Market Structure & Dynamics

Regularly reviewing our market structure, processes and dynamics is a key component to achieving SFA’s mission of promoting a robust, liquid and healthy structured finance market as it grows and adapts to the consumers and businesses it supports.

It may surprise policymakers and regulators, as well as even some market participants, to know that it is currently very difficult – and sometimes impossible – for bondholders to communicate with the companies that issued the securities they own or for bondholders who own the same security to communicate with one another.

The current system is so unreliable that when evaluating potential solutions for the transition away from LIBOR, one of our financial markets’ most serious risk today, market participants view the option of soliciting bondholder consent for an amendment as largely unfeasible.

Publications

August 4, 2021

Credit ratings agencies contribute to the efficiency and stability of the bond markets including securitization by enhancing the ability of issuers to raise capital for their businesses and providing investors with an independent credit assessment of the creditworthiness of a company.

December 22, 2020

SFA’s response to the Fixed Income Market Structure Advisory Committee (FIMSAC) recommendation regarding ways to mitigate conflicts on interest in credit ratings focused on 1) enhanced issuer disclosure, 2) increased NRSRO disclosure, 3) bondholder ratification of issuer-selected NRSROs, and 4) our members’ general comments around potential conflicts of interest.

June 18, 2019

SFA’s Investor Committee drafted a criteria for a new Bondholder Communication platform to address operational, legal, and regulatory issues of the current communication framework.

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“Market participants are keenly focused on and have rightfully questioned how – well into the digital age – the significant limitations of the current communication system remain.” – Kristi Leo, SFA, President

Market participants have rightfully questioned how – well into the digital age and long since record keeping transitioned from physical certificates to an electronic platform – the significant limitations of the current communication system remain. While there is certainly a complex chain of intermediaries that often separates the record-owner from the beneficial owner with only the final custodian retaining the record of the actual investor’s identity, today’s technology – including blockchain – provides viable solutions.

SFA is leading an effort within the structured finance market to identify the requirements for a robust and effective bondholder communication framework that could apply to all new bond issuance, if fully adopted.

Our Bondholder Communication Task Force has commenced a review of the current bondholder communication frameworks to identify operational, legal, economic and regulatory issues pertaining to those frameworks and drafted a specification document for an improved bondholder communication platform to address those issues. This project specification document will serve as the backbone for potential industry service providers to evaluate their ability to develop a platform meeting the industry’s needs at a cost point acceptable to the industry.

The Credit Ratings Subcommittee of the Fixed Income Market Structure Advisory Committee (FIMSAC), an advisory group to the SEC, is considering the role of NRSRO credit ratings in various financial markets, including the exploration of potential conflicts of interest in industry payment models. After soliciting feedback from industry participants on this topic, the FIMSAC subcommittee set forth recommendations aimed at improving both transparency and potential outcomes for investors.

 

SFA’s Credit Ratings Process Task Force submitted feedback to the FIMSAC regarding the oversight and regulation of NRSROs. To join our task force, please contact [email protected].

“Strong governance is a key pillar of a sustainable securitization market, but we can’t fully have strong governance without a mechanism for transaction parties to communicate with each other in a timely fashion when the circumstances so require. I’m very optimistic that with the Structured Finance Association’s leadership and the commitment of industry participants we will finally be able to overcome what has been a persistent obstacle to better governance in our industry for many years.”

- Francisco Paez, MetLife Investments

News

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Industry News

January 20, 2023

On January 16, the World Economic Forum hosted its annual meeting in Davos, Switzerland where economists warned of the likelihood of a global recession this year. In a survey of over 4,000 business leaders, 73% believe there will be a decline in global growth. The major risks cited by experts at this talk were of inflation, macroeconomic volatility, and geopolitical conflict, with long-term concerns over climate, supply chain pressures and technological disruption.

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Industry News

January 13, 2023

As reported by Bloomberg News, the U.S. Census Bureau’s Household Pulse Survey found that more than 35% of respondents are using credit cards or loans to meet their spending needs.

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Industry News

January 6, 2023

Economists had expected the Bureau of Labor Statistics’ November report, the Job Openings and Labor Turnover Survey (JOLTS), to fall to 10 million job openings, but instead closed the month at 10.45 million, reflecting 1.7 jobs for every unemployed person, in a still hot labor market.

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