, and when administrative expenses (such as servicing fees), are paid to service providers,” Schapiro explained in her speech.
The SEC is also looking at the public versus private ABS markets with an eye on whether, “in light of the financial crisis, that sophisticated investors do not need the types of protections that come with registration under the Securities Act.” This means changing how SEC regulates ABS markets, and may require private issues be filed with SEC just as public ones are, and that, “the issuers would have to provide investors, upon request, the same information that would be required if the offering were in the public markets.”
There will be a 90-day period for comments on the proposal.
Comments? Please send them to [email protected]. Kate McBride is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.