Asset-Backed Securities Regulation

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Dodd-Frank Timeline, Disclosure for Asset-Backed Securities, SEC
Final Rule Issue Effective Date Compliance Date
January 26, 2011 March 28, 2011 February 14, 2012
Dodd-Frank Timeline, Issuer Review of Assets in Asset-Backed Securities, SEC
Final Rule Issue Effective Date Compliance Date
January 25, 2011 March 28, 2011 December 31, 2011
Dodd-Frank Timeline, Interim Final Temporary Rule for SBS Data Reporting
Approval Date Comment Deadline Effective Date
October 20, 2010 December 20, 2010 January 12, 2012
Dodd-Frank Timeline, Suspension of the Duty to File Reports for Classes of Asset-Backed Securities, SEC
Comment Deadline Final Rule Issue Effective Date
February 7, 2011 August 23, 2011 September 22, 2011
Dodd-Frank Timeline, Shelf Eligibility Requirements for Asset-Backed Securities
Proposal Date Comment File Reopened New Comment Deadline
August 5, 2011 February 25, 2014 March 28, 2014
Dodd-Frank Timeline, Ownership Limitations and Governance Requirements for SBS Entities, SEC
Proposal Date Comment Deadline Reopened Comment Period Deadline
October 26, 2010 April 29, 2011 July 22, 2013
Dodd-Frank Timeline, Credit Risk Retention
Proposal Date Re-Proposal Date Comment Deadline
June 10, 2011 August 28, 2013 October 30, 2013

Asset-backed securities (ABS) are created by buying and bundling loans – such as residential mortgage loans, commercial loans or student loans – and creating securities backed by those assets, which are then sold to investors. During the financial crisis, ABS holders suffered significant losses. The crisis revealed that many investors were not fully aware of the risk in the underlying mortgages within the pools of securitized assets.

The Dodd-Frank Act imposed new requirements on ABS, including business conduct standards, credit risk retention and reporting.

At an open meeting on January 20, 2011, the SEC finalized rules requiring an issuer of asset-backed securities (ABS) to "perform a review of the assets underlying the ABS and disclose information relating to the review." Rules regarding shelf eligibility conditions for asset-backed securities were re-proposed on July 26, 2011. On October 13, 2010, the SEC adopted an interim final temporary Rule 13Aa-2T concerning the reporting of security-based swap data. Also introduced at this meeting was a new proposed rule to "mitigate conflicts of interest at security-based swap clearing agencies, security-based swap execution facilities, and national security exchanges that post or make available for trading security-based swaps."

Credit Risk Retention[edit]

On August 28, 2013, six federal agencies issued a notice revising a proposed rule requiring sponsors of securitization transactions to retain risk in those transactions. The new proposal revises a proposed rule the agencies issued in 2011 to implement the risk retention requirement in the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The proposal generally requires the securitizer of asset-backed securities to retain not less than 5 percent of the credit risk of the assets collateralizing the asset-backed securities.

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Final Rules from SEC Open Meeting, January 20, 2011[edit]

Disclosure for Asset-Backed Securities Required by Section 943 of the Dodd-Frank Wall Street Reform and Consumer Protection Act

  • ABS issuers are now required to disclose repurchase histories on new form ABS-15G, repurchase histories in prospectuses and ongoing reports, and any report accompanying a credit rating by a nationally recognized statistical ratings organization (NRSRO).

Quarterly reports should be filed by the ABS issuer and include:

  1. the "repurchase history for all outstanding ABS (regardless of whether the securities were offered in a transaction registered with the SEC) if the underlying transaction agreements include a covenant to repurchase or replace a pool asset;" and
  2. the "history of all fulfilled and unfulfilled repurchase requests, including investor demands upon a trustee and pending requests."
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Issuer Review of Assets in Offerings of Asset-Backed Securities

  • Issuers of asset-backed securities must conduct a review of the assets underlying those securities, while also providing:
  1. "Information about how the loans in the pool differ from the loan underwriting criteria disclosed in the prospectus.
  2. Information about loans that did not meet the disclosed underwriting criteria but were nonetheless included in the pool.
  3. Information about the entity that made the determination that such loans should be included in the pool, despite not having met the disclosed underwriting standards."
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Final Rule from August 17, 2011[edit]

Suspension of the Duty to File Reports for Classes of Asset-Backed Securities Under Section 15(d) of the Securities Exchange Act of 1934

From the release:

"We are adopting rules to provide certain thresholds for suspension of the reporting obligations for asset-backed securities issuers. We are also amending our rules relating to the Exchange Act reporting obligations of asset-backed securities issuers in light of these statutory changes."

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Proposed Rule from SEC Open Meeting, July 26, 2011[edit]

Re-proposal of Shelf Eligibility Conditions for Asset-Backed Securities and Other Additional Requests for Comment

The rules regarding shelf eligibility conditions for asset-backed securities were originally proposed on April 2, 2010. At an open meeting on July 26, 2011, the revised rules were re-proposed with additional requests for comment.<ref>SEC Re-Proposes New Shelf Eligibility Requirements for Asset-Backed Securities. SEC. Retrieved on July 26, 2011.</ref> On February 25, 2014, the SEC reopened the comment period for shelf eligibility conditions for asset backed securities until March 28, 2014.

The rules would require:

  • an executive officer of the ABS issuer to certify the accuracy of the disclosure and that the anticipated payments for the securities being bought and sold were legitimate;
  • a credit risk manager to conduct a review should trigger events occur;
  • documented dispute resolution procedures for the repurchase of non-compliant assets in the pool; and
  • a notice in a public filing indicating requested communication between two or more investors regarding transaction agreements.

Among other things, the proposal also requests an updated exhibit filing deadline and further comment in reaction to the revised proposed rules.

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