Notice of a Proposed Amendment to Prohibited Transaction Exemption (PTE) 2000-58, 65 FR 67765 (November 13, 2000) and PTE 2002-41, 67 FR 54487 (August 22, 2002) Involving Bear, Stearns & Co. Inc., Prudential Securities Incorporated, et al. to Add Dominion Bond Rating Service Limited and Dominion Bond Rating Service, Inc. to the Definition of “Rating Agency” (D-11370), 3152-3159 [E7-969]
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3152
Federal Register / Vol. 72, No. 15 / Wednesday, January 24, 2007 / Notices
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
Notice of a Proposed Amendment to
Prohibited Transaction Exemption
(PTE) 2000–58, 65 FR 67765 (November
13, 2000) and PTE 2002–41, 67 FR
54487 (August 22, 2002) Involving
Bear, Stearns & Co. Inc., Prudential
Securities Incorporated, et al. to Add
Dominion Bond Rating Service Limited
and Dominion Bond Rating Service,
Inc. to the Definition of ‘‘Rating
Agency’’ (D–11370)
Employee Benefits Security
Administration, Department of Labor.
ACTION: Notice of a Proposed
Amendment to the Underwriter
Exemptions.1
AGENCY:
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SUMMARY: This document contains a
notice of pendency before the
1 The term ‘‘Underwriter Exemptions’’ refers to
the following PTEs: PTE 89–88, 54 FR 42582
(October 17, 1989); PTE 89–89, 54 FR 42569
(October 17, 1989); PTE 89–90, 54 FR 42597
(October 17, 1989); PTE 90–22, 55 FR 20542 (May
17, 1990); PTE 90–23, 55 FR 20545 (May 17, 1990);
PTE 90–24, 55 FR 20548 (May 17, 1990); PTE 90–
28, 55 FR 21456 (May 24, 1990); PTE 90–29, 55 FR
21459 (May 24, 1990); PTE 90–30, 55 FR 21461
(May 24, 1990); PTE 90–31, 55 FR 23144 (June 6,
1990); PTE 90–32, 55 FR 23147 (June 6, 1990); PTE
90–33, 55 FR 23151 (June 6, 1990); PTE 90–36, 55
FR 25903 (June 25, 1990); PTE 90–39, 55 FR 27713
(July 5, 1990); PTE 90–59, 55 FR 36724 (September
6, 1990); PTE 90–83, 55 FR 50250 (December 5,
1990); PTE 90–84, 55 FR 50252 (December 5, 1990);
PTE 90–88, 55 FR 52899 (December 24, 1990); PTE
91–14, 55 FR 48178 (February 22, 1991); PTE 91–
22, 56 FR 03277 (April 18, 1991); PTE 91–23, 56
FR 15936 (April 18, 1991); PTE 91–30, 56 FR 22452
(May 15, 1991); PTE 91–62, 56 FR 51406 (October
11, 1991); PTE 93–31, 58 FR 28620 (May 5, 1993);
PTE 93–32, 58 FR 28623 (May 14, 1993); PTE 94–
29, 59 FR 14675 (March 29, 1994); PTE 94–64, 59
FR 42312 (August 17, 1994); PTE 94–70, 59 FR
50014 (September 30, 1994); PTE 94–73, 59 FR
51213 (October 7, 1994); PTE 94–84, 59 FR 65400
(December 19, 1994); PTE 95–26, 60 FR 17586
(April 6, 1995); PTE 95–59, 60 FR 35938 (July 12,
1995); PTE 95–89, 60 FR 49011 (September 21,
1995); PTE 96–22, 61 FR 14828 (April 3, 1996); PTE
96–84, 61 FR 58234 (November 13, 1996); PTE 96–
92, 61 FR 66334 (December 17, 1996); PTE 96–94,
61 FR 68787 (December 30, 1996); PTE 97–05, 62
FR 1926 (January 14, 1997); PTE 97–28, 62 FR
28515 (May 23, 1997); PTE 97–34, 62 FR 39021
(July 21, 1997); PTE 98–08, 63 FR 8498 (February
19, 1998); PTE 99–11, 64 FR 11046 (March 8, 1999);
PTE 2000–19, 65 FR 25950 (May 4, 2000); PTE
2000–33, 65 FR 37171 (June 13, 2000); PTE 2000–
41, 65 FR 51039 (August 22, 2000); PTE 2000–55,
65 FR 37171 (November 13, 2000); PTE 2002–19, 67
FR 14979 (March 28, 2002); PTE 2003–31, 68 FR
59202 (October 14, 2003); and PTE 2006–07, 71 FR
32134 (June 2, 2006), each as subsequently
amended by PTE 97–34, 62 FR 39021 (July 21,
1997) and PTE 2000–58, 65 FR 67765 (November
13, 2000) and for certain of the exemptions,
amended by PTE 2002–41, 67 FR 54487 (August 22,
2002).
In addition, the Department notes that it is also
proposing individual amendments for: Deutsche
Bank AG, New York Branch and Deutsche Morgan
Grenfell/C.J. Lawrence Inc., Final Authorization
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Department of Labor (the Department) of
a proposed amendment to the
Underwriter Exemptions. The
Underwriter Exemptions are individual
exemptions that provide relief for the
origination and operation of certain
asset pool investment trusts and the
acquisition, holding and disposition by
employee benefit plans (Plans) of
certain asset-backed pass-through
certificates representing undivided
interests in those investment trusts. The
proposed amendment, if granted, would
expand the definition of ‘‘Rating
Agency’’ in section III. X of the
Underwriter Exemptions to include
Dominion Bond Rating Service Limited
(DBRS Limited) and Dominion Bond
Rating Service, Inc. (DBRS, Inc.). The
proposed amendment, if granted, would
affect the participants and beneficiaries
of the Plans participating in such
transactions and the fiduciaries with
respect to such plans.
Written comments and requests
for a hearing should be received by the
Department by February 23, 2007.
DATE:
All written comments and
requests for a public hearing (preferably,
three copies) should be sent to the
Office of Exemption Determinations,
Employee Benefits Security
Administration, Room N–5700, U.S.
Department of Labor, 200 Constitution
Avenue, NW., Washington, DC 20210,
(Attention: Exemption Application
Number D–11370 ). Interested persons
are invited to submit comments and/or
hearing requests to the Department by
the end of the scheduled comment
period either by facsimile to (202) 219–
0204 or by electronic mail to
moffitt.betty@dol.gov. The application
pertaining to the proposed amendment
(Application) and the comments
received will be available for public
inspection in the Public Disclosure
Room of the Employee Benefits Security
Administration, U.S. Department of
Labor, Room N–1513, 200 Constitution
Avenue, NW., Washington, DC 20210.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Wendy M. McColough of the
Number (FAN) 97–03E (December 9, 1996); Credit
Lyonnais Securities (USA) Inc., FAN 97–21E
(September 10, 1997); ABN AMRO Inc., FAN 98–
08E (April 27, 1998); Ironwood Capital Partners
Ltd., FAN 99–31E (December 20, 1999) (supersedes
FAN 97–02E (November 25, 1996)); William J.
Mayer Securities LLC, FAN 01–25E (October 15,
2001); Raymond James & Associates Inc. &
Raymond James Financial Inc., FAN 03–07E ( June
14, 2003); WAMU Capital Corporation, FAN 03–14E
(August 24, 2003); and Terwin Capital LLC, FAN
04–16E (August 18, 2004); which received the
approval of the Department to engage in
transactions substantially similar to the transactions
described in the Underwriter Exemptions pursuant
to PTE 96–62, 61 FR 39988 (July 31, 1996).
PO 00000
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Department, telephone (202) 693–8540.
(This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: Notice is
hereby given of the pendency before the
Department of a proposed exemption to
amend the Underwriter Exemptions.
The Underwriter Exemptions are a
group of individual exemptions that
provide substantially identical relief for
the operation of certain asset-backed or
mortgage-backed investment pools and
the acquisition and holding by Plans of
certain securities representing interests
in those investment pools. These
exemptions provide relief from certain
of the prohibited transaction restrictions
of sections 406(a), 406(b) and 407(a) of
the Employee Retirement Income
Security Act of 1974, as amended
(ERISA or the Act) and from the taxes
imposed by section 4975(a) and (b) of
the Internal Revenue Code of 1986, as
amended (the Code), by reason of
certain provisions of section 4975(c)(1)
of the Code. All of the Underwriter
Exemptions were amended by PTE 97–
34, 62 FR 39021 (July 21, 1997) and PTE
2000–58, 65 FR 67765 (November 13,
2000) and certain of the Underwriter
Exemptions were amended by PTE
2002–41, 67 FR 54487 (August 22,
2002).
The Department is proposing this
amendment to the Underwriter
Exemptions pursuant to section 408(a)
of the Act and section 4975(c)(2) of the
Code, and in accordance with the
procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847,
August 10, 1990).2 In addition, the
Department is proposing to provide the
same individual exemptive relief to:
Deutsche Bank AG, New York Branch
and Deutsche Morgan Grenfell/C.J.
Lawrence Inc., Final Authorization
Number (FAN) 97–03E (December 9,
1996); Credit Lyonnais Securities (USA)
Inc., FAN 97–21E (September 10, 1997);
ABN AMRO Inc., FAN 98–08E (April
27, 1998); Ironwood Capital Partners
Ltd., FAN 99–31E (December 20, 1999)
(supersedes FAN 97–02E (November 25,
1996)); William J. Mayer Securities LLC,
FAN 01–25E (October 15, 2001);
Raymond James & Associates Inc. &
Raymond James Financial Inc., FAN 03–
07E ( June 14, 2003); WAMU Capital
Corporation, FAN 03–14E (August 24,
2003); and Terwin Capital LLC, FAN
04–16E (August 18, 2004); which
previously received the approval of the
Department to engage in transactions
substantially similar to the transactions
2 Section 102 of Reorganization Plan No. 4 of
1978 (5 U.S.C. App. 1 [1996]) generally transferred
the authority of the Secretary of the Treasury to
issue exemptions under section 4975(c)(2) of the
Code to the Secretary of Labor.
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described in the Underwriter
Exemptions pursuant to PTE 96–62, 61
FR 39988 (July 31, 1996).
1. The Underwriter Exemptions
permit Plans to purchase certain
securities representing interests in assetbacked or mortgage-backed investment
pools. The securities generally take the
form of certificates issued by a trust
(Trust). The Underwriter Exemptions
permit transactions involving a Trust
(including the servicing, management
and operation of the Trust) and
certificates evidencing interests therein
(including the sale, exchange or transfer
of certificates in the initial issuance of
the certificates or in the secondary
market for such certificates). The
securities acquired by a Plan have been
rated in one of the three highest rating
categories (or four in the case of
Designated Transactions 3) by a rating
agency as defined in the Underwriter
Exemptions (Rating Agency). The Rating
Agency, in assigning a rating to such
securities, takes into account the fact
that the Issuer 4 may hold interest rate
swaps or yield supplement agreements
with notional principal amounts or, in
Designated Transactions, securities may
be issued by an Issuer holding
residential and home equity loans with
LTV ratios in excess of 100%. Section
III.X. of the Underwriter Exemptions
defines ‘‘Rating Agency’’ as Standard &
Poor’s Rating Services, a division of The
McGraw-Hill Companies, Inc., Moody’s
Investors Services, Inc., Fitch Inc., or
any successors thereto.
2. Section II of the original
Underwriter Exemptions, PTE 89–88, 54
FR 42582 (October 17, 1989); PTE 89–
89, 54 FR 42569 (October 17, 1989); and
PTE 89–90, 54 FR 42597 (October 17,
1989), sets forth the general conditions
which must be met in order for an
investing Plan to avail itself of the relief
provided by one of the exemptions.
Section II.A(3) requires that any
certificate acquired by a plan in reliance
on the exemption must have received a
rating at the time of acquisition that is
in one of the three highest categories
from either Standard & Poor’s
Corporation, Moody’s Investors
Services, Inc. or Duff & Phelps. The
Department proposed an amendment to
this condition by notice at 55 FR 25914
(June 25, 1990) in response to a request
from the three individual exemption
applicants that Fitch Investors Service,
Inc. (Fitch Inc.) be added to the rating
agencies described in section II.A.(3) of
PTE 89–88, PTE 89–89, and PTE 89–90.5
To support this request, Fitch Inc.
submitted letters to the Department
which provided information on Fitch
Inc’s rating programs in general and its
experience in rating asset backed
securities in particular. Based on the
information provided by Fitch Inc., the
requests submitted on behalf of the
applicants and the Department’s
previous consideration of Fitch Inc. in
conjunction with several other
Underwriter Exemptions, the
Department amended PTE 89–88, PTE
89–89, and PTE 89–90 by notice at 55
FR 48939 (November 23, 1990) to
include Fitch Inc. as an acceptable
rating agency for the rating of
certificates described in the
exemptions.6
3. The proposed amendment was
requested by Application, dated April 5,
2006, on behalf of the Securities
Industry and Financial Markets
Association (SIFMA) 7, the American
Securitization Forum (ASF), DBRS
Limited and DBRS, Inc. (collectively,
the Co-Applicants). The Co-Applicants
request that the Department amend the
Underwriter Exemptions to add DBRS
Limited and DBRS, Inc. to the group of
entities included in the definition of
‘‘Rating Agency’’ in section III.X. of the
3 ‘‘Designated Transaction’’ means a
securitization transaction in which the assets of the
Issuer (see below) consist of secured consumer
receivables, secured credit instruments or secured
obligations that bear interest or are purchased at a
discount and are: (i) Motor vehicle, home equity
and/or manufactured housing consumer
receivables; and/or (ii) motor vehicle credit
instruments in transactions by or between business
entities; and/or (iii) single-family residential, multifamily residential, home equity, manufactured
housing and/or commercial mortgage obligations
that are secured by single-family residential, multifamily residential, commercial real property or
leasehold interests therein.
4 ‘‘Issuer’’ means an investment pool, the corpus
or assets of which are held in trust (including a
grantor or owner Trust) or whose assets are held by
a partnership, special purpose corporation or
limited liability company (which Issuer may be a
Real Estate Mortgage Investment Conduit (REMIC)
or a Financial Asset Securitization Investment Trust
(FASIT) within the meaning of section 860D(a) or
section 860L, respectively, of the Code.
5 Since the granting of these three exemptions on
October 17, 1989, the Department had granted
several other Underwriter Exemptions that included
Fitch Inc. as an acceptable rating agency.
6 The final paragraph of section III.B of these
exemptions was also amended to include Fitch Inc.
as an acceptable rating agency.
7 On November 15, 2006, the Co-Applicants
informed the Department that on October 31, 2006,
The Bond Market Association and the Securities
Industry Association merged into a new entity,
SIFMA. SIFMA is a Delaware nonstock corporation
that was incorporated in June 2006 for purposes of
the merger. Its members are approximately 650
securities firms, banks and asset managers. Its
mission is to promote policies and practices that
expand and perfect markets, foster the development
of new products and services and create efficiencies
for member firms, while preserving and enhancing
the public’s trust and confidence in the markets and
the industry. The Bond Market Association no
longer exists, having merged into SIFMA. The ASF
is now a forum of SIFMA, and it is still a joint
applicant.
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3153
Underwriter Exemptions. The CoApplicants provide that DBRS Limited
was recognized as a nationally
recognized statistical rating organization
(NRSRO) for purposes of Rule 15c3–1
under the Securities Exchange Act of
1934 by virtue of receiving a ‘‘no
action’’ letter from the Securities and
Exchange Commission (SEC) on
February 24, 2003. As the Co-Applicants
explain below, the Co-Applicants
believe that DBRS, Inc., its affiliate, is
also considered to be covered under this
no action letter. Accordingly, ‘‘DBRS’’
shall hereinafter refer both to DBRS
Limited and DBRS, Inc., except where
the context indicates otherwise. The CoApplicants state that SIFMA and ASF
agreed to make this request on behalf of
their member underwriters for the
reasons outlined below and because The
Bond Market Association (TBMA), now
merged into SIFMA, was the original
entity that requested the exemptive
relief granted by the Department
pursuant to PTE 97–34, 62 FR 39021
(July 21, 1997), PTE 2000–58, 65 FR
67765 (Nov.13, 2000) and PTE 2002–41,
67 FR 54487 (August 22, 2002). ASF
was formed in February 2002, as an
adjunct forum for TBMA to more
specifically represent the interests of
underwriters and other organizations
related to the securitization markets
(although ASF is part of the same legal
entity as TBMA).
4. The Co-Applicants represent that, if
the requested amendment is not
granted, possible violations of the
prohibited transaction provisions of
sections 406(a), 406(b) and 407(a) of
ERISA (and the corresponding
provisions of sections 4975(c)(1)(A)
through (F) of the Code) resulting from:
(a) The purchase and sale of securities
by a Plan to which any of the other
parties is a party in interest; 8 and (b) the
servicing, management and operation of
an issuer may occur if DBRS Limited or
DBRS, Inc. ratings are used for such
transactions. The Co-Applicants believe
that, if the requested amendment is not
granted, this would result in the loss of
opportunities for an investing Plan to
achieve a current market return through
investment in securities that have
received a rating from an NRSRO as
high as or higher than that of
comparable instruments in which the
Plan is clearly permitted to invest. The
Co-Applicants assert that it is in the
interests of Plan participants and
beneficiaries that a Plan has the
opportunity to diversify its investment
portfolio by purchasing securities rated
8 The term ‘‘party in interest’’ also includes,
where applicable, a ‘‘disqualified person’’ within
the meaning of section 4975(e)(2) of the Code.
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Federal Register / Vol. 72, No. 15 / Wednesday, January 24, 2007 / Notices
by a wide variety of rating agencies
subject to a significant amount of
competition.
5. The Co-Applicants believe that the
proposed amendment would be
administratively feasible because the
proposed requirements generally mirror
those deemed administratively feasible
in the asset-backed and mortgagebacked securities (ABS and MBS,
respectively) exemptions previously
issued by the Department. The
transactions may be audited easily by a
Plan fiduciary and all the records
necessary to review these transactions
will be kept for six years. The CoApplicants state that no further action
would be required by the Department.
The Co-Applicants consider that the
requested amendment would be in the
interest of the Plans and its participants
and beneficiaries because it increases
the number of available investment
options, enhances diversification and
liquidity and promotes a greater ability
to assess credit risk and the rating
process. The Co-Applicants state that
the amendment would be protective of
the rights of the Plans since the sale of
the securities will be conducted under
all of the safeguards contained in the
existing Underwriter Exemptions for the
sale of asset and mortgage-backed passthrough securities. Additionally, the CoApplicants believe that expanding the
number of rating agencies with
experience in rating the type of
obligations covered under the
Underwriter Exemptions would
significantly benefit the Plans. The
number of NRSROs that had been
included within the definition of Rating
Agency under the Underwriter
Exemptions as of 1990 has been reduced
from four to three since Duff & Phelps
Inc. (D & P) and Fitch Inc. merged in
2000 and became FitchRatings, Inc.
(Fitch). There may be additional
mergers in the future. The CoApplicants believe that this could make
the number of Rating Agencies available
to rate Underwriter Exemption-eligible
MBS and ABS even fewer; resulting in
fewer and less liquid securities available
for Plans to purchase. The CoApplicants further note that, when the
Department considered First Boston
Corporation’s original application for its
Underwriter Exemption in the proposed
exemption to PTE 89–90 at 53 FR 52851
(December 29, 1988), First Boston
requested that any certificate receiving a
rating in the three highest rating
categories from any NRSRO receive
exemptive relief. According to the
Applicants, while the Department
recognized that rating agencies other
than Standard & Poor’s Corporation
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(currently, Standard & Poor’s Rating
Services, a division of The McGraw Hill
Companies, Inc. (S & P)), Moody’s
Investor Services, Inc. (Moody’s) and
D&P qualified as NRSROs, it decided
that only those three should qualify as
Rating Agencies under the Underwriter
Exemptions, based on their respective
experience in rating certain types of
MBS/ABS.9 Fitch Inc. was later
specifically named as an additional
Rating Agency for purposes of the
Underwriter Exemptions beginning in
1989. The Co-Applicants believe that if
the Department were to add DBRS
Limited and DBRS, Inc. to the group of
Rating Agencies permitted to rate
Underwriter Exemption-eligible
securities, it would benefit Plan
investors in several ways, including: (a)
Investors would have access to
additional information and additional
opinions about the creditworthiness of
issuers and securities; (b) competition
among rating agencies would result in
improved accuracy and timeliness of
ratings, thereby allowing investors to
assess risk with greater certainty; and (c)
competition among rating agencies
would encourage different methods of
analyzing credit risk.
6. The Co-Applicants assert that DBRS
has extensive experience in rating every
type of obligation that is eligible for
exemptive relief under the Underwriter
Exemptions and listed under the
definition of an ‘‘Issuer’’ in section III.B
of the Underwriter Exemptions; and,
therefore, meets a major criterion for
recognition as a Rating Agency for
purposes of the Underwriter
Exemptions. In reviewing the
information submitted to the
Department by S&P and Fitch Inc. at
that time, the Department was given
information regarding how these
agencies rated securities and the
credentials of the senior management of
their securitization groups. In this
regard, DBRS has reviewed the
description of the rating process in both
the D&P submission and the proposed
exemption for PTE 2000–58 and feels
that its rating process is comparable to
these. The Co-Applicants submitted the
biographies of senior management for
the DBRS Limited and DBRS, Inc.
Structured Finance Departments to the
Department with their Application.
7. In order for the SEC to recognize
DBRS Limited as an NRSRO in 2003,
DBRS Limited had to satisfy certain
established criteria. The single most
important criterion was that DBRS
9 53 FR 52851 at p. 52857, footnote 7 (December
29, 1988). There are currently five entities which
were recognized by the SEC through the no-action
letter process as NRSROs: S&P, Moody’s, Fitch,
DBRS and A.M. Best Company, Inc.
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Limited be widely accepted in the U.S.
as an issuer of credible and reliable
ratings by the predominant users of
securities ratings. In addition, the
following aspects of DBRS Limited’s
operational capability and reliability
were reviewed: (i) Its organizational
structure, (ii) its financial resources, to
determine, among other things, whether
it is able to operate independently of
economic pressures or control from the
companies its rates, (iii) the size and
experience and training of its staff to
determine if it is capable of thoroughly
and competently evaluating an issuer’s
credit, (iv) its independence from the
entities it rates, (v) its rating procedures
to determine whether it has systematic
procedures designed to produce
credible and accurate ratings and (vi)
whether it has internal procedures to
prevent the misuse of non-public
information and whether those
procedures are followed. On April 5,
2006, the Co-Applicants provided the
following update of the statistics set
forth in the SEC’s no action letter dated
February 24, 2003 regarding DBRS’s
business. DBRS now has a total staff of
175, 110 of which are analysts. Of those
analysts, 51 rate securitization
transactions. The Co-Applicants also
provided biographical information
about the senior management team for
that latter group. As of the application
date, the principal amount of assetbacked securities (ABS), residential
mortgage-backed securities (RMBS) and
commercial mortgage-backed securities
(CMBS) transactions that DBRS has
rated and that are currently outstanding
are: Can. $128.3 billion of ABS for
Canadian issuers (representing 158
transactions); U.S. $192.1 billion of
RMBS and ABS for U.S. issuers
(representing 207 transactions); and U.S.
$20.5 billion of CMBS for U.S. issuers
(representing 14 transactions). DBRS’s
Structured Finance Department has also
written over 95 industry reports and 442
rating reports.
8. The Co-Applicants state that DBRS
Limited is a Canadian rating agency that
has been in existence for almost 30
years, having been incorporated in 1976
under the Ontario Business
Corporations Act. DBRS Limited was
originally founded and owned by Walter
Schroeder, who remains its President.
DBRS Limited operates primarily
through its Toronto office and DBRS
Limited’s U.S. affiliate, DBRS, Inc.,
which has offices in New York and
Chicago.10 On February 24, 2003 when
the SEC issued its no action letter
10 DBRS also recently opened offices in London,
Paris and Frankfurt through another affiliate, DBRS
(Europe) Limited.
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identifying DBRS Limited as an NRSRO,
DBRS Limited conducted all of its credit
rating activities from its Toronto Ontario
headquarters and rated issuers and
securities both in Canada and in the
United States. Subsequently, DBRS
Limited decided to establish a physical
presence in the United States. The New
York and Chicago offices were
incorporated as DBRS, Inc. on August
21, 2003. The U.S. operations were
organized for tax reasons as a separate
Delaware affiliate corporation instead of
as a branch of the Canadian company.
The Co-Applicants assert that, although
technically it is principally DBRS, Inc.
that rates U.S. issuers and securities and
DBRS Limited that rates Canadian
issuers and securities, the ratings
activities of Dominion Bond Rating
Service worldwide are conducted in a
seamless fashion and both DBRS
Limited and DBRS, Inc. are considered
to be covered by the SEC’s NRSRO noaction letter. The Co-Applicants add
that DBRS, Inc. employs the same rating
process that DBRS Limited uses; its
ratings are approved by the same rating
committees that approve DBRS
Limited’s ratings; its staff are subject to
the same code of conduct that applies to
DBRS Limited’s staff; all ratings are
‘‘DBRS’’ ratings without attribution to
one corporate entity or the other, DBRS
Limited stands behind the ratings issued
by DBRS, Inc. and the officers of DBRS
Limited supervise the ratings process
conducted by DBRS, Inc. In this regard,
the Co-Applicants submitted a letter
dated November 1, 2005 from MariAnne Pisarri, Esq. of Pickard and Djinis,
LLP, counsel to DBRS Limited to Mr.
Michael A. Macchiaroli, Associate
Director, Division of Market Regulation
at the SEC discussing the NRSRO status
of the ratings activities of DBRS, Inc.
9. On September 29, 2006, the
President signed into law S. 3850, the
Credit Rating Agency Reform Act of
2006 (CRARA). CRARA was introduced
as a bill to improve ratings quality for
the protection of investors and in the
public interest by fostering
accountability, transparency, and
competition in the credit rating agency
industry. The law will restructure the
existing regulation of credit rating
agencies by the SEC. Under CRARA, a
credit rating agency can obtain the
NRSRO designation through an
application process unless the SEC
determines that the agency lacks
adequate financial and managerial
resources to consistently produce credit
ratings with integrity and to comply
with its stated methodologies and
procedures (CRARA subsection
4(a)(2)(C)). The Securities Exchange Act
of 1934 is amended at section 3(a) and
by the addition of new section 15E.
Registration of Nationally Recognized
Statistical Rating Organizations. Section
3(a) is amended by adding certain new
definitions relevant to this proposed
amendment (CRARA section 3):
(60) CREDIT RATING—The term ‘credit
rating’ means an assessment of the
creditworthiness of an obligor as an entity or
with respect to specific securities or money
market instruments.
(61) CREDIT RATING AGENCY—The term
‘credit rating agency’ means any person—
(A) Engaged in the business of issuing
credit ratings on the Internet or through
another readily accessible means, for free or
for a reasonable fee, but does not include a
commercial credit reporting company;
(B) Employing either a quantitative or
qualitative model, or both, to determine
credit ratings; and
(C) Receiving fees from either issuers,
investors, or other market participants, or a
combination thereof.
(62) NATIONALLY RECOGNIZED
STATISTICAL RATING ORGANIZATION—
The term ‘nationally recognized statistical
rating organization’ means a credit rating
agency that—
(A) Has been in business as a credit rating
agency for at least the 3 consecutive years
immediately preceding the date of its
application for registration under section
15E;
(B) Issues credit ratings certified by
qualified institutional buyers, in accordance
with section 15E(a)(1)(B)(ix), with respect
to—
(i) Financial institutions, brokers, or
dealers;
(ii) Insurance companies;
(iii) Corporate issuers;
(iv) Issuers of asset-backed securities (as
that term is defined in section 1101(c) of part
229 of title 17, Code of Federal Regulations,
as in effect on the date of enactment of this
paragraph);
(v) Issuers of government securities,
municipal securities, or securities issued by
a foreign government; or
(vi) A combination of one or more
categories of obligors described in any of
clauses (i) through (v); and
(C) Is registered under section 15E.
CRARA establishes a registration and
oversight scheme for NRSROs under the
Securities Exchange Act of 1934
(Exchange Act). This regime replaces
the SEC’s current no-action letter
process for designating NRSROs and
removes NRSROs from the jurisdiction
of the Investment Advisers Act of 1940
(Advisers Act). The new regulatory
CRA Reform Act requirement
regime takes effect when the SEC
promulgates the rules necessary to
implement CRARA, or in 270 days after
CRARA’s enactment date, whichever is
sooner. Thus, the new registration
requirements will apply by June 26,
2007. However, because the SEC has 90
days to consider an NRSRO application
(or longer, if the applicant consents), the
first NRSRO registration may not occur
until the end of September 2007.
Although the NRSRO no-action letters
will be void after the effective date of
the new law, the 5 existing NRSROs will
be allowed to function as NRSROs while
the SEC considers their applications.
10. The Co-Applicants represent that
DBRS Limited and DBRS, Inc. each: (a)
Will qualify as a ‘‘Nationally
Recognized Statistical Rating
Organization’’ within the meaning of
new section 3(a)(62) of the Exchange
Act as amended by the legislation, as
each will be in business for at least three
years prior to its applying for
registration under the new statutory
procedures, (b) rate the specified types
of securities listed under such section,
and (c) intend to register at the first date
DBRS is able to register under new
section 15E of the legislation and the
applicable regulations and procedures
to be promulgated by the SEC. The CoApplicants state that DBRS Limited and
DBRS, Inc. will each be able to supply
the information and meet the implied
substantive criteria set forth in the
legislation in new section 15E(a)(1)(B) of
the Exchange Act as demonstrated in
the chart below, provided by the CoApplicants, that compares the
requirements for NRSRO registration
under the legislation to existing
requirements and the Co-Applicants
confirm that each rating agency would
comply. The Co-Applicants assert that
the criteria for registration under the
new law are not substantively different
from what DBRS and the other current
NRSROs already comply with. DBRS
has also adopted and adheres to the
International Organization of Securities
Commissions’ (IOSCO) Code of Conduct
Fundamentals for Credit Rating
Agencies issued in December 2004
(IOSCO Code of Conduct). Additionally,
the Co-Applicants have provided the
Department with copies of the DBRS
Code of Conduct, the Report of
Compliance to the DBRS Code of
Conduct and the DBRS Corporate
Default Study 1977–2005, which are
pertinent to this analysis.
Existing requirement
DBRS complies?
Under Exchange Act § 15E (a) (1)(B), NRSRO applications must include:
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CRA Reform Act requirement
Existing requirement
DBRS complies?
(i) Applicant’s credit rating performance measurement statistics.
IOSCO Code §§ 1.2, 3.8 .................................................
(ii) Procedures & methodologies Applicant uses in
determining credit ratings.
(iii) Policies and procedures to prevent the misuse
of inside information.
(iv) The organizational structure of the Applicant .....
Required as part of NRSRO no-action letter designation
process; IOSCO Code, §§ 1.A, 3.2, 3.5, 3.10.
Advisers Act, § 204A IOSCO Code, § 3.B ......................
(v) Whether or not Applicant has a code of ethics,
and if not, why not.
(vi) Any conflict of interest relating to the Applicant’s
issuance of credit ratings; § 15E(h) also requires
NRSROs to maintain written policies and procedures to address and manage any conflicts of interest.
(ix) Written certifications from Qualified Institutional
Buyers (QIBs) who use Applicant’s ratings.
Exchange Act § 15E(j) requires NRSROs to designate
an individual responsible for administering its compliance policies and procedures.
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Exchange Act § 15E(i) directs the SEC to adopt rules
prohibiting unfair business practices by NRSROs.
11. The Co-Applicants assert that
under the new legislation, there would
be no period of time when DBRS would
not maintain its status as an NRSRO.
They note that under new section
15E(l)(2)(A) of the Exchange Act, a
rating agency is entitled to rely on its
no-action letter from the SEC to be
treated as an NRSRO and act as an
NRSRO while the SEC is considering its
registration application pursuant to the
new procedures and thereafter on and
after its application is approved. The
no-action letters that the SEC has issued
to date to the five rating agencies
including DBRS will become void under
section 15E(1)(2)(B) upon the earlier of
(i) 270 days following the date of
enactment of the legislation (September
29, 2006) or (ii) the date the regulations
are issued by the SEC in final form. This
theoretically means that if the SEC fails
to issue the regulations on a timely
basis, all five rating agencies would lose
their NRSRO status. However, if this
were to occur, it would also affect
Moody’s, Standard & Poor’s, Fitch and
A.M. Best Company, Inc. in the same
manner as DBRS, and this would have
disastrous results in the capital markets.
Presumably this issue would have to be
addressed by an amendment to the
legislation.
12. The Co-Applicants request that
the Department grant DBRS Rating
Agency status under the Underwriter
Exemptions at this time and that it not
wait until the SEC issues a final rule.
Waiting until the SEC issues a final rule
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Required as part of NRSRO no-action letter designation
process; information on organization required on
Form ADV; IOSCO Code, §§ 2.5, 2.10, 2.11, 2.12.
Advisers Act Rule 204A–1 requires a Code of Ethics;
IOSCO Code, §§ 1.C, 2, 4.1.
Advisers Act Rule 204A–1 requires advisers’ codes of
ethics to address conflicts; IOSCO Code, § 2.B.
Does not apply to current NRSROs. However, DBRS
already supplied this type of information to the SEC
to prove its ‘‘national recognition’’ under the no-action
letter designation process.
Advisers Act Rule 206(4)–7 requires the appointment of
a Chief Compliance Officer; IOSCO Code § 1.15 requires that a person be specified as responsible for
overseeing compliance with applicable laws and regulations.
Advisers Act Rule 204A–1; IOSCO Code §§ 1.C, 2.3,
2.4, 2.5, 2.11, 2.12, 2.15.
could take a substantial period of time
which can only be disadvantageous for
Plan investors. The Co-Applicants
represent that DBRS Limited and DBRS,
Inc. are already fully recognized
together as an NRSRO and also meet the
new proposed requirements.
Accordingly, the Co-Applicants believe
that there is no reason to wait for the
SEC to issue the regulations and
procedures for registration under
CRARA as it will not affect DBRS’s
status. The Co-Applicants believe that
although CRARA provides that any noaction letter previously granted by the
SEC would be revoked, DBRS’s NRSRO
status would be quickly reinstated as it
would meet all of the qualifications
under the new registration
requirements. The Co-Applicants assert
that DBRS also complies with the
substantive standards that the
Department has previously established
under the Underwriter Exemptions.
Second, CRARA also will affect S&P,
Moody’s and Fitch, which have already
been granted status as Rating Agencies
under the Underwriter Exemptions, in
exactly the same way as it would affect
DBRS if the Department were to grant
this application. All four rating agencies
would have their NRSRO status revoked
and replaced with a new form of
NRSRO registration. Accordingly, the
Department would still be required to
make its own determinations as to
whether it considers a rating agency
eligible to be covered under a particular
type of exemption.
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Yes. Corporate Default
Study shows performance 1977–2004.
Yes.
Yes.
Yes.
Yes.
Yes.
N/A.
Yes.
Yes.
13. The Co-Applicants believe that the
Department also intended to look to the
SEC’s proposed definition of NRSROs as
published in Part 240 of its General
Rules and Regulations under the
Exchange Act for guidance in
determining who should qualify as a
‘‘Rating Agency’’ for purposes of the
broad exemptive relief that has been
previously granted by the Department.
Prior to the enactment of CRARA, the
Department had indicated that it would
consider DBRS’ status as a Rating
Agency under the Underwriter
Exemptions based on the criteria set
forth in the SEC’s proposed rule
regarding the definition of an NRSRO
published in the Federal Register on
April 25, 2005 (70 FR 21306). In
proposing the new definition, the SEC
indicated that it believes that the five
rating agencies to which it has already
issued NRSRO no-action letters,
including DBRS, would meet the
proposed definition. The Co-Applicants
assert that DBRS would meet the
proposed definition of an NRSRO as set
forth in the SEC’s proposed rule that the
entity: (a) Issues publicly available
credit ratings that are current
assessments of the credit worthiness of
obligors with respect to specific
securities or money market instruments;
(b) is generally accepted in the financial
markets as an issuer of credible and
reliable ratings, including ratings for a
particular industry or geographic
segment by the predominant users of
securities ratings; and (c) uses
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systematic procedures designed to
ensure credible and reliable ratings,
manage potential conflicts of interest
and prevent the misuse of nonpublic
information, and has sufficient financial
resources to ensure compliance with
those procedures.
The Co-Applicants submitted the
following review of the standards the
SEC discussed in its proposal to
demonstrate DBRS’ status as an NRSRO
prior to CRARA.
a. Publicly Available Credit Ratings:
DBRS makes its credit ratings available
on its Web site at https://www.dbrs.com.
The basic rationale behind the ratings is
also available to the public through
press releases. Both types of information
are available at no charge.
b. Issue-Specific Credit Opinions:
DBRS rates specific securities, as well as
issuers.
c. Current Credit Opinions: DBRS
issues ratings that represent current
assessments of the securities ratings, as
it has procedures in place to have at
least two analysts be familiar with, and
responsible for, all current and recent
events relating to an issuer after DBRS
issues its initial rating of the securities.
A rating is fully reviewed and a meeting
arranged with each sponsor’s 11 senior
management on at least an annual basis.
Follow up meetings occur where there
have been material changes to the
sponsor associated with the issuer or
amendments to the initial program
parameters and/or the program
structure. In addition, if events occur
that materially affect the credit
performance of the issuer, a rating will
be changed on a more frequent basis. A
rating may also be placed ‘‘Under
Review’’ if a significant event which
impacts credit quality occurs and DBRS
is unable to provide an objective
forward looking opinion. In order to
maintain the currency and accuracy of
structured debt ratings, DBRS has
several surveillance departments
located in offices both in the United
States and Canada. The analysts
working in these departments are
responsible for the collection, entry,
analysis, and reporting related to the
monitoring of structured finance
transactions. Analysts are expected to
analyze the data being reported by
issuers and sponsors, identify
transactions that require remediation or
additional follow-up, and work with
11 The Co-Applicants note that the term
‘‘sponsor’’ is used in their Application in the same
way as the term ‘‘sponsor’’ is defined in the
Underwriter Exemptions under Section III.D.
‘‘Sponsor’’ may also be deemed to refer to an
originator of loans, if deemed necessary and/or
appropriate by DBRS for its ratings analyses with
respect to securities issued by a specific issuer.
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other analysts to determine the most
appropriate course of action.
d. General Acceptance in the
Financial Markets: DBRS credibility and
reasonable reliance of the marketplace
have already been established by the
SEC’s grant of DBRS Limited’s February
24, 2003 no-action letter, as this is the
most important criterion cited by the
SEC in such a grant.
e. Limited Coverage NRSROs: DBRS
Limited received a no-action letter with
respect to its ability to rate all securities
and issuers with no limitations. The CoApplicants believe this letter also
applies to DBRS, Inc. as discussed
above.
f. Analyst Experience and Training:
DBRS requires that its analysts have the
requisite experience and training to rate
issuers and securities competently. The
SEC in previously making this
determination for its no-action letter,
mentioned that generally, all of DBRS’
analysts have degrees in business
administration or accounting and many
have professional designations such as
MBAs, JDs and CFAs.
g. Number of Ratings per Analyst:
DBRS maintains reasonable workloads
for its analysts so that their analytical
abilities to rate securities remain high,
while not overloading them so that their
work suffers in quality. The statistics of
the number of ABS/RMBS/CMBS
transactions and the number of
securitization analysts have been given
herein. In general, DBRS analysts work
within groups, with each group
containing approximately two to six
analysts who cover issuers from
industries that are as related as possible.
Each issuer is normally covered directly
by two analysts, who work together on
the rating, arrange for and attend
meetings with the sponsor’s senior
management, and make a
recommendation with regard to the
rating action for the entity. The
‘‘primary analyst’’ is responsible for
preparing and for conducting the
interview with the sponsor’s
management, for writing the initial draft
rating report, and for making the
presentation to the rating committee.
The ‘‘secondary’’ or backup analyst is
responsible for supporting the primary
analyst with these duties. Other analysts
from the group can be available to
provide additional support prior to the
rating committee recommendations. The
group head will review the report prior
to the rating committee. Thus, there are
generally at least two analysts that are
familiar with, and responsible for, all
current and recent events for that issuer.
Since each issuer and sponsor is under
continuous surveillance, all ratings are
current.
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h. Information Sources Used in the
Ratings Process: DBRS has procedures
in place to verify financial information
it receives from any given sponsor with
respect to itself and the issuer. In many
cases, DBRS will also require third party
reports on the sponsor and with respect
to the issuer as well as comparisons that
have been done for comparable sponsors
and issuers. All opinions expressed at
the sponsor’s senior management level
during meetings are scrutinized to deal
with any inherent biases that may have
affected sponsor’s perceptions of their
relative strengths and weaknesses in
absolute terms or in comparison to their
competition. For both initial ratings and
subsequent maintenance of such ratings,
DBRS obtains a wide variety of
information from third party sources.
Public documents include regulatory
filings, newspaper subscriptions,
electronic news from services such as
Reuters and Bloomberg, equity research
from investment banks, and a wide
variety of industry, sponsor and issuer
specific news from the internet. DBRS
also subscribes to publications such as
Forbes, the Wall Street Journal, the
Financial Post, Value Line, Business
Week and the Economist. Most groups
at DBRS have additional subscriptions
related to their own specific area of
interest. The general market intelligence
that each analyst gains from
conferences, DBRS sponsored seminars
and luncheons, industry contacts, other
independent reading and speeches are
additional sources of information that
assist in DBRS’s analysis.
i. Contacts: As discussed above, DBRS
meets with senior management of the
sponsors related to the issuers of
securities it rates.
j. Organizational Structure: DBRS
Limited, DBRS, Inc. and DBRS (Europe)
Limited are not affiliated with any other
organizations or engaged in any other
businesses that could create conflicts of
interest or cause the misuse of
nonpublic information.
k. Conflicts of Interest: (i) Reliance on
Issuer Fees—DBRS does not have any
one sponsor accounting for a
meaningful percentage of its overall
revenues, so no one sponsor can exert
untoward pressure on DBRS’s rating
activities. (ii) Internal Policies—DBRS
encourages analysts to strive for good
long-term relationships with its sponsor
clients, while at the same time being
mindful of maintaining objectivity. For
example, when dealing with sponsors,
DBRS expects analysts to be familiar
with the CFA Institute Standards of
Practice Handbook (the Handbook),
which sets forth rules of ethics and
professional responsibility for certified
financial analysts, and to comply with
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its Code of Ethics, regardless of analysts’
CFA status. As mandated by the Code of
Ethics, analysts are warned to always be
conscious about accepting gifts from a
sponsor that could be considered
significant enough to impair objectivity.
Analysts are also prohibited from
soliciting money, gifts, cash or favors
from anyone with whom DBRS does
business. As stated above, DBRS has
adopted and adheres to the IOSCO Code
of Conduct and has published a DBRS
Code of Conduct that summarizes how
its extensive range of policies,
procedures and internal controls meet
the IOSCO Code of Conduct. (iii)
Consulting or Advisory Fees from
Issuers—DBRS does not engage in a
separate consulting or advisory for fee
services business. (iv) Preferential
Access to Information—DBRS does not
allow subscribers to be given access to
potential DBRS rating actions before
they become public or to any nonpublic
information. (v) Proprietary
Associations with Rated Issuers: DBRS
does not allow any employee, analyst or
consultant to invest in any company or
subsidiary that DBRS rates or
benchmarks except for ‘‘grandfathered
securities.’’ 12 DBRS also requires
employees, analysts and consultants to
report their investment activities to the
Compliance Department each calendar
quarter (i) by completing a signed
transaction report or forwarding copies
of brokerage statements if they have
‘‘reportable securities transactions;’’ (ii)
by completing a signed statement
indicating that they have reportable
securities but did not engage in any
‘‘reportable securities transactions;’’ (iii)
by email if they hold only ‘‘excluded
securities;’’ and (iv) by email if they
hold no investments. Excluded
securities are mutual funds, GIC’s, CD’s,
etc.; reportable securities include all
securities that are not specifically
excluded.
l. Misuse of Information: DBRS
prohibits employees from discussing
nonpublic information with anyone
other than the sponsor being rated or
other DBRS employees. In addition,
DBRS staff and consultants must
annually review and sign an ‘‘Annual
Statement of Understanding’’
concerning DBRS’s Code of Ethics
which among other areas contains
12 ‘‘Grandfathered securities’’ are securities of
companies that DBRS rates or benchmarks but that
a staff member already owns at the time they
become newly employed by DBRS and those
securities that a staff member held prior to DBRS
undertaking the company as a rated or
benchmarked entity. Grandfathered securities must
not be sold unless and until written permission is
obtained from the Chief Compliance Officer.
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sections on confidentiality and
nonpublic information.
m. Financial Resources: DBRS has
sufficient financial resources to
maintain appropriate staffing levels to
continuously monitor the sponsors and
the issuers whose securities it rates. As
mentioned above, it believes that
conflicts of interests with sponsors and
subscribers are minimized as none alone
provide a significant source of business
for it.
n. Standardized Rating Symbols:
DBRS uses the same generic substantive
rating categories as the other four
existing NRSROs and the SEC is not
proposing to change the ‘‘sub-symbols’’
(i.e., ‘‘plus’’ or ‘‘minus’’ versus ‘‘high’’
or ‘‘low’’).
o. Statistical Models: Statistical
models are only one of the methods
used by DBRS to rate issuers or
securities.
14. The Plans affected by the
requested amendment are those Plans
that will participate in a trust
established under a pooling and
servicing agreement. One or more Plans
may invest in the securities to be issued
with respect to a given issuer. Every
Plan which intends to invest in an
issuer will be able to review the form of
the pooling and servicing agreement
prior to acquiring a security. Each Plan
will be an ‘‘accredited investor’’ as
defined in Rule 501(a)(1) of Regulation
D under the Securities Act of 1933, as
amended. The proposed amendment
involves a class of prospective
transactions with Plans. In its capacity
as a rating agency, DBRS has no Plan
clients or potential Plan clients.13
Therefore, the Co-Applicants request
that the publication of this proposed
exemption in the Federal Register serve
as the Notice to Interested Persons for
purposes of this request.
15. The Co-Applicants request that
the relief, if granted, be made retroactive
to the date that they originally filed
their request on April 5, 2006. DBRS
had originally been prepared to file its
application prior to April 5th; however,
the SEC issued its proposed rules
defining an NRSRO and this caused a
delay in filing the application. The
application was further delayed by the
submission of additional information in
response to the enactment of CRARA on
September 29, 2006. Retroactive relief is
requested to cover those transactions
that have occurred or will occur over
the next few months where DBRS was
or is the only rating agency that gave or
will give an investment-grade rating to
certificates. If the relief is granted
13 Although not relevant to this application, some
Plans subscribe to DBRS’s subscription service.
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retroactively, Plans would be able to
purchase certificates in the secondary
market relying upon the Underwriter
Exemptions once exemptive relief is
granted, even if the transactions
originally closed or will close prior to
the date the final exemption, if granted
by the Department, is published in the
Federal Register.
General Information
The attention of interested persons is
directed to the following:
1. The fact that a transaction is the
subject of an exemption under section
408(a) of the Act and section 4975(c)(2)
of the Code does not relieve a fiduciary
or other party in interest or disqualified
person from certain other provisions of
the Act and the Code, including any
prohibited transaction provisions to
which the exemption does not apply
and the general fiduciary responsibility
provisions of section 404 of the Act,
which require, among other things, a
fiduciary to discharge his or her duties
respecting the plan solely in the interest
of the participants and beneficiaries of
the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of
the Act; nor does it affect the
requirements of section 401(a) of the
Code that the plan operate for the
exclusive benefit of the employees of
the employer maintaining the plan and
their beneficiaries;
2. Before an exemption can be granted
under section 408(a) of the Act and
section 4975(c)(2) of the Code, the
Department must find that the
exemption is administratively feasible,
in the interest of the plans and of their
participants and beneficiaries and
protective of the rights of participants
and beneficiaries of the plans; and
3. The proposed amendment, if
granted, will be supplemental to, and
not in derogation of, any other
provisions of the Act and/or the Code,
including statutory or administrative
exemptions and transitional rules.
Furthermore, the fact that a transaction
is subject to an administrative or
statutory exemption is not dispositive of
whether the transaction is in fact a
prohibited transaction.
Written Comments and Hearing
Requests
All interested persons are invited to
submit written comments or requests for
a hearing on the pending amendment to
the address above, within the time
frame set forth above, after the
publication of this proposed
amendment in the Federal Register. All
comments will be made a part of the
record. Comments received will be
available for public inspection with the
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Application at the address set forth
above.
Proposed Exemption
Based on the facts and representations
set forth in the application, under the
authority of section 408(a) of the Act
and section 4975(c)(2) of the Code and
in accordance with the procedures set
forth in 29 CFR part 2570, subpart B (55
FR 32836, August 10, 1990), the
Department proposes to modify the
following individual Prohibited
Transaction Exemptions (PTEs), as set
forth below: PTE 89–88, 54 FR 42582
(October 17, 1989); PTE 89–89, 54 FR
42569 (October 17, 1989); PTE 89–90, 54
FR 42597 (October 17, 1989); PTE 90–
22, 55 FR 20542 (May 17, 1990); PTE
90–24, 55 FR 20548 (May 17, 1990); PTE
90–28, 55 FR 21456 (May 24, 1990); PTE
90–29, 55 FR 21459 (May 24, 1990); PTE
90–30, 55 FR 21461 (May 24, 1990); PTE
90–32, 55 FR 23147 (June 6, 1990); PTE
90–36, 55 FR 25903 (June 25, 1990); PTE
90–39, 55 FR 27713 (July 5, 1990); PTE
90–59, 55 FR 36724 (September 6,
1990); PTE 90–83, 55 FR 50250
(December 5, 1990); PTE 90–84, 55 FR
50252 (December 5, 1990); PTE 90–88,
55 FR 52899 (December 24, 1990); PTE
91–14, 55 FR 48178 (February 22, 1991);
PTE 91–22, 56 FR 03277 (April 18,
1991); PTE 91–23, 56 FR 15936 (April
18, 1991); PTE 91–30, 56 FR 22452 (May
15, 1991); PTE 91–62, 56 FR 51406
(October 11, 1991); PTE 93–31, 58 FR
28620 (May 5, 1993); PTE 93–32, 58 FR
28623 (May 14, 1993); PTE 94–29, 59 FR
14675 (March 29, 1994); PTE 94–64, 59
FR 42312 (August 17, 1994); PTE 94–70,
59 FR 50014 (September 30, 1994); PTE
94–73, 59 FR 51213 (October 7, 1994);
PTE 94–84, 59 FR 65400 (December 19,
1994); PTE 95–26, 60 FR 17586 (April
6, 1995); PTE 95–59, 60 FR 35938 (July
12, 1995); PTE 95–89, 60 FR 49011
(September 21, 1995); PTE 96–22, 61 FR
14828 (April 3, 1996); PTE 96–84, 61 FR
58234 (November 13, 1996); PTE 96–92,
61 FR 66334 (December 17, 1996); PTE
96–94, 61 FR 68787 (December 30,
1996); PTE 97–05, 62 FR 1926 (January
14, 1997); PTE 97–28, 62 FR 28515 (May
23, 1997); PTE 98–08, 63 FR 8498
(February 19, 1998); PTE 99–11, 64 FR
11046 (March 8, 1999); PTE 2000–19, 65
FR 25950 (May 4, 2000); PTE 2000–33,
65 FR 37171 (June 13, 2000); PTE 2000–
41, 65 FR 51039 (August 22, 2000); PTE
2000–55, 65 FR 37171 (November 13,
2000); PTE 2002–19, 67 FR 14979
(March 28, 2002); PTE 2003–31, 68 FR
59202 (October 14, 2003); and PTE
2006–07, 71 FR 32134 (June 2, 2006),
each as subsequently amended by PTE
97–34, 62 FR 39021 (July 21, 1997) and
PTE 2000–58, 65 FR 67765 (November
13, 2000) and for certain of the
VerDate Aug<31>2005
17:44 Jan 23, 2007
Jkt 211001
exemptions, amended by PTE 2002–41,
67 FR 54487 (August 22, 2002).
In addition, the Department notes that
it is also proposing individual
exemptive relief for: Deutsche Bank
A.G., New York Branch and Deutsche
Morgan Grenfell/C.J. Lawrence Inc.,
Final Authorization Number (FAN) 97–
03E (December 9, 1996); Credit
Lyonnais Securities (USA) Inc., FAN
97–21E (September 10, 1997); ABN
AMRO Inc., FAN 98–08E (April 27,
1998); Ironwood Capital Partners Ltd.,
FAN 99–31E (December 20, 1999)
(supersedes FAN 97–02E (November 25,
1996)); William J. Mayer Securities LLC,
FAN 01–25E (October 15, 2001);
Raymond James & Associates Inc. &
Raymond James Financial Inc., FAN 03–
07E ( June 14, 2003); WAMU Capital
Corporation, FAN 03–14E (August 24,
2003); and Terwin Capital LLC, FAN
04–16E (August 18, 2004); which
received the approval of the Department
to engage in transactions substantially
similar to the transactions described in
the Underwriter Exemptions pursuant to
PTE 96–62, 61 FR 39988 (July 31, 1996).
The definition of ‘‘Rating Agency’’
under section III.X. of the Underwriter
Exemptions is amended to read:
‘‘Rating Agency’’ means Standard &
Poor’s Ratings Services, a division of
The McGraw-Hill Companies, Inc.;
Moody’s Investors Service, Inc.;
FitchRatings, Inc.; Dominion Bond
Rating Service Limited, or Dominion
Bond Rating Service, Inc.; or any
successors thereto.
If granted, the amendment would be
effective for transactions occurring on or
after April 5, 2006.
The availability of this amendment, if
granted, is subject to the express
condition that the material facts and
representations contained in the
Application are true and complete and
accurately describe all material terms of
the transactions. In the case of
continuing transactions, if any of the
material facts or representations
described in the Application change, the
amendment will cease to apply as of the
date of such change. In the event of any
such change, an application for a new
amendment must be made to the
Department.
Signed at Washington, DC, this 17th day of
January, 2007.
Ivan L. Strasfeld,
Director of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. E7–969 Filed 1–23–07; 8:45 am]
BILLING CODE 4510–29–P
PO 00000
Frm 00053
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Sfmt 4703
3159
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
[Exemption Application No. D–11183]
Prohibited Transaction Exemption
2007–01; Grant of Individual
Exemptions Involving; The Plumbers
and Pipefitters National Pension Fund
(the Fund)
Employee Benefits Security
Administration, Labor.
ACTION: Grant of Individual Exemptions.
AGENCY:
SUMMARY: This document contains
exemptions issued by the Department of
Labor (the Department) from certain of
the prohibited transaction restrictions of
the Employee Retirement Income
Security Act of 1974 (ERISA or the Act)
and/or the Internal Revenue Code of
1986 (the Code).
A notice was published in the Federal
Register of the pendency before the
Department of a proposal to grant such
exemption. The notice set forth a
summary of facts and representations
contained in the application for
exemption and referred interested
persons to the application for a
complete statement of the facts and
representations. The application has
been available for public inspection at
the Department in Washington, DC. The
notice also invited interested persons to
submit comments on the requested
exemption to the Department. In
addition the notice stated that any
interested person might submit a
written request that a public hearing be
held (where appropriate). The applicant
has represented that it has complied
with the requirements of the notification
to interested persons. No requests for a
hearing were received by the
Department. Public comments were
received by the Department as described
in the granted exemption.
The notice of proposed exemption
was issued and the exemption is being
granted solely by the Department
because, effective December 31, 1978,
section 102 of Reorganization Plan No.
4 of 1978, 5 U.S.C. App. 1 (1996),
transferred the authority of the Secretary
of the Treasury to issue exemptions of
the type proposed to the Secretary of
Labor.
Statutory Findings
In accordance with section 408(a) of
the Act and/or section 4975(c)(2) of the
Code and the procedures set forth in 29
CFR part 2570, subpart B (55 FR 32836,
32847, August 10, 1990) and based upon
the entire record, the Department makes
the following findings:
E:\FR\FM\24JAN1.SGM
24JAN1
]]>Agencies
[Federal Register Volume 72, Number 15 (Wednesday, January 24, 2007)]
[Notices]
[Pages 3152-3159]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-969]
[[Page 3152]]
=======================================================================
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
Notice of a Proposed Amendment to Prohibited Transaction
Exemption (PTE) 2000-58, 65 FR 67765 (November 13, 2000) and PTE 2002-
41, 67 FR 54487 (August 22, 2002) Involving Bear, Stearns & Co. Inc.,
Prudential Securities Incorporated, et al. to Add Dominion Bond Rating
Service Limited and Dominion Bond Rating Service, Inc. to the
Definition of ``Rating Agency'' (D-11370)
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Notice of a Proposed Amendment to the Underwriter
Exemptions.\1\
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SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed amendment to the
Underwriter Exemptions. The Underwriter Exemptions are individual
exemptions that provide relief for the origination and operation of
certain asset pool investment trusts and the acquisition, holding and
disposition by employee benefit plans (Plans) of certain asset-backed
pass-through certificates representing undivided interests in those
investment trusts. The proposed amendment, if granted, would expand the
definition of ``Rating Agency'' in section III. X of the Underwriter
Exemptions to include Dominion Bond Rating Service Limited (DBRS
Limited) and Dominion Bond Rating Service, Inc. (DBRS, Inc.). The
proposed amendment, if granted, would affect the participants and
beneficiaries of the Plans participating in such transactions and the
fiduciaries with respect to such plans.
---------------------------------------------------------------------------
\1\ The term ``Underwriter Exemptions'' refers to the following
PTEs: PTE 89-88, 54 FR 42582 (October 17, 1989); PTE 89-89, 54 FR
42569 (October 17, 1989); PTE 89-90, 54 FR 42597 (October 17, 1989);
PTE 90-22, 55 FR 20542 (May 17, 1990); PTE 90-23, 55 FR 20545 (May
17, 1990); PTE 90-24, 55 FR 20548 (May 17, 1990); PTE 90-28, 55 FR
21456 (May 24, 1990); PTE 90-29, 55 FR 21459 (May 24, 1990); PTE 90-
30, 55 FR 21461 (May 24, 1990); PTE 90-31, 55 FR 23144 (June 6,
1990); PTE 90-32, 55 FR 23147 (June 6, 1990); PTE 90-33, 55 FR 23151
(June 6, 1990); PTE 90-36, 55 FR 25903 (June 25, 1990); PTE 90-39,
55 FR 27713 (July 5, 1990); PTE 90-59, 55 FR 36724 (September 6,
1990); PTE 90-83, 55 FR 50250 (December 5, 1990); PTE 90-84, 55 FR
50252 (December 5, 1990); PTE 90-88, 55 FR 52899 (December 24,
1990); PTE 91-14, 55 FR 48178 (February 22, 1991); PTE 91-22, 56 FR
03277 (April 18, 1991); PTE 91-23, 56 FR 15936 (April 18, 1991); PTE
91-30, 56 FR 22452 (May 15, 1991); PTE 91-62, 56 FR 51406 (October
11, 1991); PTE 93-31, 58 FR 28620 (May 5, 1993); PTE 93-32, 58 FR
28623 (May 14, 1993); PTE 94-29, 59 FR 14675 (March 29, 1994); PTE
94-64, 59 FR 42312 (August 17, 1994); PTE 94-70, 59 FR 50014
(September 30, 1994); PTE 94-73, 59 FR 51213 (October 7, 1994); PTE
94-84, 59 FR 65400 (December 19, 1994); PTE 95-26, 60 FR 17586
(April 6, 1995); PTE 95-59, 60 FR 35938 (July 12, 1995); PTE 95-89,
60 FR 49011 (September 21, 1995); PTE 96-22, 61 FR 14828 (April 3,
1996); PTE 96-84, 61 FR 58234 (November 13, 1996); PTE 96-92, 61 FR
66334 (December 17, 1996); PTE 96-94, 61 FR 68787 (December 30,
1996); PTE 97-05, 62 FR 1926 (January 14, 1997); PTE 97-28, 62 FR
28515 (May 23, 1997); PTE 97-34, 62 FR 39021 (July 21, 1997); PTE
98-08, 63 FR 8498 (February 19, 1998); PTE 99-11, 64 FR 11046 (March
8, 1999); PTE 2000-19, 65 FR 25950 (May 4, 2000); PTE 2000-33, 65 FR
37171 (June 13, 2000); PTE 2000-41, 65 FR 51039 (August 22, 2000);
PTE 2000-55, 65 FR 37171 (November 13, 2000); PTE 2002-19, 67 FR
14979 (March 28, 2002); PTE 2003-31, 68 FR 59202 (October 14, 2003);
and PTE 2006-07, 71 FR 32134 (June 2, 2006), each as subsequently
amended by PTE 97-34, 62 FR 39021 (July 21, 1997) and PTE 2000-58,
65 FR 67765 (November 13, 2000) and for certain of the exemptions,
amended by PTE 2002-41, 67 FR 54487 (August 22, 2002).
In addition, the Department notes that it is also proposing
individual amendments for: Deutsche Bank AG, New York Branch and
Deutsche Morgan Grenfell/C.J. Lawrence Inc., Final Authorization
Number (FAN) 97-03E (December 9, 1996); Credit Lyonnais Securities
(USA) Inc., FAN 97-21E (September 10, 1997); ABN AMRO Inc., FAN 98-
08E (April 27, 1998); Ironwood Capital Partners Ltd., FAN 99-31E
(December 20, 1999) (supersedes FAN 97-02E (November 25, 1996));
William J. Mayer Securities LLC, FAN 01-25E (October 15, 2001);
Raymond James & Associates Inc. & Raymond James Financial Inc., FAN
03-07E ( June 14, 2003); WAMU Capital Corporation, FAN 03-14E
(August 24, 2003); and Terwin Capital LLC, FAN 04-16E (August 18,
2004); which received the approval of the Department to engage in
transactions substantially similar to the transactions described in
the Underwriter Exemptions pursuant to PTE 96-62, 61 FR 39988 (July
31, 1996).
DATE: Written comments and requests for a hearing should be received by
---------------------------------------------------------------------------
the Department by February 23, 2007.
ADDRESSES: All written comments and requests for a public hearing
(preferably, three copies) should be sent to the Office of Exemption
Determinations, Employee Benefits Security Administration, Room N-5700,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210, (Attention: Exemption Application Number D-11370 ). Interested
persons are invited to submit comments and/or hearing requests to the
Department by the end of the scheduled comment period either by
facsimile to (202) 219-0204 or by electronic mail to
moffitt.betty@dol.gov. The application pertaining to the proposed
amendment (Application) and the comments received will be available for
public inspection in the Public Disclosure Room of the Employee
Benefits Security Administration, U.S. Department of Labor, Room N-
1513, 200 Constitution Avenue, NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Wendy M. McColough of the Department,
telephone (202) 693-8540. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed exemption to amend the Underwriter
Exemptions. The Underwriter Exemptions are a group of individual
exemptions that provide substantially identical relief for the
operation of certain asset-backed or mortgage-backed investment pools
and the acquisition and holding by Plans of certain securities
representing interests in those investment pools. These exemptions
provide relief from certain of the prohibited transaction restrictions
of sections 406(a), 406(b) and 407(a) of the Employee Retirement Income
Security Act of 1974, as amended (ERISA or the Act) and from the taxes
imposed by section 4975(a) and (b) of the Internal Revenue Code of
1986, as amended (the Code), by reason of certain provisions of section
4975(c)(1) of the Code. All of the Underwriter Exemptions were amended
by PTE 97-34, 62 FR 39021 (July 21, 1997) and PTE 2000-58, 65 FR 67765
(November 13, 2000) and certain of the Underwriter Exemptions were
amended by PTE 2002-41, 67 FR 54487 (August 22, 2002).
The Department is proposing this amendment to the Underwriter
Exemptions pursuant to section 408(a) of the Act and section 4975(c)(2)
of the Code, and in accordance with the procedures set forth in 29 CFR
part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).\2\ In
addition, the Department is proposing to provide the same individual
exemptive relief to: Deutsche Bank AG, New York Branch and Deutsche
Morgan Grenfell/C.J. Lawrence Inc., Final Authorization Number (FAN)
97-03E (December 9, 1996); Credit Lyonnais Securities (USA) Inc., FAN
97-21E (September 10, 1997); ABN AMRO Inc., FAN 98-08E (April 27,
1998); Ironwood Capital Partners Ltd., FAN 99-31E (December 20, 1999)
(supersedes FAN 97-02E (November 25, 1996)); William J. Mayer
Securities LLC, FAN 01-25E (October 15, 2001); Raymond James &
Associates Inc. & Raymond James Financial Inc., FAN 03-07E ( June 14,
2003); WAMU Capital Corporation, FAN 03-14E (August 24, 2003); and
Terwin Capital LLC, FAN 04-16E (August 18, 2004); which previously
received the approval of the Department to engage in transactions
substantially similar to the transactions
[[Page 3153]]
described in the Underwriter Exemptions pursuant to PTE 96-62, 61 FR
39988 (July 31, 1996).
---------------------------------------------------------------------------
\2\ Section 102 of Reorganization Plan No. 4 of 1978 (5 U.S.C.
App. 1 [1996]) generally transferred the authority of the Secretary
of the Treasury to issue exemptions under section 4975(c)(2) of the
Code to the Secretary of Labor.
---------------------------------------------------------------------------
1. The Underwriter Exemptions permit Plans to purchase certain
securities representing interests in asset-backed or mortgage-backed
investment pools. The securities generally take the form of
certificates issued by a trust (Trust). The Underwriter Exemptions
permit transactions involving a Trust (including the servicing,
management and operation of the Trust) and certificates evidencing
interests therein (including the sale, exchange or transfer of
certificates in the initial issuance of the certificates or in the
secondary market for such certificates). The securities acquired by a
Plan have been rated in one of the three highest rating categories (or
four in the case of Designated Transactions \3\) by a rating agency as
defined in the Underwriter Exemptions (Rating Agency). The Rating
Agency, in assigning a rating to such securities, takes into account
the fact that the Issuer \4\ may hold interest rate swaps or yield
supplement agreements with notional principal amounts or, in Designated
Transactions, securities may be issued by an Issuer holding residential
and home equity loans with LTV ratios in excess of 100%. Section III.X.
of the Underwriter Exemptions defines ``Rating Agency'' as Standard &
Poor's Rating Services, a division of The McGraw-Hill Companies, Inc.,
Moody's Investors Services, Inc., Fitch Inc., or any successors
thereto.
---------------------------------------------------------------------------
\3\ ``Designated Transaction'' means a securitization
transaction in which the assets of the Issuer (see below) consist of
secured consumer receivables, secured credit instruments or secured
obligations that bear interest or are purchased at a discount and
are: (i) Motor vehicle, home equity and/or manufactured housing
consumer receivables; and/or (ii) motor vehicle credit instruments
in transactions by or between business entities; and/or (iii)
single-family residential, multi-family residential, home equity,
manufactured housing and/or commercial mortgage obligations that are
secured by single-family residential, multi-family residential,
commercial real property or leasehold interests therein.
\4\ ``Issuer'' means an investment pool, the corpus or assets of
which are held in trust (including a grantor or owner Trust) or
whose assets are held by a partnership, special purpose corporation
or limited liability company (which Issuer may be a Real Estate
Mortgage Investment Conduit (REMIC) or a Financial Asset
Securitization Investment Trust (FASIT) within the meaning of
section 860D(a) or section 860L, respectively, of the Code.
---------------------------------------------------------------------------
2. Section II of the original Underwriter Exemptions, PTE 89-88, 54
FR 42582 (October 17, 1989); PTE 89-89, 54 FR 42569 (October 17, 1989);
and PTE 89-90, 54 FR 42597 (October 17, 1989), sets forth the general
conditions which must be met in order for an investing Plan to avail
itself of the relief provided by one of the exemptions. Section II.A(3)
requires that any certificate acquired by a plan in reliance on the
exemption must have received a rating at the time of acquisition that
is in one of the three highest categories from either Standard & Poor's
Corporation, Moody's Investors Services, Inc. or Duff & Phelps. The
Department proposed an amendment to this condition by notice at 55 FR
25914 (June 25, 1990) in response to a request from the three
individual exemption applicants that Fitch Investors Service, Inc.
(Fitch Inc.) be added to the rating agencies described in section
II.A.(3) of PTE 89-88, PTE 89-89, and PTE 89-90.\5\
---------------------------------------------------------------------------
\5\ Since the granting of these three exemptions on October 17,
1989, the Department had granted several other Underwriter
Exemptions that included Fitch Inc. as an acceptable rating agency.
---------------------------------------------------------------------------
To support this request, Fitch Inc. submitted letters to the
Department which provided information on Fitch Inc's rating programs in
general and its experience in rating asset backed securities in
particular. Based on the information provided by Fitch Inc., the
requests submitted on behalf of the applicants and the Department's
previous consideration of Fitch Inc. in conjunction with several other
Underwriter Exemptions, the Department amended PTE 89-88, PTE 89-89,
and PTE 89-90 by notice at 55 FR 48939 (November 23, 1990) to include
Fitch Inc. as an acceptable rating agency for the rating of
certificates described in the exemptions.\6\
---------------------------------------------------------------------------
\6\ The final paragraph of section III.B of these exemptions was
also amended to include Fitch Inc. as an acceptable rating agency.
---------------------------------------------------------------------------
3. The proposed amendment was requested by Application, dated April
5, 2006, on behalf of the Securities Industry and Financial Markets
Association (SIFMA) \7\, the American Securitization Forum (ASF), DBRS
Limited and DBRS, Inc. (collectively, the Co-Applicants). The Co-
Applicants request that the Department amend the Underwriter Exemptions
to add DBRS Limited and DBRS, Inc. to the group of entities included in
the definition of ``Rating Agency'' in section III.X. of the
Underwriter Exemptions. The Co-Applicants provide that DBRS Limited was
recognized as a nationally recognized statistical rating organization
(NRSRO) for purposes of Rule 15c3-1 under the Securities Exchange Act
of 1934 by virtue of receiving a ``no action'' letter from the
Securities and Exchange Commission (SEC) on February 24, 2003. As the
Co-Applicants explain below, the Co-Applicants believe that DBRS, Inc.,
its affiliate, is also considered to be covered under this no action
letter. Accordingly, ``DBRS'' shall hereinafter refer both to DBRS
Limited and DBRS, Inc., except where the context indicates otherwise.
The Co-Applicants state that SIFMA and ASF agreed to make this request
on behalf of their member underwriters for the reasons outlined below
and because The Bond Market Association (TBMA), now merged into SIFMA,
was the original entity that requested the exemptive relief granted by
the Department pursuant to PTE 97-34, 62 FR 39021 (July 21, 1997), PTE
2000-58, 65 FR 67765 (Nov.13, 2000) and PTE 2002-41, 67 FR 54487
(August 22, 2002). ASF was formed in February 2002, as an adjunct forum
for TBMA to more specifically represent the interests of underwriters
and other organizations related to the securitization markets (although
ASF is part of the same legal entity as TBMA).
---------------------------------------------------------------------------
\7\ On November 15, 2006, the Co-Applicants informed the
Department that on October 31, 2006, The Bond Market Association and
the Securities Industry Association merged into a new entity, SIFMA.
SIFMA is a Delaware nonstock corporation that was incorporated in
June 2006 for purposes of the merger. Its members are approximately
650 securities firms, banks and asset managers. Its mission is to
promote policies and practices that expand and perfect markets,
foster the development of new products and services and create
efficiencies for member firms, while preserving and enhancing the
public's trust and confidence in the markets and the industry. The
Bond Market Association no longer exists, having merged into SIFMA.
The ASF is now a forum of SIFMA, and it is still a joint applicant.
---------------------------------------------------------------------------
4. The Co-Applicants represent that, if the requested amendment is
not granted, possible violations of the prohibited transaction
provisions of sections 406(a), 406(b) and 407(a) of ERISA (and the
corresponding provisions of sections 4975(c)(1)(A) through (F) of the
Code) resulting from: (a) The purchase and sale of securities by a Plan
to which any of the other parties is a party in interest; \8\ and (b)
the servicing, management and operation of an issuer may occur if DBRS
Limited or DBRS, Inc. ratings are used for such transactions. The Co-
Applicants believe that, if the requested amendment is not granted,
this would result in the loss of opportunities for an investing Plan to
achieve a current market return through investment in securities that
have received a rating from an NRSRO as high as or higher than that of
comparable instruments in which the Plan is clearly permitted to
invest. The Co-Applicants assert that it is in the interests of Plan
participants and beneficiaries that a Plan has the opportunity to
diversify its investment portfolio by purchasing securities rated
[[Page 3154]]
by a wide variety of rating agencies subject to a significant amount of
competition.
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\8\ The term ``party in interest'' also includes, where
applicable, a ``disqualified person'' within the meaning of section
4975(e)(2) of the Code.
---------------------------------------------------------------------------
5. The Co-Applicants believe that the proposed amendment would be
administratively feasible because the proposed requirements generally
mirror those deemed administratively feasible in the asset-backed and
mortgage-backed securities (ABS and MBS, respectively) exemptions
previously issued by the Department. The transactions may be audited
easily by a Plan fiduciary and all the records necessary to review
these transactions will be kept for six years. The Co-Applicants state
that no further action would be required by the Department. The Co-
Applicants consider that the requested amendment would be in the
interest of the Plans and its participants and beneficiaries because it
increases the number of available investment options, enhances
diversification and liquidity and promotes a greater ability to assess
credit risk and the rating process. The Co-Applicants state that the
amendment would be protective of the rights of the Plans since the sale
of the securities will be conducted under all of the safeguards
contained in the existing Underwriter Exemptions for the sale of asset
and mortgage-backed pass-through securities. Additionally, the Co-
Applicants believe that expanding the number of rating agencies with
experience in rating the type of obligations covered under the
Underwriter Exemptions would significantly benefit the Plans. The
number of NRSROs that had been included within the definition of Rating
Agency under the Underwriter Exemptions as of 1990 has been reduced
from four to three since Duff & Phelps Inc. (D & P) and Fitch Inc.
merged in 2000 and became FitchRatings, Inc. (Fitch). There may be
additional mergers in the future. The Co-Applicants believe that this
could make the number of Rating Agencies available to rate Underwriter
Exemption-eligible MBS and ABS even fewer; resulting in fewer and less
liquid securities available for Plans to purchase. The Co-Applicants
further note that, when the Department considered First Boston
Corporation's original application for its Underwriter Exemption in the
proposed exemption to PTE 89-90 at 53 FR 52851 (December 29, 1988),
First Boston requested that any certificate receiving a rating in the
three highest rating categories from any NRSRO receive exemptive
relief. According to the Applicants, while the Department recognized
that rating agencies other than Standard & Poor's Corporation
(currently, Standard & Poor's Rating Services, a division of The McGraw
Hill Companies, Inc. (S & P)), Moody's Investor Services, Inc.
(Moody's) and D&P qualified as NRSROs, it decided that only those three
should qualify as Rating Agencies under the Underwriter Exemptions,
based on their respective experience in rating certain types of MBS/
ABS.\9\ Fitch Inc. was later specifically named as an additional Rating
Agency for purposes of the Underwriter Exemptions beginning in 1989.
The Co-Applicants believe that if the Department were to add DBRS
Limited and DBRS, Inc. to the group of Rating Agencies permitted to
rate Underwriter Exemption-eligible securities, it would benefit Plan
investors in several ways, including: (a) Investors would have access
to additional information and additional opinions about the
creditworthiness of issuers and securities; (b) competition among
rating agencies would result in improved accuracy and timeliness of
ratings, thereby allowing investors to assess risk with greater
certainty; and (c) competition among rating agencies would encourage
different methods of analyzing credit risk.
---------------------------------------------------------------------------
\9\ 53 FR 52851 at p. 52857, footnote 7 (December 29, 1988).
There are currently five entities which were recognized by the SEC
through the no-action letter process as NRSROs: S&P, Moody's, Fitch,
DBRS and A.M. Best Company, Inc.
---------------------------------------------------------------------------
6. The Co-Applicants assert that DBRS has extensive experience in
rating every type of obligation that is eligible for exemptive relief
under the Underwriter Exemptions and listed under the definition of an
``Issuer'' in section III.B of the Underwriter Exemptions; and,
therefore, meets a major criterion for recognition as a Rating Agency
for purposes of the Underwriter Exemptions. In reviewing the
information submitted to the Department by S&P and Fitch Inc. at that
time, the Department was given information regarding how these agencies
rated securities and the credentials of the senior management of their
securitization groups. In this regard, DBRS has reviewed the
description of the rating process in both the D&P submission and the
proposed exemption for PTE 2000-58 and feels that its rating process is
comparable to these. The Co-Applicants submitted the biographies of
senior management for the DBRS Limited and DBRS, Inc. Structured
Finance Departments to the Department with their Application.
7. In order for the SEC to recognize DBRS Limited as an NRSRO in
2003, DBRS Limited had to satisfy certain established criteria. The
single most important criterion was that DBRS Limited be widely
accepted in the U.S. as an issuer of credible and reliable ratings by
the predominant users of securities ratings. In addition, the following
aspects of DBRS Limited's operational capability and reliability were
reviewed: (i) Its organizational structure, (ii) its financial
resources, to determine, among other things, whether it is able to
operate independently of economic pressures or control from the
companies its rates, (iii) the size and experience and training of its
staff to determine if it is capable of thoroughly and competently
evaluating an issuer's credit, (iv) its independence from the entities
it rates, (v) its rating procedures to determine whether it has
systematic procedures designed to produce credible and accurate ratings
and (vi) whether it has internal procedures to prevent the misuse of
non-public information and whether those procedures are followed. On
April 5, 2006, the Co-Applicants provided the following update of the
statistics set forth in the SEC's no action letter dated February 24,
2003 regarding DBRS's business. DBRS now has a total staff of 175, 110
of which are analysts. Of those analysts, 51 rate securitization
transactions. The Co-Applicants also provided biographical information
about the senior management team for that latter group. As of the
application date, the principal amount of asset-backed securities
(ABS), residential mortgage-backed securities (RMBS) and commercial
mortgage-backed securities (CMBS) transactions that DBRS has rated and
that are currently outstanding are: Can. $128.3 billion of ABS for
Canadian issuers (representing 158 transactions); U.S. $192.1 billion
of RMBS and ABS for U.S. issuers (representing 207 transactions); and
U.S. $20.5 billion of CMBS for U.S. issuers (representing 14
transactions). DBRS's Structured Finance Department has also written
over 95 industry reports and 442 rating reports.
8. The Co-Applicants state that DBRS Limited is a Canadian rating
agency that has been in existence for almost 30 years, having been
incorporated in 1976 under the Ontario Business Corporations Act. DBRS
Limited was originally founded and owned by Walter Schroeder, who
remains its President. DBRS Limited operates primarily through its
Toronto office and DBRS Limited's U.S. affiliate, DBRS, Inc., which has
offices in New York and Chicago.\10\ On February 24, 2003 when the SEC
issued its no action letter
[[Page 3155]]
identifying DBRS Limited as an NRSRO, DBRS Limited conducted all of its
credit rating activities from its Toronto Ontario headquarters and
rated issuers and securities both in Canada and in the United States.
Subsequently, DBRS Limited decided to establish a physical presence in
the United States. The New York and Chicago offices were incorporated
as DBRS, Inc. on August 21, 2003. The U.S. operations were organized
for tax reasons as a separate Delaware affiliate corporation instead of
as a branch of the Canadian company. The Co-Applicants assert that,
although technically it is principally DBRS, Inc. that rates U.S.
issuers and securities and DBRS Limited that rates Canadian issuers and
securities, the ratings activities of Dominion Bond Rating Service
worldwide are conducted in a seamless fashion and both DBRS Limited and
DBRS, Inc. are considered to be covered by the SEC's NRSRO no-action
letter. The Co-Applicants add that DBRS, Inc. employs the same rating
process that DBRS Limited uses; its ratings are approved by the same
rating committees that approve DBRS Limited's ratings; its staff are
subject to the same code of conduct that applies to DBRS Limited's
staff; all ratings are ``DBRS'' ratings without attribution to one
corporate entity or the other, DBRS Limited stands behind the ratings
issued by DBRS, Inc. and the officers of DBRS Limited supervise the
ratings process conducted by DBRS, Inc. In this regard, the Co-
Applicants submitted a letter dated November 1, 2005 from Mari-Anne
Pisarri, Esq. of Pickard and Djinis, LLP, counsel to DBRS Limited to
Mr. Michael A. Macchiaroli, Associate Director, Division of Market
Regulation at the SEC discussing the NRSRO status of the ratings
activities of DBRS, Inc.
---------------------------------------------------------------------------
\10\ DBRS also recently opened offices in London, Paris and
Frankfurt through another affiliate, DBRS (Europe) Limited.
---------------------------------------------------------------------------
9. On September 29, 2006, the President signed into law S. 3850,
the Credit Rating Agency Reform Act of 2006 (CRARA). CRARA was
introduced as a bill to improve ratings quality for the protection of
investors and in the public interest by fostering accountability,
transparency, and competition in the credit rating agency industry. The
law will restructure the existing regulation of credit rating agencies
by the SEC. Under CRARA, a credit rating agency can obtain the NRSRO
designation through an application process unless the SEC determines
that the agency lacks adequate financial and managerial resources to
consistently produce credit ratings with integrity and to comply with
its stated methodologies and procedures (CRARA subsection 4(a)(2)(C)).
The Securities Exchange Act of 1934 is amended at section 3(a) and by
the addition of new section 15E. Registration of Nationally Recognized
Statistical Rating Organizations. Section 3(a) is amended by adding
certain new definitions relevant to this proposed amendment (CRARA
section 3):
(60) CREDIT RATING--The term `credit rating' means an assessment
of the creditworthiness of an obligor as an entity or with respect
to specific securities or money market instruments.
(61) CREDIT RATING AGENCY--The term `credit rating agency' means
any person--
(A) Engaged in the business of issuing credit ratings on the
Internet or through another readily accessible means, for free or
for a reasonable fee, but does not include a commercial credit
reporting company;
(B) Employing either a quantitative or qualitative model, or
both, to determine credit ratings; and
(C) Receiving fees from either issuers, investors, or other
market participants, or a combination thereof.
(62) NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION--The
term `nationally recognized statistical rating organization' means a
credit rating agency that--
(A) Has been in business as a credit rating agency for at least
the 3 consecutive years immediately preceding the date of its
application for registration under section 15E;
(B) Issues credit ratings certified by qualified institutional
buyers, in accordance with section 15E(a)(1)(B)(ix), with respect
to--
(i) Financial institutions, brokers, or dealers;
(ii) Insurance companies;
(iii) Corporate issuers;
(iv) Issuers of asset-backed securities (as that term is defined
in section 1101(c) of part 229 of title 17, Code of Federal
Regulations, as in effect on the date of enactment of this
paragraph);
(v) Issuers of government securities, municipal securities, or
securities issued by a foreign government; or
(vi) A combination of one or more categories of obligors
described in any of clauses (i) through (v); and
(C) Is registered under section 15E.
CRARA establishes a registration and oversight scheme for NRSROs
under the Securities Exchange Act of 1934 (Exchange Act). This regime
replaces the SEC's current no-action letter process for designating
NRSROs and removes NRSROs from the jurisdiction of the Investment
Advisers Act of 1940 (Advisers Act). The new regulatory regime takes
effect when the SEC promulgates the rules necessary to implement CRARA,
or in 270 days after CRARA's enactment date, whichever is sooner. Thus,
the new registration requirements will apply by June 26, 2007. However,
because the SEC has 90 days to consider an NRSRO application (or
longer, if the applicant consents), the first NRSRO registration may
not occur until the end of September 2007. Although the NRSRO no-action
letters will be void after the effective date of the new law, the 5
existing NRSROs will be allowed to function as NRSROs while the SEC
considers their applications.
10. The Co-Applicants represent that DBRS Limited and DBRS, Inc.
each: (a) Will qualify as a ``Nationally Recognized Statistical Rating
Organization'' within the meaning of new section 3(a)(62) of the
Exchange Act as amended by the legislation, as each will be in business
for at least three years prior to its applying for registration under
the new statutory procedures, (b) rate the specified types of
securities listed under such section, and (c) intend to register at the
first date DBRS is able to register under new section 15E of the
legislation and the applicable regulations and procedures to be
promulgated by the SEC. The Co-Applicants state that DBRS Limited and
DBRS, Inc. will each be able to supply the information and meet the
implied substantive criteria set forth in the legislation in new
section 15E(a)(1)(B) of the Exchange Act as demonstrated in the chart
below, provided by the Co-Applicants, that compares the requirements
for NRSRO registration under the legislation to existing requirements
and the Co-Applicants confirm that each rating agency would comply. The
Co-Applicants assert that the criteria for registration under the new
law are not substantively different from what DBRS and the other
current NRSROs already comply with. DBRS has also adopted and adheres
to the International Organization of Securities Commissions' (IOSCO)
Code of Conduct Fundamentals for Credit Rating Agencies issued in
December 2004 (IOSCO Code of Conduct). Additionally, the Co-Applicants
have provided the Department with copies of the DBRS Code of Conduct,
the Report of Compliance to the DBRS Code of Conduct and the DBRS
Corporate Default Study 1977-2005, which are pertinent to this
analysis.
------------------------------------------------------------------------
CRA Reform Act requirement Existing requirement DBRS complies?
------------------------------------------------------------------------
Under Exchange Act Sec. 15E
(a) (1)(B), NRSRO
applications must include:
[[Page 3156]]
(i) Applicant's credit IOSCO Code Sec. Sec. Yes. Corporate
rating performance 1.2, 3.8. Default Study
measurement statistics. shows
performance
1977-2004.
(ii) Procedures & Required as part of Yes.
methodologies Applicant NRSRO no-action
uses in determining letter designation
credit ratings. process; IOSCO Code,
Sec. Sec. 1.A,
3.2, 3.5, 3.10.
(iii) Policies and Advisers Act, Sec. Yes.
procedures to prevent the 204A IOSCO Code, Sec.
misuse of inside 3.B.
information.
(iv) The organizational Required as part of Yes.
structure of the NRSRO no-action
Applicant. letter designation
process; information
on organization
required on Form ADV;
IOSCO Code, Sec.
Sec. 2.5, 2.10,
2.11, 2.12.
(v) Whether or not Advisers Act Rule 204A- Yes.
Applicant has a code of 1 requires a Code of
ethics, and if not, why Ethics; IOSCO Code,
not. Sec. Sec. 1.C, 2,
4.1.
(vi) Any conflict of Advisers Act Rule 204A- Yes.
interest relating to the 1 requires advisers'
Applicant's issuance of codes of ethics to
credit ratings; Sec. address conflicts;
15E(h) also requires IOSCO Code, Sec.
NRSROs to maintain 2.B.
written policies and
procedures to address and
manage any conflicts of
interest.
(ix) Written Does not apply to N/A.
certifications from current NRSROs.
Qualified Institutional However, DBRS already
Buyers (QIBs) who use supplied this type of
Applicant's ratings. information to the
SEC to prove its
``national
recognition'' under
the no-action letter
designation process.
Exchange Act Sec. 15E(j) Advisers Act Rule Yes.
requires NRSROs to designate 206(4)-7 requires the
an individual responsible for appointment of a
administering its compliance Chief Compliance
policies and procedures. Officer; IOSCO Code
Sec. 1.15 requires
that a person be
specified as
responsible for
overseeing compliance
with applicable laws
and regulations.
Exchange Act Sec. 15E(i) Advisers Act Rule 204A- Yes.
directs the SEC to adopt 1; IOSCO Code Sec.
rules prohibiting unfair Sec. 1.C, 2.3, 2.4,
business practices by NRSROs. 2.5, 2.11, 2.12, 2.15.
------------------------------------------------------------------------
11. The Co-Applicants assert that under the new legislation, there
would be no period of time when DBRS would not maintain its status as
an NRSRO. They note that under new section 15E(l)(2)(A) of the Exchange
Act, a rating agency is entitled to rely on its no-action letter from
the SEC to be treated as an NRSRO and act as an NRSRO while the SEC is
considering its registration application pursuant to the new procedures
and thereafter on and after its application is approved. The no-action
letters that the SEC has issued to date to the five rating agencies
including DBRS will become void under section 15E(1)(2)(B) upon the
earlier of (i) 270 days following the date of enactment of the
legislation (September 29, 2006) or (ii) the date the regulations are
issued by the SEC in final form. This theoretically means that if the
SEC fails to issue the regulations on a timely basis, all five rating
agencies would lose their NRSRO status. However, if this were to occur,
it would also affect Moody's, Standard & Poor's, Fitch and A.M. Best
Company, Inc. in the same manner as DBRS, and this would have
disastrous results in the capital markets. Presumably this issue would
have to be addressed by an amendment to the legislation.
12. The Co-Applicants request that the Department grant DBRS Rating
Agency status under the Underwriter Exemptions at this time and that it
not wait until the SEC issues a final rule. Waiting until the SEC
issues a final rule could take a substantial period of time which can
only be disadvantageous for Plan investors. The Co-Applicants represent
that DBRS Limited and DBRS, Inc. are already fully recognized together
as an NRSRO and also meet the new proposed requirements. Accordingly,
the Co-Applicants believe that there is no reason to wait for the SEC
to issue the regulations and procedures for registration under CRARA as
it will not affect DBRS's status. The Co-Applicants believe that
although CRARA provides that any no-action letter previously granted by
the SEC would be revoked, DBRS's NRSRO status would be quickly
reinstated as it would meet all of the qualifications under the new
registration requirements. The Co-Applicants assert that DBRS also
complies with the substantive standards that the Department has
previously established under the Underwriter Exemptions. Second, CRARA
also will affect S&P, Moody's and Fitch, which have already been
granted status as Rating Agencies under the Underwriter Exemptions, in
exactly the same way as it would affect DBRS if the Department were to
grant this application. All four rating agencies would have their NRSRO
status revoked and replaced with a new form of NRSRO registration.
Accordingly, the Department would still be required to make its own
determinations as to whether it considers a rating agency eligible to
be covered under a particular type of exemption.
13. The Co-Applicants believe that the Department also intended to
look to the SEC's proposed definition of NRSROs as published in Part
240 of its General Rules and Regulations under the Exchange Act for
guidance in determining who should qualify as a ``Rating Agency'' for
purposes of the broad exemptive relief that has been previously granted
by the Department. Prior to the enactment of CRARA, the Department had
indicated that it would consider DBRS' status as a Rating Agency under
the Underwriter Exemptions based on the criteria set forth in the SEC's
proposed rule regarding the definition of an NRSRO published in the
Federal Register on April 25, 2005 (70 FR 21306). In proposing the new
definition, the SEC indicated that it believes that the five rating
agencies to which it has already issued NRSRO no-action letters,
including DBRS, would meet the proposed definition. The Co-Applicants
assert that DBRS would meet the proposed definition of an NRSRO as set
forth in the SEC's proposed rule that the entity: (a) Issues publicly
available credit ratings that are current assessments of the credit
worthiness of obligors with respect to specific securities or money
market instruments; (b) is generally accepted in the financial markets
as an issuer of credible and reliable ratings, including ratings for a
particular industry or geographic segment by the predominant users of
securities ratings; and (c) uses
[[Page 3157]]
systematic procedures designed to ensure credible and reliable ratings,
manage potential conflicts of interest and prevent the misuse of
nonpublic information, and has sufficient financial resources to ensure
compliance with those procedures.
The Co-Applicants submitted the following review of the standards
the SEC discussed in its proposal to demonstrate DBRS' status as an
NRSRO prior to CRARA.
a. Publicly Available Credit Ratings: DBRS makes its credit ratings
available on its Web site at https://www.dbrs.com. The basic rationale
behind the ratings is also available to the public through press
releases. Both types of information are available at no charge.
b. Issue-Specific Credit Opinions: DBRS rates specific securities,
as well as issuers.
c. Current Credit Opinions: DBRS issues ratings that represent
current assessments of the securities ratings, as it has procedures in
place to have at least two analysts be familiar with, and responsible
for, all current and recent events relating to an issuer after DBRS
issues its initial rating of the securities. A rating is fully reviewed
and a meeting arranged with each sponsor's \11\ senior management on at
least an annual basis. Follow up meetings occur where there have been
material changes to the sponsor associated with the issuer or
amendments to the initial program parameters and/or the program
structure. In addition, if events occur that materially affect the
credit performance of the issuer, a rating will be changed on a more
frequent basis. A rating may also be placed ``Under Review'' if a
significant event which impacts credit quality occurs and DBRS is
unable to provide an objective forward looking opinion. In order to
maintain the currency and accuracy of structured debt ratings, DBRS has
several surveillance departments located in offices both in the United
States and Canada. The analysts working in these departments are
responsible for the collection, entry, analysis, and reporting related
to the monitoring of structured finance transactions. Analysts are
expected to analyze the data being reported by issuers and sponsors,
identify transactions that require remediation or additional follow-up,
and work with other analysts to determine the most appropriate course
of action.
---------------------------------------------------------------------------
\11\ The Co-Applicants note that the term ``sponsor'' is used in
their Application in the same way as the term ``sponsor'' is defined
in the Underwriter Exemptions under Section III.D. ``Sponsor'' may
also be deemed to refer to an originator of loans, if deemed
necessary and/or appropriate by DBRS for its ratings analyses with
respect to securities issued by a specific issuer.
---------------------------------------------------------------------------
d. General Acceptance in the Financial Markets: DBRS credibility
and reasonable reliance of the marketplace have already been
established by the SEC's grant of DBRS Limited's February 24, 2003 no-
action letter, as this is the most important criterion cited by the SEC
in such a grant.
e. Limited Coverage NRSROs: DBRS Limited received a no-action
letter with respect to its ability to rate all securities and issuers
with no limitations. The Co-Applicants believe this letter also applies
to DBRS, Inc. as discussed above.
f. Analyst Experience and Training: DBRS requires that its analysts
have the requisite experience and training to rate issuers and
securities competently. The SEC in previously making this determination
for its no-action letter, mentioned that generally, all of DBRS'
analysts have degrees in business administration or accounting and many
have professional designations such as MBAs, JDs and CFAs.
g. Number of Ratings per Analyst: DBRS maintains reasonable
workloads for its analysts so that their analytical abilities to rate
securities remain high, while not overloading them so that their work
suffers in quality. The statistics of the number of ABS/RMBS/CMBS
transactions and the number of securitization analysts have been given
herein. In general, DBRS analysts work within groups, with each group
containing approximately two to six analysts who cover issuers from
industries that are as related as possible. Each issuer is normally
covered directly by two analysts, who work together on the rating,
arrange for and attend meetings with the sponsor's senior management,
and make a recommendation with regard to the rating action for the
entity. The ``primary analyst'' is responsible for preparing and for
conducting the interview with the sponsor's management, for writing the
initial draft rating report, and for making the presentation to the
rating committee. The ``secondary'' or backup analyst is responsible
for supporting the primary analyst with these duties. Other analysts
from the group can be available to provide additional support prior to
the rating committee recommendations. The group head will review the
report prior to the rating committee. Thus, there are generally at
least two analysts that are familiar with, and responsible for, all
current and recent events for that issuer. Since each issuer and
sponsor is under continuous surveillance, all ratings are current.
h. Information Sources Used in the Ratings Process: DBRS has
procedures in place to verify financial information it receives from
any given sponsor with respect to itself and the issuer. In many cases,
DBRS will also require third party reports on the sponsor and with
respect to the issuer as well as comparisons that have been done for
comparable sponsors and issuers. All opinions expressed at the
sponsor's senior management level during meetings are scrutinized to
deal with any inherent biases that may have affected sponsor's
perceptions of their relative strengths and weaknesses in absolute
terms or in comparison to their competition. For both initial ratings
and subsequent maintenance of such ratings, DBRS obtains a wide variety
of information from third party sources. Public documents include
regulatory filings, newspaper subscriptions, electronic news from
services such as Reuters and Bloomberg, equity research from investment
banks, and a wide variety of industry, sponsor and issuer specific news
from the internet. DBRS also subscribes to publications such as Forbes,
the Wall Street Journal, the Financial Post, Value Line, Business Week
and the Economist. Most groups at DBRS have additional subscriptions
related to their own specific area of interest. The general market
intelligence that each analyst gains from conferences, DBRS sponsored
seminars and luncheons, industry contacts, other independent reading
and speeches are additional sources of information that assist in
DBRS's analysis.
i. Contacts: As discussed above, DBRS meets with senior management
of the sponsors related to the issuers of securities it rates.
j. Organizational Structure: DBRS Limited, DBRS, Inc. and DBRS
(Europe) Limited are not affiliated with any other organizations or
engaged in any other businesses that could create conflicts of interest
or cause the misuse of nonpublic information.
k. Conflicts of Interest: (i) Reliance on Issuer Fees--DBRS does
not have any one sponsor accounting for a meaningful percentage of its
overall revenues, so no one sponsor can exert untoward pressure on
DBRS's rating activities. (ii) Internal Policies--DBRS encourages
analysts to strive for good long-term relationships with its sponsor
clients, while at the same time being mindful of maintaining
objectivity. For example, when dealing with sponsors, DBRS expects
analysts to be familiar with the CFA Institute Standards of Practice
Handbook (the Handbook), which sets forth rules of ethics and
professional responsibility for certified financial analysts, and to
comply with
[[Page 3158]]
its Code of Ethics, regardless of analysts' CFA status. As mandated by
the Code of Ethics, analysts are warned to always be conscious about
accepting gifts from a sponsor that could be considered significant
enough to impair objectivity. Analysts are also prohibited from
soliciting money, gifts, cash or favors from anyone with whom DBRS does
business. As stated above, DBRS has adopted and adheres to the IOSCO
Code of Conduct and has published a DBRS Code of Conduct that
summarizes how its extensive range of policies, procedures and internal
controls meet the IOSCO Code of Conduct. (iii) Consulting or Advisory
Fees from Issuers--DBRS does not engage in a separate consulting or
advisory for fee services business. (iv) Preferential Access to
Information--DBRS does not allow subscribers to be given access to
potential DBRS rating actions before they become public or to any
nonpublic information. (v) Proprietary Associations with Rated Issuers:
DBRS does not allow any employee, analyst or consultant to invest in
any company or subsidiary that DBRS rates or benchmarks except for
``grandfathered securities.'' \12\ DBRS also requires employees,
analysts and consultants to report their investment activities to the
Compliance Department each calendar quarter (i) by completing a signed
transaction report or forwarding copies of brokerage statements if they
have ``reportable securities transactions;'' (ii) by completing a
signed statement indicating that they have reportable securities but
did not engage in any ``reportable securities transactions;'' (iii) by
email if they hold only ``excluded securities;'' and (iv) by email if
they hold no investments. Excluded securities are mutual funds, GIC's,
CD's, etc.; reportable securities include all securities that are not
specifically excluded.
---------------------------------------------------------------------------
\12\ ``Grandfathered securities'' are securities of companies
that DBRS rates or benchmarks but that a staff member already owns
at the time they become newly employed by DBRS and those securities
that a staff member held prior to DBRS undertaking the company as a
rated or benchmarked entity. Grandfathered securities must not be
sold unless and until written permission is obtained from the Chief
Compliance Officer.
---------------------------------------------------------------------------
l. Misuse of Information: DBRS prohibits employees from discussing
nonpublic information with anyone other than the sponsor being rated or
other DBRS employees. In addition, DBRS staff and consultants must
annually review and sign an ``Annual Statement of Understanding''
concerning DBRS's Code of Ethics which among other areas contains
sections on confidentiality and nonpublic information.
m. Financial Resources: DBRS has sufficient financial resources to
maintain appropriate staffing levels to continuously monitor the
sponsors and the issuers whose securities it rates. As mentioned above,
it believes that conflicts of interests with sponsors and subscribers
are minimized as none alone provide a significant source of business
for it.
n. Standardized Rating Symbols: DBRS uses the same generic
substantive rating categories as the other four existing NRSROs and the
SEC is not proposing to change the ``sub-symbols'' (i.e., ``plus'' or
``minus'' versus ``high'' or ``low'').
o. Statistical Models: Statistical models are only one of the
methods used by DBRS to rate issuers or securities.
14. The Plans affected by the requested amendment are those Plans
that will participate in a trust established under a pooling and
servicing agreement. One or more Plans may invest in the securities to
be issued with respect to a given issuer. Every Plan which intends to
invest in an issuer will be able to review the form of the pooling and
servicing agreement prior to acquiring a security. Each Plan will be an
``accredited investor'' as defined in Rule 501(a)(1) of Regulation D
under the Securities Act of 1933, as amended. The proposed amendment
involves a class of prospective transactions with Plans. In its
capacity as a rating agency, DBRS has no Plan clients or potential Plan
clients.\13\ Therefore, the Co-Applicants request that the publication
of this proposed exemption in the Federal Register serve as the Notice
to Interested Persons for purposes of this request.
---------------------------------------------------------------------------
\13\ Although not relevant to this application, some Plans
subscribe to DBRS's subscription service.
---------------------------------------------------------------------------
15. The Co-Applicants request that the relief, if granted, be made
retroactive to the date that they originally filed their request on
April 5, 2006. DBRS had originally been prepared to file its
application prior to April 5th; however, the SEC issued its proposed
rules defining an NRSRO and this caused a delay in filing the
application. The application was further delayed by the submission of
additional information in response to the enactment of CRARA on
September 29, 2006. Retroactive relief is requested to cover those
transactions that have occurred or will occur over the next few months
where DBRS was or is the only rating agency that gave or will give an
investment-grade rating to certificates. If the relief is granted
retroactively, Plans would be able to purchase certificates in the
secondary market relying upon the Underwriter Exemptions once exemptive
relief is granted, even if the transactions originally closed or will
close prior to the date the final exemption, if granted by the
Department, is published in the Federal Register.
General Information
The attention of interested persons is directed to the following:
1. The fact that a transaction is the subject of an exemption under
section 408(a) of the Act and section 4975(c)(2) of the Code does not
relieve a fiduciary or other party in interest or disqualified person
from certain other provisions of the Act and the Code, including any
prohibited transaction provisions to which the exemption does not apply
and the general fiduciary responsibility provisions of section 404 of
the Act, which require, among other things, a fiduciary to discharge
his or her duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirements of section 401(a) of the Code that the plan operate for
the exclusive benefit of the employees of the employer maintaining the
plan and their beneficiaries;
2. Before an exemption can be granted under section 408(a) of the
Act and section 4975(c)(2) of the Code, the Department must find that
the exemption is administratively feasible, in the interest of the
plans and of their participants and beneficiaries and protective of the
rights of participants and beneficiaries of the plans; and
3. The proposed amendment, if granted, will be supplemental to, and
not in derogation of, any other provisions of the Act and/or the Code,
including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
requests for a hearing on the pending amendment to the address above,
within the time frame set forth above, after the publication of this
proposed amendment in the Federal Register. All comments will be made a
part of the record. Comments received will be available for public
inspection with the
[[Page 3159]]
Application at the address set forth above.
Proposed Exemption
Based on the facts and representations set forth in the
application, under the authority of section 408(a) of the Act and
section 4975(c)(2) of the Code and in accordance with the procedures
set forth in 29 CFR part 2570, subpart B (55 FR 32836, August 10,
1990), the Department proposes to modify the following individual
Prohibited Transaction Exemptions (PTEs), as set forth below: PTE 89-
88, 54 FR 42582 (October 17, 1989); PTE 89-89, 54 FR 42569 (October 17,
1989); PTE 89-90, 54 FR 42597 (October 17, 1989); PTE 90-22, 55 FR
20542 (May 17, 1990); PTE 90-24, 55 FR 20548 (May 17, 1990); PTE 90-28,
55 FR 21456 (May 24, 1990); PTE 90-29, 55 FR 21459 (May 24, 1990); PTE
90-30, 55 FR 21461 (May 24, 1990); PTE 90-32, 55 FR 23147 (June 6,
1990); PTE 90-36, 55 FR 25903 (June 25, 1990); PTE 90-39, 55 FR 27713
(July 5, 1990); PTE 90-59, 55 FR 36724 (September 6, 1990); PTE 90-83,
55 FR 50250 (December 5, 1990); PTE 90-84, 55 FR 50252 (December 5,
1990); PTE 90-88, 55 FR 52899 (December 24, 1990); PTE 91-14, 55 FR
48178 (February 22, 1991); PTE 91-22, 56 FR 03277 (April 18, 1991); PTE
91-23, 56 FR 15936 (April 18, 1991); PTE 91-30, 56 FR 22452 (May 15,
1991); PTE 91-62, 56 FR 51406 (October 11, 1991); PTE 93-31, 58 FR
28620 (May 5, 1993); PTE 93-32, 58 FR 28623 (May 14, 1993); PTE 94-29,
59 FR 14675 (March 29, 1994); PTE 94-64, 59 FR 42312 (August 17, 1994);
PTE 94-70, 59 FR 50014 (September 30, 1994); PTE 94-73, 59 FR 51213
(October 7, 1994); PTE 94-84, 59 FR 65400 (December 19, 1994); PTE 95-
26, 60 FR 17586 (April 6, 1995); PTE 95-59, 60 FR 35938 (July 12,
1995); PTE 95-89, 60 FR 49011 (September 21, 1995); PTE 96-22, 61 FR
14828 (April 3, 1996); PTE 96-84, 61 FR 58234 (November 13, 1996); PTE
96-92, 61 FR 66334 (December 17, 1996); PTE 96-94, 61 FR 68787
(December 30, 1996); PTE 97-05, 62 FR 1926 (January 14, 1997); PTE 97-
28, 62 FR 28515 (May 23, 1997); PTE 98-08, 63 FR 8498 (February 19,
1998); PTE 99-11, 64 FR 11046 (March 8, 1999); PTE 2000-19, 65 FR 25950
(May 4, 2000); PTE 2000-33, 65 FR 37171 (June 13, 2000); PTE 2000-41,
65 FR 51039 (August 22, 2000); PTE 2000-55, 65 FR 37171 (November 13,
2000); PTE 2002-19, 67 FR 14979 (March 28, 2002); PTE 2003-31, 68 FR
59202 (October 14, 2003); and PTE 2006-07, 71 FR 32134 (June 2, 2006),
each as subsequently amended by PTE 97-34, 62 FR 39021 (July 21, 1997)
and PTE 2000-58, 65 FR 67765 (November 13, 2000) and for certain of the
exemptions, amended by PTE 2002-41, 67 FR 54487 (August 22, 2002).
In addition, the Department notes that it is also proposing
individual exemptive relief for: Deutsche Bank A.G., New York Branch
and Deutsche Morgan Grenfell/C.J. Lawrence Inc., Final Authorization
Number (FAN) 97-03E (December 9, 1996); Credit Lyonnais Securities
(USA) Inc., FAN 97-21E (September 10, 1997); ABN AMRO Inc., FAN 98-08E
(April 27, 1998); Ironwood Capital Partners Ltd., FAN 99-31E (December
20, 1999) (supersedes FAN 97-02E (November 25, 1996)); William J. Mayer
Securities LLC, FAN 01-25E (October 15, 2001); Raymond James &
Associates Inc. & Raymond James Financial Inc., FAN 03-07E ( June 14,
2003); WAMU Capital Corporation, FAN 03-14E (August 24, 2003); and
Terwin Capital LLC, FAN 04-16E (August 18, 2004); which received the
approval of the Department to engage in transactions substantially
similar to the transactions described in the Underwriter Exemptions
pursuant to PTE 96-62, 61 FR 39988 (July 31, 1996).
The definition of ``Rating Agency'' under section III.X. of the
Underwriter Exemptions is amended to read:
``Rating Agency'' means Standard & Poor's Ratings Services, a
division of The McGraw-Hill Companies, Inc.; Moody's Investors Service,
Inc.; FitchRatings, Inc.; Dominion Bond Rating Service Limited, or
Dominion Bond Rating Service, Inc.; or any successors thereto.
If granted, the amendment would be effective for transactions
occurring on or after April 5, 2006.
The availability of this amendment, if granted, is subject to the
express condition that the material facts and representations contained
in the Application are true and complete and accurately describe all
material terms of the transactions. In the case of continuing
transactions, if any of the material facts or representations described
in the Application change, the amendment will cease to apply as of the
date of such change. In the event of any such change, an application
for a new amendment must be made to the Department.
Signed at Washington, DC, this 17th day of January, 2007.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E7-969 Filed 1-23-07; 8:45 am]
BILLING CODE 4510-29-P
