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U.S. Securities and Exchange Commission

Speech by SEC Commissioner:
Opening Remarks Regarding Asset-Backed Securities


Commissioner Elisse B. Walter

U.S. Securities and Exchange Commission

SEC Open Meeting
Washington, D.C.
April 7, 2010

I, too, want to offer my thanks to our staff and, in particular, Division of Corporation Finance Director Meredith Cross, Paula Dubberly, Katherine Hsu, and Rolaine Bancroft. I cannot congratulate you enough for your spectacular efforts on this project. You have worked tirelessly to develop the thoughtful and well-balanced proposal before us today. Your recommendations are carefully crafted and tailored to the issues before us. I was pleased to work with you, and I strongly support your recommendations.

I'll be quite brief, but I did want to highlight a few points.

Given the problems exposed during the financial crisis in the securitization market and reports about possible new signs of life breathing again in that market, I am deeply concerned about the efficacy of our current asset-backed securities rules.

Without access to loan-level information or grouped asset data, investors cannot do the work necessary to make good investment decisions.

Without adequate time, investors cannot possibly fully review and analyze a transaction.

Without meaningful shelf eligibility requirements, investors cannot trust the quality and character expected of the securities offered off the shelf.

Without ongoing asset-level performance information and a waterfall computer program, investors cannot evaluate the credit quality of a particular asset and its effect on the pool throughout the life of the investment.

I believe that the proposals before us today present viable ways to close these serious gaps in the regulation of the asset-backed securities market.

Yet, I recognize the wisdom voiced by Albert Einstein who said that "[t]he important thing is not to stop questioning."

I want to understand better whether the proposed disclosure requirements are appropriate or whether a different approach to asset-level disclosure is preferable. Are we correct that investors need more time? Is five days too long, too short, or just right? Are the proposed shelf requirements better alternatives to the existing investment grade ratings requirement? And, in particular, given my previous role as one of the drafters of Rule 144A, I am interested in whether our rationale for distinguishing asset-backed securities from other privately-placed securities is appropriate.

Will the retention requirement for shelf eligibility deal with the "lemons" problem created by the misalignment of compensation and risk? Does requiring better risk alignment for shelf registration properly reserve an expedited procedure for higher quality offerings, or is it an incomplete, and therefore ineffective, answer to the risk alignment issue?

These are among the many questions that are asked in the release and that I will continue to ask as we go forward in evaluating these proposals. Rulemaking is a public-private partnership, and I will be eager to read the responses to the many questions raised for public comment throughout the release.

Please remember, however, that our requests for public comment are not a public opinion survey. I do not want to hear just that our proposals are a good idea or a bad idea. I want to understand each commenter's reasoning and obtain the data or other empirical evidence underlying his or her view. I also want to hear commenters' alternative solutions to the problems related to asset-backed securities. And, most important, I want to know whether commenters believe that our proposals or commenters' alternatives will work.

I look forward to working with all of my fellow Commissioners, the SEC staff, market participants and observers, and other regulators to make sure that we have all the information we need so that when we pause from our questioning, we make the best possible decision for protecting U.S. investors.


Modified: 04/08/2010