Securities regulators propose new ABCP rules
Canada's market regulators have come up with proposals to protect investors in the event of another problem like asset-backed commercial paper (ABCP), which left investors holding hundreds of millions of dollars worth of paper after the market froze last year.
A deal has since been worked out to repay them, and the Canadian Securities Administrators — the umbrella group for the provincial securities commissions — on Monday released a consultation paper with proposals to protect investors in the future.
"We believe that the proposals reflect a measured regulatory response that address our investor protection mandate and are appropriate for the Canadian marketplace," Jean St-Gelais, CSA chair and CEO of the Quebec regulator, Autorité des marchés financiers, said in a release.
The proposals include:
Lifting the exemption from the rules that allowed ABCP sellers to market the product without issuing a prospectus, the basic disclosure document.Tightening standards for credit-rating agencies, which assess the credit worthiness of such products.Addressing the roles played by advisers or brokers who sell or recommend investments to their clients. Reviewing issues raised by mutual fund investments in ABCP.More than 2,000 investors were caught last year by the sudden collapse of the market for ABCP, a short-term debt product that bundled a variety of loans together, including U.S. subprime mortgages, and was then sold to investors small and large.
When the subprime market began to fall apart in the summer of 2007, investors' holdings were frozen because there were no buyers for ABCP out of fears that it might contain poor quality mortgages.
The securities regulators said they will consider comments on the proposals received by Dec. 20.
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