Saying that securitization and its benefits require functioning capital markets, two industry groups last week outlined measures designed to improve market conditions for the ABCP and structured investment vehicle (SIV) sectors.
Such measures include improving transparency of ABCP and SIV holdings, clarification of what constitutes a subprime asset and investor education about structured finance ratings.
The measures come from the European Securitization Forum (ESF) and the Securities Industry and Financial Markets Association (SIFMA).
The groups also called a meeting of ABCP and SIV sponsors, dealers and liquidity banks last Wednesday to trade ideas on how to shore up the faltering sectors.
"Securitization requires functioning capital markets," said Karsten Moller, SIFMA's London-based head of Europe and Asia. "The industry is taking steps to identify areas that could help restore normal liquid market conditions."
The groups' top concern is transparency. While acknowledging that some ABCP vehicles distribute cumulative portfolio information to investors, some programs provide minimal descriptions of program holdings, while others provide none at all.
"ESF recommends immediate and ongoing disclosure of portfolio holdings by ABCP conduits and SIV issuers," the organization said. "This will identify where U.S. subprime risk resides, including indirect exposure through CDO structures.
The ESF also called on the industry to develop guidelines to disclose methodologies consistently that are used in evaluating portfolio holdings. It also recommended that issuers use standardized SIFMA/ESF data reporting fields for RMBS and CDOs.
"This facilitates investor understanding of transactions by providing consistent definitions," the organization said. The ESF said it supports measures to improve the consistency of modeled transaction data, and access to the data, even if the data are centralized.
As for investors' understanding of structured finance ratings, the ESF said its members would work to improve market education about the ratings and risks of structured products, the meaning of ratings, the difference between triple-A ratings and market prices, the surveillance process and other elements of the process of rating structured products.
While saying it supports the independence of agency analytical processes, the trade group recommended that rating agencies coordinate with other industry participants to maximize risk visibility across asset classes and investment vehicles.
It suggested that advisory councils could enhance investor involvement and input to rating methodologies and broader risk monitoring, especially for more complex deal structures.
At least one measure was directed at the structuring process. Specifically, the ESF recommended that a review of information developed take place and be made available during the structuring process.
Last week's meeting was just the first of such events. The ESF, American Securitization Forum, SIFMA, and the Asia-Pacific Securitization Association are organizing a joint securitization summit slated for Sept. 19. The meeting will be Webcast.
Aside from soliciting the participation of industry participants, the organizations are meeting with central banks and regulators to hammer out ways to improve market conditions.
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