Public Securities Association (PSA)

What Is Public Securities Association?

Public Securities Association (PSA) was a trade organization for traders dealing in U.S. government securities.

Understanding Public Securities Association (PSA)

Public Securities Association (PSA) was the predecessor association to the Bond Market Association, which represents the largest securities markets in the world, the bond markets. The Public Securities Association was incorporated in 1976 and underwent a name change to the Bond Market Association in 1997 to better reflect its broadened constituency and membership.

The Bond Market Association represented a diverse mix of securities firms and banks, from large firms to niche specialists, with 70 percent of member firms having their headquarters outside of New York City. Its members collectively accounted for a significant majority of U.S. municipal bond underwriting and trading.

In November 2006, the Bond Market Association combined with the Securities Industry Association. The two organizations joined together to form what then became the Securities Industry and Financial Markets Association or SIFMA. SIFMA’s current membership represents 75% of the U.S. broker-dealer sector by revenue and includes more than 13,000 professionals in the finance and banking industries. SIFMA is a major trade association that represents securities brokerage firms, investment banking institutions, and other investment firms.

PSA standard prepayment model

Public Securities Association no longer exists as an official organization, but its legacy endures in the form of a financial model that carries its name. The Public Securities Association Standard Prepayment Model is a system used to calculate and manage prepayment risk. It is based on the assumption that prepayment trends will fluctuate during the life of a loan or other obligation, and these variations will, in turn, affect the yield of the security. This is a benchmark scale developed by the PSA in 1985 as a way to assess prepayment risks.

Traders consider prepayment speeds for mortgage-backed securities when evaluating the security’s potential yield and risks. The standard benchmark for measuring prepayment speeds is the constant prepayment rate model. This assumes the prepayment rate will remain fixed and consistent over the life of the contract. However, the tracking of trends clearly shows that this generally is not the case. Borrowers typically don’t make any major adjustments to the loan within the first few years, nor does the average homeowner move or sell their property during that time. However, as time progresses, the odds of paying off the loan early increase. The PSA Standard Prepayment Model adjusts the expected prepayment speed depending on the age of the loan.