Free, Current Data or Costly, Stale Data from ABS Data Warehouse

Under the FDR Framework, regulators, like the ECB and BoE, are responsible for ensuring that all market participants have access to all the useful, relevant information in an appropriate, timely manner.

But what is meant by the term "all market participants have access"?  This term can be broken into two parts.

• "All market participants" means everyone.  This includes, but is not limited to, investors ranging from mom or pop to PIMCO or BlackRock, rating services, pricing services, data vendors and regulators.

• "Have access" means there are no barriers, like the need to pay for the data, between the market participants and the disclosed information.

Historically, for structured finance securities there have been access barriers.   Market participants can access reports for free at the issuer's or trustee's web site or pay a fee to access the loan-level performance data through a data vendor.

In March 2010, the Association of Mortgage Investors expressed its opinion about being made to pay for loan-level data [emphasis added]

The fact that investors have to pay to subscribe to services such as Loan Performance to get data on collateral underlying asset-backed securities they are offered and may already hold is outrageous in light of the no-cost extensive public disclosure required for corporate securities.

Apparently, investors prefer to access loan-level performance data for free.

But not so the ECB.  In its letter supporting the creation of the ABS Data Warehouse,

Once constructed (... reflected in the fees levied on the users of the Data Warehouse...) the Eurosystem intends to make use of the Data Warehouse in connection with the Eurosystem collateral information requirements approved by the Governing Council in December 2010.

Apparently, the ECB does not mind having to pay to access loan-level performance data.

Unfortunately, the ECB's willingness to pay for data outweighed the investors' preferences for not paying for data when it came to selecting the business model of the ABS Data Warehouse.  As the quote from the letter supporting the creation of the ABS Data Warehouse shows, the ECB supports a business model based on charging market participants for accessing the data.

There is an alternative model that was described in your humble blogger's response to the ECB's Public Consultation.  The alternative model is to build the cost of the data warehouse into the cash flow for each deal.  Under this model, which is preferred by investors, all market participants can access the loan-level performance data for free.

In a previous post, we discussed how the ECB and BoE preferred the status quo of market participants receiving old, stale data on a once per month basis.  This preference can be combined with the ECB's preference for charging for accessing this data.  Taken together, the implied preference of the ECB [and also the BoE given its support of the ECB's activities] is to have market participants pay for old, stale data.

By comparison, your humble blogger prefers, since Wall Street through its servicing subsidiaries has access to current loan-level performance data, to have all market participants have access to current loan-level performance data.  This preference can also be combined with the investors' preference for offering access to this data for free.  Taken together, the preference of investors and your humble blogger is to have market participants have access to current loan-level performance information for free.

Which seems more likely to help the ABS Data Warehouse achieve its mission of

Facilita[ting] investment and support[ing] transparency, integrity and restor[ing] confidence in the structured finance markets

free, current loan-level performance information or costly, stale once per month loan-level performance information?  Common sense suggests that the answer is free, current loan-level performance information.

Your humble blogger is looking forward to helping the ECB and BoE construct and operate the ABS Data Warehouse using my patented solution and provide free, current loan-level performance information on structured finance and covered bond securities to all market participants.