Bond Market Association Trade Assignment Agreement Form

What Is 'Assignment of Trade (AOT)'

Assignment of trade (AOT) is a transaction used primarily in the mortgage-backed securities (MBS) to be announced (TBA) market, where the obligation to fulfill an existing forward trade is assigned by one of the counterparties to a third party. Assignments of trade are frequently used to avoid having to make delivery of securities into, or receive delivery of securities from, a TBA trade. The process has been formalized by the Securities Industry and Financial Markets Association (SIFMA).

Mortgage originators use assignments of trade to facilitate the pricing and purchase of whole loans by the third party to which the TBA trade is assigned, with the agreement that the third party will then make delivery of an MBS into the original TBA trade, which was taken out by the mortgage originator as a hedge. In other words, an assignment of trade allows a mortgage originator to unwind its hedge position by assigning it to the third party and simultaneously agreeing to sell an equal amount of loans to that third party. The price at which the whole loans are sold to the third party is established by the price of the trade being assigned.

Breaking Down 'Assignment of Trade (AOT)'

Assignment of trade is basically a three-party agreement between an assignor (usually the originator of the underlying mortgages), an assignee (the investor) and a dealer/broker. The assignor wants to move the mortgages off the books to remove risk. This includes interest rate risk, prepayment risk and default risk. The assignor wants this risk gone sooner rather than later, so a hedge is sold in the form of a mortgage-backed security on the TBA market. However, the MBS still has to be delivered and the assignment of trade can be the most cost effective way of making that happen.

How Assignment of Trade Works

The assignor sells a mortgage-backed security to the dealer for future delivery, creating a hedge against some of the risks that come with the loans it has issued. At this point, the dealer is waiting for the pooled security, and the assignor is obligated to deliver it. Enter the third party assignee who is willing to take on the loans immediately, collecting the income streams from them, and then delivering the MBS to the dealer and fulfilling the responsibilities of the assignor. The assignee now holds the loans, and the dealer has the MBS that the underlying loans feed into. The assignee faces default risks, but can still benefit from interest rate shifts that increase the profits from variable loans. The dealer holds the MBS and the prepayment risks that come with them, as well as the agreed upon streams of interest and principal. The assignor — the loan originator — has new space on the books to issue new loans. This approach can reduce some of the expenses that might otherwise come in the form of fees, buybacks and transfers.

MBS Notification and Settlement Dates

Notification and settlement dates for mortgage-backed securities.

MBS Third Party Transactions

For use in forward transactions where a dealer may agree to accept performance obligations that have been delegated by its counter party to a third party with whom the dealer does not have an original contractual relationship.

Trade Assignment Agreement

An agreement, which may be utilized to assign an outright securities transaction, or the back-leg of a repo transaction. The creation of this form was precipitated by a number of outstanding unsettled transactions in the MBS and government securities markets; assigning a position in an unsettled transaction to another counterparty in the “chain” of unsettled transactions may be one way counterparties can shorten such chain or round robin.

Recommended Security-Level Remittance Reporting Categories for Mortgage-Backed and Asset-Backed Securities

Recommended minimum security-level remittance reporting categories, definitions and file layouts for mortgage-backed and asset-backed securities.

MPID List

List of firm MPIDs used for FINRA TRACE reporting (Posted May 10, 2012)

MBS Buy-In Procedures (Revised)

Revised recommended procedures for mortgage-backed securities buy-ins.

Retail Structured Products: Principles for Managing the Provider-Distributor Relationship

A joint trade association release of principles that seek to address issues that financial services firms have in practice found helpful to consider when performing the function of either provider or distributor in connection with the process of delivering structured products to retail investors.

Round Robin Contact List

A contact list for buy-side and sell-side mortgage-backed securities operations professionals involved in the resolution of round robin situations. An operations manager, allocations contact, and clearance contact has been provided for each firm.

SIFMA Publishes 15Ga-2 and 17g-10 Sample Provisions for Underwriters, Initial Purchasers, and Placement Agents

These sample provisions related to SEC rules 15Ga-2 and 17g-10 (which becomes effective on June 15th) are the result of discussions by a SIFMA Securitization Group dealer working group on the NRSRO due diligence rules. They are intended to be used by dealers acting as underwriters, initial purchasers and placement agents in drafting provisions dealing with the Rules 15Ga-2 and 17g-10 for their engagement letters with ABS sponsors and depositors, and for the related underwriting, securities purchase and placement agency agreements. These are sample provisions, not forms, and as such should be reviewed by counsel to ensure that they are consistent with the existing agreement language and definitions, and that they reflect the dealer’s individual business determination as to how the identified issues should appropriately be handled. For more information, please contact Chris Killian of SIFMA at 212-313-1126.

Treasury and Agency Security Fails Charge Trading Practices
Find both documents under Fails Charge Trading Practices

Standardized CDO Data File Format

A standardized format for data files used to evaluate the performance of CDO transactions. Recommended for use by trustees on a regular basis as a tool to help improve the efficiency, transparency and usefulness of reporting on CDOs.

See Also

Government Sponsored Enterprises (GSE) Standard Forms and Documentation Library

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