Tuesday, November 11. 2014
The Securities and Exchange Commission recently adopted revisions to the rules that govern the disclosure, reporting, and offering process for asset-backed securities (commonly referred to as ABS). These revisions address issues and concerns regarding transparency in order to provide better protection for ABS holders and investors.
The final rules adopted by the SEC (also known as Regulation AB II or Reg AB II) are as follows:
- To standardize the asset-level information for ABS backed by residential mortgages, commercial mortgages, auto loans, auto leases, and debt securities (including resecuritizations) and to provide that information in a structured data format (XML).
- To provide investors with additional time to consider transaction-specific information by requiring ABS issuers using a shelf registration to file a preliminary prospectus containing such information at least three business days in advance of the first sale of securities in the offering.
- To revise the eligibility criteria for ABS shelf offerings to require the following: a certification at the time of each offering from a shelf registration statement about the disclosure contained in the prospectus and the structure of the securitization as provided by the chief executive officer of the depositor; a provision in the transaction agreement for the review of the assets for compliance with the representations and warranties upon the occurrence of certain
trigger events; a dispute resolution provision in the underlying transaction documents; and disclosure of investors’ requests to communicate with other investors.
- To permitting a pay-as-you-go registration fee alternative for ABS issuers.
- To create new Forms SF-1 and SF-3 for ABS issuers that would replace Forms S-1 and S-3 and distinguish ABS filers from corporate filers.
- To require ABS filers to file a single prospectus for each takedown rather than to provide a base prospectus and a prospectus supplement for ABS issuers.
- To expand disclosure to include the following: additional disclosure about transaction parties, including disclosure about a sponsor’s retained economic interest in an ABS transaction and financial information
about parties obligated to repurchase assets; and a description of the provisions in the transaction agreements about modification of the terms of the underlying assets.
- To revise the filing requirements for the prospectus disclosure by so that the transaction documents are filed by the date of the final prospectus.
- To standardize certain static pool disclosures as required by Regulation AB.
- To revise the Regulation AB definition of “asset-backed security”.
- To specify in Regulation AB the disclosure that must be provided on an aggregate basis relating to the type and amount of assets that do not meet the underwriting criteria that is described in the prospectus.
- To modify Forms 10-D, 10-K, and 8-K to require the inclusion of explanatory disclosure about identified material instances of noncompliance with existing Regulation AB servicing criteria.
With the release of EDGAR 14.2, some of these new requirements were addressed by the SEC. New form types (SF-1, SF-1/A, SF-3, SF-3/A, SF-3MEF, 424H, 424H/A, ABS-EE, and ABS-EE/A) were added to the EDGAR System and new exhibits were also created to accommodate the data files and documents needed for some of the new forms. While some of these new forms are simply new versions of existing forms designed specifically for ABS issuers, perhaps the more interesting form is ABS-EE because of the fact that it is completely new.
ABS-EE is a periodic form that files with a new XML exhibit to provide the SEC with asset-level data. For some types of asset-backed securities, this file literally contains thousands of data points, which could become challenging. With so much data, it won’t be practical to input that information manually, so having software that can create the EDGAR data for you is going to be a must – whether that means having import tools to take information from a database or having a management system that can create XML as specified by the SEC is the question.
With the release of GoFiler 4.2, we announced that we have ABS-EE ready to go. Using GoFiler’s “form data” interface means that your XML data points look just like a regular spreadsheet table. Import tools can take CSV from your database and drop the data into the appropriate fields. And you know that GoFiler is a fast and robust platform for editing documents and managing EDGAR submissions.
Form ABS-EE is also a great example of how integration is the future of financial reporting software. Data management systems or ERP systems aren’t always going to have the features you need for EDGAR reporting, so it’s up to your SEC compliance software to work with your internal systems. As development for GoFiler moves forward, expect its companion functionality - the Legato Script Language - to be employed more heavily in providing a fully integrated experience. Legato adds the ability to communicate with databases using ODBC (Open Database Connectivity) to retrieve data and place that information directly into the GoFiler software. This bridge between applications will finally bring your EDGAR software out of the stone ages.
Getting all of your data into the XML exhibit for Form ABS-EE is just the first challenge. Being able to realistically review that information, check it for errors, and provide a readable proof are just some of the other difficulties that ABS filers will now face. With the right combination of customization scripting to integrate your EDGAR software with your management systems and to provide the powerful tool to complete both old and new EDGAR forms with the greatest efficiency.
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