Sector developments and company hires

ABS conflicts of interest eyed
The US SEC has proposed a rule intended to address conflicts of interests in the securitisation market. Specifically, the rule would prohibit securitisation participants from engaging in certain transactions that could incentivise a securitisation participant to structure an ABS in a way that would put the securitisation participant's interests ahead of those of ABS investors. The rule would implement Section 27B of the Securities Act of 1933, a provision added by Section 621 of the Dodd-Frank Act, which the Commission originally proposed in September 2011.

If adopted, the new Securities Act Rule 192 would prohibit an underwriter, placement agent, initial purchaser or sponsor of an ABS - including affiliates or subsidiaries of those entities - from engaging in any transaction that would involve or result in any material conflict of interest between the securitisation participant and an investor in the ABS. Under the proposed rule, such transactions would be ‘conflicted transactions’. They include, for example, a short sale of the ABS or the purchase of a credit derivative that entitles the securitisation participant to receive payments upon the occurrence of specified credit events in respect of the ABS.

The prohibition on conflicted transactions would commence on the date on which a person has reached an agreement to become a securitisation participant with respect to an ABS, and it would end one year after the date of the first closing of the sale of the ABS. The proposed rule would provide certain exceptions for risk-mitigating hedging activities, bona fide market-making activities and certain commitments by a securitisation participant to provide liquidity for an ABS. The proposed exceptions would focus on distinguishing the characteristics of such activities from speculative trading and would also seek to avoid disrupting current liquidity commitment, market-making and balance sheet management activities.

A public comment period is open for 60 days following publication of the proposing release.

In other news…

API collaboration inked
Howden CAP and AXA XL in the UK have collaborated on a structured credit API, representing Howden CAP’s third API collaboration with an underwriting partner in the last 12 months. It follows Howden CAP’s successful integrations with Mosaic and Allianz Trade, as the firm seeks to create the world’s first comprehensive API network for any specialty insurance product in the market.

The development reflects Howden CAP and AXA XL’s commitment to utilise digital platforms to enhance efficiency and market integration, and to provide seamless insurance solutions for institutional clients. By collaborating with underwriters, Howden CAP clients and their broking teams can obtain offers and execute business, delivering a data-driven method of trading and placement of insurance.

BVAL disclosure charges settled
Bloomberg Finance has settled charges brought by the US SEC for misleading disclosures relating to its fixed income valuations service, BVAL. The SEC’s order finds that from at least 2016 through October 2022, Bloomberg failed to disclose to its BVAL customers that the valuations for certain fixed income securities could be based on a single data input, such as a broker quote, which did not adhere to methodologies it had previously disclosed. The order finds that Bloomberg was aware that its customers may utilise BVAL prices to determine fund asset valuations and that BVAL prices therefore can have an impact on the price at which securities are offered or traded.

The SEC’s order finds that Bloomberg violated section 17(a)(2) of the Securities Act. Without admitting or denying the findings, Bloomberg agreed to cease and desist from future violations and to pay a US$5m penalty. The SEC’s order notes that Bloomberg voluntarily engaged in remedial efforts to make improvements to its BVAL line of business.

NPA ABS framework mooted
The Reserve Bank of India has released a discussion paper on the introduction of a framework for the securitisation of stressed assets (SSAF), in addition to the existing asset reconstruction company (ARC) route. While the country’s Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) provides for securitisation of non-performing assets (NPAs), such transactions have to be undertaken by ARCs licensed under the Act. Based on market feedback and stakeholder consultations, RBI is seeking to enable securitisation of NPAs through the existing special purpose entity route.

The discussion paper broadly covers nine relevant areas of the framework, including asset universe, asset eligibility, minimum risk retention, regulatory framework for SPEs and resolution managers, access to finance for resolution managers, capital treatment, due diligence, credit enhancement and valuation. It draws upon similar frameworks introduced in other jurisdictions, while trying to keep it structurally aligned with the framework for securitisation of standard assets in India.

The RBI is seeking comments on the discussion paper by 28 February.