Alan Beller, director, division of corporate finance, and Paula Dubberly, associate director (legal) of the Securities & Exchange Commission, were on hand at last week's American Securitization Forum conference. Given the SEC's recently released guidelines for ABS disclosure, it was not surprising the big-ticket speakers drew a packed house.
Shortly after the conference began, latecomers lined the walls at the back of the ballroom.
Beller announced that there would be no extension of the 60-day comment period allotted for reaction to the guidelines (due July 12) but went to great lengths to tell the market how best to construct those comment letters. He endorsed "thoughtful and detailed comments from market participants. Rule making is not a negotiation. But...think about how [comment letters] could be most useful to the rule-making process."
Speaking from his own point of view, and not for the SEC, Beller went on to note the market's waning enthusiasm for the regulations. "Yes, what the committee has proposed are rules, and rules have content...more than the guidance [currently] governing the market...and we need the industry to get past that point," he said.
The overall theme to Beller's speech: The regulation is crafted with investors' best interests in mind. He pointed out that ABS issuers are not required to file financial statements with new offerings, something the proposed regulation aims to fix. He pressed for comments from the market on static pool information - "comments other than it's expensive," he said. "The proposal sees static pool [information] in a way that would be material [to the transaction]," Beller said.
A key difficulty in the proposals is that they're heavily principles-based, without "bright- line" type guidance. Dubberly defined "material information" as anything that would influence an investor's decision to invest in a company.
Finally, aspects of securitization have to be apparent to investors, more than just in financial statements, said Beller. He discussed the proposal for publicly disclosed management narratives on how securitization impacts business. Combined with financial statements, Beller called the two "critical for good analysis of companies" by investors.
Clearly not enlivened by Beller's speech, audience members threw nary a question at him. (A live poll revealed 26% of the audience was comprised of investors; 21%, traders/bankers/analysts; 16%, lawyers, 5%, trustees; and the remainder, miscellaneous.) However, that may have been because members waited to hear from Dubberly, whose appearance was meant, specifically, to review components of the suggested ABS regulation.
Addressing what she dubbed as the market's sticker shock over the proposals, Dubberly said, "It's a lot of rules and you're not used to rules. Right now you're operating under a system of drive carefully.'"
Running through components of the proposals, Dubberly said the proposed regulation which addresses inclusion of static pool data was a principles-based approach. Dubberly cited a 1988 Supreme Court decision that addressed material information. As mentioned above, material information was described in this decision as anything a reasonable investor would consider important in making investment decisions.
In all, Dubberly encouraged market participants to submit more comment letters with detailed analysis of the issue being raised. She stressed that the proposals are aimed with investors' best interest in mind and said comment letters should be written with that in mind as well.
From statements taken both during and after their speeches it appears the SEC has not uet received as many comment letters as it would like on the subject. Market participants were encouraged by ASF Chairman Vernon Wright to get their letters in before the July 12 deadline.
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