SEC says securitizers must have 'skin in the game'

Schapiro lays out new rules requiring asset-backed issuers to retain five percent of asset-backed securitizers
APR 07, 2010
By  Bloomberg
The U.S. Securities and Exchange Commission called for issuers of asset-backed securities to have more “skin in the game,” as part of a series of recommendations for new rules governing the investment vehicle that loomed large in the recent financial crisis. SEC Chairman Mary Schapiro proposed a rule at a Wednesday meeting that would require issuers of asset-backed securities to retain 5 percent of the securitization. Such a requirement would create a “better alignment” of issuers and investors' interests because they would be exposed to the same risks, she said in her opening statement. Asset backed securities — typically housing, student or commercial loans that are bundled and then sold to investors — played a critical role in the financial crisis. Investors often believed they were buying into relatively safe investments, but in fact were exposed to subprime mortgages and other weak loans. Securitization often led to poor lending practices by encouraging banks to shift their risk of loss to investors, Ms. Schapiro said. “In the area of mortgage-backed securities, sound underwriting practices sometimes took a back seat to immediate profits,” she said. Ms. Schapiro rolled out a number of other proposed changes at the meeting. Among them are new rules requiring greater disclosure about they type and quality of loans that have been securitized and a requirement to give first-time investors a five-business-day window to consider transaction-specific information before they invest. The proposed rules are subject to a public-comment period before they can be formerly adopted. During the past year, the SEC and other regulators cited asset-backed securities as one of the contributing causes of the financial crisis. The commission has “concluded that we can and must do a better job of protecting investors,” Schapiro said.

Latest News

Judge OKs more than $90 million in settlement money for GWG investors
Judge OKs more than $90 million in settlement money for GWG investors

Mayer Brown, GWG's law firm, agreed to pay $30 million to resolve conflict of interest claims.

Fintech bytes: Orion and eMoney add new planning, investment tools for RIAs
Fintech bytes: Orion and eMoney add new planning, investment tools for RIAs

Orion adds new model portfolios and SMAs under expanded JPMorgan tie-up, while eMoney boosts its planning software capabilities.

Retirement uncertainty cuts across generations: Transamerica
Retirement uncertainty cuts across generations: Transamerica

National survey of workers exposes widespread retirement planning challenges for Gen Z, Millennials, Gen X, and Boomers.

Does a merger or acquisition make sense for your firm? Why now is the perfect time to secure your firm’s future
Does a merger or acquisition make sense for your firm? Why now is the perfect time to secure your firm’s future

While the choice for advisors to "die at their desks" might been wise once upon a time, higher acquisition multiples and innovations in deal structures have created more immediate M&A opportunities.

Raymond James continues recruitment run with UBS, Morgan Stanley teams
Raymond James continues recruitment run with UBS, Morgan Stanley teams

A father-son pair has joined the firm's independent arm in Utah, while a quartet of planning advisors strengthen its employee channel in Louisiana.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.

SPONSORED Beyond the dashboard: Making wealth tech human

How intelliflo aims to solve advisors' top tech headaches—without sacrificing the personal touch clients crave