Order Extending Temporary Conditional Exemption for Nationally Recognized Statistical Rating Organizations From Requirements of Rule 17g-5 Under the Securities Exchange Act of 1934 and Request for Comment, 72227-72230 [2011-30053]
Download as PDF
<![CDATA[
mstockstill on DSK4VPTVN1PROD with NOTICES
Federal Register / Vol. 76, No. 225 / Tuesday, November 22, 2011 / Notices
annually on Form 2–E (17 CFR 239.201)
the progress of the offering. The form
solicits information such as the dates an
offering commenced and was completed
(if completed), the number of shares
sold and still being offered, amounts
received in the offering, and expenses
and underwriting discounts incurred in
the offering. The information provided
on Form 2–E assists the staff in
monitoring the progress of the offering
and in determining whether the offering
has stayed within the limits set for an
offering exempt under Regulation E.
During the calendar year 2010, there
was one filing of Form 2–E by one
respondent. The Commission has
previously estimated that the total
annual burden associated with
information collection and Form 2–E
preparation and submission is four
hours per filing. Based on the
Commission’s experience with
disclosure documents generally, the
Commission continues to believe that
this estimate is appropriate.
Estimates of average burden hours are
made solely for the purposes of the
Paperwork Reduction Act and are not
derived from a comprehensive or even
representative survey or study of the
costs of Commission rules and forms.
The collection of information under rule
609 and Form 2–E is mandatory. The
information provided under rule 609
and Form 2–E will not be kept
confidential. An agency may not
conduct or sponsor, and a person is not
required to respond to, a collection of
information unless it displays a
currently valid OMB control number.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden of the collection of
information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to Thomas Bayer, Director/Chief
Information Officer, Securities and
Exchange Commission, c/o Remi PavlikSimon, 6432 General Green Way,
Alexandria, VA 22312; or send an email
to: PRA_Mailbox@sec.gov.
VerDate Mar<15>2010
17:14 Nov 21, 2011
Jkt 226001
Dated: November 16, 2011.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–30069 Filed 11–21–11; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
72227
Exchange Commission, c/o Remi PavlikSimon, 6432 General Green Way,
Alexandria, Virginia 22312; or send an
email to: PRA_Mailbox@sec.gov.
Dated: November 16, 2011.
Kevin M. O’Neill,
Deputy Secretary.
[FR Doc. 2011–30070 Filed 11–21–11; 8:45 am]
BILLING CODE 8011–01–P
Proposed Collection; Comment
Request
Upon Written Request, Copies Available
From: Securities and Exchange
Commission, Office of Investor
Education and Advocacy,
Washington, DC 20549–0213.
Extension:
Regulation S–K; OMB Control No. 3235–
0071; SEC File No. 270–2.
Notice is hereby given that, pursuant
to the Paperwork Reduction Act of 1995
(44 U.S.C. 3501 et seq.), the Securities
and Exchange Commission
(‘‘Commission’’) is soliciting comments
on the collection of information
summarized below. The Commission
plans to submit this existing collection
of information to the Office of
Management and Budget for extension
and approval.
Regulation S–K (17 CFR 229.101—et
seq.) specifies the non-financial
disclosure requirements applicable to
registration statements under the
Securities Act of 1933 (15 U.S.C. 77a et
seq.); and registration statements,
periodic reports, going-private
transaction and tender offer statements,
proxy and information statements, and
any other documents required to be
filed under Sections 12, 13, 14, and 15
of the Securities Exchange Act of 1934
(15 U.S.C. 78l, 78m, 78n, 78o(d)).
Regulation S–K is assigned one burden
hour for administrative convenience.
Written comments are invited on: (a)
Whether the proposed collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
(b) the accuracy of the agency’s estimate
of the burden imposed by the collection
of information; (c) ways to enhance the
quality, utility, and clarity of the
information collected; and (d) ways to
minimize the burden of the collection of
information on respondents, including
through the use of automated collection
techniques or other forms of information
technology. Consideration will be given
to comments and suggestions submitted
in writing within 60 days of this
publication.
Please direct your written comments
to Thomas Bayer, Director/Chief
Information Officer, Securities and
PO 00000
Frm 00069
Fmt 4703
Sfmt 4703
SECURITIES AND EXCHANGE
COMMISSION
Sunshine Act Meeting
Federal Register Citation of Previous
Announcement: [76 FR 70781,
November 15, 2011].
STATUS: Closed Meeting.
PLACE: 100 F Street, NW., Washington,
DC.
DATE AND TIME OF PREVIOUSLY ANNOUNCED
MEETING: November 17, 2011 at 2 p.m.
Deletion of
Item.
The following item was not
considered during the Closed Meeting
on Thursday, November 17, 2011:
adjudicatory matter.
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.
CHANGE IN THE MEETING:
Dated: November 17, 2011.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011–30190 Filed 11–18–11; 11:15 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
[Release No. 34–65765; File No. S7–04–09]
Order Extending Temporary
Conditional Exemption for Nationally
Recognized Statistical Rating
Organizations From Requirements of
Rule 17g–5 Under the Securities
Exchange Act of 1934 and Request for
Comment
November 16, 2011.
I. Introduction
On May 19, 2010, the Securities and
Exchange Commission (‘‘Commission’’)
conditionally exempted, with respect to
certain credit ratings and until
December 2, 2010, nationally recognized
statistical rating organizations
(‘‘NRSROs’’) from certain requirements
E:\FR\FM\22NON1.SGM
22NON1
72228
Federal Register / Vol. 76, No. 225 / Tuesday, November 22, 2011 / Notices
in Rule 17g–5(a)(3) 1 under the
Securities Exchange Act of 1934
(‘‘Exchange Act’’), which had a
compliance date of June 2, 2010.2
Pursuant to the Order, an NRSRO is not
required to comply with Rule 17g–
5(a)(3) until December 2, 2010 with
respect to credit ratings where: (1) The
issuer of the structured finance product
is a non-U.S. person; and (2) the NRSRO
has a reasonable basis to conclude that
the structured finance product will be
offered and sold upon issuance, and that
any arranger linked to the structured
finance product will effect transactions
of the structured finance product after
issuance, only in transactions that occur
outside the U.S. (‘‘covered
transactions’’).3 On November 23, 2010,
the Commission extended the
conditional temporary exemption until
December 2, 2011 (the ‘‘Extension
Order’’).4 The Commission is extending
the temporary conditional exemption
exempting NRSROs from complying
with Rule 17g–5(a)(3) with respect to
rating covered transactions until
December 2, 2012.
II. Background
Rule 17g–5 identifies, in paragraphs
(b) and (c) of the rule, a series of
conflicts of interest arising from the
business of determining credit ratings.5
Paragraph (a) of Rule 17g–5 6 prohibits
an NRSRO from issuing or maintaining
a credit rating if it is subject to the
conflicts of interest identified in
paragraph (b) of Rule 17g–5 unless the
NRSRO has taken the steps prescribed
in paragraph (a)(1) (i.e., disclosed the
type of conflict of interest in Exhibit 6
to Form NRSRO in accordance with
Section 15E(a)(1)(B)(vi) of the Exchange
Act 7 and Rule 17g–1) 8 and paragraph
(a)(2) (i.e., established and is
maintaining and enforcing written
policies and procedures to address and
manage conflicts of interest in
accordance with Section 15E(h) of the
Exchange Act).9 Paragraph (c) of Rule
17g–5 specifically prohibits seven types
of conflicts of interest. Consequently, an
NRSRO is prohibited from issuing or
maintaining a credit rating when it is
subject to these conflicts regardless of
1 See
17 CFR 240.17g–5(a)(3).
Securities Exchange Act Release No. 62120
(May 19, 2010), 75 FR 28825 (May 24, 2010)
(‘‘Order’’).
3 See id. at 28827–28 (setting forth conditions of
relief).
4 See Securities Exchange Act Release No. 63363
(Nov. 23, 2010), 75 FR 73137 (Nov. 29, 2010)
(‘‘Extension Order’’).
5 17 CFR 240.17g–5(b) and (c).
6 17 CFR 240.17g–5(a).
7 15 U.S.C. 78o–7(a)(1)(B)(vi).
8 17 CFR 240.17g–1.
9 15 U.S.C. 78o–7(h).
mstockstill on DSK4VPTVN1PROD with NOTICES
2 See
VerDate Mar<15>2010
17:14 Nov 21, 2011
Jkt 226001
whether it had disclosed them and
established procedures reasonably
designed to address them.
In December 2009, the Commission
adopted subparagraph (a)(3) to Rule
17g–5. This provision requires an
NRSRO that is hired by an arranger to
determine an initial credit rating for a
structured finance product to take
certain steps designed to allow an
NRSRO that is not hired by the arranger
to nonetheless determine an initial
credit rating—and subsequently monitor
that credit rating—for the structured
finance product.10 In particular, under
Rule 17g–5(a)(3), an NRSRO is
prohibited from issuing or maintaining
a credit rating when it is subject to the
conflict of interest identified in
paragraph (b)(9) of Rule 17g–5 (i.e.,
being hired by an arranger to determine
a credit rating for a structured finance
product) 11 unless it has taken the steps
prescribed in paragraphs (a)(1) and (2)
of Rule 17g–5 (discussed above) and the
steps prescribed in new paragraph (a)(3)
of Rule 17g–5.12 Rule 17g–5(a)(3),
among other things, requires that the
NRSRO must:
• Maintain on a password-protected
Internet Web site a list of each
structured finance product for which it
currently is in the process of
determining an initial credit rating in
chronological order and identifying the
type of structured finance product, the
name of the issuer, the date the rating
process was initiated, and the Internet
Web site address where the arranger
represents the information provided to
the hired NRSRO can be accessed by
other NRSROs;
• Provide free and unlimited access
to such password-protected Internet
Web site during the applicable calendar
year to any NRSRO that provides it with
a copy of the certification described in
paragraph (e) of Rule 17g–5 that covers
that calendar year; 13 and
10 See 17 CFR 240.17g–5(a)(3); see also Securities
Exchange Act Release No. 61050 (November 23,
2009), 74 FR 63832 (‘‘Adopting Release’’) at 63844–
45.
11 Paragraph (b)(9) of Rule 17g–5 identifies the
following conflict of interest: issuing or maintaining
a credit rating for a security or money market
instrument issued by an asset pool or as part of any
asset-backed or mortgage-backed securities
transaction that was paid for by the issuer, sponsor,
or underwriter of the security or money market
instrument. 17 CFR 240.17g–5(b)(9).
12 17 CFR 240.17g–5(a)(3).
13 Paragraph (e) of Rule 17g–5 requires that an
NRSRO seeking to access the hired NRSRO’s
Internet Web site during the applicable calendar
year must furnish the Commission with the
following certification:
The undersigned hereby certifies that it will
access the Internet Web sites described in 17 CFR
240.17g–5(a)(3) solely for the purpose of
determining or monitoring credit ratings. Further,
the undersigned certifies that it will keep the
PO 00000
Frm 00070
Fmt 4703
Sfmt 4703
• Obtain from the arranger a written
representation that can reasonably be
relied upon that the arranger will,
among other things, disclose on a
password-protected Internet Web site
the information it provides to the hired
NRSRO to determine the initial credit
rating (and monitor that credit rating)
and provide access to the Web site to an
NRSRO that provides it with a copy of
the certification described in paragraph
(e) Rule 17g–5.14
information it accesses pursuant to 17 CFR
240.17g–5(a)(3) confidential and treat it as material
nonpublic information subject to its written policies
and procedures established, maintained, and
enforced pursuant to section 15E(g)(1) of the Act (15
U.S.C. 78o–7(g)(1)) and 17 CFR 240.17g–4. Further,
the undersigned certifies that it will determine and
maintain credit ratings for at least 10% of the issued
securities and money market instruments for which
it accesses information pursuant to 17 CFR
240.17g–5(a)(3)(iii), if it accesses such information
for 10 or more issued securities or money market
instruments in the calendar year covered by the
certification. Further, the undersigned certifies one
of the following as applicable: (1) In the most recent
calendar year during which it accessed information
pursuant to 17 CFR 240.17g–5(a)(3), the
undersigned accessed information for [Insert
Number] issued securities and money market
instruments through Internet Web sites described in
17 CFR 240.17g–5(a)(3) and determined and
maintained credit ratings for [Insert Number] of
such securities and money market instruments; or
(2) The undersigned previously has not accessed
information pursuant to 17 CFR 240.17g–5(a)(3) 10
or more times during the most recently ended
calendar year.
14 In particular, under paragraph (a)(3)(iii) of Rule
17g–5, the arranger must represent to the hired
NRSRO that it will:
(1) Maintain the information described in
paragraphs (a)(3)(iii)(C) and (a)(3)(iii)(D) of Rule
17g–5 available at an identified password-protected
Internet Web site that presents the information in
a manner indicating which information currently
should be relied on to determine or monitor the
credit rating;
(2) Provide access to such password-protected
Internet Web site during the applicable calendar
year to any NRSRO that provides it with a copy of
the certification described in paragraph (e) of Rule
17g–5 that covers that calendar year, provided that
such certification indicates that the nationally
recognized statistical rating organization providing
the certification either: (i) Determined and
maintained credit ratings for at least 10% of the
issued securities and money market instruments for
which it accessed information pursuant to
paragraph (a)(3)(iii) of Rule 17g–5 in the calendar
year prior to the year covered by the certification,
if it accessed such information for 10 or more
issued securities or money market instruments; or
(ii) has not accessed information pursuant to
paragraph (a)(3) of Rule 17g–5 10 or more times
during the most recently ended calendar year.
(3) Post on such password-protected Internet Web
site all information the arranger provides to the
NRSRO, or contracts with a third party to provide
to the NRSRO, for the purpose of determining the
initial credit rating for the security or money market
instrument, including information about the
characteristics of the assets underlying or
referenced by the security or money market
instrument, and the legal structure of the security
or money market instrument, at the same time such
information is provided to the NRSRO; and
(4) Post on such password-protected Internet Web
site all information the arranger provides to the
NRSRO, or contracts with a third party to provide
E:\FR\FM\22NON1.SGM
22NON1
Federal Register / Vol. 76, No. 225 / Tuesday, November 22, 2011 / Notices
The Commission stated in the
Adopting Release that subparagraph
Rule 17g–5(a)(3) is designed to address
conflicts of interest and improve the
quality of credit ratings for structured
finance products by making it possible
for more NRSROs to rate structured
finance products.15 For example, the
Commission noted that when an NRSRO
is hired to rate a structured finance
product, some of the information it
relies on to determine the rating is
generally not made public.16 As a result,
structured finance products frequently
are issued with ratings from only the
one or two NRSROs that have been
hired by the arranger, with the attendant
conflict of interest that creates.17 The
Commission stated that subparagraph
Rule 17g–5(a)(3) was designed to
increase the number of credit ratings
extant for a given structured finance
product and, in particular, to promote
the issuance of credit ratings by
NRSROs that are not hired by
arrangers.18 The Commission’s goal in
adopting the rule was to provide users
of credit ratings with more views on the
creditworthiness of structured finance
products.19 In addition, the Commission
stated that Rule 17g–5(a)(3) was
designed to reduce the ability of
arrangers to obtain better than
warranted ratings by exerting influence
over NRSROs hired to determine credit
ratings for structured finance
products.20 Specifically, by opening up
the rating process to more NRSROs, the
Commission intended to make it easier
for the hired NRSRO to resist such
pressure by increasing the likelihood
that any steps taken to inappropriately
favor the arranger could be exposed to
the market through the credit ratings
issued by other NRSROs.21
Rule 17g–5(a)(3) became effective on
February 2, 2010, and the compliance
date for Rule 17g–5(a)(3) was June 2,
2010.
mstockstill on DSK4VPTVN1PROD with NOTICES
III. Extension of Conditional
Temporary Extension
In the Order, the Commission
requested comment generally, but also
on a number of specific issues.22 The
to the NRSRO, for the purpose of undertaking credit
rating surveillance on the security or money market
instrument, including information about the
characteristics and performance of the assets
underlying or referenced by the security or money
market instrument at the same time such
information is provided to the NRSRO.
15 Adopting Release at 63844.
16 Id.
17 Id.
18 Id.
19 Id.
20 Id.
21 Id.
22 See Order, supra note 2, at 28828.
VerDate Mar<15>2010
17:14 Nov 21, 2011
Jkt 226001
Commission received six comments in
response to this solicitation of
comment.23 The commenters expressed
concern that the extraterritorial
application of Rule 17g–5(a)(3) could, in
the commenter’s view, among other
things, disrupt local securitization
markets,24 inhibit the ability of local
firms to raise capital,25 and conflict with
local laws.26 Several commenters also
requested that the conditional
temporary exemption be extended or
made permanent.27 The Extension
Order again solicited public comment
on issues raised in connection with the
extra-territorial application of Rule 17g–
5(a)(3).28 One comment letter requested
that the Order be made permanent,
citing many of the same reasons set
forth in prior comment letters.29
Given the continued concerns about
potential disruptions of local
securitization markets, and because the
Commission’s consideration of the
issues raised will benefit from
additional time to engage in further
dialogue with interested parties and to
monitor market and regulatory
developments, the Commission believes
23 Letter from Masamichi Kono, Vice
Commissioner for International Affairs, Financial
Services Agency, Japan, to Elizabeth Murphy,
Secretary, Commission, dated Nov. 12, 2010 (‘‘Japan
FSA Letter’’); Letter from Masaru Ono, Executive
Director, Securitization Forum of Japan, to
Elizabeth Murphy, Secretary, Commission, dated
Nov. 12, 2010 (‘‘SFJ Letter’’); Letter from Rick
Watson, Managing Director, Association for
Financial Markets in Europe/European
Securitisation Forum, to Elizabeth Murphy,
Secretary, Commission, dated Nov. 11, 2010
(‘‘AFME Letter’’); Letter from Jack Rando, Director,
Capital Markets, Investment Industry Association of
Canada, to Randall Roy, Assistant Director,
Division, Commission, dated Sep. 22, 2010 (‘‘IIAC
Letter’’); Letter from Christopher Dalton, Chief
Executive Officer, Australian Securitisation Forum,
to Randall Roy, Assistant Director, Division,
Commission, dated Jun. 27, 2010 (‘‘AuSF Letter’’);
Letter from Takefumi Emori, Managing Director,
Japan Credit Rating Agency, Ltd. (‘‘JCR’’) to
Elizabeth Murphy, Secretary, Commission, dated
Jun. 25, 2010 (‘‘JCR Letter’’).
24 See Japan FSA Letter; SFJ Letter; AFME Letter;
JCR Letter, AuSF Letter.
25 See AFME Letter; JCR Letter; AuSF Letter.
26 See Japan FSA Letter; AFME Letter; JCR Letter;
AuSF Letter; IIAC Letter. With respect to local laws,
we note that the European Commission in recent
months has issued a relevant proposal for
amendments to the European Union Regulation on
Credit Ratings. See ‘‘Regulation of the European
Parliament and of the Counsel on amending
Regulation (EC) No 1060/2009 on credit rating
agencies’’ (available at https://ec.europa.eu/
internal_market/securities/docs/agencies/
100602_proposal_en.pdf).
27 See Japan FSA Letter; SFJ Letter; AFME Letter;
JCR Letter.
28 See Letter from Tom Deutsch, Executive
Director, American Securitization Forum, and Chris
Dalton, Chief Executive Officer, Australian
Securitization Forum, to Randall Roy, Assistant
Director, and Joseph Levinson, Special Counsel,
Division, Commission, dated Aug. 9, 2011.
29 See id.
PO 00000
Frm 00071
Fmt 4703
Sfmt 4703
72229
extending the conditional temporary
exemption until December 2, 2012 is
necessary or appropriate in the public
interest, and is consistent with the
protection of investors.
IV. Request for Comment
The Commission believes that it
would be useful to continue to provide
interested parties opportunity to
comment. Comments may be submitted
by any of the following methods:
Electronic Comments
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/exorders.shtml); or
• Send an email to rulecomments@sec.gov. Please include File
Number S7–04–09 on the subject line;
or
• Use the Federal eRulemaking 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 St., NE., Washington, DC 20549–
1090.
All submissions should refer to File
Number S7–04–09. This file number
should be included on the subject line
if email 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/
exorders.shtml). Comments are also
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F St. 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; the
Commission does not edit personal
identifying information from
submissions. You should submit only
information that you wish to make
available publicly.
V. Conclusion
For the foregoing reasons, the
Commission believes it would be
necessary or appropriate in the public
interest and consistent with the
protection of investors to extend the
conditional temporary exemption
exempting NRSROs from complying
with Rule 17g–5(a)(3) with respect to
rating covered transactions until
December 2, 2012.
Accordingly,
It is hereby ordered, pursuant to
Section 36 of the Exchange Act, that a
nationally recognized statistical rating
E:\FR\FM\22NON1.SGM
22NON1
72230
Federal Register / Vol. 76, No. 225 / Tuesday, November 22, 2011 / Notices
organization is exempt until December
2, 2012 from the requirements in Rule
17g–5(a)(3) (17 CFR 240.17g–5(a)(3)) for
credit ratings where:
(1) The issuer of the security or
money market instrument is not a U.S.
person (as defined under Securities Act
Rule 902(k)); and
(2) The nationally recognized
statistical rating organization has a
reasonable basis to conclude that the
structured finance product will be
offered and sold upon issuance, and that
any arranger linked to the structured
finance product will effect transactions
of the structured finance product after
issuance, only in transactions that occur
outside the U.S.
By the Commission.
Elizabeth M. Murphy,
Secretary.
BILLING CODE 8011–01–P
[Release No. 34–65761; File No. SR–
NASDAQ–2011–152]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Adopt a
‘‘Post-Only’’ Order Type
November 16, 2011.
mstockstill on DSK4VPTVN1PROD with NOTICES
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 2 thereunder,
notice is hereby given that on November
8, 2011, The NASDAQ Stock Market
LLC (the ‘‘Exchange’’ or ‘‘NASDAQ’’)
filed with the Securities and Exchange
Commission (‘‘SEC’’ or ‘‘Commission’’)
the proposed rule change as described
in Items I, II, and III, 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
NASDAQ is filing with the
Commission a proposal for the
NASDAQ Options Market (‘‘NOM’’) to
amend Chapter VI, Trading Systems,
Section 1, Definitions, and Section 6,
Acceptance of Quotes and Orders, to
adopt a ‘‘Post-Only Order,’’ as described
further below.
The text of the proposed rule change
is available at https://
U.S.C. 78s(b)(1).
CFR 240.19b–4.
VerDate Mar<15>2010
17:14 Nov 21, 2011
Jkt 226001
In its filing with the Commission, the
Exchange 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 of these
statements may be examined at the
places specified in Item IV below. The
Exchange has prepared summaries, set
forth in sections A, B, and C below, of
the most significant aspects of such
statements.
1. Purpose
SECURITIES AND EXCHANGE
COMMISSION
2 17
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
[FR Doc. 2011–30053 Filed 11–21–11; 8:45 am]
1 15
nasdaq.cchwallstreet.com/, at
NASDAQ’s principal office, and at the
Commission’s Public Reference Room.
The purpose of the proposed rule
change is to introduce a new order type
to NOM which is intended to attract
new business. Specifically, a Post-Only
Order is an order that will not remove
liquidity from the System. A Post-Only
Order is to be ranked and executed on
the Exchange or cancelled, as
appropriate, without routing away to
another market. Post-Only Orders are
evaluated at the time of entry with
respect to locking or crossing other
orders as follows: (i) if a Post-Only
Order would lock or cross an order on
the System, the order will be re-priced
to $.01 below the current low offer (for
bids) or above the current best bid (for
offers) and displayed by the System at
one minimum price increment below
the current low offer (for bids) or above
the current best bid (for offers); and (ii)
if a Post-Only Order would not lock or
cross an order on the System but would
lock or cross the national best bid or
offer as reflected in the protected
quotation of another market center, the
order will be handled pursuant to
Chapter VI, Section 7(b)(3)(C).
The following examples illustrate
how a Post-Only Order will be handled.
If NOM is the only options market on
the NBBO with a market of $1.00–$1.05,
and Exchange B had a market of $ 0.99–
$1.07, then a Post-Only Order to buy at
$1.05 would be handled as follows:
Because the price on the buy order is
equal to the lowest NOM offer ($1.05),
and because NOM’s offer is better than
any other market’s offer, the order
would be processed pursuant to Chapter
VI, Section 1(e)(11)(i), such that the
order would be re-priced to $1.04 and
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
displayed at $1.04. Similarly, if a market
participant were to enter a Post-Only
order to buy at $1.06, a price which
crosses the NOM market, the result
would be the same: the order would be
re-priced to $1.04 and displayed at
$1.04.
As a second example, if NOM is not
part of the NBBO, because NOM’s
market is $1.00–$1.06, and the NBBO is
Market B with a market of $1.01–$1.04,
then a Post-Only Order to buy at $1.05
would be handled as follows: Because it
would lock the NBBO (the NBO is
$1.04), but not the NOM BBO, it would
be processed as explained in Chapter VI,
Section 1 (e)(11)(ii) and Chapter VI,
Section 7(b)(3)(c): It would be re-priced
to $1.04 and displayed at $1.03. In this
case, the Post-Only Order to buy at
$1.05 is being treated the same as a nonPost Only limit order that is designated
as non-routable. Similarly, if a market
participant were to enter a Post-Only
order to buy at $1.05, a price which
crosses the NBBO, the result would be
the same: The order would be re-priced
to $1.04 and displayed at $1.03.
Post-Only Orders received prior to the
opening cross or after market close will
not be accepted. Post-Only Orders may
not have a time-in-force designation of
Good Til Cancelled (‘‘GTC’’).3
The Exchange proposes to add this
definition to its rules in Chapter VI as
new Section 1(e)(11). The Exchange also
proposes to refer to Post-Only Orders in
Section 6(a)(2) of its rules, where there
is a list of order types. Many equities
and options markets currently have
similar orders, and the definition of this
new order type is consistent with the
definitions contained in other
exchanges’ rules.4 In addition, repricing
to avoid locking and crossing other
markets currently applies to
nonroutable orders on NOM pursuant to
Chapter VI, Section 7(b)(3)(C) in the
same way.
2. Statutory Basis
The Exchange believes that its
proposal is consistent with Section 6(b)
of the Act 5 in general, and furthers the
objectives of Section 6(b)(5) of the Act 6
in particular, in that it is designed to
prevent fraudulent and manipulative
acts and practices, to promote just and
equitable principles of trade, to foster
cooperation and coordination with
persons engaged in facilitating
transactions in securities, and to remove
impediments to and perfect the
mechanisms of a free and open market
3 See
NOM Rules, Chapter VI, Section 1(g).
e.g., BATS Rule 21.1(d)(9).
5 15 U.S.C. 78f(b).
6 15 U.S.C. 78f(b)(5).
4 See
E:\FR\FM\22NON1.SGM
22NON1
]]>Agencies
[Federal Register Volume 76, Number 225 (Tuesday, November 22, 2011)]
[Notices]
[Pages 72227-72230]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-30053]
-----------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-65765; File No. S7-04-09]
Order Extending Temporary Conditional Exemption for Nationally
Recognized Statistical Rating Organizations From Requirements of Rule
17g-5 Under the Securities Exchange Act of 1934 and Request for Comment
November 16, 2011.
I. Introduction
On May 19, 2010, the Securities and Exchange Commission
(``Commission'') conditionally exempted, with respect to certain credit
ratings and until December 2, 2010, nationally recognized statistical
rating organizations (``NRSROs'') from certain requirements
[[Page 72228]]
in Rule 17g-5(a)(3) \1\ under the Securities Exchange Act of 1934
(``Exchange Act''), which had a compliance date of June 2, 2010.\2\
Pursuant to the Order, an NRSRO is not required to comply with Rule
17g-5(a)(3) until December 2, 2010 with respect to credit ratings
where: (1) The issuer of the structured finance product is a non-U.S.
person; and (2) the NRSRO has a reasonable basis to conclude that the
structured finance product will be offered and sold upon issuance, and
that any arranger linked to the structured finance product will effect
transactions of the structured finance product after issuance, only in
transactions that occur outside the U.S. (``covered transactions'').\3\
On November 23, 2010, the Commission extended the conditional temporary
exemption until December 2, 2011 (the ``Extension Order'').\4\ The
Commission is extending the temporary conditional exemption exempting
NRSROs from complying with Rule 17g-5(a)(3) with respect to rating
covered transactions until December 2, 2012.
---------------------------------------------------------------------------
\1\ See 17 CFR 240.17g-5(a)(3).
\2\ See Securities Exchange Act Release No. 62120 (May 19,
2010), 75 FR 28825 (May 24, 2010) (``Order'').
\3\ See id. at 28827-28 (setting forth conditions of relief).
\4\ See Securities Exchange Act Release No. 63363 (Nov. 23,
2010), 75 FR 73137 (Nov. 29, 2010) (``Extension Order'').
---------------------------------------------------------------------------
II. Background
Rule 17g-5 identifies, in paragraphs (b) and (c) of the rule, a
series of conflicts of interest arising from the business of
determining credit ratings.\5\ Paragraph (a) of Rule 17g-5 \6\
prohibits an NRSRO from issuing or maintaining a credit rating if it is
subject to the conflicts of interest identified in paragraph (b) of
Rule 17g-5 unless the NRSRO has taken the steps prescribed in paragraph
(a)(1) (i.e., disclosed the type of conflict of interest in Exhibit 6
to Form NRSRO in accordance with Section 15E(a)(1)(B)(vi) of the
Exchange Act \7\ and Rule 17g-1) \8\ and paragraph (a)(2) (i.e.,
established and is maintaining and enforcing written policies and
procedures to address and manage conflicts of interest in accordance
with Section 15E(h) of the Exchange Act).\9\ Paragraph (c) of Rule 17g-
5 specifically prohibits seven types of conflicts of interest.
Consequently, an NRSRO is prohibited from issuing or maintaining a
credit rating when it is subject to these conflicts regardless of
whether it had disclosed them and established procedures reasonably
designed to address them.
---------------------------------------------------------------------------
\5\ 17 CFR 240.17g-5(b) and (c).
\6\ 17 CFR 240.17g-5(a).
\7\ 15 U.S.C. 78o-7(a)(1)(B)(vi).
\8\ 17 CFR 240.17g-1.
\9\ 15 U.S.C. 78o-7(h).
---------------------------------------------------------------------------
In December 2009, the Commission adopted subparagraph (a)(3) to
Rule 17g-5. This provision requires an NRSRO that is hired by an
arranger to determine an initial credit rating for a structured finance
product to take certain steps designed to allow an NRSRO that is not
hired by the arranger to nonetheless determine an initial credit
rating--and subsequently monitor that credit rating--for the structured
finance product.\10\ In particular, under Rule 17g-5(a)(3), an NRSRO is
prohibited from issuing or maintaining a credit rating when it is
subject to the conflict of interest identified in paragraph (b)(9) of
Rule 17g-5 (i.e., being hired by an arranger to determine a credit
rating for a structured finance product) \11\ unless it has taken the
steps prescribed in paragraphs (a)(1) and (2) of Rule 17g-5 (discussed
above) and the steps prescribed in new paragraph (a)(3) of Rule 17g-
5.\12\ Rule 17g-5(a)(3), among other things, requires that the NRSRO
must:
---------------------------------------------------------------------------
\10\ See 17 CFR 240.17g-5(a)(3); see also Securities Exchange
Act Release No. 61050 (November 23, 2009), 74 FR 63832 (``Adopting
Release'') at 63844-45.
\11\ Paragraph (b)(9) of Rule 17g-5 identifies the following
conflict of interest: issuing or maintaining a credit rating for a
security or money market instrument issued by an asset pool or as
part of any asset-backed or mortgage-backed securities transaction
that was paid for by the issuer, sponsor, or underwriter of the
security or money market instrument. 17 CFR 240.17g-5(b)(9).
\12\ 17 CFR 240.17g-5(a)(3).
---------------------------------------------------------------------------
Maintain on a password-protected Internet Web site a list
of each structured finance product for which it currently is in the
process of determining an initial credit rating in chronological order
and identifying the type of structured finance product, the name of the
issuer, the date the rating process was initiated, and the Internet Web
site address where the arranger represents the information provided to
the hired NRSRO can be accessed by other NRSROs;
Provide free and unlimited access to such password-
protected Internet Web site during the applicable calendar year to any
NRSRO that provides it with a copy of the certification described in
paragraph (e) of Rule 17g-5 that covers that calendar year; \13\ and
---------------------------------------------------------------------------
\13\ Paragraph (e) of Rule 17g-5 requires that an NRSRO seeking
to access the hired NRSRO's Internet Web site during the applicable
calendar year must furnish the Commission with the following
certification:
The undersigned hereby certifies that it will access the
Internet Web sites described in 17 CFR 240.17g-5(a)(3) solely for
the purpose of determining or monitoring credit ratings. Further,
the undersigned certifies that it will keep the information it
accesses pursuant to 17 CFR 240.17g-5(a)(3) confidential and treat
it as material nonpublic information subject to its written policies
and procedures established, maintained, and enforced pursuant to
section 15E(g)(1) of the Act (15 U.S.C. 78o-7(g)(1)) and 17 CFR
240.17g-4. Further, the undersigned certifies that it will determine
and maintain credit ratings for at least 10% of the issued
securities and money market instruments for which it accesses
information pursuant to 17 CFR 240.17g-5(a)(3)(iii), if it accesses
such information for 10 or more issued securities or money market
instruments in the calendar year covered by the certification.
Further, the undersigned certifies one of the following as
applicable: (1) In the most recent calendar year during which it
accessed information pursuant to 17 CFR 240.17g-5(a)(3), the
undersigned accessed information for [Insert Number] issued
securities and money market instruments through Internet Web sites
described in 17 CFR 240.17g-5(a)(3) and determined and maintained
credit ratings for [Insert Number] of such securities and money
market instruments; or (2) The undersigned previously has not
accessed information pursuant to 17 CFR 240.17g-5(a)(3) 10 or more
times during the most recently ended calendar year.
---------------------------------------------------------------------------
Obtain from the arranger a written representation that can
reasonably be relied upon that the arranger will, among other things,
disclose on a password-protected Internet Web site the information it
provides to the hired NRSRO to determine the initial credit rating (and
monitor that credit rating) and provide access to the Web site to an
NRSRO that provides it with a copy of the certification described in
paragraph (e) Rule 17g-5.\14\
---------------------------------------------------------------------------
\14\ In particular, under paragraph (a)(3)(iii) of Rule 17g-5,
the arranger must represent to the hired NRSRO that it will:
(1) Maintain the information described in paragraphs
(a)(3)(iii)(C) and (a)(3)(iii)(D) of Rule 17g-5 available at an
identified password-protected Internet Web site that presents the
information in a manner indicating which information currently
should be relied on to determine or monitor the credit rating;
(2) Provide access to such password-protected Internet Web site
during the applicable calendar year to any NRSRO that provides it
with a copy of the certification described in paragraph (e) of Rule
17g-5 that covers that calendar year, provided that such
certification indicates that the nationally recognized statistical
rating organization providing the certification either: (i)
Determined and maintained credit ratings for at least 10% of the
issued securities and money market instruments for which it accessed
information pursuant to paragraph (a)(3)(iii) of Rule 17g-5 in the
calendar year prior to the year covered by the certification, if it
accessed such information for 10 or more issued securities or money
market instruments; or (ii) has not accessed information pursuant to
paragraph (a)(3) of Rule 17g-5 10 or more times during the most
recently ended calendar year.
(3) Post on such password-protected Internet Web site all
information the arranger provides to the NRSRO, or contracts with a
third party to provide to the NRSRO, for the purpose of determining
the initial credit rating for the security or money market
instrument, including information about the characteristics of the
assets underlying or referenced by the security or money market
instrument, and the legal structure of the security or money market
instrument, at the same time such information is provided to the
NRSRO; and
(4) Post on such password-protected Internet Web site all
information the arranger provides to the NRSRO, or contracts with a
third party to provide to the NRSRO, for the purpose of undertaking
credit rating surveillance on the security or money market
instrument, including information about the characteristics and
performance of the assets underlying or referenced by the security
or money market instrument at the same time such information is
provided to the NRSRO.
---------------------------------------------------------------------------
[[Page 72229]]
The Commission stated in the Adopting Release that subparagraph
Rule 17g-5(a)(3) is designed to address conflicts of interest and
improve the quality of credit ratings for structured finance products
by making it possible for more NRSROs to rate structured finance
products.\15\ For example, the Commission noted that when an NRSRO is
hired to rate a structured finance product, some of the information it
relies on to determine the rating is generally not made public.\16\ As
a result, structured finance products frequently are issued with
ratings from only the one or two NRSROs that have been hired by the
arranger, with the attendant conflict of interest that creates.\17\ The
Commission stated that subparagraph Rule 17g-5(a)(3) was designed to
increase the number of credit ratings extant for a given structured
finance product and, in particular, to promote the issuance of credit
ratings by NRSROs that are not hired by arrangers.\18\ The Commission's
goal in adopting the rule was to provide users of credit ratings with
more views on the creditworthiness of structured finance products.\19\
In addition, the Commission stated that Rule 17g-5(a)(3) was designed
to reduce the ability of arrangers to obtain better than warranted
ratings by exerting influence over NRSROs hired to determine credit
ratings for structured finance products.\20\ Specifically, by opening
up the rating process to more NRSROs, the Commission intended to make
it easier for the hired NRSRO to resist such pressure by increasing the
likelihood that any steps taken to inappropriately favor the arranger
could be exposed to the market through the credit ratings issued by
other NRSROs.\21\
---------------------------------------------------------------------------
\15\ Adopting Release at 63844.
\16\ Id.
\17\ Id.
\18\ Id.
\19\ Id.
\20\ Id.
\21\ Id.
---------------------------------------------------------------------------
Rule 17g-5(a)(3) became effective on February 2, 2010, and the
compliance date for Rule 17g-5(a)(3) was June 2, 2010.
III. Extension of Conditional Temporary Extension
In the Order, the Commission requested comment generally, but also
on a number of specific issues.\22\ The Commission received six
comments in response to this solicitation of comment.\23\ The
commenters expressed concern that the extraterritorial application of
Rule 17g-5(a)(3) could, in the commenter's view, among other things,
disrupt local securitization markets,\24\ inhibit the ability of local
firms to raise capital,\25\ and conflict with local laws.\26\ Several
commenters also requested that the conditional temporary exemption be
extended or made permanent.\27\ The Extension Order again solicited
public comment on issues raised in connection with the extra-
territorial application of Rule 17g-5(a)(3).\28\ One comment letter
requested that the Order be made permanent, citing many of the same
reasons set forth in prior comment letters.\29\
---------------------------------------------------------------------------
\22\ See Order, supra note 2, at 28828.
\23\ Letter from Masamichi Kono, Vice Commissioner for
International Affairs, Financial Services Agency, Japan, to
Elizabeth Murphy, Secretary, Commission, dated Nov. 12, 2010
(``Japan FSA Letter''); Letter from Masaru Ono, Executive Director,
Securitization Forum of Japan, to Elizabeth Murphy, Secretary,
Commission, dated Nov. 12, 2010 (``SFJ Letter''); Letter from Rick
Watson, Managing Director, Association for Financial Markets in
Europe/European Securitisation Forum, to Elizabeth Murphy,
Secretary, Commission, dated Nov. 11, 2010 (``AFME Letter''); Letter
from Jack Rando, Director, Capital Markets, Investment Industry
Association of Canada, to Randall Roy, Assistant Director, Division,
Commission, dated Sep. 22, 2010 (``IIAC Letter''); Letter from
Christopher Dalton, Chief Executive Officer, Australian
Securitisation Forum, to Randall Roy, Assistant Director, Division,
Commission, dated Jun. 27, 2010 (``AuSF Letter''); Letter from
Takefumi Emori, Managing Director, Japan Credit Rating Agency, Ltd.
(``JCR'') to Elizabeth Murphy, Secretary, Commission, dated Jun. 25,
2010 (``JCR Letter'').
\24\ See Japan FSA Letter; SFJ Letter; AFME Letter; JCR Letter,
AuSF Letter.
\25\ See AFME Letter; JCR Letter; AuSF Letter.
\26\ See Japan FSA Letter; AFME Letter; JCR Letter; AuSF Letter;
IIAC Letter. With respect to local laws, we note that the European
Commission in recent months has issued a relevant proposal for
amendments to the European Union Regulation on Credit Ratings. See
``Regulation of the European Parliament and of the Counsel on
amending Regulation (EC) No 1060/2009 on credit rating agencies''
(available at https://ec.europa.eu/internal_market/securities/docs/agencies/100602_proposal_en.pdf).
\27\ See Japan FSA Letter; SFJ Letter; AFME Letter; JCR Letter.
\28\ See Letter from Tom Deutsch, Executive Director, American
Securitization Forum, and Chris Dalton, Chief Executive Officer,
Australian Securitization Forum, to Randall Roy, Assistant Director,
and Joseph Levinson, Special Counsel, Division, Commission, dated
Aug. 9, 2011.
\29\ See id.
---------------------------------------------------------------------------
Given the continued concerns about potential disruptions of local
securitization markets, and because the Commission's consideration of
the issues raised will benefit from additional time to engage in
further dialogue with interested parties and to monitor market and
regulatory developments, the Commission believes extending the
conditional temporary exemption until December 2, 2012 is necessary or
appropriate in the public interest, and is consistent with the
protection of investors.
IV. Request for Comment
The Commission believes that it would be useful to continue to
provide interested parties opportunity to comment. Comments may be
submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (https://www.sec.gov/rules/exorders.shtml); or
Send an email to rule-comments@sec.gov. Please include
File Number S7-04-09 on the subject line; or
Use the Federal eRulemaking 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 St., NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-04-09. This file number
should be included on the subject line if email 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/exorders.shtml). Comments
are also available for Web site viewing and printing in the
Commission's Public Reference Room, 100 F St. 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; the Commission does
not edit personal identifying information from submissions. You should
submit only information that you wish to make available publicly.
V. Conclusion
For the foregoing reasons, the Commission believes it would be
necessary or appropriate in the public interest and consistent with the
protection of investors to extend the conditional temporary exemption
exempting NRSROs from complying with Rule 17g-5(a)(3) with respect to
rating covered transactions until December 2, 2012.
Accordingly,
It is hereby ordered, pursuant to Section 36 of the Exchange Act,
that a nationally recognized statistical rating
[[Page 72230]]
organization is exempt until December 2, 2012 from the requirements in
Rule 17g-5(a)(3) (17 CFR 240.17g-5(a)(3)) for credit ratings where:
(1) The issuer of the security or money market instrument is not a
U.S. person (as defined under Securities Act Rule 902(k)); and
(2) The nationally recognized statistical rating organization has a
reasonable basis to conclude that the structured finance product will
be offered and sold upon issuance, and that any arranger linked to the
structured finance product will effect transactions of the structured
finance product after issuance, only in transactions that occur outside
the U.S.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-30053 Filed 11-21-11; 8:45 am]
BILLING CODE 8011-01-P
