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from MuniLand:
Should asset backed securities be outlawed?
On Tuesday the SEC is holding a roundtable on credit ratings to address the ongoing question of ratings shopping. Rating shopping is when a bond issuer shops its deal to various credit rating agencies to see who will assign the highest rating. The rating agencies that will assign the best ratings are given the business and the rating fee. Here is how the SEC describes its event:
As previously announced, the roundtable will consist of three panels. The first panel will discuss the potential creation of a credit rating assignment system for asset-backed securities. The second panel will discuss the effectiveness of the SEC’s current system to encourage unsolicited ratings of asset-backed securities. The third panel will discuss other alternatives to the current issuer-pay business model in which the issuer selects and pays the firm it wants to provide credit ratings for its securities.
The possibility of a credit rating assignment system comes from legislation that Minnesota's senator Al Franken inserted in Dodd-Frank. Franken’s law requires that the SEC study the feasibility of a bureau or panel that would assign a rating agency to rate an offering. Currently issuers choose which firms will rate their offering although for structured finance or asset-backed deals issuers must share the particulars of the new deal with all raters recognized by the SEC in that category. This is equivalent disclosure and something that I have advocated with the SEC since 2007 and Congress since 2008. It has slightly increased competition in rating structured finance securities as seen in the chart above although the size of the market has declined since 2007.
In theory the idea of a bureau that assigns rating agencies has much in it’s favor, but it goes against all the rest of the law related to credit ratings. Current law (Credit Rating Agency Reform Act of 2006) enshrines the principles of increasing transparency and competition for ratings. The Franken proposal moves in the opposite direction by narrowing the number of opinions on specific bond issue.
from MuniLand:
Harrisburg joins Jefferson County with muniland securities fraud charge
The near-bankrupt city of Harrisburg, Pennsylvania was charged this week by the Securities and Exchange Commission with securities fraud. Here is the official language (emphasis mine):
The Securities and Exchange Commission today charged the City of Harrisburg, Pa., with securities fraud for its misleading public statements when its financial condition was deteriorating and financial information available to municipal bond investors was either incomplete or outdated.
from Financial Regulatory Forum:
ACCELUS SUMMIT: FATCA compliance is a manageable challenge, but deadlines loom
By Stuart Gittleman, Compliance Complete
NEW YORK, May 2 (Thomson Reuters Accelus) - A U.S. law to improve tax compliance by U.S. taxpayers with foreign financial assets is creating confusion for foreign financial institutions that must cooperate with the Internal Revenue Service to help enforce the law.
The law, the Foreign Account Tax Compliance Act, or FATCA, requires U.S. taxpayers with certain foreign financial assets and offshore accounts to report the assets to the Internal Revenue Service.
from Financial Regulatory Forum:
ACCELUS SUMMIT: Former U.S. SEC chief Pitt warns against imposing regulations abroad, urges industry engagement
Nick Paraskeva, for Compliance Complete
NEW YORK, May 2 (Thomson Reuters Accelus) - The United States should recognize it can no longer impose its regulatory solutions on the rest of the world, former U.S. Securities and Exchange Commission head Harvey Pitt said on Thursday.
“The time when the U.S. could be arrogant is long over, as is the time when it could believe it could hold on to financial services in this country,” Pitt told the Thomson Reuters Accelus annual Compliance & Risk Summit in New York.
from Financial Regulatory Forum:
SEC’s Walter says she is open to alternatives to overseeing investment advisers
By Emmanuel Olaoye, Compliance Complete
WASHINGTON, Apr.19 (Thomson Reuters Accelus) - There are several ways to ensure adequate examinations investment advisers: by charging investment advisers user fees, getting a bigger budget from Congress or through a self-regulated organization that oversaw investment advisers, SEC Commissioner Elisse Walter said. The important thing is to get on with it.
"The key to solving the problem is very controversial. I think the most important thing is to solve it ... I'll be happy if we get a bigger budget to cover this ... It is a problem that needs to be fixed and sooner rather than later," said Walter.
from MuniLand:
A huddle over market transparency
The SEC held a fixed income roundtable on Tuesday to discuss two important issues: market structure and ways to improve it for municipal and corporate bonds. The SEC has as much authority to regulate this market as it does for equity securities, and it appears to be finally flexing its muscles with a little structure for the $18.7 trillion fixed income market.
I tweeted the roundtable all day (you can read the whole thread here), and I’ve posted the best ones here (parentheses are my editorial comments):
from MuniLand:
SEC must look beyond US borders to reform the fixed income markets
The SEC is holding a Fixed Income Roundtable on April 16 to examine ways to improve the transparency and efficiency of the fixed income markets. This is the first time that I am aware of that the SEC has focused exclusively on the market structure of fixed income. Although fixed income as an asset class is over twice the size of the equity market, and the SEC was given authority in 1975 to oversee this market, almost nothing has been done to regulate it.
All US bond trading is done over the counter or through alternative trading systems (ATS), which are trading platforms registered as dealers. ATS do not have responsibility to oversee the conduct of the other dealers trading on their platform. Think of them as fancy eBay systems for dealers to interact with each other. Rule 300(a) of the SEC's Regulation ATS provides the following legal definition of an "alternative trading system":
from Financial Regulatory Forum:
SEC has three words for hedge funds: “culture of compliance.” But what do they mean?
By Jeanette Turner, contributing author for Compliance Complete
NEW YORK, April 3 (Thomson Reuters Accelus) - The U.S. Securities and Exchange Commission inevitably emphasizes the importance of an advisory firm’s "culture of compliance," in the regulator's speeches, panel discussions, and announcements of enforcement wins and settlements. It stresses that firms will be held accountable when their employees break the law to benefit the firm. Having a "robust" culture of compliance can help firms avoid severe financial consequences.
But, what is a "robust culture of compliance?" Essentially, it is an overall environment that fosters ethical behavior and decision-making. Even the most clearly written, comprehensive compliance program is destined for failure without a such an environment. The challenge, however, is that a “robust culture of compliance” can be an elusive concept. There is no checklist of required policies or processes, and it ultimately comes down to the subjective feeling a regulator has about the firm.
from Unstructured Finance:
The burden of being SAC Capital’s “Portfolio Manager B”
Michael Steinberg, the SAC Capital Advisers portfolio manager who was arrested at the crack of dawn last Friday morning probably envies former Goldman Sachs trader Matthew Taylor’s rush-hour surrender to the Federal Bureau of Investigation on Wednesday.
While Steinberg was led away in handcuffs as a Wall Street Journal reporter took shaky video footage of the scene outside his door at 6am, Taylor sauntered into FBI headquarters in New York on his own, at 8:30am, having had plenty of time to collect his wits with a cup of hot coffee.
from Breakingviews:
Maybe SAC should forget about other people’s money
By Richard Beales
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Maybe SAC Capital should forget about managing other people’s money. Steve Cohen’s $15 billion hedge fund firm is paying a whopping $616 million to settle Securities and Exchange Commission insider trading charges. It would be an ignominious time to follow legends like Stanley Druckenmiller, but Cohen is already losing over a quarter of some $6 billion of outside investor funds this year. It could be time to focus mainly on looking after his own cash.
