SEC Considers Increasing Disclosure on Asset-Backeds

Increased regulation may be looming for the asset-backed securities market.

The Securities and Exchange Commission is reviewing a proposal from an investor group that would create more stringent disclosure requirements for asset-backed securities issuers and servicers.

Asset-backed securities "are frequently offered with inadequate amounts of time and information for investors to make informed judgments about the securities," a task force from the Association for Investment Management and Research wrote in a Sept. 30 letter to the SEC.

To give investors more time to judge new issues, the task force suggested buyers receive an offering document at least 48 hours before the securities are sold.

The authors said investors need to know more about the credit risks of the securities. They argued that issuers should not only disclose the rating awarded to a security, but also reveal which agencies reviewed the securities.

The group also asked servicers of the securities - often banks - be required to disclose to the SEC historical data on the asset pool and its performance after the assets have been securitized.

The task force consists of analysts from Fidelity Management & Research Co., Bank of Boston Corp., Bankers Trust New York Corp., Allstate Life Insurance Co., and Mutual of Omaha Cos. Members reached by telephone declined to comment on the letter.

The task force members note in the letter that it was drafted in response to an SEC request.

An SEC spokesman confirmed the agency has received the letter, but did not offer neither a comment nor a timetable for what may be done next.

Nevertheless, the SEC's request appears to reflect a move toward increased regulation of the rapidly expanding securitization market.

Asset-backed securities are securities backed by receivables in credit cards, auto loans, student loans, home equities, or other more esoteric items.

About $120 billion worth of securities were sold last year, a record since they were first offered 11 years ago. Selling the securities provides an inexpensive source of funding for companies and enables banks to remove receivables from their books.

These securities can be issued faster and with less disclosure than corporate bonds.

SEC regulations allow issuers who file "shelf registration" statements to issue securities incrementally over time without issuing new disclosure documents informing investors of changes in the cash flow or credit quality of the securities' underlying asset.

The task force members said investors need time to assess new offerings in part because many new issuers have entered the securitization market with little or no operating history.

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