SEC OKs asset-backed securities disclosure rules
U.S. securities regulators adopted new rules on Thursday that aim to give investors better information before they decide to invest in asset-backed securities, a market still struggling to recover from the financial crisis.
The two rules, required under last year's Dodd-Frank financial reform law, are designed to address issues that arose in the financial crisis when investors lost money on securities backed by subprime mortgage loans.
The first rule, which was approved unanimously by the Securities and Exchange Commission, aims to give investors a way to review the track record of asset-backed issuers like Bank of America.
Specifically, the rules would let investors see how often the issuers were asked to buy back assets such as those linked to toxic mortgages because they failed to meet the underwriting criteria laid out in the prospectus. Issuers would also need to disclose how often they fulfilled the repurchase requests from investors.
The second rule approved by the SEC on Thursday would require issuers of asset-backed securities to conduct a review of the loans underlying the securities and disclose it to investors.
That rule was approved in a 3-2 vote, with both Republican commissioners dissenting.
Under the first rule, issuers will need to file a three-year repurchase history with the SEC by February 14, 2012. After the initial filing, issuers would need to file updated information on a quarterly basis.
The rules apply only in cases where investors and issuers had a repurchase agreement included in the offering documents, and it applies to all asset-backed issuers, including municipal issuers. However, municipal issuers would get a three-year phase-in period to comply with the new disclosure rules.
Additionally, credit-rating agencies would have obligations to disclose to investors the recourse they have if they feel the loans in the pool fail to meet the criteria laid out in the prospectus.
SEC Chairman Mary Schapiro said on Thursday she felt the final rule did a good job at balancing competing concerns between those who feared a three-year look-back was too costly and difficult to obtain, and those who felt it was vital for investors.
All of these are rational measures aimed at providing investors with the information that they need, without unreasonable cost, she said.
(Reporting by Sarah N. Lynch; Editing by Gerald E. McCormick and Tim Dobbyn)
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