The Full Reveal
August 1, 2012
"To better achieve the objectives, what the Eurosystem thought was that you bring confidence to the market by having a single platform for the market, so that all the information of the European ABS market is contained in one place with the same standards for everyone," said Gonzalez. "We didn't want to have a balkanization of the ABS market."
Also, the ECB itself wanted to have a single counterparty for such a platform, he added.
Nuts & Bolts
ED is open to the 27 countries that make up the European Union in addition to non-EU countries that are part of the European Economic Area, namely Iceland, Liechtenstein and Norway. This goes well beyond the 17 EU states that share the euro as their currency.
The warehouse had its first issuance of shares earlier this summer, with 15 investors buying in, consisting "largely of global banks and institutions," according to a press release distributed July 9. The statement added that "proceeds from the placement will be used to finalize the build-out of ED as well as to provide the business with ongoing working capital." Sapient Global Markets is building the software, while NTT Europe will provide the hardware and backup service for ED. Morrison & Foerster and Noerr have both been legal advisors to the project.
The names of the present shareholders have not been disclosed yet, but Burdell said ED expected to make an announcement in this area shortly.
He added that the European DataWarehouse is essentially a utility: "It's open to anyone; anyone can become a shareholder or a user."
Its profit margin is based on costs plus 5%-10%. "The profit that it's making is not only to cover itself but to reinvest in itself so that technology is continually enhanced to keep up with market developments," Burdell said.
Both those downloading from and those uploading to ED will pay a fee.
"The fee structure or the fees paid by data providers and users of ED still need to be agreed, but the premise is that they will be set by the pricing committee," Burdell added.
The committee will be made up of originators, investors, rating agencies and other ABS market players and will be overseen by the European Central Bank and several other national central banks.
"Investors will likely pay less than originators, similarly for current shareholders," Burdell said. "Everyone was invited to be a shareholder, and when we set the pricing on the equity we tried to price it at such a level that incentivized buyers by offering large discounts on services that ED will provide in the future."
He added that the larger the number of participants, the lower the cost of the fees - a characteristic feature of how a utility is run.
The templates for each asset class were created with the help of the technical working groups. All are available on the ECB's Web site. The one for RMBS, for instance, contains approximately 157 fields for details on the underlying mortgage loans. But not all fields are mandatory.
Many fields are applicable only to specific jurisdictions. For instance, the last field in the RMBS template reflects an idiosyncrasy of Spanish RMBS - asking whether a borrower is contencioso. This denotes a status in which legal proceedings have begun against the homeowner, typically when the borrower is in arrears for more than a few months.
"Originators have had a year participating in the development of the RMBS loan-level template and some more time for providing input to the consumer loan and auto loan TWGs," said Steve Gandy, head of securitization at Banco Santander and a member of the RMBS, auto loan and consumer finance working groups. "In that process, the ECB has given plenty of time to the market to understand the template requirements and figure out if there were any gaps in the system. We did a gap analysis ourselves among our various units to determine if there were any information elements that were missing."
Gandy declined to say whether Santander was a shareholder in ED.
The deadlines for deals to remain eligible to be used as collateral in ECB repos vary by asset class: for RMBS, loan-level data must be provided by December 1, 2012; for ABS backed by loans to small and medium enterprises and for commercial mortgage-backed securities, it is January 1, 2013; and for consumer finance ABS, leasing ABS and auto loan ABS, the deadline is January 1, 2014.
There is a nine-month phasing-in period from the dates above. Where loan-level data are incomplete on that date, they must gradually be completed in the course of that transition period.
If a deal isn't fully compliant but remains in the system, there is a way for investors to immediately gauge whether all the required data is in there and submitted on time.