First responses and comments began trickling out last week on the Securities and Exchange Commission's proposals for standardized securitization disclosure practices.

All said, by deadline, it appeared that not many had weeded through the 400 page document, though many confirmed efforts to do so in the coming weeks.

"99% of this proposal is codifying no-action letters, existing staff interpretations and guidance, and current practice," said The Bond Market Association's Vice President and Assistant General Counsel Nadine Cancell. "Overall, the fact that underwriters and issuers will be freer to give information to investors in circumstances where it is needed is a positive for the industry."

However, Stephen Kudenholdt, head of structured finance at Thacher Proffitt & Wood, said that the SEC appears to be going beyond the status quo in its approach to the content of disclosure and certain reporting requirements. While it was widely anticipated that the regulator would ask for static pool information, Kudenholdt was surprised at the extent of what was set forth in the proposal. In the reporting area, the concept of an attestation from a responsible person marks a major departure form how things are done today, he said. "I think there will be a lot of comments on specific items," Kudenholdt said.

Not surprisingly, Nomura Securities ABS research head Mark Adelson circulated an update to his preview from the prior week (see ASR 5/3), which identified the major areas that the SEC is targeting. Adelson also identified the inclusion of static pool information and the attestation requirement as important points. "The proposal includes nearly all of what we hoped to see, but not everything," Adelson said. "A little room for improvement remains."

Standardized servicer reporting

The SEC seems to be significantly concerned with the ease in a servicer manipulating the seeming performance of a transaction by, in the bluntest terms, gaming the reports. This is not surprising considering the issue has risen to the forefront of the market several times over the past few years.

Deloitte & Touche's Marty Rosenblatt circulated a commentary on the SEC's proposal concerning servicer disclosure and attestation (see p. 12-14 for abridged version).

Essentially, it seems the SEC's guidelines will at least identify the party responsible for the accuracy of the reports, which will be the entity signing a servicing exhibit accompanying the deal's 10-K. This party is likely the servicer or master servicer, as proposed by the SEC.

In some ways, this rehashes some of the challenges Sarbanes-Oxley presents in dealing with a single-party certification of disclosures. At the time, it was proposed that both the trustee and the servicer jointly certify the ABS related SEC filings. The SEC's current proposal, however, is specific that only one party would sign, and would be responsible for the accuracy of all the other parties involved in the securitization.

William Berls, senior vice president and chief compliance officer for treasury and securities at JP Morgan Chase Bank said his group would be paying close attention to the role being laid out for the trustee.

"In the past, there was an assumption that the trustee was a general supervisor of the deal with the responsibility that everything went off according to plan," Berls said. "This is not the case, and disclosure will help to qualify that."

Copyright 2004 Thomson Media Inc. All Rights Reserved.

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