After celebrating last week’s very positive event in the House of Representatives with the overwhelming passage of the federal LIBOR bill by a vote of 415 – 9, this week has brought a few challenging developments to our market.

1. Court Rules that Securitization Trusts are Subject to CFPB Enforcement Authority.Early this week in the long running court case CFPB v NCSLT, Judge Stephanos Bibas ruled that the case against the Trust may proceed – in part finding that the NCSLT securitization trusts are “covered persons” under the Consumer Financial Protection Act and therefore subject to the CFPB’s enforcement authority. Obviously, this could have significant widescale implications on the securitization market of consumer assets. Please see a write-up by the Cadwalader team that details the recent court developments.  Note: Cadwalader represented SFA in a prior amicus brief submission in this case.

 

We will host a SFA member-wide call on Tuesday, January 4^th to discuss what this may mean for consumer securitizations – and any actions SFA may be able to take in support of the industry. Please register here.

 

 

2. SEC 15c2-11 No-Action Letter Presents Many Questions to the Securitization Market. Late yesterday the SEC released a no-action letter that was quite the surprise – as the Commission stated its clear intent to apply Rule 15c2-11 (the “Rule”) to the fixed income market. In that same letter they provided varying extensions to the effective compliance date for most fixed income products. Specifically for the asset-back securities market, that compliance date was extended one year to January 3, 2023, for most securities. However, for true private transactions (i.e., non-144A private deals) the compliance date was not extended at all and is just over two weeks away. As outlined below, applying the Rule to fixed income securities is a very new development and raises significant concerns about the market’s ability to comply with the Rule and its implications.

 

Background. With the purpose of minimizing the potential for fraud and manipulation, under Rule 15c2-11 the SEC has required market makers to review specifically defined issuer information prior to providing quotes on certain OTC securities. Since the Rules’ inception over 40 years ago, the market has understood the Rule to apply only to OTC equity securities. In fact, when a proposed amendment to the Rule was released last year, hundreds of comments were submitted related to the equity markets but not one comment to the fixed income market. Even further, in September of 2021, SEC Commissioner Peirce acknowledged she thought the Rule only applied to the OTC equity market.

 

This summer, just prior to the effective date of the amended Rule, buzz began to swirl that the SEC may be considering applying it to the fixed income market. SFA and other trades expressed deep concerns on the implication to the fixed income markets if 15c2-11 was applied to these markets.

 

Join SFA’s 15c2-11 Task Force to participate in industry discussion on (1) our planned advocacy with the SEC and Capitol Hill, (2) if and how the industry may be able to comply with the Rule, and (3) the potential implications on the industry.  If you’re interested in joining the discussion, please sign-up here. 

 

 

3. Pricing Fixed-Rate ABS products. We’ve heard from many of you that it would be valuable to establish a forum to discuss market perspectives and considerations surrounding whether SOFR or Treasuries should be used to price fixed rate ABS as LIBOR transactions. If you’re interested in joining the discussion, please register here. 

 

 

If you have any questions in the meantime, please reach out to me or anyone on the SFA policy team.