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The SEC has proposed rules governing offerings of asset‐backed securities (ABS) that will impose extensive new requirements for disclosure and periodic reporting, including substantial additional information regarding various parties involved in securitization transactions. When final rules are adopted, probably by the end of this year, ABS issuers will need to have the necessary information available to them to permit them to comply with the new rules. This article summarizes the proposed rules, with emphasis on provisions that have caused particular concern in the asset‐backed securities markets. The article suggests steps that ABS issuers and their counsel should take time now to ensure that they are in a position to comply with the new rules regarding disclosure and reporting about originators, servicers, credit enhancers, and others, so as to avoid finding themselves unable to securitize portfolio assets in a public offering.

Security design of asset-backed securities (ABS) could affect the value of the ABS and that of the issuing firm as well when there exists an information asymmetry between insiders and outsiders of the firm, depending on the size of the assets sold. If the size is relatively small, the optimal security design will be such that the firm sells the risk-free, senior security (backed by the asset sold) to outsiders at a minimum size and retains the risky, subordinate security. If the size is large, the firm should sell outsiders both the risk-free security at a maximum size and the risky tranche at a minimum size. Meanwhile, if the firm has to sell an asset portfolio rather than an asset, the firm is better off by selling the portfolio through bundling the assets of the portfolio. It turns out that the bundling into senior and subordinate tranches is preferred to the bundling and selling to outsiders.

In the search for alternative income-generating assets, the paper addresses the following question, one that the literature has yet to answer: what is a reasonable allocation, if any, to asset-backed securities within a 60–40% stock-bond balanced portfolio of mutual funds?

The authors apply the Black–Litterman model of Modern Portfolio Theory to test the efficacy of adding asset-backed securities to the classic 60–40% stock-bond portfolio of mutual funds. The authors use out-of-sample tests of one, three, five, and ten years to determine a reasonable asset allocation. The data are monthly and range from January 2000 through September 2021.

The statistical evidence indicates a modest reward-risk added value from the addition of asset-backed securities, as measured by the Sharpe “reward-to-variability” ratio, in holding periods of three, five, and ten years. Based on the findings, the authors conclude that a reasonable asset allocation for income-seeking, risk-averse investors who follow the classic 60%–40% stock-bond allocation is 8%–10%.

The findings apply to a stock-bond balanced portfolio of mutual funds. Other fund combinations could produce different results.

Investors and money managers can use the findings to improve portfolio performance.

For investors seeking higher income-generating securities in the current record-low interest rate environment, the authors determine a reasonable asset allocation range on asset-backed securities. This study is the first to provide such direction to these investors.

The purpose of this summary is to provide excerpts of selected Financial Industry Regulatory Authority (FINRA) Regulatory Notices and Disciplinary Actions issued in April, May, and June 2010.

The paper provides excerpts from FINRA Regulatory Notice 10‐18, Master Accounts and Sub‐Accounts; 10‐22, Regulation D Offerings; 10‐23, Trade Reporting and Compliance Engine (TRACE); 10‐24, Trade Reporting; 10‐27, Customer Complaint Reporting; and 10‐30, Trading‐Pause Pilot Program; provides summaries of selected disciplinary actions.

(10‐18) If a firm has notice that the sub‐accounts of a master account have different beneficial ownership (but does not know the identities of the beneficial owners) or the firm is privy to facts and/or circumstances that would reasonably raise the issue as to whether the sub‐accounts, in fact, may have separate beneficial owners, then the firm must inquire further and satisfy itself as to the beneficial ownership of each such sub‐account. (10‐22) A broker‐dealer has a duty – enforceable under federal securities laws and FINRA rules – to conduct a reasonable investigation of securities that it recommends, including those sold in a Regulation D offering. (10‐23) On February 22, 2010, the SEC approved the second major proposed expansion of TRACE to include Asset‐backed Securities as TRACE‐Eligible Securities, to require the reporting of Asset‐backed Securities transactions and to establish reporting fees. (10‐27) Starting on July 1, 2010, the beginning of the third calendar quarter, firms must use revised and new product codes to report statistical information regarding written customer complaints relating to annuities and life settlement products. (10‐30) On June 10, 2010, FINRA began a pilot program in which it will halt trading otherwise than on an exchange with respect to securities included in the S&P 500® Index where the primary listing market has issued a trading pause due to extraordinary market volatility. Selected disciplinary actions: FINRA announced that it has settled charges with two additional firms relating to the sale of auction rate securities (ARS) that became illiquid when auctions froze in February 2008. FINRA announced that it has fined five broker‐dealers a total of $385,000 for the illegal sale of more than 8 billion shares of penny stock on behalf of their customers.

These are direct excerpts designed to provide a useful digest for the reader and an indication of regulatory trends. The FINRA staff is aware of this summary but has neither reviewed nor edited it. For further detail as well as other useful information, the reader should visit www.finra.org.

Social scientists have long been interested in how political institutions affect economic performance. Nowhere are these effects more apparent today than in the current U.S. financial meltdown. This article offers an analysis of the meltdown by showing how government regulation among other things helped cause it. Specifically, the article shows how regulatory reforms closely associated with neoliberalism created perverse incentives that contributed significantly to the increased lending in the mortgage market and increased speculation in other financial markets even as such behavior was becoming increasingly risky. The result was the failure of mortgage firms, banks, a major insurance company, and eventually the market for short-term business loans, which triggered a general liquidity crisis thereby thrusting the entire economy into a severe recession. Implications for future research are explored. The article also offers a few policy prescriptions and an assessment of their political viability going forward.

This paper aims to investigate the influence of the determinants (pricing, type of structure, Shariah auditing, Shariah risk and Shariah documentation) and the sukuk legitimacy among Islamic financial institutions using a qualitative approach. The paper further explained the significance of the determinants on legitimacy, evaluated the relationship between sukuk characteristics and sukuk legitimacy and examined the moderating effect of Shariah Supervisory Board (SSB) on the relationship.

The study used a purposive sampling technique to select the target respondents required for the survey (semi-structured interview). This technique is applied by selecting members of SSBs among Islamic financial institutions. A total number of ten members are selected as the sample size for the study based on their experience and basic knowledge of Fiqh Al-Mua’malat and its application in Islamic financial institutions.

The findings revealed that the determinants have a significant impact on the sukuk legitimacy, meaning that there is a positive and significant relationship between the determinants and the sukuk legitimacy. In addition, this study indicates the empirical evidence of the moderating effect of SSB on the relationship between the determinants and the sukuk legitimacy.

This study has added to the literature by examining the determinants of sukuk legitimacy while evaluating the moderating effect of SSB on the relationship. Besides, this might add benefits to the numerous Islamic financial institutions relating to the amendment of its regulatory frameworks with the view to pushing the sukuk market investors to move toward asset-backed structure. In addition, the SSB in central banks must also focus its attention regarding the sukuk legitimacy and its application among the various Islamic financial institutions.

This study has added a new discussion to the body of knowledge, i.e. examining the sukuk legitimacy and its relationship with sukuk determinants; hence, an approach that is not widely discussed in the previous studies. Furthermore, conducting such research in the field of Islamic finance provides novelty in the literature among both emerging and developed economies including Malaysia. This is because to the best knowledge of the researchers, there was no empirical study (within the literature) that combined these variables and evaluated their empirical significance. Accordingly, this would enlighten the Islamic Ummah and propel the society’s intensity toward contributing to knowledge and might further provide clarification on the determinants and the sukuk legitimacy to prospective scholars, precisely on the moderating effect of SSB on the relationship between determinants and legitimacy of sukuk.

Cryptoassets have recently attracted the attention of national and international financial regulators. Since the mid-2010s blockchains have increasingly been adapted to automate and replace many aspects of financial intermediation, and by 2015 Ethereum had created the smart contract language that underpins the digitization of real assets as asset-backed tokens (ABTs). Those were initially issued by FinTech companies, but more recently banks active on international capital and financial markets, and even central banks, for example, the Bank of Thailand, have developed their own digital platforms and blockchains. A wide variety of real and financial assets underpins ABTs, viz., real-estate, art, corporate and sovereign bonds, and equity. Consequently, owing to the significant market capitalization of cryptocurrencies, the Basel Committee on Banking Supervision (BCBS) published two consultative papers delineating its approach on cryptoasset regulation. In this study, the authors analyze the mechanics of ABTs and their potential risks, relying on case studies of recent issuance of tokens in equity, real-estate, and debt markets, to highlight their main characteristics. The authors also investigate the consequences of the increasingly oligopolistic structure of blockchain mining pools and Bitcoin exchanges for the integrity and security of unregulated distributed ledgers. Finally, the authors analyze the BCBS’ regulatory proposals, and discuss the reaction of international financial institutions and cryptocurrency interest groups. The main findings are, firstly, that most ABTs are akin to asset-backed securities. Secondly, nearly all ABTs are “off-chain/on-chain,” that is, the underlying is a traditional asset that exists off-chain and is subsequently digitized. The main exception is the World Bank’s bond-i that is genuinely native to the blockchain created by the Commonwealth Bank of Australia, and has no existence outside it. Thirdly, all ABTs are issued on permissioned blockchains, where anti-money laundering/anti-terrorist funding and know-your-customer regulations are enforced. From a prudential regulatory perspective, ABTs do not appear to pose serious systemic risks to international financial markets. This may account for the often negative reactions of banks, banking associations, and cryptocurrency interest groups to the BCBS’ 2021 proposals for risk-weighted capital provisions for cryptoassets, which are viewed as excessive. Finally, we found that issuance of ABTS and other smart contracts on permissionless blockchains such as Bitcoin and Ethereum could potentially generate financial instability. A precedent involving Ethereum and The DAO in 2016 shows that (i) there is a significant accountability gap in permissionless blockchains, and (ii) the core developers of blockchains and smart contract technology, and Bitcoin mining pools, exercise an unexpectedly high- and completely unregulated-amount of power in what is supposedly a decentralized network.

Sukuk restructuring primarily aims at offering a debtor more latitude, in form and time, to settle his obligations. To meet Shari’ah requirements of transferring assets to Sukuk holders in asset-based Sukuk, the originator usually transfers the beneficial ownership to the issuer special purpose vehicles (SPV). However, in asset-backed Sukuk, the originator sells the underlying asset to an SPV and Sukuk holders do not have recourse to the originator in the event of defaults. Among some key unresolved Shari’ah issues in this regard is whether a change of contract necessitates entering a new contract. Other related issues that conflict with the tenets of Shari’ah are: (1) Sukuk structuring on tangible assets and debts; (2) receiving the full title by the Sukuk holders to the underlying assets in the event of default in case of securities that are publicized as asset backed; (3) Sukuk’s similarity with interest bearing conventional bonds: (a) capital guarantee by the originator or third party, (b) the originators’ promise to repurchase Sukuk at face value upon their redemption, and (c) providing internal and external credit enhancement. The Shari’ah-compliance of the above-mentioned clauses and structures of Sukuk remain debated among the Shari’ah scholars. Based on some specific cases, this study examines the Shari’ah viewpoint on sukuk restructuring and potential solutions to these unresolved Shari’ah issues in light of the past and recent declaration of some Sukuk defaults as non-Shari’ah complaints. Undoubtedly, resolution of these and other unresolved issues pertaining to Sukuk defaults can help strengthen the confidence of investors in Islamic capital market structures.

Asset‐backed securitization (ABS), which was brought into China in 2005 and followed by a rapid expansion, is an important financial instrument for real estate industry. The purpose of this empirical study is to assess the effects of asset securitization on stock market and equity holders' wealth by examining stock price changes upon securitization transactions in China from 2005 to September 2008.

Event study is implemented to test the wealth effects of ABS on shareholders. First, normal stock returns of companies with ABS issuance during the studied period are introduced by running the market model regression; excess returns to stockholders at the time that the securitization became public knowledge are then examined; finally, significance of the excess returns are tested and influencing factors including firm and transaction characteristics are discussed.

This paper finds that securitization generally does not have significant impact on wealth of stockholders; a considerable number of securitizations are even wealth destroying. The paper interprets these findings to mean that securitization is usually a negative signal to the stock market for first‐time securitizers, but indifferent or positive for frequent securitizers. Additionally, wealth effect of securitization on stockholders also largely depends on its underlying assets.

The outcome of this paper will assist companies, banks, and governments in understanding the effects of asset securitization, thus maximizing gains from securitization and enacting suitable polices and regulations. The paper suggests that companies and governments should examine market conditions and promote securitization only when the market is calm. Additionally, first‐time issuers of asset securitization should be cautious of possible losses caused by signs of the firm's insufficient funding, while subsequent issuance can be regarded as a relatively safe financial instrument.