USA Law and Practice Contributed by: Bjorn Bjerke, Corey Reis and Joshua Kopel, A&O Shearman
MBSs are deemed to be fungible, and traded, on the basis of a few basic characteristics, such as the issuer, amortisation type (eg, 30 years or 15 years), the coupon rate, the settlement date and the maximum number of mortgage securi - ties per basket. There is a liquid TBA market for settlement up to three months after the trade date. The actual information about the pool only needs to be pro - vided two business days prior to settlement. As such, the TBA market permits lenders to lock in rates for mortgages before they are originated, which, in turn, allows borrowers access to lower, locked-in rates. Agency securitisations represent by far the big - gest part of the securitisation market. 4.13 Entities Investing in Securitisation Investors in securitisations include banks, asset managers, insurance companies, pension funds, mutual funds, hedge funds and high net worth investors. A detailed description of the regulato - ry and other investment drivers for each of these diverse investor classes is beyond the scope of this summary; however, a few points that affect the structuring and offering of ABS are worth The Basel III capital rules penalise banks that invest below the most senior position in a secu - ritisation, thereby impacting banks’ willingness to invest in mezzanine tranches and below. Banks that are primarily constrained by the lev - erage ratio, as compared to the risk-weighted assets (RWA) ratio, will also typically view highly rated, but lower-yielding, senior securities as less attractive investments, whereas insurance com - panies and banks that are primarily constrained by the RWA requirements may find the highly noting. Banks
rated senior tranche highly attractive due to the small amount of regulatory capital required. Fur - thermore, FDIC-insured banks may face higher insurance premiums for taking on exposures in securitisations collateralised predominantly by sub-prime and other high-risk assets, which reduces the attractiveness of such securitisa - tions. Insurance Companies Insurance companies’ capital rules are typically more closely tied to ratings. In addition, insur - ance regulations typically specify concentra - tion limits for various categories of investments. Insurance companies are also often focused on obtaining longer-duration assets. The flexibility to structure securitisations to such needs often makes securitisations particularly attractive to insurance companies. 4.14 Other Principal Laws and Regulations The principal laws and regulations are all men - tioned in 1.3 Applicable Laws and Regulations. 5. Synthetic Securitisation 5.1 Synthetic Securitisation Regulation and Structure Synthetic securitisations are permitted. The Dodd-Frank Act added a new Section 27B to the Securities Act intended to address certain conflicts of interest. In November 2023, the SEC adopted Rule 192, which implements this pro - vision. Rule 192 creates significant hurdles for synthetic securitisations that are not for the pur - pose of risk-mitigating hedging activities (see 4.7 Use of Derivatives ).
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