The Securities and Exchange Commission (SEC) said today that it is seeking public comment on proposed regulations to require ABS issuers and credit rating agencies that rate ABS to provide investors with new disclosures about representations, warranties, and enforcement mechanisms.
Section 943 of the Dodd-Frank Act mandates the SEC to prescribe regulations on the use of representations and warranties in the ABS market by Jan. 14, 2011, wchih is 180 days after enactment. A complete list of regulatory actions taken to date as required by the Dodd-Frank Act is available on the SEC’s Web site.
The SEC’s proposed rules would require the Disclosure of Repurchase History from ABS issuers. These firms would be required to file with the SEC in tabular format their repurchase history for their ABS outstanding. This move was made so that investors can identify the originators that have clear underwriting deficiencies.
Particularly when an issuer starts its first ABS offering, after the effective date of the rule, the firm would be required to provide the last five years of repurchase history in an initial filing. After the the first filing, the ABS issuer would need to file updated information on a monthly basis.
The required data includes repurchase history for all ABS outstanding ABS — regardless of whether the securities were offered in a deal was registered with the SEC — if the underlying offering agreements have a covenant to repurchase or replace a pool asset.
Issuers also need to give the SEC a history of all fulfilled and unfulfilled repurchase requests, including the investor demands upon a trustee and pending requests.
Issuers are also required to disclose the repurchase history in prospectuses and ongoing reports.
The proposed rules would offer buy-siders with ready access to the most current data about an issuer’s repurchase history by requiring an issuer of a registered ABS offering to include — in the body of a prospectus — the repurchase history for the last three years for ABS of the same asset class as the securities being registered. In its ongoing reports, an issuer should give the updated repurchase history for the particular, related asset pool.
The proposed rules would require Nationally Recognized Statistical Rating Organizations (NRSROs) to offer a description of the representations, warranties and enforcement mechanisms that are available to investors for a given ABS offering.
The credit rating agencies should disclose how the representations, warranties, and enforcement mechanisms differ from those of similar ABS. NRSROs would also need to make the disclosures in any report accompanying a credit rating, which includes presale reports that are distributed before a security's sale.