June 12, 2013 Newsletter
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Structured Finance Industry Group


Issue Spotlight

Recent Developments




SFIG announced on June 11, 2013 that it has retained two advisory firms, one headed by Kristi Leo and the other by Armando Falcon, to build upon SFIG’s momentum in membership growth and legislative efforts. 

Ms. Leo and her firm will work alongside SFIG’s leadership to serve as a resource for all member groups, particularly investors, focusing on assisting members with education and advocacy efforts, a core value proposition for SFIG.  Ms. Leo’s position will add to SFIG’s ability to maintain an active dialogue with members, especially those who do not have existing resources dedicated to advocacy or educational initiatives. 

Over her career Ms. Leo has developed extensive relationships with a large number of investors, issuers, servicers, banks and other market participants.  Most recently Ms. Leo was a Managing Director with Deutsche Bank, and co-managed U.S. origination and banking for their structured finance business.

Mr. Falcon and his firm will work on SFIG’s regulatory efforts in Washington, D.C. with a particular focus on mortgage-related issues.  He brings over 25 years of experience with national financial legislative issues having previously served as the Director of the Office of Federal Housing Enterprise Oversight and General Counsel to the United States House of Representatives Committee on Banking and Financial Services. 

“We are very excited to welcome Kristi and Armando to SFIG,” said Richard Johns, Executive Director, SFIG.  “They will both be critical in helping our organization continue to grow and engage as an important voice in all matters related to structured finance, securitization and the capital markets.  Our efforts on behalf of the structured finance industry are most effective when we can present the full spectrum of views from all industry participants and I am confident today’s announcement will only help strengthen that fundamental proposition.” 



SFIG will be accepting nominations for its Board of Directors and for Committee Chairs through tomorrow, June 13, 2013.  As previously announced, eligibility for these positions will be limited to individuals associated with SFIG’s “Founding Members” – members that joined on or prior to April 30, 2013.  You may nominate yourself or another qualified industry participant.

SFIG’s Nominating Committee will review nomination submissions, consult with members, and make recommendations to the Interim Board.  The Nominating Committee is dedicated to selecting a balanced Board reflective of the membership and the industry at large, and that is committed to work hard and advance the principles of SFIG.

Board terms are generally for two years.  For the first year of the new Board, the Nominating Committee will propose one-half of the seats for a one-year term to begin a normal rotation in future years.

Click here for the listing of Committees.  Click here for the listing of the Founding Members.  Click here for the nomination form.



Representatives of SFIG held a conference call on June 11, 2013 with certain staff members of the Securities and Exchange Commission (SEC) working in the securitization area. SFIG was represented by several of the interim Co-Chairs of our Regulation AB II Issue Task Force, and our Residential Mortgage Committee (including its Loan Level Disclosure Subcommittee).  

The purpose of the meeting was to provide a brief overview of SFIG to the SEC staff, as well as a preliminary introduction to the above working groups of SFIG.  The meeting also included a substantive discussion around loan level data formats for residential mortgage loans.  Our representatives discussed the Loan Level Disclosure Subcommittee's plans to work with the Mortgage Bankers Association towards a possible enhancement of the MBA's Mortgage Industry Standards Maintenance Organization, Inc. (MISMO) data fields, which are now in use with standard deliveries to the GSE's, for use in GSE risk sharing transactions and potentially for use in private label RMBS as well.  While GSE data fields and private label RMBS data fields historically have been very different, there is a growing awareness that there may be benefits in harmonizing these data sets, with appropriate limits on the extent of data included depending on the nature of access to the data.  The SEC staff members were very appreciative of our outreach.

If you would like to participate on the Regulation AB II Issue Task Force or on the Residential Mortgage Committee, please contact SFIG at Richard.Johns@sfindustry.org.  



SFIG is continuing its series of meetings with senior government officials to formally introduce policymakers to SFIG.  On June 11, 2013, Reggie Imamura (SFIG Board Chairman), Richard Johns (SFIG Executive Director) and Armando Falcon (Senior Advisor to SFIG), met with Senator Mike Crapo (R-ID), the Ranking Member of the U.S. Senate Banking Committee. Senator Crapo leads the Republican members of the Banking Committee and is a key Senator on financial services issues.  Senator Crapo and two of his senior Banking Committee staff expressed their appreciation for the introduction and assured the SFIG delegation that they would look to SFIG for input and assistance on a broad range of issues. SFIG’s next round of introductory meetings includes appointments with Federal Reserve Governor Elizabeth Duke and Federal Housing Finance Agency Acting Director Ed DeMarco.



Members of SFIG’s Accounting Policy Committee are planning to meet with representatives of the Financial Accounting Standards Board (FASB) during the week of June 17, 2013.  The purpose of the meeting will be to discuss concerns regarding FASB’s Exposure Draft on Financial Instruments – Recognition and Measurement of Financial Assets and Financial Liabilities, issued on February 14, 2013 (Exposure Draft).  The Exposure Draft related to approaches for classifying and measuring interests in securitization.  SFIG joined on to a comment letter to the FASB filed by the Financial Instruments Reporting Convergence Alliance regarding the Exposure Draft.

If you are interested in participating in SFIG’s Accounting Policy Committee, please contact SFIG at Richard.Johns@sfindustry.org.




On June 5, 2013, the Securities and Exchange Commission (SEC) unanimously voted to approve a proposed rule (Proposed Rule) detailing a number of new requirements for money market funds (MMFs).  The Proposed Rule would affect a variety of securitization industry participants.

Issuers of asset-backed commercial paper (ABCP) and “money-market” tranches of term asset-backed securities issuances would be the most directly affected.  The Proposed Rule would impact ABCP and such term tranches through new diversification requirements applicable to MMFs.  Certain types of corporate debt, such as commercial paper (CP) issued by entities that are under common control would also be directly affected by the new diversification requirements.  Examples of commonly-controlled entities whose debt would be affected are a bank holding company and its subsidiaries, and a manufacturing company and its captive finance company.

Additionally, by mandating changes to the nature of MMFs’ products, the Proposed Rule may impact the cash management functions of servicers and trustees, because MMFs are a common investment option for idle funds pending distribution to securitization investors.  The product-related changes may also result in tax and accounting issues for servicers and trustees, as well as entities (such as securitization sponsors, REMICs and other “stand-alone” tax vehicles) that are deemed to own a securitization vehicle’s invested funds.

Click here for background on prior MMF reform efforts and on Rule 2a-7’s current valuation and share pricing conventions.

The Proposed Rule

The Two Alternatives.  The centerpiece of the Proposed Rule’s reform measures are two alternatives, which the SEC suggests may be considered separately or in combination.

Under the first alternative (Floating NAV Alternative), MMFs other than government and retail MMFs would be required to float their net asset value based on market pricing, and thus abandon the amortized cost and penny-rounding methods.  As a result, a prime MMF’s share price would “float.”  The SEC is also proposing, as part of this alternative, that MMFs adopt a more precise method of rounding.  The Proposed Rule would require an MMF to round prices and transact in its shares at the fourth decimal place.

These new requirements would not apply to Treasury MMFs, government MMFs (which are permitted to hold agency securities such as Fannie Mae and Freddie Mac securities as well as Treasury securities) and “retail” MMFs (a proposed new category of MMFs that would not permit a shareholder to redeem more than $1 million in a single business day). 

The SEC believes that this “floating NAV” approach will improve transparency and reduce the incentives for a run.

Under the second alternative proposal (Fees and Gates Alternative), the SEC would require an MMF (other than a Treasury or government MMF) whose weekly liquid assets fall below 15% of its total assets to impose a liquidity fee of 2% on all redemptions (unless the MMF’s board of directors determines that the liquidity fee would not be in the best interest of the MMF).  In addition, the second alternative would allow the MMF’s board of directors to impose a temporary “gate” – a suspension of redemptions – if the MMF were to cross the 15% liquidity threshold.

It is unclear what impact the adoption of either the Floating NAV Alternative or the Fees and Gates Alternative, or some combination thereof, would have on either investor demand for prime MMFs, or on prime MMFs’ views on the desirability of ABS, ABCP or CP as investments for prime MMF portfolios.  Either alternative may prompt investors to invest more heavily in Treasury and government MMFs.  On the other hand, if more transparency is achieved (and such transparency appeals to investors) investor demand for prime MMFs may increase.

It is likely however, that those involved in the cash management side of the securitization industry – servicers and trustees – may find reduced yields on MMF investments due to higher costs for administering the new requirements.  Further, servicers and trustees may be reluctant to invest in any MMF which exposes them to the possibility of the redemption fees and redemption suspension provisions of the Fees and Gates Alternative.  This is particularly relevant for programs structured to impose a requirement on servicers or trustees to fund remittances and distributions with their own funds due to investment losses or an inability to redeem. 

The SEC also considers in its commentary to the Proposed Rule various tax and accounting issues, primarily that the Floating NAV Alternative is likely to expose the tax owner of investment funds (typically the securitization sponsor, but also REMICs and other stand-alone tax entities) to gains or losses.  The SEC also raises the issue as to whether investors required to invest in “cash or cash equivalents” may not be able to invest in MMFs subject to a potential “gate.”

Other Provisions of the Proposed Rule

Treatment of Certain Affiliates (not in the ABS context).  Currently, Rule 2a-7 treats issuers that are affiliated as distinct for purposes of the Rule’s 5% issuer diversification requirement.  Thus, although an MMF is not permitted to invest more than 5% of its assets in CP issued by a bank holding company, the MMF can invest more than 5% of its assets in CP issued by the bank holding company together with CP issued by the bank’s affiliates.

The Proposed Rule would amend the current 5% issuer diversification requirements to require that MMFs aggregate their exposures to certain entities that are affiliated with each other.  Entities would be “affiliated” for this purpose if one controlled the other entity or was controlled by it or under common control with it.  For this purpose only, “control” would be defined to mean ownership of more than 50% of an entity’s voting securities. 

The SEC requests comment on whether this provision should be broadened to define “affiliated” as all entities, including “variable interest entities,” that must be consolidated on an entity’s balance sheet.

This provision may affect MMFs’ demand for investments, including CP, issued by members of an affiliated group.  In addition to bank holding companies and their affiliates, affiliate relationships such as a manufacturer and its captive finance company may fall under this provision.

Treatment of ABS and ABCP.

The Proposed Rule includes specific new requirements relating to the application of Rule 2a-7’s diversification requirements to ABS and ABCP.

In 2007, a number of MMFs were exposed to substantial losses resulting from investments in structured investment vehicles (SIVs).  In addition, a number of MMFs that had invested in SIV securities were at risk of “breaking the buck,” but that result was avoided in large part because, at that time, many of the SIVs received financial support from their sponsors.

In the SEC’s view, MMFs’ reliance on and exposure to SIV sponsors in 2007 suggests a potential weakness in the way Rule 2a-7’s diversification requirements apply to ABS, potentially permitting MMFs to become overexposed to sponsors of SIVs and to ABS sponsors generally.  The Proposed Rule thus contains a proposal to amend Rule 2a-7’s diversification requirements to limit the amount of exposure MMFs may have to ABS sponsors that provide express or implicit support for their ABS.

Specifically, subject to the application of the “board determination” exception (described below) Rule 2a-7 would be amended to provide that MMFs investing in ABS, including ABCP, are deemed to be relying on the ABS sponsors’ financial strength or their ability or willingness to provide liquidity, credit or other support to the ABS.  As a result, an MMF could not invest in ABS if, following the investment, the MMF would have invested more than 10% of its total assets in securities issued by or subject to demand features or guarantees (including deemed guarantees) from the ABS sponsor.

As an exception to this provision, the SEC is proposing that an ABS sponsor would not be deemed to guarantee its ABS if the MMF’s board of directors (or its delegate) determines that the MMF is not relying on the ABS sponsor’s financial strength or its ability or willingness to provide liquidity, credit, or other support to determine the ABS’ quality or liquidity.

In its request for comments, the SEC specifically asks if this provision should be limited only to ABCP, and not to ABS generally.

Proposed Compliance Dates

The SEC has generally proposed a two-year compliance period for the Floating NAV Alternative, a one-year compliance period for the Fees and Gates Alternative, and a nine-month compliance period for the other proposed amendments such as the revised issuer diversification requirement.

The Proposed Rule will be open for comment during the 90-day period following its publication in the Federal Register.

SFIG is currently evaluating the Proposed Rule, and determining its approach for commenting on the Proposed Rule.  If you are interested in participating in this project, please contact SFIG at Richard.Johns@sfindustry.org.

Click here for the SEC’s press release and fact sheet regarding the Proposed Rule.  Click here for the Proposed Rule.  Click here for the FSOC Report.  Click here for the PWG Report.




Press reports appearing on June 11, 2013 indicate that President Obama will nominate Amanda Renteria, the former chief of staff to U.S. Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) to replace Gary Gensler as the Chairman of the Commodities Futures Trading Commission.  Ms. Renteria is a graduate of Stanford University and of Harvard Business School.

Click here for the Huffington Post’s article on Ms. Renteria’s expected nomination.



On June 6, 2013, Commodities Futures Exchange Commission (CFTC) Chairman Gary Gensler gave a speech in which he indicated his resistance to suggestions that the CFTC’s January 7, 2013 “Exemptive Order on Cross-Border Application of the Swap Provisions of Dodd-Frank” (Exemptive Order) be extended beyond its current expiration date of July 12, 2013.

The Exemptive Order provides relief from the proposed interpretive guidance released by the CFTC on June 29, 2012 (Interpretive Guidance).  The Interpretive Guidance interprets Section 2(i) of the Commodities Exchange Act (CEA), which states that the swaps provisions of the CEA shall not apply to activities outside the United States, unless those activities have a direct and significant connection with activities in, or effect on, commerce of the Unites States.

Under the Interpretive Guidance, the CFTC proposes:

  • to determine: (i) whether a non-U.S. person’s swap dealing activities are sufficient to require registration as a “swap dealer,” (ii) whether a non-U.S. person’s swap positions are sufficient to require registration as a “major swap participant;” and (iii) the treatment for registration purposes of foreign branches, agencies, affiliates, and subsidiaries of U.S. swap dealers and of U.S. braches of non-U.S. swap dealers;
  • to interpret section 2(i) of the CEA as it applies to the requirements under the Dodd-Frank Act and the CFTC’s regulations by classifying requirements as entity-level or transaction-level;
  • to permit a non-U.S. swap dealer or non-U.S. major swap participant to comply with comparable and comprehensive foreign regulatory requirements, in order to satisfy applicable statutory and regulatory requirements under the Dodd-Frank Act;
  • to create a process by which a non-U.S. applicant for swap dealer or major swap participant registration may seek the CFTC’s recognition or substitute compliance with a comparable and comprehensive foreign regulatory requirement and the general scope of CFTC review in making the requisite comparability finding; and
  • to interpret the extent to which section 2(i) of the CEA applies to the clearing, trading, and certain reporting requirements under the Dodd-Frank Act with respect to swap transactions between counterparties that are not swap dealers or major swap participants.

The CFTC also proposes to interpret the term “U.S. person” by reference to the extent to which swap activities or transactions involving one or more of such persons has an effect on U.S. commerce.  The interpretation would help determine, for example, whether foreign entities engaging in swap dealing transactions with “U.S. persons” in excess of a de minimis level would be required to register and be regulated as swap dealers.  Additionally, the interpretation would help to determine the level of U.S. interest for purposes of analyzing and applying principles of international comity when considering the extent to which U.S. transaction level requirements should apply to swap transactions.

The Interpretive Guidance was supplemented on January 17, 2013. 

In his speech, Chairman Gensler noted that, “The unregulated swaps market was one of the central causes of the [financial] crisis.  Furthermore, it was financial institutions operating complicated swaps businesses in offshore entities that nearly toppled the U.S. economy.”  He proceeded to cite to several examples, including AIG, Lehman Brothers, structured investment vehicles sponsored by Citigroup, and Cayman Islands hedge funds established by Bear Stearns.  He further remarked, “It’s easy for financial institutions to avoid reforms by setting up shop in an offshore location, even if it’s not much more than a tropical island P.O. Box.”

Also on June 6, 2013, CFTC Commissioner Scott O’Malia released a statement asking the other CFTC Commissioners to join him in extending the relief provided by the Exemptive Order to December 31, 2013.  Among the reasons given by Commissioner O’Malia were to “allow much-needed additional time for the [CFTC] and international regulators to continue their on-going cooperative efforts to harmonize the global regulating framework.”

Click here for Chairman Gensler’s speech.  Click here for Commissioner O’Malia’s speech.  Click here for the Interpretive Guidance.  Click here for the Exemptive Order.  Click here for the January 13, 2013 supplement to the Interpretive Guidance.



On June 4, 2013, the Board of Directors of the Federal Deposit Insurance Corporation (FDIC) adopted a final rule (Final Rule) titled “Definition of Predominantly Engaged In Activities that are Financial in Nature or Incidental Thereto.” The Final Rule relates to the establishment of criteria for purposes of Title II of the Dodd-Frank Act (Orderly Liquidation Authority).  A company that is predominantly engaged in such activities is a “financial company” for purposes of the Orderly Liquidation Authority provisions, unless an exception applies.  A financial company, other than an insured depository institution, may be subject to the Orderly Liquidation Authority provisions if, among other factors, it is determined that the failure of the company and its resolution under otherwise applicable law (e.g., the Bankruptcy Code) would have serious adverse effects on financial stability in the U.S.

The Final Rule provides:

  • that a company is predominantly engaged in “financial activities” for purposes of the Orderly Liquidation Authority provisions if: (i) at least 85% of the total consolidated revenues of the company for either of its two most recent fiscal years were derived, directly or indirectly, from financial activities (“two-year test”), or (ii) based upon all the relevant facts and circumstances, the FDIC determines that the consolidated revenues of the company from financial activities constitutes 85% or more of the total consolidated revenues of the company (“facts and circumstances analysis”);
  • the term “financial activity” includes each activity referenced in section 4(k) of the Bank Holding Company Act that the Board of Governors of the Federal Reserve System has determined is financial in nature or incidental thereto, but without regard to the conditions or limitations that are imposed on bank holding companies engaged in such activities that do not define the essential nature of the activity itself; and
  • a company’s revenues derived from an investment in an unconsolidated entity will be treated as revenues derived from a financial activity unless the Secretary of the Treasury or the applicable regulatory agency making the systemic risk determination under Section 203 of the Dodd-Frank Act has information to the contrary at the time of the determination.

Click here for the Final Rule.  Click here for the FDIC’s staff memorandum to the FDIC Board on the Final Rule.



According to press reports appearing on May 31, 2013, President Obama has appointed Seth Wheeler to the National Economic Council as a senior advisor on housing policy.

Mr. Wheeler is a graduate of Harvard Business School and Columbia Law School.  He is a former Treasury Department Official in both the Bush and Obama administrations.  He has had substantial involvement in the development of the Obama administration’s Home Affordable Modification Program (HAMP).

Click here for the Wall Street Journal article about Mr. Wheeler’s appointment.



SFIG’s inaugural Summer Symposium will be held on Wednesday, June 26, 2013.  The Symposium will be followed by a cocktail party.  The event is open to both members and non-members, and is complimentary to attend.  The event will be held from 5 pm to 8 pm at the offices of Skadden, Arps, Slate, Meagher and Flom LLP, Four Times Square, New York, New York. 

The agenda will include three presentations:  a panel discussion on “Credit Rating Agency Reform – Assessing the Feasibility of a Credit Rating Agency Assignment System;” a presentation on a “Hot Topic” to be determined closer to the date of the Symposium; and a panel discussion on “The Return of a Sustainable RMBS Market  –  Inhibitors and Drivers.”

Please note that SFIG will not be able to accommodate members of the press at this event.

ABS Vegas 2014 – January 22-24, Las Vegas, Nevada.  Click here for more information.

SFIG is now accepting sponsorship contracts for this conference.  If you are interested, please contact SFIG.



SFIG has a number of Committees and Task Forces meeting and working on many topics of interest to the securitization industry.  Please visit our website for more information, including how to join.


SFIG is pleased to share this edition of its newsletter with our members, as well as our supporters in the structured finance community.  To ensure that you receive future editions of the newsletter, please visit our website (www.sfindustry.org) to learn about membership opportunities.


Contact us at info@sfindustry.org.


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