Citibank, N.A.; Notice of Application, 20762-20764 [E9-10254]

Download as PDF 20762 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Notices Dated: April 29, 2009. Karen G. Mills, Administrator. [FR Doc. E9–10313 Filed 5–4–09; 8:45 am] BILLING CODE 8025–01–P SECURITIES AND EXCHANGE COMMISSION The following is a summary of the application. The complete application may be obtained via the Commission’s Web site by searching for the file number, or an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. SUPPLEMENTARY INFORMATION: Applicant’s Representations 1. The applicant is a subsidiary of Citigroup, Inc.1 Citigroup Inc. is a global Citibank, N.A.; Notice of Application financial services organization whose lines of business include global cards, April 29, 2009. consumer banking, an institutional AGENCY: Securities and Exchange clients group (including transaction Commission (‘‘Commission’’). services such as agency/trust), global ACTION: Notice of an application under wealth management and corporate section 6(c) of the Investment Company services. The applicant is frequently Act of 1940 (‘‘Act’’) for an exemption selected to act as trustee in connection from certain requirements of rule 3a– with asset-backed securities issued by 7(a)(4)(i) under the Act. Issuers. 2. An asset-backed securities SUMMARY: Summary of Application: transaction typically involves the Applicant requests an order that would transfer of assets by a seller, usually by permit an issuer of asset-backed a ‘‘sponsor,’’ to a special purpose securities that is not registered as an corporate or trust entity that is investment company under the Act in established for the sole purpose of reliance on rule 3a-7 under the Act (an acting as the Issuer and is structured to ‘‘Issuer’’) to appoint the applicant as a be bankruptcy remote and the trustee to the Issuer when the applicant subsequent issuance of asset-backed is affiliated with an underwriter for the securities (‘‘ABS’’) to investors by the Issuer’s securities. Issuer (an ‘‘ABS Transaction’’). The Applicant: Citibank, N.A. parties to an ABS Transaction enter into DATES: Filing Dates: The application was several transaction agreements that filed on December 30, 2008 and provide for the holding of the assets by amended on April 23, 2009. the Issuer and define the rights and Hearing or Notification of Hearing: An responsibilities of the parties to the order granting the application will be transaction (‘‘Transaction Documents’’). issued unless the Commission orders a The operative Transaction Document hearing. Interested persons may request governing the trustee is referred to a hearing by writing to the herein as the ‘‘Agreement.’’ Commission’s Secretary and serving 3. The sponsor of an ABS Transaction applicant with a copy of the request, assembles the pool of assets by personally or by mail. Hearing requests purchasing or funding them, describes should be received by the Commission them in the offering materials, and by 5:30 p.m. on May 22, 2009, and retains the underwriter to sell interests should be accompanied by proof of in the assets to investors. The sponsor service on the applicant, in the form of determines the structure, drafts the an affidavit or, for lawyers, a certificate documents, and prices the ABS of service. Hearing requests should state Transactions. The sponsor selects the the nature of the writer’s interest, the other parties to the ABS Transaction, reason for the request, and the issues including the underwriter, the servicer, contested. Persons who wish to be and the trustee. notified of a hearing may request 4. The servicer, either directly or notification by writing to the through subservicers, manages the Commission’s Secretary. assets held by the Issuer. The servicer ADDRESSES: Secretary, U.S. Securities pays the income from the assets held by and Exchange Commission, 100 F 1 The applicant also requests that the order apply Street, NE., Washington, DC 20549– to an Issuer’s appointment, now or in the future, of 1090. Applicant, 388 Greenwich Street, any other entity controlling, controlled by, or under 14th Floor, New York, NY 10013. common control (as defined in section 2(a)(9) of the FOR FURTHER INFORMATION CONTACT: Jean Act) with the applicant as a trustee for an Issuer. The applicant represents that any other entity E. Minarick, Senior Counsel, at (202) relying on this relief now or in the future will 551–6811, or Julia Kim Gilmer, Branch comply with the terms and conditions of the Chief, at (202) 551–6821 (Division of application. Any existing entity currently intending Investment Management, Office of to rely on the requested order has been named as an applicant. Investment Company Regulation). [Investment Company Act Release No. 28717; File No. 812–13618] VerDate Nov<24>2008 23:12 May 04, 2009 Jkt 217001 PO 00000 Frm 00092 Fmt 4703 Sfmt 4703 the Issuer over to the trustee, and the trustee uses the income, as instructed by the servicer and provided by the Agreement, to pay interest and principal on the ABS, to fund reserve accounts and purchases of additional assets, and to make other payments including fees owed to the trustee and other parties to the ABS Transaction. 5. The sponsor of an ABS Transaction selects the trustee. In selecting a trustee, the sponsor generally seeks to obtain customary trust administrative and related services for the Issuer at minimal cost. In some instances, other parties to an ABS Transaction may provide recommendations to a sponsor about potential trustees. An underwriter for an ABS Transaction also may provide advice to the sponsor about trustee selection based on the underwriter’s knowledge of the pricing and expertise offered by a particular trustee in light of the contemplated transaction. 6. If an underwriter affiliated with the applicant recommends a trustee to a sponsor, both the underwriter’s recommendation and any selection of the applicant by the sponsor will be based upon customary market considerations of pricing and expertise, among other things, and the selection will result from an arms-length negotiation between the sponsor and the applicant. Applicant will not price its services as trustee in a manner designed to facilitate its affiliate being named underwriter. 7. The trustee’s role in an ABS Transaction is specifically defined by the Agreement, and under the Agreement the trustee is not expected or required to perform discretionary functions. The responsibilities of the trustee as set forth in the Agreement are narrowly circumscribed and limited to those expressly accepted by the trustee. The trustee negotiates the provisions applicable to it directly with the sponsor and is then appointed by and enters into the Agreement with the Issuer. 8. The trustee usually becomes involved in an ABS Transaction after the substantive economic terms have been negotiated between the sponsor and the underwriters. The trustee does not monitor any service performed by, or obligation of, an underwriter, whether or not the underwriter is affiliated with the trustee. In the unlikely event that the applicant, in acting as trustee to an Issuer for which an affiliate acts as underwriter, becomes obligated to enforce any of the affiliated underwriter’s obligations to the Issuer, the applicant will resign as trustee for the Issuer consistent with the requirements of rule 3a–7(a)(4)(i). In E:\FR\FM\05MYN1.SGM 05MYN1 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Notices such an event, the applicant will incur the costs associated with the Issuer’s procurement of a successor trustee. 9. The sponsor selects one or more underwriters to purchase the Issuer’s securities and resell them or to privately place them with buyers obtained by the underwriter. The sponsor enters into an underwriting agreement with the underwriter that sets forth the responsibilities of the underwriter with respect to the distribution of the ABS and includes representations and warranties regarding, among other things, the underwriter and the quality of the Issuer’s assets. The obligations of the underwriter under the underwriting agreement are enforceable against the underwriter only by the sponsor. 10. The underwriter may assist the sponsor in the organization of an Issuer by providing advice, based on its expertise in ABS Transactions, on the structuring and marketing of the ABS. This advice may relate to the risk tolerance of investors, the type of collateral, the predictability of the payment stream, the process by which payments are allocated and downstreamed to investors, the way that credit losses may affect the trust and the return to investors, whether the collateral represents a fixed set of specific assets or accounts, and the use of forms of credit enhancements to transform risk-return profile of the underlying collateral. Any involvement of an underwriter in the organization of an Issuer that occurs is limited to helping determine the assets to be pooled, helping establish the terms of the ABS to be underwritten, and providing the sponsor with a warehouse line of credit with which to purchase the pool assets. 11. An underwriter may provide advice to a sponsor regarding the sponsor’s selection of a trustee for the Issuer; however, an underwriter’s role in structuring a transaction would not extend to determining the obligations of a trustee, and the underwriter is not a party to the Agreement. The underwriter is not a party to any of the Transaction Documents and, except for arrangements involving credit or credit enhancement for an Issuer or remarketing agent activities, typically has no role in the operation of the Issuer after its issuance of securities. The applicant represents that although an underwriter typically may provide credit or credit enhancement for an Issuer or engage in remarketing agent activities, an underwriter affiliated with the applicant will not so provide or so engage. VerDate Nov<24>2008 23:12 May 04, 2009 Jkt 217001 Applicant’s Legal Analysis 1. Rule 3a–7 provides Issuers that would otherwise fall within the definition of investment company under section 3(a) of the Act with an exclusion from the definition of investment company. Under rule 3a–7, an Issuer that meets certain conditions is deemed not to be an investment company under section 3(a) of the Act. One of rule 3a– 7’s conditions, set forth in paragraph (a)(4)(i), requires, among other things, that the Issuer appoint a trustee that is not affiliated with the Issuer or with any person involved in the organization or operation of the Issuer (the ‘‘Independent Trustee Requirement’’). Applicant states that the phrase ‘‘person involved in the organization and operation of the Issuer’’ includes an underwriter, and rule 3a–7(a)(4)(i) therefore prohibits an Issuer from appointing a trustee that is affiliated with an underwriter. 2. Section 6(c) of the Act gives the Commission the authority to exempt any person or transaction or any class of persons or transactions from any provision of the Act, or from any rule thereunder, if and to the extent such exemption is necessary or appropriate in the public interest; is consistent with the protection of investors; and the purposes fairly intended by the policy and provisions of the Act. 3. Applicant requests exemptive relief under section 6(c) of the Act from rule 3a–7(a)(4)(i) under the Act to the extent necessary to permit an Issuer to appoint the applicant as a trustee to the Issuer when the applicant is affiliated with an underwriter involved in the organization of the Issuer. Applicant submits that the requested exemptive relief from the Independent Trustee Requirement is necessary and appropriate in the public interest, is consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act due to changes in the banking industry, due to the timing and nature of the roles of the trustee and the underwriter and because the requested relief is consistent with the policies and purposes underlying the Independent Trustee Requirement and rule 3a–7. 4. Applicant states that when rule 3a– 7 was proposed in 1992, virtually all trustees were unaffiliated with the other parties involved in an ABS Transaction. Applicant states that consolidation within the financial industry, as well as economic and other business factors resulted in a significant decrease in the number of bank trustees providing services to Issuers. Applicant also states that bank consolidation has been PO 00000 Frm 00093 Fmt 4703 Sfmt 4703 20763 accompanied by the expansion of banks into investment banking and that banks and bank affiliates are now significant participants in securities underwriting, particularly for ABS Transactions. Applicant further states that due to these banking industry changes, most trustees that provide services to Issuers, including the applicant, have affiliations with underwriters to Issuers. Applicant states that, as a result, when an affiliate of applicant is selected to underwrite ABS in an ABS Transaction, rule 3a–7(a)(4)(i)’s Independent Trustee Requirement generally prevents applicant from serving as trustee for the Issuer. Applicant states that the Independent Trustee Requirement imposes an unnecessary regulatory limitation on trustee selection and causes market distortions by leading to the selection of trustees for reasons other than customary market considerations of pricing and expertise. This result is disadvantageous to the ABS market and to ABS investors. 5. Applicant submits that due to the nature and timing of the roles of the trustee and the underwriter, applicant’s affiliation with an underwriter would not result in a conflict of interest or possibility of overreaching that could harm investors. Applicant states that the trustee’s role begins with the Issuer’s issuance of its securities, and the trustee performs its role over the life of the Issuer. Applicant states that, in contrast, the underwriter is chosen early in the ABS Transaction process, may help to structure the ABS Transaction, distributes the Issuer’s securities to investors, and generally has no further role subsequent to the distribution of the Issuer’s securities. Applicant further states that an ABS trustee does not monitor the distribution of securities or any other activity performed by underwriters and there is no opportunity for a trustee and an affiliated underwriter to act in concert to benefit themselves at the expense of holders of the ABS either prior to or after the closing of the ABS Transaction. 6. Applicant states that the trustee is neither expected nor required to exercise discretion or judgment. Applicant further states that the trustee’s role is limited to administrative functions pursuant to the applicable Agreement. Applicant states that the trustee of the Issuer has virtually no discretion to pursue anyone in any regard other than preserving and realizing on the assets. Applicant states that trustees are not required to pursue securities law or fraud claims on behalf of debt holders and may often be foreclosed from such enforcement E:\FR\FM\05MYN1.SGM 05MYN1 20764 Federal Register / Vol. 74, No. 85 / Tuesday, May 5, 2009 / Notices because debt holders may have different and conflicting rights. 7. Applicant submits that the concerns underlying the Independent Trustee Requirement are not implicated if the trustee for an Issuer is independent of the sponsor, servicer, and credit enhancer for the Issuer, but is affiliated with an underwriter for the Issuer, because, in that situation no single entity would act in all capacities in the issuance of the ABS and the operation of an Issuer. Applicant states that applicant would continue to act as an independent party safeguarding the assets of any Issuer regardless of an affiliation with an underwriter of the ABS. Applicant submits that the concern that affiliation could lead to a trustee monitoring the activities of an affiliate also is not implicated by a trustee’s affiliation with an underwriter, because, in practice, a trustee for an Issuer does not monitor the distribution of securities or any other activity performed by underwriters. Applicant further states that the requested relief would be consistent with the broader purpose of rule 3a–7 of not hampering the growth and development of the structured finance market, to the extent consistent with investor protection. Applicant’s Conditions The applicant agrees that any order granting the requested relief will be subject to the following conditions: 1. The applicant will not be affiliated with any person involved in the organization or operation of the Issuer in an ABS Transaction other than the underwriter. 2. The applicant’s relationship to an affiliated underwriter will be disclosed in writing to all parties involved in an ABS Transaction, including the rating agencies and the ABS holders. 3. An underwriter affiliated with the applicant will not be involved in the operation of an Issuer, and its involvement in the organization of an Issuer will extend only to determining the assets to be pooled, assisting in establishing the terms of the ABS to be underwritten, and providing the sponsor with a warehouse line of credit with which to purchase the pool assets. 4. An affiliated person of the applicant, including an affiliated underwriter, will not provide credit or credit enhancement to an Issuer if the applicant serves as trustee to the Issuer. 5. An underwriter affiliated with the applicant will not engage in any remarketing agent activities, including involvement in any auction process in which ABS interest rates, yields, or dividends are reset at designated intervals in any ABS Transaction VerDate Nov<24>2008 23:12 May 04, 2009 Jkt 217001 6. All of an affiliated underwriter’s contractual obligations pursuant to the underwriting agreement will be enforceable by the sponsor. 7. Consistent with the requirements of rule 3a–7(a)(4)(i), the applicant will resign as trustee for the Issuer if applicant becomes obligated to enforce any of an affiliated underwriter’s obligations to the Issuer. 8. The applicant will not price its services as trustee in a manner designed to facilitate its affiliate being named underwriter. For the Commission, by the Division of Investment Management, under delegated authority. Elizabeth M. Murphy, Secretary. [FR Doc. E9–10254 Filed 5–4–09; 8:45 am] BILLING CODE 8010–01–P Sunshine Act Meeting Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a Closed Meeting on Monday, May 4, 2009 at 9 a.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(5), (7), and (10) and 17 CFR 200.402(a)(5), (7), and (10), permit consideration of the scheduled matters at the Closed Meeting. Commissioner Paredes, as duty officer, voted to consider the item listed for the Closed Meeting in closed session, and determined that no earlier notice thereof was possible. The subject matter of the Closed Meeting scheduled for Monday, May 4, 2009 will be: Institution of an injunctive action; and institution of an administrative proceeding of an enforcement nature. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551–5400. Frm 00094 Fmt 4703 BILLING CODE P SECURITIES AND EXCHANGE COMMISSION [Release No. 34–59834; File No. SR– NYSEAmex–2009–14] Self-Regulatory Organizations; NYSE Amex LLC; Notice of Filing and Immediate Effectiveness of Proposed Rule Change Amending NYSE Amex Equities Rules 1000, 60 and 123C To Be More Consistent With the Trading Characteristics of Securities Traded on NYSE Amex April 28, 2009. SECURITIES AND EXCHANGE COMMISSION PO 00000 Dated: April 30, 2009. Elizabeth M. Murphy, Secretary. [FR Doc. E9–10400 Filed 5–1–09; 11:15 am] Sfmt 4703 Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 notice is hereby given that on April 20, 2009, NYSE Amex LLC (‘‘NYSE Amex’’ or ‘‘Exchange’’) filed with the Securities and Exchange Commission (‘‘Commission’’) the proposed rule change as described in Items I and II below, which Items have been prepared by the Exchange. The Commission is publishing this notice to solicit comments on the proposed rule change from interested persons. I. Self-Regulatory Organization’s Statement of the Terms of Substance of the Proposed Rule Change The Exchange proposes to amend NYSE Amex Equities Rule 1000 (‘‘Automatic Execution of Limit Orders Against Orders Reflected in Exchange Published Quotation’’), NYSE Amex Equities Rule 60 (‘‘Dissemination of Quotations’’) and NYSE Amex Equities Rule 123C (‘‘Market on the Close Policy and Expiration Procedures’’) to be more consistent with the trading characteristics of securities traded on NYSE Amex. The text of the proposed rule change is available at the Exchange, the Commission’s Public Reference Room, and https://www.nyse.com. II. Self-Regulatory Organization’s Statement of the Purpose of, and Statutory Basis for, the Proposed Rule Change In its filing with the Commission, the self-regulatory organization included statements concerning the purpose of, and basis for, the proposed rule change and discussed any comments it received on the proposed rule change. The text 1 15 2 17 U.S.C. 78s(b)(1). CFR 240.19b–4. E:\FR\FM\05MYN1.SGM 05MYN1

Agencies

SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 74, Number 85 (Tuesday, May 5, 2009)]
[Notices]
[Pages 20762-20764]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-10254]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 28717; File No. 812-13618]


Citibank, N.A.; Notice of Application

April 29, 2009.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of an application under section 6(c) of the Investment 
Company Act of 1940 (``Act'') for an exemption from certain 
requirements of rule 3a-7(a)(4)(i) under the Act.

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SUMMARY: Summary of Application: Applicant requests an order that would 
permit an issuer of asset-backed securities that is not registered as 
an investment company under the Act in reliance on rule 3a-7 under the 
Act (an ``Issuer'') to appoint the applicant as a trustee to the Issuer 
when the applicant is affiliated with an underwriter for the Issuer's 
securities.
    Applicant: Citibank, N.A.

DATES: Filing Dates: The application was filed on December 30, 2008 and 
amended on April 23, 2009.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicant with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on May 22, 2009, and should be accompanied by proof of 
service on the applicant, in the form of an affidavit or, for lawyers, 
a certificate of service. Hearing requests should state the nature of 
the writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicant, 388 Greenwich 
Street, 14th Floor, New York, NY 10013.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 551-6811, or Julia Kim Gilmer, Branch Chief, at (202) 551-6821 
(Division of Investment Management, Office of Investment Company 
Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained via the 
Commission's Web site by searching for the file number, or an applicant 
using the Company name box, at https://www.sec.gov/search/search.htm or 
by calling (202) 551-8090.

Applicant's Representations

    1. The applicant is a subsidiary of Citigroup, Inc.\1\ Citigroup 
Inc. is a global financial services organization whose lines of 
business include global cards, consumer banking, an institutional 
clients group (including transaction services such as agency/trust), 
global wealth management and corporate services. The applicant is 
frequently selected to act as trustee in connection with asset-backed 
securities issued by Issuers.
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    \1\ The applicant also requests that the order apply to an 
Issuer's appointment, now or in the future, of any other entity 
controlling, controlled by, or under common control (as defined in 
section 2(a)(9) of the Act) with the applicant as a trustee for an 
Issuer. The applicant represents that any other entity relying on 
this relief now or in the future will comply with the terms and 
conditions of the application. Any existing entity currently 
intending to rely on the requested order has been named as an 
applicant.
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    2. An asset-backed securities transaction typically involves the 
transfer of assets by a seller, usually by a ``sponsor,'' to a special 
purpose corporate or trust entity that is established for the sole 
purpose of acting as the Issuer and is structured to be bankruptcy 
remote and the subsequent issuance of asset-backed securities (``ABS'') 
to investors by the Issuer (an ``ABS Transaction''). The parties to an 
ABS Transaction enter into several transaction agreements that provide 
for the holding of the assets by the Issuer and define the rights and 
responsibilities of the parties to the transaction (``Transaction 
Documents''). The operative Transaction Document governing the trustee 
is referred to herein as the ``Agreement.''
    3. The sponsor of an ABS Transaction assembles the pool of assets 
by purchasing or funding them, describes them in the offering 
materials, and retains the underwriter to sell interests in the assets 
to investors. The sponsor determines the structure, drafts the 
documents, and prices the ABS Transactions. The sponsor selects the 
other parties to the ABS Transaction, including the underwriter, the 
servicer, and the trustee.
    4. The servicer, either directly or through subservicers, manages 
the assets held by the Issuer. The servicer pays the income from the 
assets held by the Issuer over to the trustee, and the trustee uses the 
income, as instructed by the servicer and provided by the Agreement, to 
pay interest and principal on the ABS, to fund reserve accounts and 
purchases of additional assets, and to make other payments including 
fees owed to the trustee and other parties to the ABS Transaction.
    5. The sponsor of an ABS Transaction selects the trustee. In 
selecting a trustee, the sponsor generally seeks to obtain customary 
trust administrative and related services for the Issuer at minimal 
cost. In some instances, other parties to an ABS Transaction may 
provide recommendations to a sponsor about potential trustees. An 
underwriter for an ABS Transaction also may provide advice to the 
sponsor about trustee selection based on the underwriter's knowledge of 
the pricing and expertise offered by a particular trustee in light of 
the contemplated transaction.
    6. If an underwriter affiliated with the applicant recommends a 
trustee to a sponsor, both the underwriter's recommendation and any 
selection of the applicant by the sponsor will be based upon customary 
market considerations of pricing and expertise, among other things, and 
the selection will result from an arms-length negotiation between the 
sponsor and the applicant. Applicant will not price its services as 
trustee in a manner designed to facilitate its affiliate being named 
underwriter.
    7. The trustee's role in an ABS Transaction is specifically defined 
by the Agreement, and under the Agreement the trustee is not expected 
or required to perform discretionary functions. The responsibilities of 
the trustee as set forth in the Agreement are narrowly circumscribed 
and limited to those expressly accepted by the trustee. The trustee 
negotiates the provisions applicable to it directly with the sponsor 
and is then appointed by and enters into the Agreement with the Issuer.
    8. The trustee usually becomes involved in an ABS Transaction after 
the substantive economic terms have been negotiated between the sponsor 
and the underwriters. The trustee does not monitor any service 
performed by, or obligation of, an underwriter, whether or not the 
underwriter is affiliated with the trustee. In the unlikely event that 
the applicant, in acting as trustee to an Issuer for which an affiliate 
acts as underwriter, becomes obligated to enforce any of the affiliated 
underwriter's obligations to the Issuer, the applicant will resign as 
trustee for the Issuer consistent with the requirements of rule 3a-
7(a)(4)(i). In

[[Page 20763]]

such an event, the applicant will incur the costs associated with the 
Issuer's procurement of a successor trustee.
    9. The sponsor selects one or more underwriters to purchase the 
Issuer's securities and resell them or to privately place them with 
buyers obtained by the underwriter. The sponsor enters into an 
underwriting agreement with the underwriter that sets forth the 
responsibilities of the underwriter with respect to the distribution of 
the ABS and includes representations and warranties regarding, among 
other things, the underwriter and the quality of the Issuer's assets. 
The obligations of the underwriter under the underwriting agreement are 
enforceable against the underwriter only by the sponsor.
    10. The underwriter may assist the sponsor in the organization of 
an Issuer by providing advice, based on its expertise in ABS 
Transactions, on the structuring and marketing of the ABS. This advice 
may relate to the risk tolerance of investors, the type of collateral, 
the predictability of the payment stream, the process by which payments 
are allocated and down-streamed to investors, the way that credit 
losses may affect the trust and the return to investors, whether the 
collateral represents a fixed set of specific assets or accounts, and 
the use of forms of credit enhancements to transform risk-return 
profile of the underlying collateral. Any involvement of an underwriter 
in the organization of an Issuer that occurs is limited to helping 
determine the assets to be pooled, helping establish the terms of the 
ABS to be underwritten, and providing the sponsor with a warehouse line 
of credit with which to purchase the pool assets.
    11. An underwriter may provide advice to a sponsor regarding the 
sponsor's selection of a trustee for the Issuer; however, an 
underwriter's role in structuring a transaction would not extend to 
determining the obligations of a trustee, and the underwriter is not a 
party to the Agreement. The underwriter is not a party to any of the 
Transaction Documents and, except for arrangements involving credit or 
credit enhancement for an Issuer or remarketing agent activities, 
typically has no role in the operation of the Issuer after its issuance 
of securities. The applicant represents that although an underwriter 
typically may provide credit or credit enhancement for an Issuer or 
engage in remarketing agent activities, an underwriter affiliated with 
the applicant will not so provide or so engage.

Applicant's Legal Analysis

    1. Rule 3a-7 provides Issuers that would otherwise fall within the 
definition of investment company under section 3(a) of the Act with an 
exclusion from the definition of investment company. Under rule 3a-7, 
an Issuer that meets certain conditions is deemed not to be an 
investment company under section 3(a) of the Act. One of rule 3a-7's 
conditions, set forth in paragraph (a)(4)(i), requires, among other 
things, that the Issuer appoint a trustee that is not affiliated with 
the Issuer or with any person involved in the organization or operation 
of the Issuer (the ``Independent Trustee Requirement''). Applicant 
states that the phrase ``person involved in the organization and 
operation of the Issuer'' includes an underwriter, and rule 3a-
7(a)(4)(i) therefore prohibits an Issuer from appointing a trustee that 
is affiliated with an underwriter.
    2. Section 6(c) of the Act gives the Commission the authority to 
exempt any person or transaction or any class of persons or 
transactions from any provision of the Act, or from any rule 
thereunder, if and to the extent such exemption is necessary or 
appropriate in the public interest; is consistent with the protection 
of investors; and the purposes fairly intended by the policy and 
provisions of the Act.
    3. Applicant requests exemptive relief under section 6(c) of the 
Act from rule 3a-7(a)(4)(i) under the Act to the extent necessary to 
permit an Issuer to appoint the applicant as a trustee to the Issuer 
when the applicant is affiliated with an underwriter involved in the 
organization of the Issuer. Applicant submits that the requested 
exemptive relief from the Independent Trustee Requirement is necessary 
and appropriate in the public interest, is consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act due to changes in the banking industry, due 
to the timing and nature of the roles of the trustee and the 
underwriter and because the requested relief is consistent with the 
policies and purposes underlying the Independent Trustee Requirement 
and rule 3a-7.
    4. Applicant states that when rule 3a-7 was proposed in 1992, 
virtually all trustees were unaffiliated with the other parties 
involved in an ABS Transaction. Applicant states that consolidation 
within the financial industry, as well as economic and other business 
factors resulted in a significant decrease in the number of bank 
trustees providing services to Issuers. Applicant also states that bank 
consolidation has been accompanied by the expansion of banks into 
investment banking and that banks and bank affiliates are now 
significant participants in securities underwriting, particularly for 
ABS Transactions. Applicant further states that due to these banking 
industry changes, most trustees that provide services to Issuers, 
including the applicant, have affiliations with underwriters to 
Issuers. Applicant states that, as a result, when an affiliate of 
applicant is selected to underwrite ABS in an ABS Transaction, rule 3a-
7(a)(4)(i)'s Independent Trustee Requirement generally prevents 
applicant from serving as trustee for the Issuer. Applicant states that 
the Independent Trustee Requirement imposes an unnecessary regulatory 
limitation on trustee selection and causes market distortions by 
leading to the selection of trustees for reasons other than customary 
market considerations of pricing and expertise. This result is 
disadvantageous to the ABS market and to ABS investors.
    5. Applicant submits that due to the nature and timing of the roles 
of the trustee and the underwriter, applicant's affiliation with an 
underwriter would not result in a conflict of interest or possibility 
of overreaching that could harm investors. Applicant states that the 
trustee's role begins with the Issuer's issuance of its securities, and 
the trustee performs its role over the life of the Issuer. Applicant 
states that, in contrast, the underwriter is chosen early in the ABS 
Transaction process, may help to structure the ABS Transaction, 
distributes the Issuer's securities to investors, and generally has no 
further role subsequent to the distribution of the Issuer's securities. 
Applicant further states that an ABS trustee does not monitor the 
distribution of securities or any other activity performed by 
underwriters and there is no opportunity for a trustee and an 
affiliated underwriter to act in concert to benefit themselves at the 
expense of holders of the ABS either prior to or after the closing of 
the ABS Transaction.
    6. Applicant states that the trustee is neither expected nor 
required to exercise discretion or judgment. Applicant further states 
that the trustee's role is limited to administrative functions pursuant 
to the applicable Agreement. Applicant states that the trustee of the 
Issuer has virtually no discretion to pursue anyone in any regard other 
than preserving and realizing on the assets. Applicant states that 
trustees are not required to pursue securities law or fraud claims on 
behalf of debt holders and may often be foreclosed from such 
enforcement

[[Page 20764]]

because debt holders may have different and conflicting rights.
    7. Applicant submits that the concerns underlying the Independent 
Trustee Requirement are not implicated if the trustee for an Issuer is 
independent of the sponsor, servicer, and credit enhancer for the 
Issuer, but is affiliated with an underwriter for the Issuer, because, 
in that situation no single entity would act in all capacities in the 
issuance of the ABS and the operation of an Issuer. Applicant states 
that applicant would continue to act as an independent party 
safeguarding the assets of any Issuer regardless of an affiliation with 
an underwriter of the ABS. Applicant submits that the concern that 
affiliation could lead to a trustee monitoring the activities of an 
affiliate also is not implicated by a trustee's affiliation with an 
underwriter, because, in practice, a trustee for an Issuer does not 
monitor the distribution of securities or any other activity performed 
by underwriters. Applicant further states that the requested relief 
would be consistent with the broader purpose of rule 3a-7 of not 
hampering the growth and development of the structured finance market, 
to the extent consistent with investor protection.

Applicant's Conditions

    The applicant agrees that any order granting the requested relief 
will be subject to the following conditions:
    1. The applicant will not be affiliated with any person involved in 
the organization or operation of the Issuer in an ABS Transaction other 
than the underwriter.
    2. The applicant's relationship to an affiliated underwriter will 
be disclosed in writing to all parties involved in an ABS Transaction, 
including the rating agencies and the ABS holders.
    3. An underwriter affiliated with the applicant will not be 
involved in the operation of an Issuer, and its involvement in the 
organization of an Issuer will extend only to determining the assets to 
be pooled, assisting in establishing the terms of the ABS to be 
underwritten, and providing the sponsor with a warehouse line of credit 
with which to purchase the pool assets.
    4. An affiliated person of the applicant, including an affiliated 
underwriter, will not provide credit or credit enhancement to an Issuer 
if the applicant serves as trustee to the Issuer.
    5. An underwriter affiliated with the applicant will not engage in 
any remarketing agent activities, including involvement in any auction 
process in which ABS interest rates, yields, or dividends are reset at 
designated intervals in any ABS Transaction
    6. All of an affiliated underwriter's contractual obligations 
pursuant to the underwriting agreement will be enforceable by the 
sponsor.
    7. Consistent with the requirements of rule 3a-7(a)(4)(i), the 
applicant will resign as trustee for the Issuer if applicant becomes 
obligated to enforce any of an affiliated underwriter's obligations to 
the Issuer.
    8. The applicant will not price its services as trustee in a manner 
designed to facilitate its affiliate being named underwriter.

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-10254 Filed 5-4-09; 8:45 am]
BILLING CODE 8010-01-P

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