WASHINGTON (CN) – The Securities and Exchange Commission proposed a new set of rules governing asset-backed securities aimed to better protect investors in the securitization market in the aftermath of the financial meltdown. The proposed rules “stem from lessons learned during the financial crisis,” said SEC Chairman Mary Schapiro.
Securitization, or selling securities derived from the purchase and bundling of assets such as housing, student or commercial loans, “played a central role in the financial crisis,” Schapiro said.
The proposed rules would provide investors with more information about asset-backed securities and give investors more time to make investment decisions. Prior to the credit crisis, investors poured funds into securities without knowing the strength of the underlying mortgages and depended on faulty credit ratings assigned by ratings agencies.
The new rules would also require public sponsors of asset-backed securities to retain some of the risk through a “skin in the game” plan.
The proposed rules represent “a fundamental revision to the way in which the ABS market would be regulated,” Schapiro said at an open SEC meeting Wednesday. “I think changes are both necessary and critical components of restoring investor confidence.”
If approved, the rules will be subject to a 90-day public comment period.