Wells Fargo Bank, National Association, et al., Notice of Application, 55510-55513 [2016-19855]
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less or $100,000 face amount or less) to
transactions with non-institutional
accounts.78 The CFA noted that the
revised standard would help ensure that
all retail transactions would receive
disclosure, regardless of size.79
Three commenters opposed the
proposal to require firms to disclose the
time of the execution of the customer
transaction.80 FIF stated that this
proposal would create additional
expense for firms, and could not be
adjusted in connection with any trade
modifications, cancellations or
corrections.81 FIF also indicated that the
execution time was not necessary for
securities that trade infrequently, as
investors should not have difficulty
ascertaining the prevailing market price
at the time of their trade.82 Schwab
indicated that this would not be a
necessary data point for investors.83
Other commenters, however,
supported including the time of
execution of the customer trade.
Thomson Reuters stated that including
the time of execution would allow retail
investors to more easily identify
relevant trade data on TRACE 84 and FSI
stated that this would allow investors to
understand the market for their security
at the time of their trade.85
Commenters also supported adding a
general link to TRACE.86 FSI and
SIFMA supported the proposal to add a
link to the TRACE Web site on customer
confirmations instead of a CUSIPspecific link, as a CUSIP-specific link
could be inaccurate or misleading, and
could be difficult for firms to
implement.87 BDA stated that a general
link to the main TRACE page would be
operationally easier to achieve.88
Commenters supported the proposed
exclusion for transactions involving
separate trading desks,89 although
Schwab indicated that this exception
should be subject to information barriers
and rigorous oversight.90 The CFA
suggested FINRA specifically require, in
the rule text, that firms have policies
and procedures in place to ensure
functional separation,91 and the SEC
Investor Advocate suggested that FINRA
provide greater guidance as to what
constitutes a functional separation.92
Some commenters supported the
proposal, in cases of transactions
between affiliates, to ‘‘look through’’ to
the affiliate’s principal transaction for
purposes of determining whether
disclosure is required.93 FIF and
Thomson Reuters stated, however, that
not all firms are able to ‘‘look through’’
principal trades, given information
barriers and the fact that firms often
conduct inter-dealer business on a
completely separate platform than the
retail business.94
With respect to the proposed
exemption for fixed-price new issues,
the two commenters that addressed this
issue, CFA Institute and SIFMA,
supported the proposed exemption.95
78 See CFA Letter II at 4; CFA Institute Letter at
3; Coastal Securities Letter II; PIABA Letter II at 2;
Schwab Letter at 5; SIFMA Letter II at 15.
79 See CFA Letter II at 4.
80 See FIF Letter at 5; Schwab Letter at 6; SIFMA
Letter at 16.
81 See FIF Letter at 5.
82 See FIF Letter at 6.
83 See Schwab Letter at 6.
84 See Thomson Reuters Letter at 2.
85 See FSI Letter at 7.
86 See BDA Letter II at 3; Coastal Securities Letter
II; FSI Institute Letter II at 6.
87 See FSI Institute Letter II at 6; SIFMA Letter II
at 19.
88 See BDA Letter II at 3.
89 See CFA Institute Letter at 5; Schwab Letter at
6; SIFMA Letter II at 15.
90 See Schwab Letter at 6.
Electronic Comments
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III. Date of Effectiveness of the
Proposed Rule Change and Timing for
Commission Action
Within 45 days of the date of
publication of this notice in the Federal
Register or within such longer period (i)
as the Commission may designate up to
90 days of such date if it finds such
longer period to be appropriate and
publishes its reasons for so finding or
(ii) as to which the self-regulatory
organization consents, the Commission
will:
(A) By order approve or disapprove
such proposed rule change, or
(B) institute proceedings to determine
whether the proposed rule change
should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to
submit written data, views, and
arguments concerning the foregoing,
including whether the proposed rule
change is consistent with the Act.
Comments may be submitted by any of
the following methods:
91 See
CFA Letter II at 5.
92 See SEC Investor Advocate Letter II at 6.
93 See CFA Institute Letter at 5; Fidelity Letter II
at 11–12; PIABA Letter II at 2; Schwab Letter at 6;
SIFMA Letter II at 18.
94 See FIF Letter II at 5; Thomson Reuters Letter
II at 3.
95 See CFA Institute Letter at 4; SIFMA Letter II
at 15.
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• Send paper comments in triplicate
to Secretary, Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
All submissions should refer to File
Number SR–FINRA–2016–032. This file
number should be included on the
subject line if email is used. To help the
Commission 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/sro.shtml). Copies of the
submission, all subsequent
amendments, all written statements
with respect to the proposed rule
change that are filed with the
Commission, and all written
communications relating to the
proposed rule change between the
Commission and any person, other than
those that may be withheld from the
public in accordance with the
provisions of 5 U.S.C. 552, will be
available for Web site viewing and
printing in the Commission’s Public
Reference Room, 100 F Street NE.,
Washington, DC 20549, on official
business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of the
filing also will be available for
inspection and copying at the principal
office of the Exchange. 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. All submissions
should refer to File Number SR–FINRA–
2016–032, and should be submitted on
or before September 9, 2016.
For the Commission, by the Division of
Trading and Markets, pursuant to delegated
authority.96
Robert W. Errett,
Deputy Secretary.
[FR Doc. 2016–19773 Filed 8–18–16; 8:45 am]
BILLING CODE 8011–01–P
• Use the Commission’s Internet
comment form (https://www.sec.gov/
rules/sro.shtml); or
• Send an email to rule-comments@
sec.gov. Please include File Number SR–
FINRA–2016–032 on the subject line.
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Paper Comments
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SECURITIES AND EXCHANGE
COMMISSION
[Investment Company Act Release No.
32218; File No. 812–14599]
Wells Fargo Bank, National
Association, et al., Notice of
Application
August 16, 2016.
Securities and Exchange
Commission (‘‘Commission’’).
AGENCY:
96 17
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CFR 200.30–3(a)(12).
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Federal Register / Vol. 81, No. 161 / Friday, August 19, 2016 / Notices
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.
ACTION:
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 any of the
applicants to act as a trustee in
connection with the Issuer’s ABS when
any such applicant is affiliated with an
underwriter for the Issuer’s ABS.
APPLICANTS: Wells Fargo Bank, National
Association; Wells Fargo Bank
Northwest, National Association; and
Wells Fargo Delaware Trust Company,
National Association.
FILING DATES: The application was filed
on January 11, 2016 and amended on
May 2, 2016, and August 2, 2016.
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 September 6, 2016 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: Brent J. Fields, Secretary,
U.S. Securities and Exchange
Commission, 100 F Street NE.,
Washington, DC 20549–1090.
Applicants: c/o Bradford E. Chatigny,
Esq., Managing Counsel, Wells Fargo
Law Department, 301 South College
Street, 32nd Floor, Charlotte, NC 28202.
FOR FURTHER INFORMATION CONTACT:
Laura J. Riegel, Senior Counsel, at (202)
551–3038, or Mary Kay Frech, Branch
Chief, at (202) 551–6821 (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://
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SUMMARY OF APPLICATION:
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www.sec.gov/search/search.htm or by
calling (202) 551–8090.
Applicants’ Representations
1. Each applicant is a wholly-owned
indirect subsidiary of Wells Fargo &
Company.1 Each applicant is frequently
selected to act as trustee in connection
with ABS issued by Issuers.
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 principal 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 of the ABS
Transaction and drafts the Transaction
Documents. 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 that the Issuer holds. The servicer
typically collects all the income from
the assets and remits the income to the
trustee. The trustee uses the income, as
instructed by the servicer and/or 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,
1 Applicants also request 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 any of the applicants as a trustee in connection
with an Issuer’s ABS. Applicants represent that any
other entity that relies on the order in the future
will comply with the terms and conditions of the
application. Any existing entity currently intending
to rely on the requested order has been named as
an applicant.
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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, among other things,
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 an
applicant recommends a trustee to a
sponsor, both the underwriter’s
recommendation and any selection of an
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 an applicant. An applicant
will not price its services as a 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 an 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,
an applicant will resign as trustee for
the Issuer consistent with the
requirements of rule 3a–7(a)(4)(i). In
such an event, an 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 place them
privately 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
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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 for the assets to be
transferred to the Issuer in connection
with, and prior to, the related
securitization.
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. Applicants represent that
although an underwriter typically may
provide credit or credit enhancement for
an Issuer or engage in remarketing agent
activities, an underwriter affiliated with
an 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
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‘‘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. Applicants request 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
an applicant as a trustee to the Issuer
when such applicant is affiliated with
an underwriter involved in the
organization of the Issuer. Applicants
submit 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. Applicants note that when rule 3a–
7 was proposed in 1992, virtually all
trustees were unaffiliated with the other
parties involved in an ABS Transaction.
Applicants state 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. Applicants also state
that bank consolidation has been
accompanied by the expansion of banks
into investment banking, including the
underwriting of ABS Transactions.
Applicants further state that due to
these banking industry changes, most
trustees that provide services to Issuers,
including an applicant, have affiliations
with underwriters to Issuers. Applicants
state that, as a result, when an affiliate
of an 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. Applicants state that the
Independent Trustee Requirement
imposes an unnecessary regulatory
limitation on trustee selection and
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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. Applicants submit that due to the
nature and timing of the roles of the
trustee and the underwriter, an
applicant’s affiliation with an
underwriter would not result in a
conflict of interest or possibility of
overreaching that could harm investors.
Applicants state 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.
Applicants state 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 have no role
subsequent to the distribution of the
Issuer’s securities. Applicants further
state 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. Applicants state 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.
Applicants state 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. Applicants further
state 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,
applicants state 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. Applicants submit 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. Applicants state
that each applicant would continue to
act as an independent party
safeguarding the assets of any Issuer
regardless of an affiliation with an
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underwriter of the ABS. Applicants
submit 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. Applicants further state
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. Applicants state that the conditions
set forth below provide additional
protections against conflicts and
overreaching. For example, the
conditions ensure that an applicant will
continue to act as an independent party
safeguarding the assets of an Issuer
regardless of an affiliation with an
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.
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 the
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.
Brent J. Fields,
Secretary.
[FR Doc. 2016–19855 Filed 8–18–16; 8:45 am]
BILLING CODE 8011–01–P
SECURITIES AND EXCHANGE
COMMISSION
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Applicants’ Conditions
Each 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
for the assets to be transferred to the
Issuer in connection with, and prior to,
the related securitization.
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 for
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[Release No. 34–78578; File No. SR–
NASDAQ–2016–109]
Self-Regulatory Organizations; The
NASDAQ Stock Market LLC; Notice of
Filing and Immediate Effectiveness of
Proposed Rule Change To Amend
Nasdaq Rule 7047
August 15, 2016.
Pursuant to Section 19(b)(1) of the
Securities Exchange Act of 1934
(‘‘Act’’),1 and Rule 19b–4 thereunder,2
notice is hereby given that on August 3,
2016, The NASDAQ Stock Market LLC
(‘‘Nasdaq’’ or ‘‘Exchange’’) filed with the
Securities and Exchange Commission
(‘‘SEC’’ or ‘‘Commission’’) a 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 proposing to amend Rule
7047 (Nasdaq Basic) 3 with language
indicating the removal of certain credits
1 15
U.S.C. 78s(b)(1).
CFR 240.19b–4.
3 References to rules are to Nasdaq rules, unless
otherwise noted.
2 17
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55513
that a Distributor 4 is eligible to receive
in respect to Nasdaq Basic.5
While changes pursuant to this
proposal are effective upon filing, the
Exchange has designated these changes
to be operative on September 1, 2016.
The text of the proposed rule change
is available at
nasdaq.cchwallstreet.com, at Nasdaq’s
principal office, and at the
Commission’s Public Reference Room.
II. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
In its filing with the Commission,
Nasdaq 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 those
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 parts of such
statements.
A. Self-Regulatory Organization’s
Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule
Change
1. Purpose
The purpose of this proposal is to
amend Rule 7047(c) with language
indicating that the Distributor fee for
Nasdaq Basic will be uniformly applied
to all Distributors, regardless of any user
fees, immediately after approval to
receive Nasdaq Basic, at the current fee
of $1,500 per month.6
Nasdaq Basic is a proprietary data
product that provides a low cost
alternative to the other Level 1 offerings.
Nasdaq Basic provides the best bid and
offer and last sale information for all
U.S. exchange-listed securities based on
liquidity within the Nasdaq market
center, as well as trades reported to the
FINRA/Nasdaq Trade Reporting
FacilityTM (TRFTM) (‘‘FINRA/Nasdaq
TRF’’).7 Thus, Nasdaq Basic provides
4 The term ‘‘Distributor’’ refers to any entity that
receives Nasdaq Basic data directly from Nasdaq or
indirectly through another entity and then
distributes it to one or more Subscribers. Rule 7047
(d)(1).
5 Nasdaq Basic, which is discussed below, is a
proprietary data product that provides a low cost
alternative to other Level 1 offerings. Rule 7047.
Level 1 provides primary market data such as bid/
ask price and size and last price and size.
6 Now, as discussed below, each Distributor is
eligible to receive a credit against its monthly
Distributor Fee for Nasdaq Basic equal to the
amount of its monthly user fees for Nasdaq Basic
up to a maximum of $1,500. Rule 7047(c).
7 ‘‘FINRA’’ is the Financial Industry Regulatory
Authority.
E:\FR\FM\19AUN1.SGM
19AUN1
]]>Agencies
[Federal Register Volume 81, Number 161 (Friday, August 19, 2016)]
[Notices]
[Pages 55510-55513]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-19855]
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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Release No. 32218; File No. 812-14599]
Wells Fargo Bank, National Association, et al., Notice of
Application
August 16, 2016.
AGENCY: Securities and Exchange Commission (``Commission'').
[[Page 55511]]
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 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 any of the applicants to act as a
trustee in connection with the Issuer's ABS when any such applicant is
affiliated with an underwriter for the Issuer's ABS.
APPLICANTS: Wells Fargo Bank, National Association; Wells Fargo Bank
Northwest, National Association; and Wells Fargo Delaware Trust
Company, National Association.
FILING DATES: The application was filed on January 11, 2016 and amended
on May 2, 2016, and August 2, 2016.
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 September 6, 2016 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: Brent J. Fields, Secretary, U.S. Securities and Exchange
Commission, 100 F Street NE., Washington, DC 20549-1090. Applicants: c/
o Bradford E. Chatigny, Esq., Managing Counsel, Wells Fargo Law
Department, 301 South College Street, 32nd Floor, Charlotte, NC 28202.
FOR FURTHER INFORMATION CONTACT: Laura J. Riegel, Senior Counsel, at
(202) 551-3038, or Mary Kay Frech, Branch Chief, at (202) 551-6821
(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.
Applicants' Representations
1. Each applicant is a wholly-owned indirect subsidiary of Wells
Fargo & Company.\1\ Each applicant is frequently selected to act as
trustee in connection with ABS issued by Issuers.
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\1\ Applicants also request 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 any of the applicants as a trustee in connection with an
Issuer's ABS. Applicants represent that any other entity that relies
on the order in the future will comply with the terms and conditions
of the application. Any existing entity currently intending to rely
on the requested order has been named as an applicant.
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2. An 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 principal 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 of the ABS
Transaction and drafts the Transaction Documents. 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 that the Issuer holds. The servicer typically collects all
the income from the assets and remits the income to the trustee. The
trustee uses the income, as instructed by the servicer and/or 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,
among other things, 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 an applicant recommends a
trustee to a sponsor, both the underwriter's recommendation and any
selection of an 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 an applicant. An applicant will not price its services as a
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
an 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, an applicant will resign as
trustee for the Issuer consistent with the requirements of rule 3a-
7(a)(4)(i). In such an event, an 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 place them privately 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
[[Page 55512]]
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 for the assets to be transferred to the Issuer in connection
with, and prior to, the related securitization.
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.
Applicants represent that although an underwriter typically may provide
credit or credit enhancement for an Issuer or engage in remarketing
agent activities, an underwriter affiliated with an 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. Applicants request 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 an applicant as a trustee to the Issuer
when such applicant is affiliated with an underwriter involved in the
organization of the Issuer. Applicants submit 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. Applicants note that when rule 3a-7 was proposed in 1992,
virtually all trustees were unaffiliated with the other parties
involved in an ABS Transaction. Applicants state 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. Applicants also state that bank
consolidation has been accompanied by the expansion of banks into
investment banking, including the underwriting of ABS Transactions.
Applicants further state that due to these banking industry changes,
most trustees that provide services to Issuers, including an applicant,
have affiliations with underwriters to Issuers. Applicants state that,
as a result, when an affiliate of an 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. Applicants state 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. Applicants submit that due to the nature and timing of the roles
of the trustee and the underwriter, an applicant's affiliation with an
underwriter would not result in a conflict of interest or possibility
of overreaching that could harm investors. Applicants state 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. Applicants
state 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 have no
role subsequent to the distribution of the Issuer's securities.
Applicants further state 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. Applicants state 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. Applicants state 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. Applicants further state 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, applicants state 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. Applicants submit 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. Applicants state
that each applicant would continue to act as an independent party
safeguarding the assets of any Issuer regardless of an affiliation with
an
[[Page 55513]]
underwriter of the ABS. Applicants submit 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. Applicants further state 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. Applicants state that the conditions set forth below provide
additional protections against conflicts and overreaching. For example,
the conditions ensure that an applicant will continue to act as an
independent party safeguarding the assets of an Issuer regardless of an
affiliation with an 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.
Applicants' Conditions
Each 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
for the assets to be transferred to the Issuer in connection with, and
prior to, the related securitization.
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 for 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 the 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.
Brent J. Fields,
Secretary.
[FR Doc. 2016-19855 Filed 8-18-16; 8:45 am]
BILLING CODE 8011-01-P
