VENICE - Although implementation of the market abuse directive (MAD) must happen on a national level, there is still resistance from some market players who continue to disseminate collateral information on a selective basis. Participants made these comments in the Recent EU Directives: Market Abuse, Prospectus and Transparency panel at the European Securitization Forum third annual conference held here last week.
When the directive was released, market participants focused on issues like investor reports, which, in the past, had only been available via password-protected access. "We have had two meetings where we discussed the possibility of putting in place the best practices and making this information available on a broader basis," said a panelist.
Delinquency data is crucial for successfully managing a portfolio. Most panelists welcomed the idea of having this type of information available to all. "We would like to see a framework implemented where we get consistent data, but, unless all investors have that expectation, it won't happen," said another panelist. "Once several people do it, it becomes a norm of the market."
More information would lead to more trading opportunities and would also help the market differentiate the good from the bad issuers, added the participants.
On the CDO front, MAD is also expected to bring full disclosure to an otherwise opaque market for investors. One panelist said the best way to do this is to look at CDOs in terms of product type.
Although CDOs function on a private market basis in the U.S., they are listed publicly in Europe. "If it's a deal that is listed publicly, the manager should make information available," one speaker said. "If someone has insider information, they shouldn't be using it to trade."
The Bond Market Association has developed a CDO library in the U.S. where all the underlying loan information is made available to qualified institutional lenders. This effort would not work in Europe because there is still a level of exclusivity maintained to the BMA's information dissemination.
To what extent will new disclosure drive pricing? Panelists said that visibility has already improved on the secondary trading front. This new directive will only further improve trading, although panelists were not clear on how it would benefit CDO liquidity.
The speakers were hopeful that the market could come to a consensus on how the directive is enforced before a complaint arises or before a deal blows up and leads to a lawsuit because of non-disclosure. "We are obligated to report insider information and all of us have been guilty of passing selective information so we are all in it together and we must come to a solution," said one panelist.
There are two components that must be contemplated before issuers can decide what information to put out. They have to determine what of all the data collected would investors find important and how to present this information in an investor friendly way?
The European Union is not in a position to govern how a country implements the new disclosure laws. "It's important to keep in mind that under the current EU regulatory framework, while it does not have a specific ABS disclosure rule, it does look at disclosure in a way that can also be applied to ABS," said one panelist. "It's important for investors to complain when they feel the law is not being enforced."
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