On July 17th, the SEC published interpretive guidance with respect to Sections 3(a)(41) (the definition of "mortgage related security") and 3(a)(53)(A) (the definition of "small business related security") of the Securities Exchange Act of 1934. Section 939(e) of the Dodd-Frank Act strikes provisions in Sections 3(a)(41) and 3(a)(53)(A) of the Exchange Act that reference credit ratings issued by nationally recognized statistical rating organizations ("NRSROs"), and inserts new text that provides that in order to satisfy these definitions a security must meet "standards of creditworthiness as established by the Commission." Because more time is needed to develop and establish standards of creditworthiness for purposes of these definitions, the Commission is providing a transitional interpretation that will be applicable on and after July 20, 2012, and until such time as final Commission rules establishing new standards of creditworthiness become effective. The Commission also is seeking comment on potential standards of creditworthiness that could be established to replace the use of NRSRO credit ratings in the definitions of the terms "mortgage related security" and "small business related security." Under the interpretive guidance, the Commission will interpret the terms "standards of creditworthiness as established by the Commission" to mean that on and after July 20, 2012, and until such time as final Commission rules establishing new standards of creditworthiness are effective:

  • The standard of creditworthiness for purposes of the definition of the term "mortgage related security" in Section 3(a)(41) of the Exchange Act is a security that is rated in one of the two highest rating categories by at least one NRSRO; and
  • The standard of creditworthiness for purposes of the definition of the term "small business related security" in Section 3(a)(53)(A) of the Exchange Act is a security that is rated in one of the four highest rating categories by at least one NRSRO.
Comments should be submitted within 30 days after publication in the Federal Register, which is expected during the week of July 23. SEC Release No. 34-67448.