The Effects of the Joint Agencies’ ABS Risk Retention Proposal on Municipal Programs

SIFMA provides comments to the Office of the Comptroller of the Currency (OCC), the Securities and Exchange Commission (SEC), the Board of Governors of the Federal Reserve, the Federal Housing Finance Agency (FHFA), the Federal Deposit Insurance Corporation (FDIC), the U.S. Department of Housing and Urban Development on agencies’ request for comment on the jointly-proposed rules to implement the requirements of section 941(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) relating to risk retention rules.

As written, the proposal exempts certain transactions from the asset-backed securities (ABS) risk retention rules. SIFMA requests that the risk retention rules exempt from their scope any transaction involving a repackaging of municipal obligations (including, for example, bonds, loans, leases, installment sale agreements and similar instruments involving municipal credit) into a structure commonly known as a “tender option bond.” Tender option bonds are essentially a repackaging of long term municipal obligations into a money market eligible class of floating rate securities, which may be tendered at par plus accrued interest, and an inverse of the floating rate security.