Bapepam cannot regulate asset-backed securities

JAKARTA (JP): The Capital Market Supervisory Agency (Bapepam) has no specific rule to regulate the trade of asset-backed securities, agency chairman I Putu Gede Ary Suta said yesterday.

He said the absence of a specific ruling should not discourage the domestic asset-backed securities trade because existing regulations could accommodate it.

"The legal format of collective investment contracts as stipulated in the 1995 Capital Market Law may be used as a vehicle for asset-backed securities," he said.

But underwriters, accountants and lawyers must be innovative in adapting contracts, Ary told a seminar on asset-backed securitization.

In his speech, read by Bapepam Legal Bureau head I Nyoman Tjager, he said the agency had issued rules on collective investment contracts to support open-ended mutual funds and money market funds.

"These mutual-fund rules are probably not what is needed for collective investment contracts to be used as a vehicle for asset-backed securities," he said.

Since asset-backed securities could be structured many ways, the agency did not attempt to outguess the market and issue rules on specific uses of collective investment contracts for asset- back securities, he said.

"Rather, as (Bapepam's) five-year plan has stated, we are encouraging input from the private sector regarding specific types of asset-backed securities to be marketed so that supporting regulations may be drafted," he said.

Collective investment contracts are agreements between a securities company, that is licensed as an investment manager, an approved custodian bank and investors.

The arrangement's terms and conditions are defined in the contract. They include the portfolio composition and the rights and obligations of the investment manager, custodian bank and investors.

Putu said the agency had regulated the terms and conditions of contracts for open-ended funds.

"I call upon underwriters that see a market for asset-backed securities to work with their accountants and legal advisors to design the type of asset-backed security that they would like to issue, and then submit a proposal to Bapepam," he said. (pwn)