MUFG Union Bank, N.A.; Notice of Application, 71143-71145 [2014-28174]

Download as PDF asabaliauskas on DSK5VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 230 / Monday, December 1, 2014 / Notices Lakes populations and resources (including fisheries, aquaculture, and marine ecosystems). • Space Weather: Understanding, assessing, predicting, and mitigating the effects of space weather on technological systems (including satellites, power grids, communications, and navigation). • Transportation: Improving the safety and efficiency of all modes of transportation (including air, highway, railway, and marine). • Water Resources: Improving water resource management through better understanding and monitoring of the water cycle. • Weather: Improving weather information, forecasting, and warning. • Reference Measurements: Improving reference measurements—the underpinnings of all the SBAs—and the fundamental measurement systems and standards supporting them (such as geodesy, bathymetry, topography, and geolocation). OSTP invites you to submit public comments (limit 5 pages) on the technical feasibility of developing microsatellites that can be deployed at equal or lower cost compared to current satellites to meet the sustained missions of the civil Earth observation community. For the purposes of this study, OSTP considers microsatellites as having a mass of less than 100 kg. In your written response, please identify the number of each topic as you address it. OSTP welcomes public input on the following topics: 1. Identify the measurement categories highlighted in the National Plan for Civil Earth Observations relevant to your mission; 2. Technical near-term (1–5 years) capabilities of microsatellite system(s) related to Earth observations capabilities as defined above; 3. Reliability, system lifetime, and maintainability; 4. Launch requirements including planned launch options (rideshare, microsatellite launch companies, etc.), if they exist; 5. Current technical limitations on microsatellites for operational Earth observing missions; and 6. Broad estimates of development, launch and operational costs of specific systems. Ted Wackler, Deputy Chief of Staff and Assistant Director. [FR Doc. 2014–28178 Filed 11–28–14; 8:45 am] BILLING CODE 3270–F5–P VerDate Sep<11>2014 14:08 Nov 28, 2014 Jkt 235001 SECURITIES AND EXCHANGE COMMISSION [Investment Company Act Release No. 31347; File No. 812–14331] MUFG Union Bank, N.A.; Notice of Application November 24, 2014. 71143 The following is a summary of the application. The complete application may be obtained via the Commission’s Web site by searching for the file number, or for an applicant using the Company name box, at https:// www.sec.gov/search/search.htm or by calling (202) 551–8090. SUPPLEMENTARY INFORMATION: Applicant’s Representations 1. The applicant is a wholly-owned indirect subsidiary of Mitsubishi UFJ Financial Group, Inc. (MUFG).1 MUFG is a global financial services organization that offers a broad range of banking, trust, and securities services to individuals and entities around the SUMMARY: Summary of Application: world. The applicant is frequently Applicant requests an order that would selected to act as trustee in connection permit an issuer of asset-backed with ABS issued by Issuers. 2. An ABS transaction typically securities (‘‘ABS’’) that is not registered involves the transfer of assets by a as an investment company under the seller, usually by a ‘‘sponsor,’’ to a Act in reliance on Rule 3a–7 under the bankruptcy remote special purpose Act (an ‘‘Issuer’’) to appoint the corporate or trust entity that is applicant as a trustee in connection established for the sole purpose of with the Issuer’s ABS when the holding the assets and issuing ABS to applicant is affiliated with an investors (an ‘‘ABS Transaction’’). underwriter for the Issuer’s ABS. Payments of interest and principle on Applicant: MUFG Union Bank, N.A. DATES: Filing Dates: The application was the ABS depend primarily on the cash flow generated by the pool of assets filed on July 11, 2014 and amended on owned by the Issuer. October 3, 2014 and October 10, 2014. 3. The parties to an ABS Transaction Hearing or Notification of Hearing: An enter into several transaction order granting the application will be agreements that provide for the holding issued unless the Commission orders a hearing. Interested persons may request of the assets by the Issuer and define the rights and responsibilities of the parties a hearing by writing to the to the transaction (‘‘Transaction Commission’s Secretary and serving Documents’’). The operative Transaction applicant with a copy of the request, Document governing the trustee is personally or by mail. Hearing requests referred to herein as the ‘‘Agreement.’’ should be received by the Commission 4. The sponsor of an ABS Transaction by 5:30 p.m. on December 19, 2014 and assembles the pool of assets by should be accompanied by proof of purchasing or funding them, describes service on the applicant, in the form of them in the offering materials, and an affidavit or, for lawyers, a certificate retains the underwriter to sell interests of service. Pursuant to Rule 0–5 under in the assets to investors. The sponsor the Act, hearing requests should state determines the structure, drafts the the nature of the writer’s interest, any documents, and prices the ABS facts bearing upon the desirability of a Transaction. The sponsor selects the hearing on the matter, the reason for the other parties to the ABS Transaction, request, and the issues contested. including the underwriter, the servicer, Persons who wish to be notified of a and the trustee. hearing may request notification by 5. The servicer, either directly or writing to the Commission’s Secretary. through subservicers, manages the ADDRESSES: The Commission: Brent J. assets held by the Issuer. The servicer Fields, Secretary, U.S. Securities and typically collects the income from the Exchange Commission, 100 F Street NE., assets and remits the income to the Washington, DC 20549–1090. Applicant: MUFG Union Bank, N.A., 1 The applicant also requests that the order apply to an Issuer’s future appointment of any other entity 445 S. Figueroa Street, Suite 1203, Los controlling, controlled by, or under common Angeles, CA 90071. control (as defined in Section 2(a)(9) of the Act) FOR FURTHER INFORMATION CONTACT: with the applicant as a trustee in connection with an Issuer’s ABS. The applicant represents that any Rochelle Kauffman Plesset, Senior other entity intending to rely on this relief will Counsel, at (202) 551–6840, or Nadya comply with the terms and conditions of the Roytblat, Assistant Chief Counsel at application. Any existing entity currently intending (202) 551–0825 (Division of Investment to rely on the requested order has been named as an applicant. Management, Chief Counsel’s Office). Securities and Exchange Commission (‘‘Commission’’). ACTION: Notice of an application under Section 6(c) of the Investment Company Act of 1940 (‘‘Act’’) for an exemption from certain requirements of Rule 3a– 7(a)(4)(i) under the Act. AGENCY: PO 00000 Frm 00060 Fmt 4703 Sfmt 4703 E:\FR\FM\01DEN1.SGM 01DEN1 asabaliauskas on DSK5VPTVN1PROD with NOTICES 71144 Federal Register / Vol. 79, No. 230 / Monday, December 1, 2014 / Notices trustee. The trustee uses the income, as instructed by the servicer and as provided by the Agreement, to pay interest and principal on the ABS, to fund reserve accounts and purchases of additional assets, and to make other payments including fees owed to the trustee and other parties to the ABS Transaction. 6. The sponsor of an ABS Transaction selects the trustee and other participants in the transaction. In selecting a trustee, the sponsor generally seeks to obtain customary trust administrative and related services for the Issuer at minimal cost. In some instances, other parties to an ABS Transaction may provide recommendations to a sponsor about potential trustees. An underwriter for an ABS Transaction also may provide advice to the sponsor about trustee selection based on the underwriter’s knowledge of the pricing and expertise offered by a particular trustee in light of the contemplated transaction. 7. If an underwriter affiliated with the applicant recommends a trustee to a sponsor, both the underwriter’s recommendation and any selection of the applicant by the sponsor will be based upon customary market considerations of pricing and expertise, among other things, and the selection will result from an arms-length negotiation between the sponsor and the applicant. The applicant will not price its services as trustee in a manner designed to facilitate its affiliate being named underwriter. 8. The trustee’s role in an ABS Transaction is specifically defined by the Agreement, and under the Agreement the trustee is not expected or required to perform discretionary functions. The responsibilities of the trustee as set forth in the Agreement are narrowly circumscribed and limited to those expressly accepted by the trustee. The trustee negotiates the provisions applicable to it directly with the sponsor and is then appointed by, and enters into the Agreement with, the Issuer. 9. The trustee usually becomes involved in an ABS Transaction after the substantive economic terms have been negotiated between the sponsor and the underwriters. The trustee does not monitor any service performed by, or obligation of, an underwriter, whether or not the underwriter is affiliated with the trustee. In the unlikely event that the applicant, in acting as trustee to an Issuer for which an affiliate acts as underwriter, becomes obligated to enforce any of the affiliated underwriter’s obligations to the Issuer, the applicant will resign as trustee for the Issuer consistent with the VerDate Sep<11>2014 14:08 Nov 28, 2014 Jkt 235001 requirements of Rule 3a–7(a)(4)(i). In such an event, the applicant will incur the costs associated with the Issuer’s procurement of a successor trustee. 10. The sponsor selects one or more underwriters to purchase the Issuer’s ABS and resell them or to privately place them with buyers obtained by the underwriter. The sponsor enters into an underwriting agreement with the underwriter that sets forth the responsibilities of the underwriter with respect to the distribution of the ABS and includes representations and warranties regarding, among other things, the underwriter and the quality of the Issuer’s assets. The obligations of the underwriter under the underwriting agreement are enforceable against the underwriter only by the sponsor. 11. The underwriter may assist the sponsor in the organization of an Issuer by providing advice, based on its expertise in ABS Transactions, on the structuring and marketing of the ABS. This advice may relate to the risk tolerance of investors, the type of collateral, the predictability of the payment stream, the process by which payments are allocated and downstreamed to investors, the way that credit losses may affect the trust and the return to investors, whether the collateral represents a fixed set of specific assets or accounts, and the use of forms of credit enhancements to transform the risk-return profile of the underlying collateral. Any involvement of an underwriter in the organization of an Issuer that occurs is limited to helping determine the assets to be pooled, helping establish the terms of the ABS to be underwritten, and providing the sponsor with a warehouse line of credit with which to purchase the pool assets. 12. An underwriter may provide advice to a sponsor regarding the sponsor’s selection of a trustee for the Issuer. However, an underwriter’s role in structuring a transaction would not extend to determining the obligations of a trustee, and the underwriter is not a party to the Agreement or to any of the Transaction Documents. Except for arrangements involving credit or credit enhancement for an Issuer or remarketing agent activities, the underwriter typically has no role in the operation of the Issuer after its issuance of securities. The applicant represents that although an underwriter typically may provide credit or credit enhancement for an Issuer or engage in remarketing agent activities, an underwriter affiliated with the applicant will not provide or engage in such activities. PO 00000 Frm 00061 Fmt 4703 Sfmt 4703 Applicant’s Legal Analysis 1. Rule 3a–7 excludes from the definition of investment company under Section 3(a) of the Act an Issuer that meets the conditions of the rule. One of Rule 3a–7’s conditions, set forth in paragraph (a)(4)(i), requires that the Issuer appoint a trustee that is not affiliated with the Issuer or with any person involved in the organization or operation of the Issuer (the ‘‘Independent Trustee Requirement’’). Rule 3a–7(a)(4)(i) therefore prohibits an Issuer from appointing a trustee that is affiliated with an underwriter. 2. Section 6(c) of the Act provides that the Commission may exempt any person, security or transaction or any class or classes of persons, securities or transactions from any provision of the Act, or from any rule thereunder, if and to the extent such exemption is necessary or appropriate in the public interest and consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act. 3. Applicant requests exemptive relief under Section 6(c) of the Act from Rule 3a–7(a)(4)(i) under the Act to the extent necessary to permit an Issuer to appoint the applicant as a trustee to the Issuer when the applicant is affiliated with an underwriter involved in the organization of the Issuer. Applicant submits that the requested exemptive relief from the Independent Trustee Requirement is necessary and appropriate in the public interest and is consistent with the protection of investors and the purposes fairly intended by the policy and provisions of the Act due to changes in the banking industry, due to the timing and nature of the roles of the trustee and the underwriter in ABS Transactions, and because the requested relief is consistent with the policies and purposes underlying the Independent Trustee Requirement and Rule 3a–7 in general. 4. Applicant states that when Rule 3a–7 was proposed in 1992, virtually all trustees were unaffiliated with the other parties involved in an ABS Transaction. Applicant states that consolidation within the banking industry, as well as economic and other business factors, has resulted in a significant decrease in the number of bank trustees providing services to Issuers. Applicant also states that bank consolidation has been accompanied by the expansion of banks into investment banking, including the underwriting of ABS Transactions. Applicant further states that due to these banking industry changes, most trustees that provide services to Issuers, E:\FR\FM\01DEN1.SGM 01DEN1 asabaliauskas on DSK5VPTVN1PROD with NOTICES Federal Register / Vol. 79, No. 230 / Monday, December 1, 2014 / Notices including the applicant, have affiliations with underwriters to Issuers. Applicant states that, as a result, when an affiliate of the applicant is selected to underwrite ABS in an ABS Transaction, Rule 3a–7(a)(4)(i)’s Independent Trustee Requirement generally prevents applicant from serving as trustee for the Issuer. Applicant states that the Independent Trustee Requirement imposes an unnecessary regulatory limitation on trustee selection and causes market distortions by leading to the selection of trustees for reasons other than customary market considerations of pricing and expertise. This result is disadvantageous to the ABS market and to ABS investors. 5. Applicant submits that due to the nature and timing of the roles of the trustee and the underwriter, applicant’s affiliation with an underwriter would not result in a conflict of interest or possibility of overreaching that could harm investors. Applicant states that the trustee’s role begins with the Issuer’s issuance of its securities, and the trustee performs its role over the life of the Issuer. Applicant states that, in contrast, the underwriter is chosen early in the ABS Transaction process, may help to structure the ABS Transaction, distributes the Issuer’s securities to investors, and generally has no role subsequent to the distribution of the Issuer’s securities. Applicant further states that an ABS trustee does not monitor the distribution of securities or any other activity performed by underwriters and there is no opportunity for a trustee and an affiliated underwriter to act in concert to benefit themselves at the expense of holders of the ABS either prior to or after the closing of the ABS Transaction. 6. Applicant states that the trustee’s role is narrowly defined, and that the trustee is neither expected nor required to exercise discretion or judgment except after a default in the ABS transaction, which rarely occurs. Applicant states that the duties of a trustee after a default are limited to enforcing the terms of the Agreement for the benefit of debt holders as a ‘‘prudent person’’ would enforce such interests for his own benefit. Applicant further states that the trustee of the Issuer has virtually no discretion to pursue anyone in any regard other than preserving and realizing on the assets. In any event, Applicant states that any role taken by the Trustee in the event of a default would occur after the underwriter has terminated its role in the transaction. 7. Applicant submits that the concerns underlying the Independent Trustee Requirement are not implicated VerDate Sep<11>2014 14:08 Nov 28, 2014 Jkt 235001 if the trustee for an Issuer is independent of the sponsor, servicer, and credit enhancer for the Issuer, but is affiliated with an underwriter for the Issuer, because in that situation no single entity would act in all capacities in the issuance of the ABS and the operation of an Issuer. Applicant states that applicant would continue to act as an independent party safeguarding the assets of any Issuer regardless of an affiliation with an underwriter of the ABS. Applicant submits that the concern that affiliation could lead to a trustee monitoring the activities of an affiliate also is not implicated by a trustee’s affiliation with an underwriter, because, in practice, a trustee for an Issuer does not monitor the distribution of securities or any other activity performed by underwriters. Applicant further states that the requested relief would be consistent with the broader purpose of Rule 3a–7 of not hampering the growth and development of the ABS market, to the extent consistent with investor protection. 8. Applicant states that the conditions set forth below provide additional protections against conflicts and overreaching. For example, the conditions ensure that the Applicant will continue to act as an independent party safeguarding the assets of an Issuer regardless of an affiliation with the underwriter of the ABS and would not allow the underwriter any greater access to the assets, or cash flows derived from the assets, of the Issuer than if there were no affiliation. Applicant’s Conditions The applicant agrees that any order granting the requested relief will be subject to the following conditions: 1. The applicant will not be affiliated with any person involved in the organization or operation of the Issuer in an ABS Transaction other than the underwriter. 2. The applicant’s relationship to an affiliated underwriter will be disclosed in writing to all parties involved in an ABS Transaction, including the rating agencies and the ABS holders. 3. An underwriter affiliated with the applicant will not be involved in the operation of an Issuer, and its involvement in the organization of an Issuer will extend only to determining the assets to be pooled, assisting in establishing the terms of the ABS to be underwritten, and providing the sponsor with a warehouse line of credit with which to purchase the pool assets. 4. An affiliated person of the applicant, including an affiliated underwriter, will not provide credit or PO 00000 Frm 00062 Fmt 4703 Sfmt 4703 71145 credit enhancement to an Issuer if the applicant serves as trustee to the Issuer. 5. An underwriter affiliated with the applicant will not engage in any remarketing agent activities, including involvement in any auction process in which ABS interest rates, yields, or dividends are reset at designated intervals in any ABS Transaction from which the applicant serves as trustee to the Issuer. 6. All of an affiliated underwriter’s contractual obligations pursuant to the underwriting agreement will be enforceable by the sponsor. 7. Consistent with the requirements of Rule 3a–7(a)(4)(i), the applicant will resign as trustee for the Issuer if applicant becomes obligated to enforce any of an affiliated underwriter’s obligations to the Issuer. 8. The applicant will not price its services as trustee in a manner designed to facilitate its affiliate being named underwriter. For the Commission, by the Division of Investment Management, under delegated authority. Kevin M. O’Neill, Deputy Secretary. [FR Doc. 2014–28174 Filed 11–28–14; 8:45 am] BILLING CODE 8011–01–P SECURITIES AND EXCHANGE COMMISSION [Release No. IC–31344] Notice of Applications for Deregistration Under Section 8(f) of the Investment Company Act of 1940 November 21, 2014. The following is a notice of applications for deregistration under section 8(f) of the Investment Company Act of 1940 for the month of November 2014. A copy of each application may be obtained via the Commission’s Web site by searching for the file number, or for an applicant using the Company name box, at https://www.sec.gov/search/ search.htm or by calling (202) 551– 8090. An order granting each application will be issued unless the SEC orders a hearing. Interested persons may request a hearing on any application by writing to the SEC’s Secretary at the address below and serving the relevant applicant with a copy of the request, personally or by mail. Hearing requests should be received by the SEC by 5:30 p.m. on December 19, 2014, and should be accompanied by proof of service on applicants, in the form of an affidavit or, for lawyers, a certificate of service. Pursuant to Rule 0–5 under the Act, E:\FR\FM\01DEN1.SGM 01DEN1

Agencies

[Federal Register Volume 79, Number 230 (Monday, December 1, 2014)]
[Notices]
[Pages 71143-71145]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-28174]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 31347; File No. 812-14331]


MUFG Union Bank, N.A.; Notice of Application

November 24, 2014.
AGENCY: Securities and Exchange Commission (``Commission'').

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

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

DATES: Filing Dates: The application was filed on July 11, 2014 and 
amended on October 3, 2014 and October 10, 2014.
    Hearing or Notification of Hearing: An order granting the 
application will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving applicant with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on December 19, 2014 and should be accompanied by proof of 
service on the applicant, in the form of an affidavit or, for lawyers, 
a certificate of service. Pursuant to Rule 0-5 under the Act, hearing 
requests should state the nature of the writer's interest, any facts 
bearing upon the desirability of a hearing on the matter, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request notification by writing to the 
Commission's Secretary.

ADDRESSES: The Commission: Brent J. Fields, Secretary, U.S. Securities 
and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090. 
Applicant: MUFG Union Bank, N.A., 445 S. Figueroa Street, Suite 1203, 
Los Angeles, CA 90071.

FOR FURTHER INFORMATION CONTACT: Rochelle Kauffman Plesset, Senior 
Counsel, at (202) 551-6840, or Nadya Roytblat, Assistant Chief Counsel 
at (202) 551-0825 (Division of Investment Management, Chief Counsel's 
Office).

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

Applicant's Representations

    1. The applicant is a wholly-owned indirect subsidiary of 
Mitsubishi UFJ Financial Group, Inc. (MUFG).\1\ MUFG is a global 
financial services organization that offers a broad range of banking, 
trust, and securities services to individuals and entities around the 
world. The applicant is frequently selected to act as trustee in 
connection with ABS issued by Issuers.
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    \1\ The applicant also requests that the order apply to an 
Issuer's future appointment of any other entity controlling, 
controlled by, or under common control (as defined in Section 
2(a)(9) of the Act) with the applicant as a trustee in connection 
with an Issuer's ABS. The applicant represents that any other entity 
intending to rely on this relief will comply with the terms and 
conditions of the application. Any existing entity currently 
intending to rely on the requested order has been named as an 
applicant.
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    2. An ABS transaction typically involves the transfer of assets by 
a seller, usually by a ``sponsor,'' to a bankruptcy remote special 
purpose corporate or trust entity that is established for the sole 
purpose of holding the assets and issuing ABS to investors (an ``ABS 
Transaction''). Payments of interest and principle on the ABS depend 
primarily on the cash flow generated by the pool of assets owned by the 
Issuer.
    3. The parties to an ABS Transaction enter into several transaction 
agreements that provide for the holding of the assets by the Issuer and 
define the rights and responsibilities of the parties to the 
transaction (``Transaction Documents''). The operative Transaction 
Document governing the trustee is referred to herein as the 
``Agreement.''
    4. The sponsor of an ABS Transaction assembles the pool of assets 
by purchasing or funding them, describes them in the offering 
materials, and retains the underwriter to sell interests in the assets 
to investors. The sponsor determines the structure, drafts the 
documents, and prices the ABS Transaction. The sponsor selects the 
other parties to the ABS Transaction, including the underwriter, the 
servicer, and the trustee.
    5. The servicer, either directly or through subservicers, manages 
the assets held by the Issuer. The servicer typically collects the 
income from the assets and remits the income to the

[[Page 71144]]

trustee. The trustee uses the income, as instructed by the servicer and 
as provided by the Agreement, to pay interest and principal on the ABS, 
to fund reserve accounts and purchases of additional assets, and to 
make other payments including fees owed to the trustee and other 
parties to the ABS Transaction.
    6. The sponsor of an ABS Transaction selects the trustee and other 
participants in the transaction. In selecting a trustee, the sponsor 
generally seeks to obtain customary trust administrative and related 
services for the Issuer at minimal cost. In some instances, other 
parties to an ABS Transaction may provide recommendations to a sponsor 
about potential trustees. An underwriter for an ABS Transaction also 
may provide advice to the sponsor about trustee selection based on the 
underwriter's knowledge of the pricing and expertise offered by a 
particular trustee in light of the contemplated transaction.
    7. If an underwriter affiliated with the applicant recommends a 
trustee to a sponsor, both the underwriter's recommendation and any 
selection of the applicant by the sponsor will be based upon customary 
market considerations of pricing and expertise, among other things, and 
the selection will result from an arms-length negotiation between the 
sponsor and the applicant. The applicant will not price its services as 
trustee in a manner designed to facilitate its affiliate being named 
underwriter.
    8. The trustee's role in an ABS Transaction is specifically defined 
by the Agreement, and under the Agreement the trustee is not expected 
or required to perform discretionary functions. The responsibilities of 
the trustee as set forth in the Agreement are narrowly circumscribed 
and limited to those expressly accepted by the trustee. The trustee 
negotiates the provisions applicable to it directly with the sponsor 
and is then appointed by, and enters into the Agreement with, the 
Issuer.
    9. The trustee usually becomes involved in an ABS Transaction after 
the substantive economic terms have been negotiated between the sponsor 
and the underwriters. The trustee does not monitor any service 
performed by, or obligation of, an underwriter, whether or not the 
underwriter is affiliated with the trustee. In the unlikely event that 
the applicant, in acting as trustee to an Issuer for which an affiliate 
acts as underwriter, becomes obligated to enforce any of the affiliated 
underwriter's obligations to the Issuer, the applicant will resign as 
trustee for the Issuer consistent with the requirements of Rule 3a-
7(a)(4)(i). In such an event, the applicant will incur the costs 
associated with the Issuer's procurement of a successor trustee.
    10. The sponsor selects one or more underwriters to purchase the 
Issuer's ABS and resell them or to privately place them with buyers 
obtained by the underwriter. The sponsor enters into an underwriting 
agreement with the underwriter that sets forth the responsibilities of 
the underwriter with respect to the distribution of the ABS and 
includes representations and warranties regarding, among other things, 
the underwriter and the quality of the Issuer's assets. The obligations 
of the underwriter under the underwriting agreement are enforceable 
against the underwriter only by the sponsor.
    11. The underwriter may assist the sponsor in the organization of 
an Issuer by providing advice, based on its expertise in ABS 
Transactions, on the structuring and marketing of the ABS. This advice 
may relate to the risk tolerance of investors, the type of collateral, 
the predictability of the payment stream, the process by which payments 
are allocated and down-streamed to investors, the way that credit 
losses may affect the trust and the return to investors, whether the 
collateral represents a fixed set of specific assets or accounts, and 
the use of forms of credit enhancements to transform the risk-return 
profile of the underlying collateral. Any involvement of an underwriter 
in the organization of an Issuer that occurs is limited to helping 
determine the assets to be pooled, helping establish the terms of the 
ABS to be underwritten, and providing the sponsor with a warehouse line 
of credit with which to purchase the pool assets.
    12. An underwriter may provide advice to a sponsor regarding the 
sponsor's selection of a trustee for the Issuer. However, an 
underwriter's role in structuring a transaction would not extend to 
determining the obligations of a trustee, and the underwriter is not a 
party to the Agreement or to any of the Transaction Documents. Except 
for arrangements involving credit or credit enhancement for an Issuer 
or remarketing agent activities, the underwriter typically has no role 
in the operation of the Issuer after its issuance of securities. The 
applicant represents that although an underwriter typically may provide 
credit or credit enhancement for an Issuer or engage in remarketing 
agent activities, an underwriter affiliated with the applicant will not 
provide or engage in such activities.

Applicant's Legal Analysis

    1. Rule 3a-7 excludes from the definition of investment company 
under Section 3(a) of the Act an Issuer that meets the conditions of 
the rule. One of Rule 3a-7's conditions, set forth in paragraph 
(a)(4)(i), requires that the Issuer appoint a trustee that is not 
affiliated with the Issuer or with any person involved in the 
organization or operation of the Issuer (the ``Independent Trustee 
Requirement''). Rule 3a-7(a)(4)(i) therefore prohibits an Issuer from 
appointing a trustee that is affiliated with an underwriter.
    2. Section 6(c) of the Act provides that the Commission may exempt 
any person, security or transaction or any class or classes of persons, 
securities or transactions from any provision of the Act, or from any 
rule thereunder, if and to the extent such exemption is necessary or 
appropriate in the public interest and consistent with the protection 
of investors and the purposes fairly intended by the policy and 
provisions of the Act.
    3. Applicant requests exemptive relief under Section 6(c) of the 
Act from Rule 3a-7(a)(4)(i) under the Act to the extent necessary to 
permit an Issuer to appoint the applicant as a trustee to the Issuer 
when the applicant is affiliated with an underwriter involved in the 
organization of the Issuer. Applicant submits that the requested 
exemptive relief from the Independent Trustee Requirement is necessary 
and appropriate in the public interest and is consistent with the 
protection of investors and the purposes fairly intended by the policy 
and provisions of the Act due to changes in the banking industry, due 
to the timing and nature of the roles of the trustee and the 
underwriter in ABS Transactions, and because the requested relief is 
consistent with the policies and purposes underlying the Independent 
Trustee Requirement and Rule 3a-7 in general.
    4. Applicant states that when Rule 3a-7 was proposed in 1992, 
virtually all trustees were unaffiliated with the other parties 
involved in an ABS Transaction. Applicant states that consolidation 
within the banking industry, as well as economic and other business 
factors, has resulted in a significant decrease in the number of bank 
trustees providing services to Issuers. Applicant also states that bank 
consolidation has been accompanied by the expansion of banks into 
investment banking, including the underwriting of ABS Transactions. 
Applicant further states that due to these banking industry changes, 
most trustees that provide services to Issuers,

[[Page 71145]]

including the applicant, have affiliations with underwriters to 
Issuers. Applicant states that, as a result, when an affiliate of the 
applicant is selected to underwrite ABS in an ABS Transaction, Rule 3a-
7(a)(4)(i)'s Independent Trustee Requirement generally prevents 
applicant from serving as trustee for the Issuer. Applicant states that 
the Independent Trustee Requirement imposes an unnecessary regulatory 
limitation on trustee selection and causes market distortions by 
leading to the selection of trustees for reasons other than customary 
market considerations of pricing and expertise. This result is 
disadvantageous to the ABS market and to ABS investors.
    5. Applicant submits that due to the nature and timing of the roles 
of the trustee and the underwriter, applicant's affiliation with an 
underwriter would not result in a conflict of interest or possibility 
of overreaching that could harm investors. Applicant states that the 
trustee's role begins with the Issuer's issuance of its securities, and 
the trustee performs its role over the life of the Issuer. Applicant 
states that, in contrast, the underwriter is chosen early in the ABS 
Transaction process, may help to structure the ABS Transaction, 
distributes the Issuer's securities to investors, and generally has no 
role subsequent to the distribution of the Issuer's securities. 
Applicant further states that an ABS trustee does not monitor the 
distribution of securities or any other activity performed by 
underwriters and there is no opportunity for a trustee and an 
affiliated underwriter to act in concert to benefit themselves at the 
expense of holders of the ABS either prior to or after the closing of 
the ABS Transaction.
    6. Applicant states that the trustee's role is narrowly defined, 
and that the trustee is neither expected nor required to exercise 
discretion or judgment except after a default in the ABS transaction, 
which rarely occurs. Applicant states that the duties of a trustee 
after a default are limited to enforcing the terms of the Agreement for 
the benefit of debt holders as a ``prudent person'' would enforce such 
interests for his own benefit. Applicant further states that the 
trustee of the Issuer has virtually no discretion to pursue anyone in 
any regard other than preserving and realizing on the assets. In any 
event, Applicant states that any role taken by the Trustee in the event 
of a default would occur after the underwriter has terminated its role 
in the transaction.
    7. Applicant submits that the concerns underlying the Independent 
Trustee Requirement are not implicated if the trustee for an Issuer is 
independent of the sponsor, servicer, and credit enhancer for the 
Issuer, but is affiliated with an underwriter for the Issuer, because 
in that situation no single entity would act in all capacities in the 
issuance of the ABS and the operation of an Issuer. Applicant states 
that applicant would continue to act as an independent party 
safeguarding the assets of any Issuer regardless of an affiliation with 
an underwriter of the ABS. Applicant submits that the concern that 
affiliation could lead to a trustee monitoring the activities of an 
affiliate also is not implicated by a trustee's affiliation with an 
underwriter, because, in practice, a trustee for an Issuer does not 
monitor the distribution of securities or any other activity performed 
by underwriters. Applicant further states that the requested relief 
would be consistent with the broader purpose of Rule 3a-7 of not 
hampering the growth and development of the ABS market, to the extent 
consistent with investor protection.
    8. Applicant states that the conditions set forth below provide 
additional protections against conflicts and overreaching. For example, 
the conditions ensure that the Applicant will continue to act as an 
independent party safeguarding the assets of an Issuer regardless of an 
affiliation with the underwriter of the ABS and would not allow the 
underwriter any greater access to the assets, or cash flows derived 
from the assets, of the Issuer than if there were no affiliation.

Applicant's Conditions

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

    For the Commission, by the Division of Investment Management, 
under delegated authority.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2014-28174 Filed 11-28-14; 8:45 am]
BILLING CODE 8011-01-P
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