Market Participants Push EU to Fix STS Securitization Proposal

In a recent joint note to the European Union ("EU"), 32 associations and market participants set out ten elements of the current simple, transparent and standardized (“STS”) securitization proposal that need to be modified in order “to create a safe European securitisation market able to support the economy.”

According to a recent Bloomberg article, the note said the EU’s plan could cause an “arbitrary division” between currently available securities and those issued under the new standards, which in turn would “cause losses to conservative investors for no discernible prudential benefit” at a time when EU markets remain fragile. The joint note recommends “simple, short-form rules” to help the new framework align with existing securities that meet most of the EU’s goals.

The note also identifies four necessary characteristics for success: that the regulatory framework be stable, holistic, clear and executable. All ten elements within the joint note are set out against these four requirements in an annex.

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