Yesterday, the Securities and Exchange Commission (SEC) held an open meeting during which it approved several rule proposals to implement Section 945 and a portion of Section 932 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). The proposed rules are one of several proposed rulemakings the SEC is required to issue in order to implement securitization-related provisions of the Dodd-Frank Act. SEC Chairman Mary L. Schapiro noted that the SEC rule proposal, which seeks to enhance investor disclosure in both the public and private asset-backed securities markets, "will require issuers to provide investors with better information about the loans backing the asset-backed securities."
After the meeting, the SEC issued a release outlining a “new rule and certain amendments to implement Section 7(d) of the Securities Act” and a new rule and form to implement Section 15(e)(s)(4)(A) of the Exchange Act:
- New Rule Requiring Review of Underlying Assets in Connection With a Registered Offering - Section 945 of the Dodd-Frank Act requires the SEC to promulgate rulemaking relating to registration statements filed by issuers of asset-backed securities (ABS). Under new Section 7(d) of the Securities Act, an ABS issuer must perform a review of the assets underlying the securities to be registered. The release proposes new Rule 193 to implement this requirement. Although Rule 193 will not “specify the level or type of review an issuer is required to perform,” the SEC notes in the release that it expects that the level or type of review will depend on the circumstances or asset class. Under new Rule 193, if an ABS issuer engages a third-party to review the pool assets, then the ABS issuer may rely on the third-party’s review to satisfy its obligations only if the such third-party is named in the registration statement and consents to being named an “expert.”
- Disclosure Requirements Relating to Public and Private Offerings - The SEC release also proposes amendments to Item 1111 of Regulation AB, which outlines the general information relating to pool assets types and selection criteria that must be disclosed in the body of a prospectus. Under the proposed amendments, an issuer would be required to disclose the nature of its review of the assets under new Rule 193, in addition to its findings and conclusions. In connection with the amendments to Item 1111 an ABS issuer will also be required to “disclose the findings and conclusions of any review performed by the issuer or a third party engaged for purposes of reviewing the assets.” Section 941 of the Dodd-Frank Act amends Section 3(a) of the Exchange Act to add a broader definition of “asset-backed security.” This new definition also includes ABS offered and sold in private transactions (Exchange Act-ABS). In connection with this amendment and the other proposed rules, the release proposes new Rule 15Ga-2 under the Exchange Act. New Rule 15Ga-2 would require an issuer of Exchange Act-ABS to file a new Form ABS-15G to “disclose the finding and conclusions of third parties engaged for purposes of performing a review obtained by an issuer” in connection with a private transaction. New Rule 15Ga-2 would also require an underwriter of an Exchange Act-ABS to file a Form ABS-15G “with the same information for reports obtained by an underwriter in registered and unregistered transactions." Pursuant to the proposed rulemaking, issuers and underwriters would have to file the new Form ABS-15G with the Commission at least five business days before the first sale of the offering, in order to allow investors and nationally registered statistical rating organizations sufficient time to consider the disclosures.
Comments to the proposed rulemaking relating to securitizations should be received on or before November 15, 2010.