The Bond Market Association has said it wants the Securities and Exchange Commission to be more clear on how the agency's securities offering reform proposal will affect asset-backed securities, particularly in relation to the recently approved Regulation AB. In one of two comment letters on the SEC's recently proposed amendments to Regulation M, the securities offering regulation, the BMA addressed several points they would like to see changed before the final rule.
One specific point the BMA addresses is that the securities offering proposal holds ABS underwriters liable for investment decisions made based on preliminary information, which, in the case of ABS, often changes before a sale is closed. Currently, if there is a material change in information from the preliminary offering, the underwriter alerts an investor before trade settlement, and the investor may either break, or re-price the trade. The BMA has said it believes the current practice provides adequate legal protection for investors and wants the SEC provide for a safe harbor giving the underwriter 48 hours before closing to deliver a final prospectus and giving investors 48 hours after receiving the prospectus to raise objections. "The ABS offering process is based on a continuing dialogue with the investor, and we want to be able to maintain that process," said Nadine Cancell, vice president and assistant general counsel at the BMA.
The BMA also highlighted the proposal's requirements for filing informational and computational materials. Currently, ABS issuers do not have to file such materials until either the due date for filing the final prospectus, or two business days after first use, whichever is later. The proposal, however, requires informational and computational materials be filed no later than the date of first use. "We would consider this deadline to be too restrictive. This deadline does not allow adequate time to assemble and prepare the materials for filing," according to the comment letter.
The proposal also creates a new designation, called Well Known Seasoned Issuers, or WKSIs, for short. WKSIs get special benefits under the new proposal, such as automatic and pay-as-you-go registration, but ABS issuers are not eligible to become classified as WKSI. "We feel there is no policy reason for excluding ABS issuers," said Cancell.
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