PHOENIX - Market participants were encouraged to get with the new reporting program, slated to be instituted by the Securities and Exchange Commission next year. At last week's ASF 2005 Conference, market participants were guided through some of the new facts of life - regular reporting schedules.
The communication process of new ABS offerings has been the subject of much debate, and the SEC still has a few details to iron out before Jan. 1, 2006. However, what is most assured is the ABS world will have to commit to timely reporting schedules.
"The rules are consistent for a wide range of the industry. The value of periodic reporting and the importance it will have on sale eligibility will create a real focus on reporting," said Michael Mitchell, partner at Orrick, Herrington & Sutcliffe.
For example, "reporting compliance with new ABS market reforms is important to shelf eligibility going forward," said George Miller, executive director of the ASF.
Paula Dubberly, the SEC's associate director in the division of corporate finance, noted that market constituents should not be too constrained over liability issues about periodic reporting, as the SEC has delivered an interpreting rule specifically for asset-backed securities - Rule 159.
"We heard over the years that [investors] were concerned they were not getting information on a timely basis," said Dubberly. But concerns were also raised that the formal documentation the SEC requires for other types of securities offerings were not a good fit for the asset-backed world. In essence, noting that SEC offering rules were designed more for the high-risk IPO market than the high-grade ABS market underlined some of the thinking behind Rule 159. This interpretative rule governs the information ABS investors receive after an ABS offering has been executed, and it exempts ABS offerings from 12A (2) liability.
With regular reporting now an expectation, market regulators and constituents have to decide what should be communicated, to whom it should be communicated to, and when it is to be reported.
Cynthia Strauss, vice president at Fidelity Investments, held out hope that new offering prospectuses would be shipped out 48 hours in advance, in similar fashion as other security offerings. But Strauss's wish list of reporting documentation included disclosure about imbedded contracts with swaps, conflicts between parties, and servicer information.
Mitchell noted the SEC issued a no action letter exempting ABS securities from the 48-hour rule because of their complexity. "It is physically impossible to get everything into an offering document. So the question is, do the practices of the market have to be changed?" asked Mitchell.
"A year goes very fast," added Dubberly of the Jan. 1, 2006, implementation date. SEC regulations are effective as of March 1, 2005. From static pool information to originator disclosure, "You need to comply with all the rules and I can't stress that enough," Dubberly added.
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