The Commercial Mortgage Securities Association Europe (CMSA-Europe) and the European Securitization Forum (ESF) released market guidelines to help CMBS and ABS market participants in complying with the European Commission's Market Abuse Directive (MAD) requirements for assessment and disclosure of inside information in transaction post-issuance reporting.
The MAD is a minimum harmonization directive that seeks to ensure the integrity of the European capital markets and encourage public confidence in the trading of securities and derivatives by preventing, detecting, investigating and sanctioning against market abuse. It requires issuers to disclose to the public promptly and in a synchronized fashion any information that might impact the price of listed securities. The purpose of the guidelines is to recommend best practices to a variety of market participants involved in arranging, advising on, implementing and investing in CMBS and ABS as well as how to implement MAD disclosure requirements.
According to the trade associations, MAD poses a couple of challenges for the ABS market. Securitizations are structured and issued through special purpose vehicles. These SPVs operate on a very strict and predetermined set of procedures that are defined at the time of issuance, and allow for no or very little intervention by third parties, including the seller of the assets to the SPV, Rick Watson of the ESF explained. Securitizations also introduce differences in the investor base of the various transaction tranches as well as the position of various parties with reporting roles, such as servicers, trustees and other third parties.
To address these issues, the new guidelines recommend that, upon the closing of each transaction, the parties that originated and arranged the transaction anticipate in the offering and contractual documents what will happen if material non-public information is received by any of the transaction participants. Deal documentation should determine what information relating to the portfolio of securitized assets may be price-sensitive, who will be responsible for assessing and disclosing price sensitive information and where and when post issuance reports can be obtained.
To minimize the costs of implementing these measures, and to reduce the risk of non-compliance with the MAD, the guidelines recommend that price sensitive information pertaining to a transaction is disclosed within the ordinary post issuance reporting of that transaction.