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