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Release No. 33-8419 Release No. 34-49644 69 Fed. Reg. 26649 - May 13, 2004
69 Fed. Reg. 30750 - May 28, 2004 (Correction)
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 Table of Contents
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I. Overview
A. What are Asset-Backed Securities?
Asset-backed securities, or ABS, are securities that are backed by a discrete pool of self-liquidating financial assets. Asset-backed securitization is a financing technique in which financial assets, in many cases themselves less liquid, are pooled and converted into instruments that may be offered and sold more freely in the capital markets.24 In a basic securitization structure, an entity, often a financial institution and commonly known as a "sponsor," originates or otherwise acquires a pool of financial assets, such as mortgage loans, directly or through an affiliate. It then sells the financial assets to a specially created investment vehicle that issues securities backed by those financial assets, which are "asset-backed securities." Payment on the asset-backed securities depends primarily on the cash flows generated by the assets in the underlying pool and other rights designed to assure timely payment, such as guarantees or other features generally known as credit enhancements. The structure of asset-backed securities is intended, among other things, to insulate ABS investors from the corporate credit risk of the sponsor that originated or acquired the financial assets.
The ABS market is fairly young and has rapidly become an important part of the U.S. capital markets. One source estimates that U.S. public ABS issuance grew from $46.8 billion in 1990 to $416 billion in 2003.25 Another source estimates 2003 new issuance closer to $800 billion.26 While residential mortgages were the first financial assets to be securitized, non-mortgage related securitizations have grown to include many other types of financial assets, such as credit card receivables, auto loans and student loans. The Commission has not previously addressed on a comprehensive basis the regulatory treatment of asset-backed securities under the Securities Act or the Exchange Act.
Asset-backed securities and ABS issuers differ from corporate securities and operating companies. In offering these securities, there is generally no business or management to describe. Instead, information about the transaction structure and the quality of the asset pool and servicing is often what is most important to investors. Many of the Commissions existing disclosure and reporting requirements, which are designed primarily for corporate issuers, do not elicit the information that is relevant for most asset-backed securities transactions. Over time, Commission staff, through no-action letters and the filing review process, has developed a framework to address the different nature of asset-backed securities while being cognizant of developments in market practice.
We now propose to address comprehensively the treatment of asset-backed securities under the Securities Act and the Exchange Act. With a few exceptions, our proposals consolidate and codify current staff positions and industry practice. Our proposals relate to four primary regulatory areas: Securities Act registration; disclosure; communications during the offering process; and ongoing reporting under the Exchange Act.
B. Securities Act Registration
We propose a definition of asset-backed security that would demarcate the securities and offerings to which the new proposed rules would apply. The proposed definition would consolidate several staff positions regarding the definition of asset-backed security, including those regarding delinquent and non-performing pool assets. The proposed definition also would allow more lease-backed transactions to be included in the definition of asset-backed security and permit the use of master trusts and revolving periods by more asset classes. These changes are designed to remove regulatory uncertainty and reduce regulatory obstacles and costs of securitization.
In 1992, the Commission amended Form S-3 to allow registration of offerings of investment grade asset-backed securities on a delayed, or "shelf," basis.27 We propose that all registered offerings of asset-backed securities be registered either on Form S-1 or Form S-3, and we propose to specify in those forms which disclosure items would be required. We propose to expand the types of investment grade asset-backed securities that qualify for shelf registration. Consistent with existing staff positions, we do not propose to add a reporting history requirement for Form S-3 eligibility. However, we do propose to codify that previously established reporting obligations regarding other asset-backed securities transactions by the sponsor or the depositor must have been satisfied to maintain Form S-3 eligibility for new transactions. Consistent with a staff no-action letter, we also propose to exclude offerings of asset-backed securities eligible for Form S-3 registration from the requirements of Exchange Act Rule 15c2-8(b) to deliver a preliminary prospectus prior to delivery of a confirmation of sale.
We propose to clarify that the depositoroften the sponsor or an affiliated intermediary that receives the pool assets and transfers them to the issuing entitywould be the statutory "issuer" for purposes of signing the registration statement for the asset-backed securities transaction. We also propose to alleviate impediments to the shelf registration of offerings of asset-backed securities by foreign issuers or backed by foreign financial assets. Finally, we propose to codify, consolidate and streamline staff positions regarding when and how the offering of underlying debt securities must be concurrently registered with an offering of the asset-backed securities backed by those underlying securities.
C. Disclosure
Currently, there are no disclosure items specifically tailored to asset-backed securities. We propose a new principles-based set of disclosure items, "Regulation AB," that would form the basis for disclosure in both Securities Act registration statements and Exchange Act reports. While we request comment on this point, we do not believe it would be practical or effective to draft detailed disclosure guides for each asset type that may be securitized. Instead, we have attempted to identify the disclosure concept required and provide several illustrative examples, while understanding that the application of the particular concept must be tailored to the information material to the particular transaction and asset type involved.
For the most part, our proposed disclosure items are based on the market-driven disclosures that appear today. With a proposed codification of a universal set of disclosure items, however, we do seek a reevaluation by transaction participants of the manner and content of presented disclosure, including the elimination of unnecessary boilerplate and a de-emphasis on unnecessary legal recitations of terms. We also understand that existing disclosure standards may not adequately capture certain categories of information that may be material to an asset-backed securities transaction, such as the background, experience, performance and roles of various transaction parties, including the sponsor, the servicing entity that administers or services the financial assets and the trustee. Our proposed disclosure items relating to these entities are designed to elicit more useful information in these areas. We also propose to require, for the first time, that certain statistical information on a "static pool" basis be provided if material to the transaction to aid in an investors analysis of current and prior pool performance. Consistent with current practice, we do not propose to require audited financial statements regarding the issuing entity for the asset-backed securities in Securities Act or Exchange Act filings, although we do request comment on this point.
Finally, we propose to consolidate and codify current staff positions on when financial or other descriptive information would be required regarding certain third parties, such as obligors of financial assets that reach pool concentration levels or significant providers of credit enhancement or other support for the asset-backed securities. We also propose to streamline and codify current staff positions on when financial information regarding such third parties may be incorporated by reference or referred to in an asset-backed securities filing in lieu of actually including the information in the filing.
D. Communications During the Offering Process
In the mid 1990s, Commission staff issued a series of no-action letters permitting the use of various written materials in addition to the statutory registration statement prospectus in an offering of asset-backed securities.28 These materials provide data about the potential payouts of the financial assets and the asset-backed securities using various prepayment and other assumptions as well as disclose information about the structure of the offering or about the underlying asset pool. We propose to codify and simplify current staff positions on when these materials can be used and when they must be publicly filed with the Commission. We also propose to clarify several interpretive issues regarding the use of these materials given market developments over the decade since the letters were issued. In this regard and given advances made to EDGAR (our electronic data gathering, analysis and retrieval system), we also propose to eliminate the current exemption from electronic filing for these materials.
Shortly after the no-action letters referred to above were issued, Commission staff also issued a no-action letter regarding the publication of research reports by brokers or dealers proximate to an offering of asset-backed securities registered or to be registered on Form S-3.29 The Commission had previously adopted several rules that provided safe harbors under which the publication of research reports would not be deemed a violation of the communications restrictions of Section 5 of the Securities Act.30 However, several of the conditions in those rules were not relevant or practical for asset-backed securities. We propose to codify the modified conditions in the staff no-action letter to provide a similar safe harbor for research reports as they relate to registered offerings of asset-backed securities on Form S-3.
E. Ongoing Reporting under the Exchange Act
As with registration, the ongoing periodic and current reporting requirements applicable to operating companies do not elicit information that would be the most relevant for asset-backed securities. First through a series of exemptive orders, and then primarily through the issuance of no-action letters and other interpretations, Commission staff has allowed modified Exchange Act reporting by ABS issuers. In lieu of quarterly reports on Form 10-Q,31 ABS issuers generally file under cover of Form 8-K the distribution reports required to be prepared under the transaction agreements that detail the payments and performance of the financial assets in the asset pool and payments on the securities backed by that pool. Current reporting on Form 8-K for certain extraordinary events also is required regarding asset-backed securities, but historically only for a narrow subset of events. A modified annual report on Form 10-K is required with two items being most important: a servicers statement of compliance with its servicing obligations; and a report by an independent public accountant regarding compliance with particular servicing criteria. Financial statements of the issuing entity are not required. An asset-backed issuer is required to include a certification under Section 302 of the Sarbanes-Oxley Act32 with its Form 10-K, and, as provided by the Commissions rules governing certification, the staff has previously provided a special form of certification for ABS issuers to use.33 ABS issuers are exempt from the rules implementing Section 404 of the Sarbanes-Oxley Act34 regarding reporting on internal control over financial reporting.35
We propose to codify the basic modified reporting system for asset-backed securities. To distinguish periodic reporting regarding distributions from disclosure of important events that appropriately call for current reporting, we propose one new form type, Form 10-D, to act as the report for the periodic distribution information currently provided under cover of Form 8-K. We also propose to specify which of the Commissions recently adopted Form 8-K events would be applicable to asset-backed securities, and we propose a few additional events specific to asset-backed securities. Consistent with the modified reporting no-action letters, we propose to exclude ABS from quarterly reporting on Form 10-Q and exempt ABS from reporting under Section 16 of the Exchange Act.36 We also propose to clarify how transition reports are to be filed regarding a change in fiscal year.
We propose to specify the disclosure requirements applicable for annual reports on Form 10-K regarding asset-backed securities, which also will be drawn from Regulation AB, and to codify the form of certification to be used under Section 302 of the Sarbanes-Oxley Act. We propose to retain the long-standing requirements for a servicer compliance statement and a report by an independent public accountant as to compliance with particular servicing criteria. Regarding servicing criteria, there are very few existing criteria for evaluating compliance, the most widely used of which currently is the Uniform Single Attestation Program, or USAP, promulgated by the Mortgage Bankers Association of America. However, the USAPs "minimum servicing standards" are designed to be applicable only to servicing of mortgages and do not necessarily represent the full spectrum of servicing activities that may be material to an asset-backed securities transaction. We propose disclosure-based servicing criteria that would form the basis for an assessment and assertion as to material compliance with such criteria (or disclosure as to non-compliance). We also continue the practice of accountant involvement in assessing compliance with servicing criteria by proposing a requirement that a registered public accounting firm attest to the assertion of compliance. Both the report containing the assertion of compliance and the accountants attestation report would be required to be filed with the report on Form 10-K.
As with the Securities Act, we propose to codify that the depositor is the "issuer" for purposes of Exchange Act reporting regarding asset-backed securities. We also propose to specify who may sign the various Exchange Act reports. Under the proposals, either the depositor or the servicer may sign the reports on Form 10-K, Form 10-D and Form 8-K, and the same party that signs the annual report on Form 10-K also would be the party that would be required to sign the Sarbanes-Oxley Act Section 302 certification and make the proposed assertion of compliance with servicing criteria. We also propose to clarify how filings regarding asset-backed securities are to be filed on EDGAR and the operation of the reporting obligation for asset-backed securities under Section 15(d) of the Exchange Act,37 including proposals to codify several interpretive positions as to when the obligation starts and when it may be suspended.
F. Other Miscellaneous Proposals
Finally, our proposals include several miscellaneous and technical amendments to our rules and forms to accommodate the new proposals and update references regarding asset-backed securities. We also request comment on any additional areas that should be addressed regarding the registration, reporting and disclosure requirements for asset-backed securities under the Securities Act or the Exchange Act.
II. Background and Development of ABS and Regulatory Treatment
The ABS market rapidly has developed into an important part of the U.S. capital markets.38 The modern securitization market originated in the 1970s with the securitization of residential mortgages.39 Since the mid-1980s, the techniques pioneered in the mortgage-backed securities, or MBS, market have been used to securitize other asset types. Most asset types that have been securitized have homogenous characteristics, including similar terms, structures and credit characteristics, with proven histories of performance, which in turn facilitate modeling of future payments and thus analysis of yield and credit risks.
While the ABS market is still fairly young, it has rapidly become very large. By way of example, one source estimates that annual issuance of U.S. public non-GSE ABS grew from $46.8 billion in 1990 to $416 billion in 2003.40 Another source estimates 2003 new issuance at $800 billion.41 The four primary asset classes currently securitized are residential mortgages, automobile receivables, credit card receivables and student loans, which represented approximately 52%, 19%, 16% and 9% of 2003 new issuance, respectively.42
There are several distinguishing features between asset-backed securities and other fixed-income securities. For example, ABS investors are generally interested in the characteristics and quality of the underlying assets, the standards for their servicing, the timing and receipt of cash flows from those assets and the structure for distribution of those cash flows. As a general matter, there is essentially no business or management (and therefore no managements discussion and analysis of financial performance and condition) of the issuing entity, which is designed to be a solely passive entity. GAAP financial information about the issuing entity generally does not provide useful information to investors. Information regarding characteristics and quality of the assets is important for investors in assessing how a pool will perform. Information relating to the quality of servicing of the underlying assets also is relevant to assessing how the asset pool is expected to perform and the reliability of the allocation and distribution functions. Another focus is the legal and structural nature of the issuing entity and the transfer of the assets to the issuing entity to assess legal and credit separation from third parties. ABS investors also analyze the impact and quality of any credit enhancements and other support designed to provide additional protection against losses and ensure timely payments.
A sponsor typically initiates a securitization transaction by selling or pledging to a specially created issuing entity a group of financial assets that the sponsor either has originated itself or has purchased in the secondary market.43 Sponsors of asset-backed securities often include banks, mortgage companies, finance companies, investment banks and other entities that originate or acquire and package financial assets for resale as ABS. In some instances, the transfer of assets is a two-step process: the financial assets are transferred by the sponsor first to an intermediate entity, often a limited purpose entity created by the sponsor for a securitization program and commonly called a depositor, and then the depositor will transfer the assets to the issuing entity for the particular asset-backed transaction.44
The issuing entity, most often a trust with an independent trustee, then issues asset-backed securities to investors that are either backed by or represent interests in the assets transferred to it. The proceeds of the sale of the asset-backed securities are used to pay for the assets that were transferred to the trust. Because the issuing entity is designed to be a passive entity, a "servicer," which may often be an affiliate of the sponsor, is often necessary to collect payments from obligors of the pool assets, carry out the other important functions involved in administering the assets and to calculate and pay the amounts net of fees due to the investors that hold the asset-backed securities to the trustee, which actually makes the payments to investors.
The predominant purchasers of asset-backed securities today are institutional investors, including financial institutions, pension funds, insurance companies and money managers.45 Generally, ABS are not marketed to retail investors. However, securitizations of one fairly unique asset typetransactions that pool and securitize outstanding debt securities of other issuersoften are marketed to retail investors and are listed on a national securities exchange.46
While some ABS transactions consist of simple pass-through certificates representing a pro rata share of the cash flows from the underlying asset pool, ABS transactions often involve multiple classes of securities, or tranches, with complex formulas for the calculation and distribution of the cash flows. In addition to creating internal credit enhancement or support for more senior classes, these structures allow the cash flows from the asset pool, and hence varying degrees of risk from pool performance, to be packaged into securities designed to address a given risk and return profile.
Transaction agreements specify the structure of an ABS transaction. A common form for these agreements is a "pooling and servicing agreement," or PSA, often among the sponsor, the trustee and the servicer. A pooling and servicing agreement often governs the transfer of the assets from the sponsor to the issuing entity and sets forth the rights and responsibilities of participants. Typically the agreement also will detail how cash flows generated by the asset pool will be divided, typically referred to as the "flow of funds" or "waterfall." The flow of funds specifies the allocation and order of cash flows, including interest, principal and other payments on the various classes of securities, as well as any fees and expenses, such as servicing fees, trustee fees or amounts to maintain credit enhancement or other support. Cash flows also may be directed into various accounts, such as reserve accounts to provide support against potential future shortfalls. The agreement also specifies the type and content of reports that will be provided to investors regarding ongoing performance of the transaction.
In addition to any internally provided credit enhancement or support, the sponsor or other third parties may provide external credit enhancements or other support for the asset-backed securities.47 For example, third party insurance may be obtained to reimburse losses on the pool assets or the asset-backed securities themselves. In addition, the issuing parties may arrange with a counterparty for an interest rate swap or similar swap transaction to avoid a cash-flow mismatch, such as where a floating-rate interest is to be paid on ABS backed by financial assets that pay a fixed rate of interest.
Credit rating agencies play a large role in most ABS transactions. As with a traditional corporate debt security, a rating on an asset-backed security is designed only to reflect credit risk. The rating generally does not address other market risks that may result from changes in interest rates or from prepayments on the underlying asset pool.
To date, there have been few Commission initiatives directly related to ABS. In connection with the passage of the Secondary Mortgage Market Enhancement Act of 1984 (SMMEA),48 the Commission permitted shelf registration to SMMEA eligible securities.49 In 1992, the Commission extended shelf registration to non-mortgage investment grade ABS.50 That same year, the Commission also adopted a rule under the Investment Company Act of 194051 to exclude ABS transactions under specific conditions from the definition of an investment company.52 More recently, the Commission tailored rules for asset-backed securities in its implementing rulemakings under the Sarbanes-Oxley Act, including exempting asset-backed securities from the reporting and attestation requirements relating to internal control over financial reporting established by Section 404 of the Sarbanes-Oxley Act.53 The Commission followed this approach in contemplation of current staff practice and this rulemaking initiative where applicable objectives underlying the Sarbanes-Oxley Act, including requirements suitable to ABS transactions, could be evaluated.
The staff has to date addressed the lack of a defined set of regulatory requirements for asset-backed securities through the filing review process and, where necessary, through staff no-action letters or interpretive statements. For example, through the filing review process, an informal disclosure scheme for ABS registration statements has developed taking into account evolving industry practices. The 2003 MBS Disclosure Report also provided valuable insight on the type of information investors find useful in ABS transactions. A system of modified reporting under the Exchange Act has developed, first through exemptive orders under Exchange Act Section 12(h),54 and then subsequently through staff no-action letters and interpretative positions.
The Commission recognizes that securitization is playing an increasingly important role in the evolution of the fixed income financial markets. Our staff has attempted to accommodate the different nature of ABS and evolving business practices, while reducing unnecessary or impractical compliance burdens, through its numerous no-action and interpretive positions. However, the accumulated informal guidance, while helpful to some ABS transactions, has diminished the transparency of applicable requirements because an ABS registrant or investor seeking to understand the applicable requirements must review and assimilate a large body of no-action letters and other staff positions. This time-consuming practice decreases efficiency and transparency and leads to uncertainty and common problems. Many issuers, investors and other market participants have requested a defined set of regulatory requirements for guidance.55 Staff reviews of filings provide further evidence that many compliance issues may be mitigated and potential issues avoided through clearer and more transparent regulatory requirements. Recent market events involving distressed transactions also have highlighted the need for improved disclosures as well as a renewed attention on servicing practices.56 The Commission believes it is thus appropriate to clarify the regulatory requirements for asset-backed securities in order to increase market efficiency and transparency and provide more certainty for the overall ABS market and its investors and other participants.
117 CFR 210.1-02; 17 CFR 210.2-01; 17 CFR 210.2-02; and 17 CFR 210.2-07.
217 CFR 210.1-01 et seq.
315 U.S.C. 77a et seq.
417 CFR 228.10; 17 CFR 228.308; 17 CFR 228.401; and 17 CFR 228.406.
517 CFR 228.10 et seq.
617 CFR 229.10; 17 CFR 229.202; 17 CFR 229.308; 17 CFR 229.401; 17 CFR 229.406; 17 CFR 229.501; 17 CFR 229.503; 17 CFR 229.512; and 17 CFR 229.601.
717 CFR 229.10 et seq.
817 CFR 229.1100 through 1121.
917 CFR 230.411; 17 CFR 230.424; and 17 CFR 230.434.
1017 CFR 230.139a; 17 CFR 230.167; 17 CFR 230.190; 17 CFR 230.191; and 17 CFR 230.426.
1117 CFR 232.311.
1217 CFR 232.10 et seq.
1317 CFR 239.11; 17 CFR 239.12; 17 CFR 239.13; 17 CFR 239.18; 17 CFR 239.31; 17 CFR 239.32; and 17 CFR 239.33.
1417 CFR 240.10A-3; 17 CFR 240.12b-2; 17 CFR 240.12b-15; 17 CFR 240.13a-10; 17 CFR 240.13a-11; 17 CFR 240.13a-13; 17 CFR 240.13a-14; 17 CFR 240.13a-15; 17 CFR 240.13a-16; 17 CFR 240.15c2-8; 17 CFR 240.15d-10; 17 CFR 240.15d-11; 17 CFR 240.15d-13; 17 CFR 240.15d-14; 17 CFR 240.15d-15; and 17 CFR 240.15d-16.
1515 U.S.C. 78a et seq.
1617 CFR 240.3a12-12; 17 CFR 240.3b-19; 17 CFR 240.13a-17; 17 CFR 240.13a-18; 17 CFR 240.15d-17; 17 CFR 240.15d-18; 17 CFR 240.15d-22; and 17 CFR 240.15d-23.
1717 CFR 242.100.
1817 CFR 242.100 through 105.
1917 CFR 245.101.
2017 CFR 245.101 through 104.
2115 U.S.C. 7201 et seq.
2217 CFR 249.220f; 17 CFR 249.240f; 17 CFR 249.308; and 17 CFR 249.310.
2317 CFR 249.312.
24"Securitization" is a commonly used term to describe this financing technique, although other terms, such as "asset-backed financing," also are used.
25See Bank One Capital Markets, Inc., 2004 Structured Debt Yearbook.
26See Asset Securitization Report (pub. by Thomson Media Inc). See also Asset-Backed Alert (pub. by Harrison Scott Publications).
27See Release No. 33-6964 (Oct. 22, 1992) [57 FR 48970] (the "1992 Release").
28See Greenwood Trust Co., Discover Master Card Trust I (Apr. 5, 1996); Public Securities Assn (Mar. 9, 1995); Public Securities Assn (Feb. 17, 1995); Public Securities Assn (May 27, 1994); and Kidder Peabody Acceptance Corporation I (May 20, 1994). The "statutory registration statement prospectus" refers to the full prospectus required by Section 10(a) of the Securities Act (15 U.S.C. 77j(a)).
29See Public Securities Assn (Feb. 7, 1997).
3015 U.S.C. 77e. See Securities Act Rules 137, 138 and 139 (17 CFR 230.137; 17 CFR 230.138; and 17 CFR 230.139).
3117 CFR 249.308a.
3215 U.S.C. 7241.
33See Exchange Act Rules 13a-14 and 15d-14; Release No. 33-8124 (Aug. 28, 2003) [67 FR 57276]; and Division of Corporation Finance, "Revised Statement: Compliance by Asset-Backed Issuers with Exchange Act Rules 13a-14 and 15d-14" (Feb. 21, 2003). See also Merrill Lynch Depositor, Inc. (Mar. 28, 2003) and Mitsubishi Motors Credit of America, Inc. (Mar. 27, 2003).
3415 U.S.C. 7262.
35See Exchange Act Rules 13a-15 and 15d-15.
3615 U.S.C. 78p.
3715 U.S.C. 78o(d).
38See, e.g., Gary Silverman et al., "A $2.5 Trillion Market You Hardly Know," Business Week, Oct. 26, 1998 ("Securitization is one of the most important and abiding innovations to emerge in the financial markets since the 1930s" (quoting Leon T. Kendall)).
39The modern ABS market can be traced to 1970 when the Government National Mortgage Association (Ginnie Mae), a wholly owned federal government corporation, first guaranteed a pool of mortgage loans. The Federal Home Loan Mortgage Corporation (Freddie Mac) in 1971 issued its first mortgage-backed participation certificates. For a number of years, mortgage-backed securities were almost exclusively a product of government-sponsored entities (GSEs), such as Freddie Mac and the Federal National Mortgage Association (Fannie Mae), and Ginnie Mae. MBS issued by these GSEs and Ginnie Mae have been and continue to be exempt from registration under the Securities Act and most provisions of the federal securities laws. For example, Ginnie Mae guarantees are exempt securities under Section 3(a)(2) of the Securities Act (15 U.S.C. 77c(a)(2)) and Section 3(a)(12) of the Exchange Act (15 U.S.C. 78c(a)(12)). The chartering legislation for Fannie Mae and Freddie Mac contain exemptions with respect to those entities. See 12 U.S.C. 1723c and 12 U.S.C. 1455g. Only non-GSE ABS, or so called "private label" ABS, would be required to comply with these proposals. For more information regarding the GSEs and Ginnie Mae, see Task Force on Mortgage-Backed Securities Disclosure, "Staff Report: Enhancing Disclosure in the Mortgage-Backed Securities Markets" (Jan. 2003) (hereinafter, the "2003 MBS Disclosure Report"). This report is available on our website at www.sec.gov.
40See note 25 above. Amounts cited include MBS as well as ABS for other asset-classes. As residential mortgages simply represent another asset type that may be securitized, unless otherwise specified, we use the term ABS to include MBS.
41See note 26 above.
42See note 25 above.
43While "sponsor" is a commonly used term for the entity that initiates the asset-backed securities transaction, the terms "seller" or "originator" also are often used in the market. However, as noted in the text, in some instances the sponsor is not the originator of the financial assets but has purchased them in the secondary market. Hence, we use the term "sponsor."
44Where there is not a two-step transfer, the terms "sponsor" and "depositor" are commonly used interchangeably in the market.
45See 2003 MBS Disclosure Report.
46A "national securities exchange" is an exchange registered as such under Section 6 of the Exchange Act (15 U.S.C. 78f).
47A guarantee of a security would be a separate "security" under Section 2(a)(1) of the Securities Act (15 U.S.C. 77b(a)(1)).
48Pub. L. No. 98-440, 98 Stat. 1689. See also Section II.C.1. of the 2003 MBS Disclosure Report.
49See Release No. 33-6499 (Nov. 17, 1983) [48 FR 52889] and Securities Act Rule 415(a)(1)(vii) (17 CFR 230.415(a)(1)(vii)).
50See note 27 above.
5115 U.S.C. 80a-1 et seq.
52See Release No. IC-19105 (Nov. 19, 1992) [57 FR 56248] and Investment Company Act Rule 3a-7 (17 CFR 270.3a-7). See also Release No. IC-18736 (May 29, 1992) [57 FR 23980] (proposing Investment Company Act Rule 3a-7 and explaining the application of the Investment Company Act to ABS transactions). The application of the Investment Company Act to ABS transactions is beyond the scope of this release. We note, however, that an ABS transaction that relies on Rule 3a-7 must comply with the conditions of that rule regardless of whether the issuer may register the offering of its asset-backed securities on Form S-3 or S-1. We encourage pre-filing conferences with the staff to discuss, as appropriate, questions or issues that may arise regarding the availability of Rule 3a-7, or any other applicable exemption, under the Investment Company Act to an ABS transaction.
53See, e.g., Release No. 33-8238 (Jun. 5, 2003) [68 FR 36636] (Managements report on internal control over financial reporting and certification of disclosure in Exchange Act reports); Release No. 33-8220 (Apr. 9, 2003) [68 FR 18788] (Standards relating to listed company audit committees); Release No. 33-8183 (Jan. 28, 2003) [68 FR 6006] (Commission requirements regarding auditor independence); and Release No. 33-8177 (Jan. 23, 2003) [68 FR 5110] (Disclosure required by Sections 406 and 407 of the Sarbanes-Oxley Act of 2002).
5415 U.S.C. 78l(h).
55See, e.g., Letter from the Association for Investment Management and Research ("AIMR") to Brian J. Lane, Director, Division of Corporation Finance, "Recommendations for a Disclosure Regime for Asset-Backed Securities" (Sep. 30, 1996); Letter from the Investment Company Institute ("ICI") to Michael H. Mitchell, Special Counsel, Division of Corporation Finance, "Asset-Backed Securities Offerings" (Oct. 29, 1996); Letter from the Bond Market Association ("BMA") to Brian Lane, Director, Division of Corporation Finance, "Response to Staff Request for Suggestions Concerning Possible Reforms of Disclosure and Reporting Rules for Mortgage and Asset-Backed Securities" (Nov. 5, 1996); Letter from BMA to Jonathan G. Katz, Secretary, Securities and Exchange Commission, "Securities Acts Concepts and Their Effects on Capital Formation (Release No. 33-7314) (File No. S7-19-96)" (Nov. 8, 1996); Letter from the Mortgage Bankers Association of America ("MBA") to Brian J. Lane, Director, Division of Corporation Finance (Feb. 18, 1997); Letter from The Association of the Bar of the City of New York to Jonathan G. Katz, Secretary, Securities and Exchange Commission, "Securities Act Release No. 33-7606A File No. S7-30-98" (Apr. 5, 1999); Letter from American Bar Association ("ABA") to Jonathan G. Katz, Secretary, Securities and Exchange Commission, "The Regulation of Securities Offerings (File No. S7-30-98)" (Jun. 29, 1999); Letter from ICI to Jonathan G. Katz, Secretary, Securities and Exchange Commission, "The Regulation of Securities Offerings (File No. S7-30-98)" (Jun. 29, 1999); Letter from MBA to Jonathan G. Katz, Secretary, Securities and Exchange Commission, "The Regulation of Securities Offerings (File No. S7-30-98)" (Jun. 30, 1999); Letter from Merrill Lynch & Co., Inc. to Securities and Exchange Commission, "The Regulation of Securities Offerings (File No. S7-30-98)" (Jun. 30, 1999); Letter from Residential Funding Corporation to Securities and Exchange Commission, "File No. S7-30-98 The Aircraft Carrier Release" (Jun. 30, 1999); Letter from BMA to David B.H. Martin, Director, Division of Corporation Finance, "Securities Act Reform" (Nov. 30, 2001); and Letter from BMA to Alan L. Beller, Director, Division of Corporation Finance, "Prior Correspondence Regarding Asset-Backed Securities Reform" (Apr. 23, 2002).
56See, e.g., notes 120, 136, 139, 262 and 264 below.
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