The reconstruction of the securitization market took another turn last week as a collective group of European securitization market associations outlined a three-pronged initiative aimed at improving market transparency.

The associations were the Commercial Mortgage Securities Association (CMSA), European Banking Federation (EBF), the European Association of Co-operative Banks (ESBG), the European Securitization Forum (ESF), the International Capital Market Association (ICMA), the London Investment Banking Association (LIBA), and the Securities Industry and Financial Markets Association (SIFMA).

Bertrand Huet, SIFMA's managing director and European legal and regulatory counsel, said that the letter sent to the European Commission last week was the first step toward addressing concerns that emerged from last October's Ecofin meeting in Portugal.

At Ecofin, European finance ministers put together a roadmap that called for, among other things, measures to improve transparency in the securitization markets by the middle of this year. Huet said the initiative responds to the first item in the roadmap that called for better disclosure in the securitization market.

The first part of the joint initiative will deal with Pillar 3 of the new Capital Requirements Directive (CRD). The aim of Pillar 3 is to improve market discipline by requiring firms to publish certain details of their risks, capital and risk management. It affects banks and building societies and certain types of investment firms. As provisions from Basel II are implemented across Europe via the CRD, the question arose as to whether standards are being defined adequately or whether further disclosures are helpful, particularly in the area of securitization.

"With a new regime about to be put in place it's highly appropriate to let the market come up with solution on how to best implement it," said Robert Priester, head of the EBF's banking supervision department.

Under the initiative submitted last week, the securitization industry aims to ensure that there is clarity in what disclosure will look like under the CRD. As a result, industry participants said that the market will see more information available.

"It's important to note that we aren't just sitting at a table deciding which steps to take," a source also working on the initiative said. "We are actively working with players like liquidity providers, who need this information. And we are cross-referencing their information needs to come up with the best solution."

The second part of the initiative proposes a more aggregate consolidation of market reporting. While industry participants agree that there is ample information available on the market today, policy makers want to be able to access the information in one platform.

"The European Union wants to be able to go to this one place and find out what is happening and use it as an early warning device," said another market source also part of the collective of trade associations working on the initiative.

Initially the platform will concentrate on information related to primary issuance across all products actively traded in the European securitization market. The criteria will focus on issuer information, asset class, changes in ratings and commentary on pricing spread behavior. Over time, it's envisioned that other fields that the EU would find helpful will also be incorporated.

At least part of the initiative set forth is expected to be in working order by mid-June, as per the timeline set by Ecofin. SIFMA's Huet likened the process to putting together pieces of a puzzle. "This is just another piece but there are many more to go," he said.

(c) 2008 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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