SEC takes a big step back on disclosure methods

“All data – especially sensitive data – wants to be free.”

On Feb. 25 the SEC reopened the comment period for REG AB II, with focus on the method used to disclose asset level data.

The 19-page memorandum (download the PDF here) opens with:

“This memorandum describes a potential approach for disclosure of asset-level information to investors and potential investors in asset-backed securities taking into account the potential sensitivity of certain asset-level information. In particular, instead of filing and making publicly available certain types of asset-level information on EDGAR as described in the proposal by the Securities and Exchange Commission for enhanced regulation of ABS offerings in 2010, this approach would require issuers to make asset-level information available to investors and potential investors through an issuer’s Web site which would enable issuers to address privacy concerns associated with such disclosures, including through restricting access to potentially sensitive information.”

The SEC is trying to counter privacy concerns by putting data behind password protected sites. It’s important to point out the SEC did not make any statements on what loan level data must be disclosed and if it must be in XML — only on how this information is transferred. I assume the SEC has received lots of comments against disclosing sensitive data, and it hopes that privacy will be better maintained by allowing issuers to disseminate the data through private web sites.

I can only speak to the CMBS market, but we already transfer our data through password protected web sites hosted by servicers, trustees, rating agencies and third party data providers (like Despite the password protected web sites, all the data eventually becomes widely available through numerous outlets. It’s hard to believe the issuers can share loan level data with all these potential investors/interested parties and not have the information become widely available, even if that is not the intent. I am not against the concept of trying to maintain as much privacy as possible, I just don’t think it will work in practice as all data — especially sensitive data — wants to be free.

While the latest comments from the SEC indicate a move toward privacy, the true test of the new rules will come after they are final and we see what loan level disclosures are required.

Download the SEC memorandum:

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Jim Flaherty is CEO of and the creator of the Backshop loan origination system. He is a trained credit professional with experience installing enterprise underwriting systems for commercial real estate lenders, rating agencies and investors.

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