Asset-Backed Securities, 23328-23514 [2010-8282]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 75, Number 84 (Monday, May 3, 2010)]
[Proposed Rules]
[Pages 23328-23514]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-8282]



[[Page 23327]]

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Part II





Securities and Exchange Commission





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17 CFR Parts 200, 229, 230 et al.



Asset-Backed Securities; Proposed Rule

Federal Register / Vol. 75 , No. 84 / Monday, May 3, 2010 / Proposed 
Rules

[[Page 23328]]


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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 200, 229, 230, 232, 239, 240, 243, and 249

[Release Nos. 33-9117; 34-61858; File No. S7-08-10]
RIN 3235-AK37


Asset-Backed Securities

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: We are proposing significant revisions to Regulation AB and 
other rules regarding the offering process, disclosure and reporting 
for asset-backed securities. Our proposals would revise filing 
deadlines for ABS offerings to provide investors with more time to 
consider transaction-specific information, including information about 
the pool assets. Our proposals also would repeal the current credit 
ratings references in shelf eligibility criteria for asset-backed 
issuers and establish new shelf eligibility criteria that would 
include, among other things, a requirement that the sponsor retain a 
portion of each tranche of the securities that are sold and a 
requirement that the issuer undertake to file Exchange Act reports on 
an ongoing basis so long as its public securities are outstanding. We 
also are proposing to require that, with some exceptions, prospectuses 
for public offerings of asset-backed securities and ongoing Exchange 
Act reports contain specified asset-level information about each of the 
assets in the pool. The asset-level information would be provided 
according to proposed standards and in a tagged data format using 
extensible Markup Language (XML). In addition, we are proposing to 
require, along with the prospectus filing, the filing of a computer 
program of the contractual cash flow provisions expressed as 
downloadable source code in Python, a commonly used open source 
interpretive programming language. We are proposing new information 
requirements for the safe harbors for exempt offerings and resales of 
asset-backed securities and are also proposing a number of other 
revisions to our rules applicable to asset-backed securities.

DATES: Comments should be received on or before August 2, 2010.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/proposed.shtml);
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number S7-08-10 on the subject line; or
     Use the Federal Rulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street, NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-08-10. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet Web site (https://www.sec.gov/rules/proposed.shtml). Comments 
are also available for Web site viewing and copying in the Commission's 
Public Reference Room, 100 F Street, NE., Washington, DC 20549, on 
official business days between the hours of 10 a.m. and 3 p.m. All 
comments received will be posted without change; we do not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly.

FOR FURTHER INFORMATION CONTACT: Katherine Hsu, Senior Special Counsel 
in the Office of Rulemaking, at (202) 551-3430, and Rolaine Bancroft, 
Special Counsel in the Office of Structured Finance, Transportation and 
Leisure, at (202) 551-3313, Division of Corporation Finance, U.S. 
Securities and Exchange Commission, 100 F Street, NE., Washington, DC 
20549-3628.

SUPPLEMENTARY INFORMATION: We are proposing amendments to Rule 30-1 \1\ 
of the Commission's Rules of General Organization,\2\ Items 512 \3\ and 
601 \4\ of Regulation S-K; \5\ Items 1100, 1101, 1102, 1103, 1104, 
1106, 1110, 1111, 1121, and 1122 \6\ of Regulation AB \7\ (a subpart of 
Regulation S-K); Rules 139a, 144, 144A, 167, 190, 401, 405, 415, 424, 
430B, 430C, 433, 456, 457, 502 and 503 \8\ and Forms S-1, S-3 and D \9\ 
under the Securities Act of 1933 (``Securities Act''); \10\ Rules 11, 
101, 201, 202, 305, and 312 \11\ of Regulation S-T,\12\ and Rules 15c2-
8 and 15d-22 \13\ and Forms 8-K, 10-D, and 10-K \14\ under the 
Securities Exchange Act of 1934 (``Exchange Act'') \15\ and Rule 103 
\16\ of Regulation FD.\17\ We also are proposing to add Items 1111A and 
1121A \18\ to Regulation AB and Rule 192,\19\ Rule 430D,\20\ Form SF-
1,\21\ Form SF-3 \22\ and Form 144A-SF \23\ under the Securities Act.
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    \1\ 17 CFR 200.30-1.
    \2\ 17 CFR 200.1 et al.
    \3\ 17 CFR 229.512.
    \4\ 17 CFR 229.601.
    \5\ 17 CFR 229.10 et al.
    \6\ 17 CFR 229.1100, 17 CFR 229.1101, 17 CFR 229.1102, 17 CFR 
229.1103, 17 CFR 229.1104, 17 CFR 229.1106, 17 CFR 229.1110, 17 CFR 
229.1111, 17 CFR 229.1121 and 17 CFR 229.1122.
    \7\ 17 CFR 229.1100 through 17 CFR 229.1123.
    \8\ 17 CFR 230.139a, 17 CFR 230.144, 17 CFR 230.144A, 17 CFR 
230.167, 17 CFR 230.190, 17 CFR 230.401, 17 CFR 405; 17 CFR 230.415, 
17 CFR 230.424, 17 CFR 230.430B, 17 CFR 230.430C, 17 CFR 230.433, 17 
CFR 230.456. 17 CFR 230.457, 17 CFR 230.502, and 17 CFR 230.503.
    \9\ 17 CFR 239.11, 17 CFR 239.13 and 17 CFR 239.500.
    \10\ 15 U.S.C. 77a et seq.
    \11\ 17 CFR 232.11, 17 CFR 232.101, 17 CFR 232.201, 17 CFR 
232.202, 17 CFR 232.305 and 17 CFR 232.312.
    \12\ 17 CFR 232.10 et seq.
    \13\ 17 CFR 240.15c2-8 and 17 CFR 240.15d-22.
    \14\ 17 CFR 249.308, 17 CFR 249.310, and 17 CFR 249.312.
    \15\ 15 U.S.C. 78a et seq.
    \16\ 17 CFR 243.103.
    \17\ 17 CFR 243.100 et. seq.
    \18\ 17 CFR 229.1111A and 17.CFR 229.1121A.
    \19\ 17 CFR 230.192.
    \20\ 17 CFR 230.430D.
    \21\ 17 CFR 239.44.
    \22\ 17 CFR 239.45.
    \23\ 17 CFR 239.144A.
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Table of Contents

I. Executive Summary
    A. Background
    B. Securities Act Registration
    C. Disclosure
    D. Privately-Issued Structured Finance Products
II. Securities Act Registration
    A. History of ABS Shelf Offerings
    B. New Registration Procedures and Forms for Asset-Backed 
Securities
    1. New Shelf Registration Procedures
    (a) Rule 424(h) Filing
    (b) New Rule 430D
    2. Proposed Forms SF-1 and SF-3
    3. Shelf Eligibility for Delayed Offerings
    (a) Risk Retention
    (b) Third Party Review of Repurchase Obligations
    (c) Certification of the Depositor's Chief Executive Officer
    (d) Undertaking To File Ongoing Reports
    (e) Other Proposed Form SF-3 Requirements
    (i) Registrant Requirements To Be Met for Filing a Form SF-3
    (ii) Evaluation of Form SF-3 Eligibility in Lieu of Section 
10(a)(3) Update
    (iii) Quarterly Evaluation of Eligibility To Use Effective Form 
SF-3 for Takedowns
    (A) Risk Retention
    (B) Transaction Agreements and Officer Certification

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    (C) Undertaking To File Exchange Act Reports
    4. Continuous Offerings
    5. Mortgage Related Securities
    C. Exchange Act Rule 15c2-8(b)
    D. Including Information in the Form of Prospectus in the 
Registration Statement
    1. Presentation of Disclosure in Prospectuses
    2. Adding New Structural Features or Credit Enhancements
    E. Pay-as-You-Go Registration Fees
    F. Signature Pages
III. Disclosure Requirements
    A. Pool Assets
    1. Asset-Level Information in Prospectus
    (a) When Asset-Level Data Would Be Required in the Prospectus
    (b) Proposed Disclosure Requirements and Exemptions
    (i) Proposed Coded Responses
    (ii) Proposed General Disclosure Requirements
    (iii) Asset Specific Data Points
    (iv) Proposed Exemptions
    (c) Residential Mortgage-Backed Securities
    (d) Commercial Mortgage-Backed Securities
    (e) Other Asset Classes
    (i) Automobiles
    (ii) Equipment
    (iii) Student Loans
    (iv) Floorplan Financings
    (v) Corporate Debt
    (vi) Resecuritizations
    2. Asset-Level Ongoing Reporting Requirements
    (a) Proposed Disclosure Requirements
    (b) Proposed Exemptions
    (c) Residential Mortgage-Backed Securities
    (d) Commercial Mortgage-Backed Securities
    (e) Other Asset Classes
    (i) Automobiles
    (ii) Equipment
    (iii) Student Loans
    (iv) Floorplan Financings
    (v) Resecuritizations
    3. Grouped Account Data for Credit Card Pools
    (a) When Credit Card Pool Information Would Be Required
    (b) Proposed Disclosure Requirements
    4. Asset Data File and XML
    (a) Filing the Asset Data File and EDGAR
    (b) Hardship Exemptions
    (c) Technical Specifications
    5. Pool-Level Information
    B. Flow of Funds
    1. Waterfall Computer Program
    (a) Proposed Disclosure Requirements
    (b) Proposed Exemptions
    (c) When the Waterfall Computer Program Would Be Required
    (d) Filing the Waterfall Computer Program and Python
    (e) Hardship Exemptions
    2. Presentation of the Narrative Description of the Waterfall
    C. Transaction Parties
    1. Identification of Originator
    2. Obligation To Repurchase Assets
    (a) History of Asset Repurchases
    (b) Financial Information Regarding Party Obligated To 
Repurchase Assets
    3. Economic Interest in the Transaction
    4. Servicer
    D. Prospectus Summary
    E. Static Pool Information
    1. Disclosure Required
    2. Amortizing Asset Pools
    3. Revolving Asset Master Trusts
    4. Filing Static Pool Data
    F. Exhibit Filing Requirements
    G. Other Disclosure Requirements That Rely on Credit Ratings
IV. Definition of an Asset-Backed Security
V. Exchange Act Reporting Proposals
    A. Distribution Reports on Form 10-D
    B. Servicer's Assessment of Compliance With Servicing Criteria
    C. Form 8-K
    1. Item 6.05
    2. Change in Sponsor's Interest in the Securities
    D. Central Index Key Numbers for Depositor, Sponsor and Issuing 
Entity
VI. Privately-Issued Structured Finance Products
    A. Rule 144A and Regulation D
    B. Proposed Information Requirements for Structured Finance 
Products
    1. General
    2. Application of Proposals
    3. Information Requirements
    4. Proposed Rule 144 Revisions
    5. New Rule 192 of the Securities Act
    C. Notice of Initial Placement of Securities Eligible for Sale 
Under Rule 144A and Revisions to Form D
VII. Codification of Staff Interpretations Relating to Securities 
Act Registration
    A. Fee Requirements for Collateral Certificates or Special Units 
of Beneficial Interest
    B. Incorporating by Reference Subsequently Filed Periodic 
Reports
VIII. Transition Period
IX. General Request for Comment
X. Paperwork Reduction Act
    A. Background
    B. Revisions to PRA Reporting and Cost Burden Estimates
    1. Form S-3 and Form SF-3
    2. Form S-1 and Form SF-1
    3. Form 10-K
    4. Form 10-D
    5. Form 8-K
    6. Regulation S-K and Regulation S-T
    7. Asset Data File
    8. Waterfall Computer Program
    9. Form 144A-SF and Form D
    10. Privately-Issued Structured Finance Product Disclosure
    11. Summary of Proposed Changes to Annual Burden Compliance in 
Collection of Information
    12. Solicitation of Comments
XI. Benefit-Cost Analysis
    A. Background
    B. Benefits
    1. Securities Act Registration
    2. Disclosure
    3. Privately-Issued Structured Finance Products
    C. Costs
    1. Securities Act Registration
    2. Disclosure
    3. Privately-Issued Structured Finance Products
    D. Request for Comment
XII. Consideration of Burden on Competition and Promotion of 
Efficiency, Competition and Capital Formation
    A. Shelf Registration Requirement
    1. Risk Retention
    2. Representations and Warranties in Pooling and Servicing 
Agreements
    3. Depositor's Chief Executive Officer Certification
    4. Ongoing Exchange Act Reporting
    5. Eliminate Ratings Requirement
    B. Five-Business Day Filing and Prospectus Delivery Requirements
    C. Disclosure
    1. Asset Data File and Waterfall Computer Program
    2. Pay-As-You-Go Registration and Revisions to Registration 
Process
    3. Restrictions on Use of Regulation AB
    D. Safe Harbors for Privately-Issued Structured Finance Products
    E. Combined Effect of Proposals
XIII. Small Business Regulatory Enforcement Fairness Act
XIV. Regulatory Flexibility Act Certification
XV. Statutory Authority and Text of Proposed Rule and Form 
Amendments

I. Executive Summary

A. Background

    The recent financial crisis highlighted that investors and other 
participants in the securitization market did not have the necessary 
tools to be able to fully understand the risk underlying those 
securities and did not value those securities properly or accurately. 
The severity of this lack of understanding and the extent to which it 
pervaded the market and impacted the U.S. and worldwide economy calls 
into question the efficacy of several aspects of our regulation of 
asset-backed securities. In light of the problems exposed by the 
financial crisis, we are proposing significant revisions to our rules 
governing offers, sales and reporting with respect to asset-backed 
securities. These proposals are designed to improve investor protection 
and promote more efficient asset-backed markets.
    Securitization generally is a financing technique in which 
financial assets, in many cases illiquid, are pooled and converted into 
instruments that are offered and sold in the capital markets as 
securities. This financing technique makes it easier for lenders to 
exchange payment streams coming from the loans for cash so that they 
can make additional loans or credit available to a wide range of 
borrowers and companies seeking financing. Some of the types of assets 
that are financed today through securitization include residential and 
commercial mortgages, agricultural equipment leases, automobile loans 
and leases, student loans and credit card receivables. Throughout this 
release, we refer to the securities sold through such

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vehicles as asset-backed securities, ABS, or structured finance 
products.
    At its inception, securitization primarily served as a vehicle for 
mortgage financing. Since then, asset-backed securities have played a 
significant role in both the U.S. and global economy. At the end of 
2007, there were more than $7 trillion of both agency and non-agency 
\24\ mortgage-backed securities and nearly $2.5 trillion of asset-
backed securities outstanding.\25\ Securitization can provide liquidity 
to nearly all major sectors of the economy including the residential 
and commercial real estate industry, the automobile industry, the 
consumer credit industry, the leasing industry, and the commercial 
lending and credit markets.\26\
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    \24\ Agency securities are securities issued by the government-
sponsored enterprises, Ginnie Mae, Fannie Mae or Freddie Mac.
    \25\ See American Securitization Forum, Study on the Impact of 
Securitization on Consumers, Investors, Financial Institutions and 
the Capital Markets (June 17, 2009), at 16 (citing to statistics on 
outstanding residential mortgage-backed securities and outstanding 
U.S. ABS collected by the Securities Industry and Financial Markets 
Association), available at https://www.americansecuritization.com/uploadedFiles/ASF_NERA_Report.pdf.
    \26\ See testimony of Micah Green, President of the Bond Market 
Association, Before the Senate Basel Committee on Banking 
Supervision, A Review of the New Basel Capital Accord, (June 13, 
2003), available at https://banking.senate.gov/.
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    Many of the problems giving rise to the financial crisis involved 
structured finance products, including mortgage-backed securities.\27\ 
Many of these mortgage-backed securities were used to collateralize 
other debt obligations such as collateralized debt obligations and 
collateralized loan obligations (CDOs or CLOs), types of asset-backed 
securities that are sold in private placements.\28\ As the default rate 
for subprime and other mortgages soared, such securities, including 
those with high credit ratings, lost their value.\29\ CDOs were noted, 
in particular, to have contributed to the collapse in liquidity during 
the financial crisis.\30\ As the crisis unfolded, investors 
increasingly became unwilling to purchase these securities, and today, 
this sentiment remains, as new issuances of asset-backed securities, 
except for government-sponsored issuances, have recently dramatically 
decreased.\31\ The absence of this financing option has negatively 
impacted the availability of credit.\32\
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    \27\ A report by the U.S. Government Accountability Office (GAO) 
notes that 75% of subprime loans were packaged into securities in 
2006. See U.S. Government Accountability Office, Financial 
Regulation: A Framework for Crafting and Assessing Proposals to 
Modernize the Outdated U.S. Financial Regulatory System (Jan. 2009) 
at 26.
    \28\ CDOs are typically sold as a private placement to an 
initial purchaser followed by resales of the securities to 
``qualified institutional buyers'' pursuant to Rule 144A. Pools 
comprising the CDOs may consist of various types of underlying 
assets including subprime mortgage-backed securities and 
derivatives, such as credit default swaps referencing subprime 
mortgage-backed securities, and even tranches of other CDOs. CLOs 
are similar to CDOs except that they hold corporate loans, loan 
participations or credit default swaps tied to corporate 
liabilities.
    \29\ See, e.g., The President's Working Group on Financial 
Markets, Policy Statement on Financial Market Developments, March 
2008 (the ``PWG March 2008 Report'') at 9 (discussing subprime 
mortgages and the write-down of AAA-rated and super-senior tranches 
of CDOs as contributing factors to the financial crisis).
    \30\ See, e.g., The Report of the Counterparty Risk Management 
Policy Group III (``CRMPG III''), Containing Systemic Risk: The Road 
to Reform, August 6, 2008 (the ``2008 CRMPG III Report''), at 53 
(noting that lack of comprehension of CDO and related instruments 
resulted in the display of price depreciation and volatility far in 
excess of levels previously associated with comparably rated 
securities, causing both a collapse of confidence in a very broad 
range of structured product ratings and a collapse in liquidity for 
such products). Another type of asset-backed security that is 
privately offered is asset-backed commercial paper (ABCP), which was 
increasingly collateralized by CDOs and RMBS from 2004 through 2007. 
The ABCP market severely contracted during the crisis. See PWG March 
2008 Report at 8.
    \31\ See, e.g., David Adler, ``A Flat Dow for 10 Years? Why it 
Could Happen,'' Barrons (Dec. 28, 2009) (noting that new 
securitization issuances, except those sponsored by the government, 
have largely come to a halt). In 2008 through the end of September, 
annualized issuance volumes for overall global securitized and 
structured credit issuance were approximately $2.4 trillion less 
than in 2006. See Global Joint Initiative to Restore Confidence in 
the Securitization Market, Restoring Confidence in the 
Securitization Markets (Dec. 3, 2008) at 6.
    \32\ Id.
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    The financial crisis highlighted a number of concerns with the 
operation of our rules in the securitization market. Certain 
regulations for asset-backed securities rely on the ratings for those 
securities provided by the ratings agencies, and much has been written 
about the failures of those ratings accurately to measure and describe 
the risks associated with certain of those products that were realized 
during the financial crisis.\33\ In addition, investors have expressed 
concern regarding a lack of time to analyze securitization transactions 
and make investment decisions.\34\ While the Commission historically 
has not built minimum time periods into its registration process to 
deliberately slow down the market,\35\ and instead has believed 
investors can insist on adequate time to analyze securities (and refuse 
to invest if not provided sufficient time), we have been told that this 
is not generally possible in this market, particularly in an active 
market.\36\ In addition, market participants have expressed a desire 
for expanded disclosure relating to the assets underlying 
securitizations.\37\ Investors have complained that the mechanisms for 
enforcing the representations and warranties contained in 
securitization transaction documents are weak, and thus are not 
confident that even strong representations and warranties provide them 
with adequate protection. In the private market, we believe that, in 
many cases, investors did not have the information necessary to 
understand and properly analyze structured products, such as CDOs, that 
were sold in transactions in reliance on exemptions from 
registration.\38\ As a result of these and other factors, the financial 
crisis resulted in an absence of confidence in much of the 
securitization market.
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    \33\ See, e.g., The PWG March 2008 Report at 2, 8 (noting that 
the performance of credit rating agencies, particularly their 
ratings of mortgage-backed securities and other asset-backed 
securities, contributed significantly to the financial crisis).
    \34\ See discussion in Section II.B.1 below.
    \35\ See, e.g., Section IV.A. of Securities Offering Reform, 
Release No. 33-8591 (Jul. 19, 2005) [70 FR 44722] (release adopting 
significant revisions to registration, communications and offering 
process under the Securities Act) (the ``Offering Reform Release'') 
(stating that Rule 159 would not result in a speed bump or otherwise 
slow down the offering process).
    \36\ See discussion in Section II.B.1 below.
    \37\ See also discussion in Section III.A.1 below.
    \38\ The assumption that sophisticated investors are able to 
fend for themselves in a private asset-backed securities transaction 
has also been questioned. Cf. Financial Services Authority, The 
Turner Review: A Regulatory Response to the Global Banking Crisis, 
March 2009 (the ``Turner Review''), at 39 (finding that ``the crisis 
also raises important questions about the intellectual assumptions 
on which previous regulatory approaches have largely been built'').
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    We are proposing a number of changes to the offering process, 
disclosure, and reporting for asset-backed securities, which are 
designed to enhance investor protection in this market.\39\ The 
proposals are intended to provide investors with timely and sufficient 
information, including information in and about the private market for 
asset-backed securities, reduce the likelihood of undue reliance on 
credit ratings, and help restore investor confidence in the 
representations and warranties regarding the assets. Although these 
revisions are comprehensive and therefore would impose new burdens, if 
adopted, we believe they would protect investors and promote efficient 
capital

[[Page 23331]]

formation. The proposals cover the following areas:
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    \39\ Our proposals, if adopted, would not affect the 
applicability of the Investment Company Act (15 U.S.C. 80a-1 et 
seq.) to ABS issuers, including the availability of exclusions from 
such Act. See, e.g., Section 3(c)(1) or Section 3(c)(7) (15 U.S.C. 
80a-3(c)(1) and 80a-3(c)(7)) (for private transactions); Rule 3a-7 
[17 CFR 270.3a-7] (for public and private transactions). Our 
proposals are not intended to affect the application of the 
Investment Company Act, including the availability of these 
exclusions, to ABS issuers.
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     Revisions to the shelf offering process and criteria and 
prospectus delivery requirements;
     Securities Act and Exchange Act disclosure requirements, 
including new requirements to disclose standardized asset-level 
information or grouped asset data and a computer program that gives 
effect to the cash flow provisions of the transaction agreement (often 
referred to as the ``waterfall''); and
     Changes to the Securities Act safe harbors for exempt 
offerings and exempt resales for asset-backed securities.
    In addition, we are proposing clarifying, technical and other 
changes to the current rules. The proposals are designed to address 
issues that contributed to or arose from the financial crisis. These 
proposals are also designed to be forward looking; some of these 
proposals are designed to improve areas that have the potential to 
raise issues similar to the ones highlighted in the financial crisis.
    Our proposals are generally consistent with global initiatives that 
seek to improve practices in the securitization market.\40\ These 
initiatives include calls by international organizations to require 
greater disclosure by issuers of securitized products, including 
initial and ongoing information about underlying asset pool 
performance.\41\ Our focus on both the public and private markets for 
securitized products is supported by recommendations from international 
regulators about the type of disclosure that should be provided to 
investors in the private markets.\42\
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    \40\ See Improving Financial Regulation--Report of the Financial 
Stability Board to G20 Leaders, (Sept. 25, 2009) (``The official 
sector must provide the framework that ensures discipline in the 
securitisation market as it revives.'').
    \41\ Id.
    \42\ International Organization of Securities Commissions, Final 
Report of the Task Force on the Subprime Crisis (May 2008) 
(discussing the types of disclosure that, following the model 
offered by the types of disclosure mandated in the public markets, 
private investors may want issuers to provide).
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B. Securities Act Registration

    Securities Act shelf registration provides important timing and 
flexibility benefits to issuers. An issuer with an effective shelf 
registration statement can conduct delayed offerings ``off the shelf'' 
under Securities Act Rule 415 without further staff clearance. Under 
our current rules, asset-backed securities may be registered on a Form 
S-3 registration statement and later offered ``off the shelf'' if, in 
addition to meeting other specified criteria,\43\ the securities are 
rated investment grade by a nationally recognized statistical rating 
organization (NRSRO). As described in detail in Section II.B.3. below, 
we are proposing to repeal that criterion and establish other criteria 
for shelf eligibility. We are also proposing changes to the Securities 
Act rules and forms for issuances of asset-backed securities.
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    \43\ See discussion of other criteria in fn. 70 below.
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    We have undertaken a Commission-wide effort to consider whether 
references to NRSRO credit ratings in all the Commission's regulations 
are necessary or appropriate and whether they could cause investors to 
unduly rely on ratings.\44\ In this release, we are proposing to 
eliminate the current means of establishing shelf eligibility for an 
ABS transaction based on the credit ratings of the securities to be 
issued.\45\ Instead, we are proposing to require for shelf eligibility 
the following:
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    \44\ See References to Ratings of Nationally Recognized 
Statistical Rating Organizations, Exchange Act Release No. 58070 
(July 1, 2008) [73 FR 40088] (proposing amendments to rules and 
forms under the Securities Exchange Act); References to Ratings of 
Nationally Recognized Statistical Ratings Organizations, Investment 
Company Act Release No. 28327 (July 1, 2008) [73 FR 40124] 
(proposing amendments to rules under the Investment Company Act and 
the Investment Advisers Act); Security Ratings, Securities Act 
Release No. 8940 (July 1, 2008) [73 FR 40106] (proposing amendments 
to rules and forms under the Securities Act and the Securities 
Exchange Act) (``2008 Proposing Release'').
    \45\ As part of the Commission-wide effort to consider whether 
references to NRSRO credit ratings are necessary, we proposed to 
replace the ratings requirement in the shelf eligibility criteria in 
the 2008 Proposing Release. See also Section II.A. below. We 
reopened the comment period in October 2009. References to Ratings 
of Nationally Statistical Rating Organizations, Release No. 33-9069 
(Oct. 5, 2009) [74 FR 52374]. After considering comments, we are 
withdrawing this part of the proposals in the 2008 Proposing 
Release, and we are proposing different ABS shelf eligibility 
requirements to replace the investment grade ratings requirement.
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     A certification filed at the time of each offering off of 
a shelf registration statement, or takedown, by the chief executive 
officer of the depositor \46\ that the assets in the pool have 
characteristics that provide a reasonable basis to believe that they 
will produce, taking into account internal credit enhancements, cash 
flows to service any payments due and payable on the securities as 
described in the prospectus;
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    \46\ We use the term ``depositor'' to mean the depositor who 
receives or purchases and transfers or sells the pool assets to the 
issuing entity. For ABS transactions where there is not an 
intermediate transfer of the assets from the sponsor to the issuing 
entity, the term depositor refers to the sponsor. For ABS 
transactions where the person transferring or selling the pool 
assets is itself a trust, the depositor of the issuing entity is the 
depositor of that trust. See Item 1101(e) of Regulation AB.
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     Retention by the sponsor of a specified amount of each 
tranche of the securitization,\47\ net of the sponsor's hedging (also 
known as ``risk retention'' or ``skin-in-the-game'');
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    \47\ We use the term ``sponsor'' to mean the person who 
organizes and initiates an asset-backed securities transaction by 
selling or transferring assets, either directly or indirectly, 
including through an affiliate, to the issuing entity. See Item 
1101(l) of Regulation AB.
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     A provision in the pooling and servicing agreement that 
requires the party obligated to repurchase the assets for breach of 
representations and warranties to periodically furnish an opinion of an 
independent third party regarding whether the obligated party acted 
consistently with the terms of the pooling and servicing agreement with 
respect to any loans that the trustee put back to the obligated party 
for violation of representations and warranties and which were not 
repurchased; and
     An undertaking by the issuer to file Exchange Act reports 
so long as non-affiliates of the depositor hold any securities that 
were sold in registered transactions backed by the same pool of assets.
    We also are proposing to replace Forms S-1 and S-3 with new forms 
for registered ABS offerings--proposed Forms SF-1 and SF-3--and to 
revise the shelf offering structure for those securities. Form SF-3 
would be the form used for ABS shelf offerings.
    Given many ABS investors' stated desire for more time to consider 
the transaction and for more detailed information regarding the pool 
assets,\48\ we are proposing to revise the filing deadlines in shelf 
offerings to provide investors with additional time to analyze 
transaction-specific information prior to making an investment 
decision. These changes are designed to promote independent analysis of 
ABS by investors rather than reliance on credit ratings. Under the 
proposed ABS shelf procedures, an ABS issuer would be required to file 
a preliminary prospectus with the Commission for each takedown off of 
the proposed new shelf registration form for ABS (Form SF-3) at least 
five business days prior to the first sale in the offering.\49\ Under 
the

[[Page 23332]]

proposal, issuers would use one prospectus for each transaction and the 
current practice of using core or base prospectuses plus supplements 
would be eliminated for ABS.
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    \48\ See discussion in Section III.A.1 below regarding our 
proposals relating to asset-level information.
    \49\ Pursuant to Exchange Act Rule 15c2-8(b) [17 CFR 240.15c2-
8(b)], with respect to ABS, a broker-dealer is exempt from the 
requirement that a preliminary prospectus be delivered to 
prospective investors at least 48 hours prior to sending a 
confirmation of sale if the issuer of the securities has not 
previously been required to file reports pursuant to Sections 13(a) 
or 15(d) of the Exchange Act (15 U.S.C. 78m or 15 U.S.C. 28o). We 
also are proposing to repeal this exception from Rule 15c2-8(b) such 
that a broker-dealer would be required to deliver a preliminary 
prospectus at least 48 hours prior to sending a confirmation of sale 
in connection with an issuance of ABS, including those issued by ABS 
issuers exempted from the requirement to file reports pursuant to 
Section 12(h) of the Exchange Act.
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C. Disclosure

    In 2004, we adopted a new set of rules prescribing the disclosure 
requirements for asset-backed issuers.\50\ Many disclosure requirements 
of Regulation AB are principles-based. Regulation AB currently requires 
that material, aggregate information about the composition and 
characteristics of the asset pool be filed with the Commission and 
provided to investors. As described in detail in Sections III, IV and V 
below, we are proposing additional, and, in some cases, revised 
disclosure requirements for ABS offerings and ongoing reporting.
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    \50\ See the 2004 ABS Adopting Release.
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    For each loan or asset in the asset pool, we are proposing to 
require disclosure of specified data relating to the terms of the 
asset, obligor characteristics, and underwriting of the asset. Such 
data would be provided in a machine-readable, standardized format so 
that it is most useful to investors and the markets. Under our 
proposal, issuers would be required to provide the asset-level data or 
grouped account data at the time of securitization, when new assets are 
added to the pool underlying the securities, and on an ongoing basis.
    We are proposing to require the filing of a computer program (the 
``waterfall computer program,'' as defined in the proposed rule) of the 
contractual cash flow provisions of the securities in the form of 
downloadable source code in Python, a commonly used computer 
programming language that is open source and interpretive. The computer 
program would be tagged in XML and required to be filed with the 
Commission as an exhibit. Under our proposal, the filed source code for 
the computer program, when downloaded and run (by loading it into an 
open ``Python'' session on the investor's computer), would be required 
to allow the user to programmatically input information from the asset 
data file that we are proposing to require as described above. We 
believe that, with the waterfall computer program and the asset data 
file, investors would be better able to conduct their own evaluations 
of ABS and may be less likely to be dependent on the opinions of credit 
rating agencies.
    We also are proposing additional requirements to refine current 
disclosure requirements for asset-backed securities. Among other 
things, we are proposing to require:
     Aggregated and loan-level data relating to the type and 
amount of assets that do not meet the underwriting criteria that is 
specified in the prospectus;
     For certain identified originators, information relating 
to the amount of the originator's publicly securitized assets that, in 
the last three years, has been the subject of a demand to repurchase or 
replace;
     For the sponsor, information relating to the amount of 
publicly securitized assets sold by the sponsor that, in the last three 
years, has been the subject of a demand to repurchase or replace;
     Additional information regarding originators and sponsors;
     Descriptions relating to static pool information, such as 
a description of the methodology used in determining or calculating the 
characteristics of the pool performance as well as any terms or 
abbreviations used;
     That static pool information for amortizing asset pools 
comply with the Item 1100(b) requirements for the presentation of 
historical delinquency and loss information; and
     The filing of Form 8-K for a one percent or more change in 
any material pool characteristic from what is described in the 
prospectus (rather than for a five percent or more change, as currently 
required).

We also are proposing to limit some of the existing exceptions to the 
discrete pool requirement in the definition of an asset-backed 
security. This is intended to not only address recent concerns arising 
out of the financial crisis but also serve to protect against future 
practices of participants along the chain of securitization that could 
result in the addition of assets into a securitization pool without a 
clear understanding of their quality.

D. Privately-Issued Structured Finance Products

    A significant portion of securities transactions, including the 
offer and sale of all CDOs and ABCP, is conducted in the exempt private 
placement market, which includes both offerings eligible for Rule 144A 
resales and other private placements.\51\ CDOs are typically sold by 
the issuer in a private placement to one or more initial purchaser or 
purchasers in reliance upon the Section 4(2) private offering exemption 
in the Securities Act, which is available only to the issuer, followed 
by resales of the securities to ``qualified institutional buyers'' in 
reliance upon Rule 144A.\52\ Subsequent resales may also be made in 
reliance upon Rule 144A. Rule 144A provides a safe harbor for resellers 
from being deemed an underwriter within the meaning of Sections 
2(a)(11) and 4(1) of the Securities Act \53\ for the sale of securities 
to qualified institutional buyers. If the conditions of the Rule 144A 
safe harbor are satisfied, sellers may rely on the exemption from 
Securities Act registration provided by Section 4(1) for transactions 
by persons other than issuers, underwriters or dealers.\54\
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    \51\ CDOs often permit the active management of their pool 
assets, which could include engaging in activities the primary 
purpose of which is to protect or enhance the returns of their 
equity holders. Such CDOs typically would not meet the requirements 
of Rule 3a-7 under the Investment Company Act because that rule 
includes conditions that are intended to permit an issuer to engage 
only in limited activities that do not in any sense parallel typical 
`management' of registered investment company portfolios. 
Accordingly, these CDOs usually rely on one of the private 
investment company exclusions, both of which condition the exclusion 
in part on the issuer not making a public offering. See fn. 39 
above.
    \52\ In general, a qualified institutional buyer is any entity 
included within one of the categories of ``accredited investor'' 
defined in Rule 501 of Regulation D, acting for its own account or 
the accounts of other qualified institutional buyers, that in the 
aggregate owns and invests on a discretionary basis at least $100 
million in securities of issuers not affiliated with the entity (or 
$10 million for a broker-dealer).
    \53\ 15 U.S.C. 77b(a)(11) and 15 U.S.C. 77d(1).
    \54\ See Section II.A. of the Resale of Restricted Securities, 
Release No. 33-6862 (Apr. 30, 1990) [55 FR 17933] (the ``Rule 144A 
Adopting Release'').
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    Some have concluded that the events of the financial crisis have 
demonstrated that a lack of understanding of CDOs and other privately 
offered structured finance products by investors, rating agencies and 
other market participants may have significant consequences to the 
entire financial system.\55\ For example, the ratings of these products 
proved inaccurate, which significantly contributed to the financial 
crisis.\56\ This lack of understanding by credit rating agencies, 
investors, and other market participants indicates that the offering 
processes and disclosure

[[Page 23333]]

available in the public and private market were inadequate to provide 
appropriate investor protection. Further, these securities are issued 
by special purpose vehicles whose only purpose is holding financial 
assets, with numerous parties involved in the securitization 
process.\57\ As a result, information about those assets and the 
structure of the vehicle is critical to an informed investment 
decision.
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    \55\ See, e.g., The PWG March 2008 Report (noting that 
originators, underwriters, asset managers, credit rating agencies 
and investors failed to obtain sufficient information or conduct 
comprehensive risk assessments on instruments that were often quite 
complex and also noting that downgrades were even more frequent and 
severe for CDOs of ABS with subprime mortgage loans as the 
underlying collateral). See also the Turner Review, at 20 (finding 
that ``the financial innovations of structured credit resulted in 
the creation of products--e.g, the lower credit tranches of CDOs or 
even more so CDO-squareds--which had very high and imperfectly 
understood embedded leverage.'').
    \56\ See id.
    \57\ See also discussion in Section VI. below.
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    The safe harbors of Rule 144A and Regulation D that provide the 
ability to rely on an exemption from registration do not impose 
specific requirements on the disclosures provided to investors if those 
investors meet certain size requirements. However, the financial crisis 
has called into question the ability of our rules, as they relate to 
the private market for asset-backed securities, to ensure that 
investors had access to, and had sufficient time and incentives to 
adequately consider, appropriate information regarding these 
securities.\58\
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    \58\ An assessment of whether the protections of the Act are 
needed often focuses on whether the purchasers of securities can 
``fend for themselves.'' SEC v. Ralston Purina Co., 346 U.S. 119, 
125 (1953). Historically, whether this test is met turned on whether 
information necessary or appropriate to make informed decisions is 
realistically available to the purchasers. See id. The Supreme Court 
also noted that ``We agree that some employee offerings may come 
within Sec.  4(1), e.g., one made to executive personnel who because 
of their position have access to the same kind of information that 
the Act would make available in the form of a registration 
statement.'' Id. at 125. See also Lawler v. Gilliam, 569 F.2d 1283 
(4th Cir. 1978) (discussing the Supreme Court's observation in 
Ralston that an offering to those who are shown to be able to fend 
for themselves is a transaction `not involving any public offering' 
and the ruling that an essential requirement is access to the kind 
of information that registration would disclose).
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    We are proposing to require enhanced disclosure by asset-backed 
issuers who wish to take advantage of the safe harbor provisions for 
these privately-issued securities.\59\ In addition, in order to provide 
additional transparency with respect to the private market for these 
securities, we are proposing amendments to Rule 144A to require a 
structured finance product issuer to file a public notice on EDGAR of 
the initial placement of structured finance products that are eligible 
for resale under Rule 144A. As we believe that the Commission may 
benefit from the availability of more information about private 
placements of structured finance products, we are proposing to require 
that in submitting such notice, the issuer undertakes to provide 
offering materials to the Commission upon written request.
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    \59\ We are also proposing to make conforming changes to 
Regulation D, Form D and Rule 144.
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    All of our proposals, if adopted, would apply to new issuances of 
asset-backed securities. Therefore, the proposed rules, if adopted, 
would not impose new requirements on outstanding asset-backed 
securities.

II. Securities Act Registration

    We are proposing a number of changes to the Securities Act 
registration process for the offer and sale of asset-backed securities. 
These changes include proposed new eligibility criteria for shelf 
offerings and changes to the shelf offering process.

A. History of ABS Shelf Offerings

    In 1984, mortgage related securities, a subset of asset-backed 
securities, were first permitted to be offered on a ``shelf'' basis. 
Contemporaneous with the enactment of Secondary Mortgage Market 
Enhancement Act of 1984 (SMMEA),\60\ which added the definition of 
``mortgage related security'' to the Exchange Act, we amended 
Securities Act Rule 415 to permit mortgage related securities to be 
offered on a delayed basis, regardless of which form is utilized for 
registration of the offering.\61\ SMMEA defined a mortgage related 
security to include a security that has a high investment grade credit 
rating.\62\
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    \60\ Public Law 98-440, 98 Stat. 1689.
    \61\ See Shelf Registration, Release No. 33-6499 (Nov. 17, 1983) 
[48 FR 5289]. Mortgage related securities, including such securities 
as mortgage-backed debt and mortgage participation or pass through 
certificates, may be offered on a delayed basis under Rule 415. See 
17 CFR 230.415(a)(1)(vii). SMMEA was enacted by Congress to increase 
the flow of funds to the housing market by removing regulatory 
impediments to the creation and sale of private mortgage-backed 
securities. An early version of the legislation contained a 
provision that specifically would have required the Commission to 
create a permanent procedure for shelf registration of mortgage 
related securities. The provision was removed from the final version 
of the legislation, however, as a result of the Commission's 
decision to adopt Rule 415, implementing a shelf registration 
procedure for mortgage related securities. See H.R. Rep. No. 994, 
98th Cong., 2d Sess. 14, reprinted in 1984 U.S. Code Cong. & Admin. 
News 2827; see also Release No. 33-6499 (Nov. 17, 1983) [48 FR 
52889], at n. 30 (noting that mortgage related securities were the 
subject of pending legislation).
    \62\ The term, ``mortgage related security'' is defined to 
include ``a security that is rated in one of the two highest rating 
categories by at least one nationally recognized statistical rating 
organization.'' 15 U.S.C. 78c(a)(41).
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    In 1992, in order to facilitate registered offerings of asset-
backed securities and eliminate differences in treatment under our 
registration rules between mortgage related asset-backed securities 
(which could be registered on a delayed basis) and other asset-backed 
securities of comparable character and quality (which could not), we 
expanded the ability to use ``shelf offerings'' to other asset-backed 
securities.\63\ Under the 1992 amendments, offerings of asset-backed 
securities rated investment grade by an NRSRO \64\ could be registered 
on Form S-3.\65\ The eligibility requirement's definition of 
``investment grade'' was largely based on the definition in the 
existing eligibility requirement for non-convertible corporate debt 
securities.\66\
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    \63\ See Simplification of Registration Procedures for Primary 
Securities Offerings, Release No. 33-6964 (Oct. 22, 1992) [57 FR 
32461].
    \64\ The security is an ``investment grade security'' for 
purposes of form eligibility if, at the time of sale, at least one 
NRSRO has rated the security in one of its generic rating categories 
which signifies investment grade, typically one of the four highest 
categories. See General Instructions I.B.2 and I.B.5 of Form S-3.
    \65\ Under Securities Act Rule 415, securities registered on 
Form S-3 or Form F-3 may be offered on a continuous or delayed 
basis. See 17 CFR 230.415(a)(1)(x).
    \66\ See Release No. 33-6964.
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    The 1992 amendments did not prescribe specific disclosure 
requirements for ABS offerings; disclosure in ABS offerings was based 
largely on market practices and SEC staff guidance.\67\ At the end of 
2004, the Commission adopted new rules and amendments under the 
Securities Act and the Exchange Act addressing the registration, 
disclosure and reporting requirements for asset-backed securities.\68\ 
In the 2004 amendments (``2004 ABS Adopting Release''), we prescribed 
specific ABS disclosure requirements for the first time, which are 
largely principles-based. In addition, under the 2004 amendments, we 
retained the investment grade ratings condition to ABS Form S-3 
eligibility \69\ and added additional shelf eligibility conditions.\70\
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    \67\ See id. The 1992 release explained that the Commission did 
not intend to change the character or quality of the disclosure that 
is customary in these offerings and explained generally the type of 
disclosure that was expected for ABS offerings.
    \68\ See 2004 ABS Adopting Release. In 2003, we raised the 
question whether to eliminate ratings reliance from our shelf 
eligibility requirements in a concept release where we requested 
comment on alternatives to the investment grade ratings component of 
Form S-3 eligibility for ABS and debt offerings. See Rating Agencies 
and the Use of Credit Ratings under the Federal Securities Laws, 
Release No. 33-8236 (Jun. 4, 2003) [68 FR 35258].
    \69\ We noted in 2004, however, that the Commission was engaged 
in a broad review of the role of credit ratings agencies in the 
securities markets and the use of credit ratings for regulatory 
purposes. See Section II.A.3.c of the 2004 ABS Adopting Release.
    \70\ In addition to investment grade rated securities, an ABS 
offering is eligible for Form S-3 registration only if the following 
conditions are met: (i) Delinquent assets must not constitute 20% or 
more, as measured by dollar volume, of the asset pool as of the 
measurement date; and (ii) with respect to securities that are 
backed by leases other than motor vehicle leases, the portion of the 
securitized pool balance attributable to the residual value of the 
physical property underlying the leases, as determined in accordance 
with the transaction agreements for the securities, does not 
constitute 20% or more, as measured by dollar volume, of the 
securitized pool balance as of the measurement date. See General 
Instruction I.B.5 of Form S-3. Moreover, to the extent the depositor 
or any issuing entity previously established, directly or 
indirectly, by the depositor or any affiliate of the depositor are 
or were at any time during the twelve calendar months and any 
portion of a month immediately preceding the filing of the 
registration statement on Form S-3 subject to the requirements of 
Section 12 or 15(d) of the Exchange Act (15 U.S.C. 78l or 78o(d)) 
with respect to a class of asset-backed securities involving the 
same asset class, such depositor and each such issuing entity must 
have filed all material required to be filed regarding such asset-
backed securities pursuant to Section 13, 14 or 15(d) of the 
Exchange Act (15 U.S.C. 78m, 78n or 78o(d)) for such period (or such 
shorter period that each such entity was required to file such 
materials). Such material (except for certain enumerated items) must 
have been filed in a timely manner. See General Instruction I.A.4 of 
Form S-3. We are not proposing changes to these other eligibility 
conditions.

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[[Page 23334]]

    In 2008, we proposed several changes to our rules and form 
requirements that reference investment grade ratings (the ``2008 
Proposing Release''), including a proposal to revise shelf eligibility 
criteria for ABS offerings and primary offerings of non-convertible 
debt by replacing the investment grade ratings component.\71\ Our 
proposal would have replaced investment grade ratings with a 
requirement that sales registered on Form S-3 be made in minimum 
denominations and only to qualified institutional buyers, as defined in 
Rule 144A. We reopened comment on the 2008 Proposing Release on October 
5, 2009.\72\
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    \71\ See the 2008 Proposing Release.
    \72\ See Release No. 33-9069. We also held a Credit Rating 
Agency Roundtable on April 15, 2009 to consider further information 
on ratings and rating agencies. Materials related to the roundtable, 
including an archived webcast and a transcript of the roundtable, 
are available at https://www.sec.gov/spotlight/cra-oversight-roundtable.htm.
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    We received comment letters from 35 commenters on the 2008 
Proposing Release. Commenters generally opposed the proposed amendments 
that would have replaced investment grade ratings references in certain 
rules and the shelf eligibility criteria.\73\ Some commenters on the 
proposed amendments to ABS shelf eligibility noted that the proposed 
eligibility requirements would result in many ABS issuers registering 
offerings on Form S-1 \74\ or selling the securities privately.\75\ 
After considering comments, we are withdrawing this part of the 2008 
proposal and are proposing different replacements to the ratings 
requirement in the shelf eligibility criteria for ABS issuers that we 
believe are better measures of quality, and therefore, are more 
appropriate eligibility criteria. We are also proposing several changes 
to restructure the registered ABS offering process.
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    \73\ See comment letters from American Bar Association (ABA); 
American Electric Power, American Securitization Forum (ASF), 
Arizona Public Service Company, Boeing Capital Corporation (Boeing), 
Cadwalader Wickersham & Taft LLP (Cadwalader), Charles Schwab, 
Constance Curnow, Davis Polk & Wardwell (Davis Polk), Debevoise & 
Plimpton (Debevoise), Dewey & LeBoeuf, Dominion Resources, Inc., 
Edison Electric Institute, Incapital, LLC, Manulife Financial 
Corporation, Mayer Brown LLP (Mayer), Merrill Lynch Depositor, Inc., 
Mortgage Bankers Association, PNM Resources, Inc., Securities 
Industry and Financial Markets Association, Southern Company, WGL 
Holdings, Inc., and Wisconsin Energy Corporation. The public 
comments are available at https://www.sec.gov/comments/s7-18-08/s71808.shtml.
    \74\ 17 CFR 239.11.
    \75\ See, e.g., comment letters from ABA dated September 12, 
2009; ASF; Boeing; Cadwalader; Davis Polk; Debevoise; and Mayer. As 
the proposal in the 2008 Proposing Release did not add requirements 
to the safe harbors for privately-issued asset-backed securities, 
these commenters did not assess whether additional requirements 
would have changed the result.
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B. New Registration Procedures and Forms for Asset-Backed Securities

1. New Shelf Registration Procedures
    Under existing rules, as with offerings of other types of 
securities registered on Form S-3 and Form F-3, the shelf registration 
statement for an offering of asset-backed securities will often be 
effective before a takedown is contemplated. Pursuant to existing 
Securities Act Rules 409 and 430B,\76\ the prospectus in the 
registration statement may omit the specific terms of a takedown if 
that information is unknown or not reasonably available to the issuer 
when the registration statement is made effective.\77\ For ABS 
offerings off the shelf, because assets for a pool backing the 
securities will not be identified until the time of an offering, 
information regarding the actual assets in the pool and the material 
terms of the transaction are sometimes only included in a prospectus or 
prospectus supplement that is filed with the Commission the second 
business day after first use.\78\ This information includes information 
about the pool, underwriting criteria for the assets and exceptions 
made to the underwriting criteria, identification of the originators of 
the assets and other information that is keyed off the identification 
of specific assets for the pool.
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    \76\ 17 CFR 230.409 and 17 CFR 230.430B.
    \77\ The prospectus disclosure in the registration statement is 
often presented through a ``base'' or ``core'' prospectus and a 
prospectus supplement. We are proposing to eliminate this type of 
presentation for asset-backed issuers. See Section II.D.1. below.
    \78\ An instruction to Rule 424(b) requires that a form of 
prospectus or prospectus supplement relating to a delayed offering 
of mortgage-backed securities or an offering of asset-backed 
securities be filed no later than the second business day following 
the date it is first used after effectiveness in connection with a 
public offering or sales, or transmitted by a means reasonably 
calculated to result in filing with the Commission by that date.
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    We recognize that asset-backed issuers have expressed the need to 
use shelf registration to access the capital markets quickly.\79\ We 
understand that the creation of an asset pool to support securitized 
products is a dynamic and ongoing process in which changes can take 
place up until pricing. As a result, our proposals today generally 
maintain the fundamental framework of shelf registration for ABS 
offerings.
---------------------------------------------------------------------------

    \79\ Notably, according to EDGAR, in 2006 and 2007, only three 
ABS issuers filed registration statements on Form S-1 that went 
effective.
---------------------------------------------------------------------------

    However, we also recognize that it is important for investor 
protection that ABS investors have not just adequate information to 
make an investment decision, but also adequate time to analyze the 
information and the potential investment. For the most part, each ABS 
offering off of a shelf registration statement involves securities 
backed by different assets, so that, in essence, from an investor point 
of view, each offering is like an initial public offering with respect 
to the ABS issuer. Information regarding the assets is an important 
piece of information for investors to use to conduct an analysis of the 
ability of those underlying assets to generate sufficient funds to make 
payments on the securities. Furthermore, some have noted the lack of 
time to review transaction-specific information as hindering the 
investors' ability to conduct adequate analysis of the securities.\80\ 
We believe that a more orderly process for asset-backed securities 
offerings with improved investor protections, where investors and 
underwriters have additional time to assist their review of offerings, 
may be needed, even if issuers may not always be able to time their 
offering in a way that takes advantage of short term price peaks. 
Therefore, we are proposing rules designed to increase the amount of 
time that investors have to review information regarding a particular 
shelf takedown and promote analysis of asset-

[[Page 23335]]

backed securities in lieu of undue reliance on security ratings for 
shelf offerings.
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    \80\ See, e.g., Section I.B. of CFA Institute Centre for 
Financial Market Integrity and Council of Institutional Investors, 
U.S. Financial Regulatory Reform: The Investor's Perspective, July 
2009 (noting that securitized products are sold before investors 
have access to a comprehensive and accurate prospectus, noting that 
each ABS offering involves a new and unique security, and 
recommending that the Commission adopt rules to improve the 
timeliness of disclosures to investors); Dr. William W. Irving's 
testimony concerning ``Securitization of Assets: Problems and 
Solutions'' Before the Senate Banking, Housing and Urban Affairs 
Subcommittee on Securities, Insurance, and Investment (Oct. 7, 
2009), at 11 (recommending that there be ample time before a deal is 
priced for investors to review and analyze a full prospectus and not 
just a term sheet). The testimony is available at https://banking.senate.gov/public/.
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(a) Rule 424(h) Filing
    We are proposing to require an asset-backed issuer using a shelf 
registration statement on proposed Form SF-3 to file a preliminary 
prospectus containing transaction-specific information at least five 
business days in advance of the first sale of securities in the 
offering. This requirement, if adopted, would allow investors 
additional time to analyze the specific structure, assets, and 
contractual rights regarding each transaction. Requiring that such 
information be filed at least five business days before the first sale 
of securities in the offering is designed to balance the interest of 
ABS issuers in quick access to the capital markets and the need of 
investors to have more time to consider transaction-specific 
information. We considered whether a longer minimum time period than 
five business days would be more appropriate.\81\