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New CMBS guidelines aim to make market more transparent.

The Commercial Mortgage Securities Association Europe and the European Securitisation Forum (ESF) have released market guidelines to assist participants in the Commercial Mortgage-Backed Securities (CMBS) and Asset-Backed Securities (ABS) markets in complying with the European Commission's Market Abuse Directive (MAD) requirements for assessment and disclosure of inside information in transaction post-issuance reporting.

The MAD is a minimum harmonisation directive which seeks to ensure the integrity of the European capital markets and encourage public confidence in the trading of securities and derivatives by preventing, detecting, investigating and sanctioning against market abuse.

It requires issuers to disclose promptly to the public in a synchronised fashion any information which may impact the price of listed securities.

The purpose of the Guidelines is to recommend best practices to a variety of market participants involved in arranging, advising on, implementing and investing in ABS and CMBS, on how to implement the disclosure requirements of the MAD for this sector of the fixed income markets.

Rick Watson, managing director of the ESF commented: "The challenge for the securitisation and structured products industry is that, unlike traditional corporate or governmental borrowers, almost all securitisation and structured products are issued through special purpose vehicles (SPVs).

"These SPVs are established to operate based on a very strict and predetermined set of procedures that are defined at the time of issuance, and allow for no or very little intervention by third parties, including the seller of the assets to the SPV.

"Other specific features of these products that pose a challenge are the differences in the investor base of the various transaction tranches as well as the position of various parties with reporting roles, such as servicers, trustees and other third parties. None of these features was taken into account when the MAD was drafted."

To address these issues, the Guidelines recommend that, upon the closing of each transaction, the parties that originated and arranged the transaction anticipate in the offering and contractual documents what will happen if material non-public information is received by any of the transaction participants.

Accordingly, transaction documents should determine what information relating to the portfolio of securitised assets may be price-sensitive, who will be responsible for assessing and disclosing price sensitive information (whether that be the issuing Special Purpose Vehicle (SPV) or a third party) and where and when post issuance reports can be obtained.

To minimise the costs of implementing these measures and to reduce the risk of noncompliance with the MAD, the Guidelines recommend that price-sensitive information pertaining to a transaction is disclosed within the ordinary post-issuance reporting of that transaction, provided that certain minimum levels of regularity of reporting, Quality and standardisation of reports are observed, and that the reports are disclosed through the channels determined by the relevant Member State legislation for disclosure of inside information.

Carol Wilkie, director of CMSA-Europe explained: "These Guidelines, although addressing a specific regulatory concern, also go hand-in-hand with other initiatives of the Associations, namely, CMSA's European Investor Reporting Package for CMBS and the ESF's Standardised Reporting Fields and Definitions for RMBS.

"The overall goal of these initiatives is to increase the transparency of the market, improve its efficiency and foster the liquidity of ABS and CMBS in Europe.

"This will create greater opportunities for all market participants and will enhance investor protection, while ensuring that European markets are able to compete with the more developed US secondary market for ABS and CMBS."

A full copy of the ESF/CMSA-Europe guidelines are available at the CMSA and ESF respective websites: and www.european
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Publication:Real Estate Weekly
Date:Jan 10, 2007
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