“Waterfall” provisions of asset backed securities are the rules that explain the flow of funds in the transaction, and they are are very hard to read. Blogger/professor Jayanth Varma calls them “horrendously complicated,” leading trustees to make mistakes or pull stunts that investors never expected. To remedy this, the SEC is proposing that the provisions be written in a programming language, filed on EDGAR, and made available as downloadable Python source code.
I’m no developer, but I do know that Python is known for having a particularly clear syntax that makes it easy for others to read, which is likely why the SEC chose it.
Varma and the readers over on Slashdot say this would help improve transparency and reduce surprises or errors. Varma writes:
When provisions become complex beyond a point, computer code is actually the simplest way to describe them and requiring the entire waterfall to be implemented in open source software is a very good idea. The SEC does not say so, but it would be useful to add that if there is a conflict between the software and textual description, the software should prevail.