[Federal Register Volume 76, Number 8 (Wednesday, January 12, 2011)]
[Proposed Rules]
[Pages 2049-2056]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-416]
[[Page 2049]]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 240 and 249
[Release No. 34-63652; File No. S7-02-11]
RIN 3235-AK89
Suspension of the Duty To File Reports for Classes of Asset-
Backed Securities Under Section 15(d) of the Securities Exchange Act of
1934
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule.
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SUMMARY: Section 942(a) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act eliminated the automatic suspension of the duty
to file under Section 15(d) of the Securities Exchange Act of 1934 for
asset-backed securities issuers and granted the Commission the
authority to issue rules providing for the suspension or termination of
such duty. We are proposing to permit suspension of the reporting
obligations for asset-backed securities issuers when there are no
longer asset-backed securities of the class sold in a registered
transaction held by non-affiliates of the depositor. We are also
proposing to amend our rules relating to the Exchange Act reporting
obligations of asset-backed securities issuers in light of these
statutory changes.
DATES: Comments should be received on or before February 7, 2011.
ADDRESSES: Comments may be submitted by any of the following methods:
Electronic Comments
Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
Send an e-mail to [email protected]. Please include
File Number S7-02-11 on the subject line; or
Use the Federal Rulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.
Paper Comments
Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.
All submissions should refer to File Number S7-02-11. This file number
should be included on the subject line if e-mail is used. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
Internet Web site (http://www.sec.gov/rules/proposed.shtml). Comments
are also available for website 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 a.m. and 3 p.m. All
comments received will be posted without change; we do not edit
personal identifying information from submissions. You should submit
only information that you wish to make available publicly.
FOR FURTHER INFORMATION CONTACT: Steven Hearne, Special Counsel, or
Kathy Hsu, Senior Special Counsel, in the Office of Rulemaking, at
(202) 551-3430, Division of Corporation Finance, U.S. Securities and
Exchange Commission, 100 F Street, NE., Washington, DC 20549-3628.
SUPPLEMENTARY INFORMATION: We are proposing amendments to Rules 12h-3
and 15d-22 \1\ and Form 15 \2\ under the Securities Exchange Act of
1934 (``Exchange Act'').\3\
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\1\ 17 CFR 240.12h-3 and 17 CFR 240.15d-22.
\2\ 17 CFR 249.323.
\3\ 15 U.S.C. 78a et seq.
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I. Background
This release is one of several that the Commission is issuing to
implement provisions of the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the ``Act'') \4\ related to asset-backed securities
(``ABS''). Section 942(a) of the Act eliminated the automatic
suspension of the duty to file under Section 15(d) \5\ of the Exchange
Act for ABS issuers and granted the Commission the authority to issue
rules providing for the suspension or termination of such duty. In this
release, we propose rule amendments to permit the suspension of
reporting obligations for ABS issuers under certain circumstances and
to update our rules in light of the amendment of Exchange Act Section
15(d).
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\4\ Public Law 111-203 (July 21, 2010).
\5\ 15 U.S.C. 78o(d).
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Exchange Act Section 15(d) generally requires an issuer with a
registration statement that has become effective pursuant to the
Securities Act of 1933 \6\ (``Securities Act'') to file ongoing
Exchange Act reports with the Commission. In 2004, the Commission
adopted an Exchange Act reporting regime specifically designed for ABS
issuers. Under those rules, the Exchange Act reporting requirements for
ABS issuers consist of:
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\6\ 15 U.S.C. 77a et seq.
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Annual reports on Form 10-K \7\ that include a report on
the assessment of compliance with servicing criteria as well as an
attestation report on assessments of compliance by a registered public
accounting firm;
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\7\ 17 CFR 249.310.
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Distribution reports on Form 10-D \8\ that include
distribution and pool performance information for the distribution
period and disclosure regarding the assets filed based on the frequency
of distributions on the ABS; and
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\8\ 17 CFR 249.312.
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Current reports on Form 8-K.\9\
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\9\ 17 CFR 249.308.
As discussed in more detail below, in April 2010, the Commission
proposed changes to the ongoing reporting requirements for ABS issuers
that would include, among other things, loan-level information in the
distribution reports and revised triggering events for current reports.
Prior to enactment of the Act, Exchange Act Section 15(d) provided
that for issuers without a class of securities registered under the
Exchange Act the duty to file ongoing reports is automatically
suspended as to any fiscal year, other than the fiscal year within
which the registration statement for the securities became effective,
if the securities of each class to which the registration statement
relates are held of record by less than three hundred persons. As a
result, the reporting obligations of ABS issuers, other than those with
master trust structures,\10\ were generally suspended after the ABS
issuer filed one annual report on Form 10-K because the number of
record holders was below, often significantly below, the 300 record
holder threshold.\11\
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\10\ In a securitization using a master trust structure, the ABS
transaction contemplates future issuances of ABS backed by the same,
but expanded, asset pool that consists of revolving assets. Pre-
existing and newly issued securities would therefore be backed by
the same expanded asset pool. Thus, given their continued issuance,
master trust ABS issuers typically continue to report, even after
the first annual report is filed.
\11\ One source noted that in a survey of 100 randomly selected
asset-backed transactions, the number of record holders provided in
reports on Form 15 ranged from two to more than 70. The survey did
not consider beneficial owner numbers. See Committee on Capital
Markets Regulation, The Global Financial Crisis: A Plan for
Regulatory Reform, May 2009, at fn. 349.
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ABS offerings are typically registered on shelf registration
statements and each ABS offering is typically sold in a separate
``takedown'' off of the shelf. In 2004, the Commission adopted Exchange
Act Rule 15d-22, relating to ABS reporting under Exchange Act Section
15(d).\12\ Exchange Act Rule
[[Page 2050]]
15d-22(b) codified the staff position that the starting and suspension
dates for any reporting obligation with respect to a takedown of ABS is
determined separately for each takedown. Exchange Act Rule 15d-22 also
clarified that a new takedown for a new ABS offering off the same shelf
registration statement did not necessitate continued reporting for a
class of securities from a prior takedown that was otherwise eligible
to suspend reporting.
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\12\ See Asset-Backed Securities, Release No. 33-8518 (Dec. 22,
2004) [70 FR 1506] (``2004 ABS Adopting Release'').
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Prior to enactment of the Act, in April of 2010, we proposed rules
that would revise the disclosure, reporting and offering process for
ABS (the ``2010 ABS Proposing Release'').\13\ Among other things, the
2010 ABS Proposing Release proposed to replace the investment grade
ratings conditions to ABS shelf eligibility with four new eligibility
conditions. One of the proposed new conditions would require an ABS
issuer to undertake to file the same Exchange Act reports with the
Commission as would be required by Section 15(d) of the Exchange Act
and rules thereunder, if the issuer were subject to the reporting
requirements of that section.\14\ Before we acted on that proposal, the
Act rendered that proposed shelf eligibility condition unnecessary by
removing any class of ABS from the automatic suspension provided in
Exchange Act Section 15(d) by inserting the phrase, ``other than any
class of asset-backed securities.'' Consequently, ABS issuers no longer
automatically suspend reporting under Exchange Act Section 15(d).
Instead, the Act granted the Commission authority to ``provide for the
suspension or termination of the duty to file under this subsection for
any class of asset-backed security, on such terms and conditions and
for such period or periods as the Commission deems necessary or
appropriate in the public interest or for the protection of
investors.'' \15\
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\13\ See Asset-Backed Securities, Release No. 33-9117 (April 7,
2010) [75 FR 23328].
\14\ See proposed Item 512(a)(7)(ii) of Regulation S-K from the
2010 ABS Proposing Release. The issuer's reporting obligation in the
proposed undertaking would have extended as long as non-affiliates
of the depositor hold any of the issuer's securities that were sold
in registered transactions.
\15\ 15 U.S.C. 78o(d)(2).
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As noted, by adding the exception for ABS, the amendment removed
the automatic suspension for any class of ABS. The effect is that the
Exchange Act Section 15(d) reporting obligation now requires ongoing
reporting for ABS issuers. As a result, we are proposing to update our
rules consistent with the changes to Exchange Act Section 15(d), as
amended by Section 942(a) of the Act.\16\ Our proposal to amend
Exchange Act 15d-22 is described below. In addition, because ABS
issuers no longer automatically suspend reporting absent Commission
action, we are proposing relief where there are no longer ABS of a
class that were sold in a registered transaction held by non-affiliates
of the depositor.
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\16\ One comment letter relating to the Commission's 2010 ABS
Proposing Release argues that Rule 15d-22(b) specifically provides
suspension from reporting and is available to automatically suspend
reporting obligations despite enactment of Section 942 of the Act.
See comment letter from the American Securitization Forum to the
2010 ABS Proposing Release available on-line at http://sec.gov/comments/s7-08-10/s70810-70.pdf. See also comment letter from the
American Securitization Forum on Implementing the Dodd-Frank Wall
Street Reform and Consumer Protection Act available on-line at
http://www.sec.gov/comments/df-title-ix/asset-backed-securities/assetbackedsecurities-10.pdf. However, as explained in the 2004 ABS
Adopting Release, Rule 15d-22(b) clarifies that the starting and
suspension for any reporting obligation with regard to a takedown of
ABS is determined separately for each takedown. See supra note 12 at
1563. It did not, and should not be read, to provide an independent
basis for suspending the reporting obligation of Exchange Act
Section 15(d).
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II. Discussion of Proposals
As indicated above, Exchange Act Section 15(d), as amended by the
Act, establishes an ongoing reporting obligation for each class of ABS
for which an issuer has filed a registration statement which has become
effective pursuant to the Securities Act. Exchange Act Section 15(d)
also grants the Commission authority to provide for the suspension or
termination of the duty to file. We believe that post-issuance
reporting of information by an ABS issuer provides investors and the
markets with transparency regarding many aspects of the ongoing
performance of the securities and the servicer in complying with
servicing criteria, among other things, and further believe this
transparency is important for investors and the market in evaluating
transaction performance and making ongoing investment decisions. We
recognize, however, the costs imposed by ongoing reporting obligations
and are proposing limited relief from these reporting obligations that
we believe is appropriate in the public interest and consistent with
the protection of investors. In addition, we are proposing rule and
form amendments to update our rules relating to ABS takedowns under a
shelf registration statement.
A. Suspension of Exchange Act Section 15(d) Reporting Obligation
We are proposing in new Exchange Act Rule 15d-22(b) to permit
suspension of the reporting obligations for a given class of ABS
pursuant to Exchange Act Section 15(d) for any fiscal year, other than
the fiscal year within which the registration statement became
effective, if, at the beginning of the fiscal year, there are no longer
ABS of the class that were sold in a registered transaction held by
non-affiliates of the depositor.\17\ As revised by the Act, Exchange
Act Section 15(d) no longer provides for the automatic suspension of
the duty to file periodic and other reports for issuers of a class of
ABS. Without action by the Commission, ABS issuers that have filed a
registration statement that has become effective pursuant to the
Securities Act or that have conducted a takedown off of a shelf
registration statement as described above, would be obligated to
continue to file such reports for the life of the security.
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\17\ We are also proposing to amend Form 15 to provide a
checkbox referring to proposed Rule 15d-22(b).
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In the 2010 ABS Proposing Release, we noted the importance to
investors of post-issuance reporting of information regarding an ABS
transaction in understanding transaction performance and in making
ongoing investment decisions.\18\ We also believe, however, that there
is a point at which the benefits to investors and the market of
reporting significantly diminish, such as the limited benefit provided
by reporting of an issuer that has no non-affiliated holders of its
securities. Where an issuer has only affiliated holders of its
securities, there is no public market for the securities and the
affiliated holders typically have access to comparable information to
that provided by public reports. In addition, preparation of reports
under such circumstances would add to the cost of offering and
maintaining the ABS and therefore to the cost of capital formation.
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\18\ See 2010 ABS Proposing Release, supra note 13, at 23347.
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In the 2010 ABS Proposing Release we sought to balance the value of
the information to investors and the market with the burden to issuers
of preparing the reports. We proposed in the 2010 ABS Proposing Release
to require, as a condition to ABS shelf eligibility, that the issuer
undertake to file reports providing disclosure as would be required
pursuant to Exchange Act Section 15(d) and the rules thereunder as long
as non-affiliates of the depositor hold any of the issuer's securities
that were sold in a registered transaction.\19\
[[Page 2051]]
While our proposal to require ongoing reporting as a condition to ABS
shelf eligibility and the comments we received on that proposal are
informative, the Act no longer provides for the automatic suspension of
the duty to file periodic and other reports for issuers of a class of
ABS.
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\19\ Id. In light of the Act, we are no longer pursuing our
proposal relating to ongoing reporting as a condition to ABS shelf
eligibility. However, we found comments on the proposed shelf
eligibility condition helpful in preparing proposed Exchange Act
Rule 15d-22. Some commentators supported the proposed ongoing
reporting requirements. See, for example, comment letters to the
2010 ABS Proposing Release from American Bar Association, Council of
Institutional Investors, Metropolitan Life Insurance Company, and
Prudential Investment Management, Inc. One commentator, the Council
of Institutional Investors, asserted that transparency is related to
asset quality and that ongoing reporting would facilitate due
diligence by investors. Other commentators noted the burdens of
reporting and suggested alternatives to filing reports with the
Commission as a condition to shelf eligibility. See, for example,
comment letters to the 2010 ABS Proposing Release from Bank of
America Corporation (suggesting automatic suspension be continued
but on a more delayed basis such as three years), Cleary Gottlieb
Steen & Hamilton (suggesting that investors be permitted to opt the
class of ABS out of reporting), and Kutak Rock LLP (suggesting a
higher threshold below which ABS issuers could suspend reporting
pursuant to Section 15(d) such as 50 investors or $3 million).
Comments on the 2010 ABS Proposing Release are available on-line at
http://www.sec.gov/comments/s7-08-10/s70810.shtml.
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We believe that the limited benefits of ongoing reporting to
investors and the market where there are only affiliated holders of the
ABS would not justify the burden of reporting by issuers. Consequently,
we are proposing new Exchange Act Rule 15d-22(b) which would provide
that the reporting obligation regarding any class of ABS is suspended
for any fiscal year, other than the fiscal year within which the
registration statement became effective, if, at the beginning of the
fiscal year there are no longer any securities of such class held by
non-affiliates of the depositor that were sold in the registered
transaction. We are also proposing to amend Form 15 to add a checkbox
for ABS issuers to indicate that they are relying on proposed Exchange
Act Rule 15d-22(b) to suspend their reporting obligation to alert the
market and the Commission of the change in reporting status.
Request for Comment
Is it appropriate to suspend the Exchange Act Section
15(d) reporting obligation regarding a class of ABS for any fiscal
year, other than the fiscal year within which the registration
statement became effective, if, at the beginning of the fiscal year
there are no longer any securities of such class held by non-affiliates
of the depositor that were sold in a registered transaction?
Should we instead consider allowing suspension of the
reporting obligation dependent on a limited number of non-affiliates of
the depositor holding the securities? If so, what would be an
appropriate number and why? Please provide data establishing a basis
for such a limit.
If an issuer is unable to locate a security holder in
order to provide information and make distributions to that security
holder, such that the distributions are returned to the issuer without
payment to the unknown security holder and the issuer or its agent has
attempted to notify the unknown security holder within seven months of
the failed distribution, should we allow the issuer not to count such
security holders when determining the number of non-affiliates of the
depositor that hold its securities? Should we allow an issuer to
suspend the Exchange Act Section 15(d) reporting obligation regarding a
class of ABS if, at the beginning of the fiscal year there are no
longer any securities of such class, other than securities held by such
lost or missing security holders, held by non-affiliates of the
depositor that were sold in a registered transaction?
Should we allow an issuer to suspend the Exchange Act
Section 15(d) reporting obligation regarding a class of ABS if that
issuer has effected legal or covenant defeasance of such class? Why or
why not? Is legal or covenant defeasance typically provided for in ABS
indentures or other governing instruments? Is legal or covenant
defeasance effected with any meaningful frequency in the ABS market?
Are there certain asset classes or tranches where it is more or less
common? Please provide data to support your conclusions.
Is there another standard, such as one relying on the
percentage of pool assets remaining or the percentage of pool assets
held by non-affiliates of the depositor, that would be more
appropriate? Should we permit suspension based on a mandatory period of
time since the registered offering? If so, how long would be
appropriate? Three years? Five years? Should the amount of time depend
on the asset class?
B. Revisions to Existing Exchange Act Rule Provisions
In light of the statutory changes to Exchange Act Section 15(d), we
are proposing to update Exchange Act Rule 15d-22 to indicate when
annual and other reports need to be filed and when starting and
suspension dates are determined with respect to a takedown. We are also
proposing to amend Exchange Act Rule 12h-3(b)(1) to add the language
``, other than any class of asset-backed securities,'' to conform the
rule to the language of amended Exchange Act Section 15(d) and to add a
clarifying note.
Exchange Act Rule 15d-22 currently provides that: (1) No annual or
other reports need be filed pursuant to Exchange Act Section 15(d) for
ABS until the first bona fide sale in a takedown of securities under
the registration statement; and (2) the starting and suspension dates
for any reporting obligation with respect to a takedown of ABS is
determined separately for each takedown.
We are proposing to amend Exchange Act Rule 15d-22. The revised
rule would retain the approach that the Exchange Act Section 15(d)
reporting obligation relates to each separate takedown in current
Exchange Act Rules 15d-22(a) and 15d-22(b) in a new Exchange Act Rule
15d-22(a). Proposed Rule 15d-22(a)(1) tracks the language in current
Exchange Act Rule 15d-22(a) providing that with respect to an offering
of ABS sold off the shelf pursuant to Securities Act Rule
415(a)(1)(x),\20\ the requirement to file annual and other reports
pursuant to Exchange Act Section 15(d) regarding a class of securities
commences upon the first bona fide sale in a takedown of securities
under the registration statement. Proposed Exchange Act Rule 15d-
22(a)(2) would restate the concept contained in current Exchange Act
Rule 15d-22(b) that the requirement to file annual and other reports
pursuant to Exchange Act Section 15(d) regarding a class of securities
is determined separately for each takedown of securities under the
registration statement. Exchange Act Rule 15d-22(b) currently does this
by relying on language relating to when an issuer may suspend reporting
under Exchange Act Section 15(d). Because the Act eliminated the
automatic suspension of reporting for ABS issuers, we are proposing to
delete current Exchange Act Rule 15d-22(b) and replace it with new
Exchange Act Rule 15d-22(a)(2).\21\
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\20\ 17 CFR 230.415(a)(1)(x).
\21\ Current Exchange Act Rule 15d-22(b) states: ``Regarding any
class of asset-backed securities in a takedown off of a registration
statement pursuant to Sec. 230.415(a)(1)(x) of this chapter, no
annual and other reports need be filed pursuant to section 15(d) of
the Act regarding such class of securities as to any fiscal year,
other than the fiscal year within which the takedown occurred, if at
the beginning of such fiscal year the securities of each class in
the takedown are held of record by less than three hundred
persons.'' As is currently the case, proposed Rule 15d-22(a)(2)
would only require a registrant to file reports after a takedown of
securities under the registration statement. If the registrant has
filed a registration statement but has not conducted a takedown, the
registrant would not be required to file annual and other reports
related to those securities.
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[[Page 2052]]
As proposed, Exchange Act Rule 15d-22(c), which states that
Exchange Act Rule 15d-22 does not affect other reporting obligations
applicable to any class of securities from additional takedowns or
reporting obligations that may be applicable pursuant to Exchange Act
Section 12, such as for an ABS issuer's non-ABS securities, would
remain substantially unchanged, except for minor revisions to reflect
the amendments discussed above. We believe it is appropriate to
continue to apply this provision to all of proposed Exchange Act Rule
15d-22 to make clear that other reporting obligations applicable to a
class of securities are not affected by the rules.
Finally, we are proposing to amend Exchange Act Rule 12h-3(b)(1) to
exclude ABS from the classes of securities eligible for suspension.
Exchange Act Rule 12h-3(b) currently designates the classes of
securities eligible for suspension of the duty to file reports under
Exchange Act Section 15(d). The Act explicitly removed ``any class of
asset-backed security'' from the automatic suspension of Exchange Act
Section 15(d). Since the language of Exchange Act Rule 12h-3 tracks the
language of the Exchange Act, we are proposing to add the language from
amended Exchange Act Section 15(d) to our rule. We are also proposing
to add a note to direct ABS issuers to Exchange Act Rule 15d-22 for the
requirements regarding suspension of reporting for ABS.
Request for Comment
Does proposed Exchange Act Rule 15d-22(a) effectively
provide guidance relating to when an ABS issuer is required to file
annual and other reports pursuant to Section 15(d) of the Exchange Act
regarding a class of securities upon a takedown of securities from a
shelf registration statement? Are there other changes that we should
make to the Commission guidance relating to the application of Exchange
Act Section 15(d) to registered ABS?
Do our proposed revisions to Exchange Act Rule 12h-3
appropriately modify the rule to give effect to the statutory change
and provide clarity to ABS issuers regarding the reporting obligations
and where to refer relating to the ability to suspend reporting?
III. Reporting Obligation of ABS Whose Exchange Act Section 15(d)
Obligation Was Suspended Prior to Enactment of the Act
A suspension from reporting under Exchange Act Section 15(d) is
applicable under the statute only for a year and needs to be
reconsidered each subsequent year:
The duty to file under this subsection shall also be
automatically suspended as to any fiscal year, other than the fiscal
year within which such registration statement became effective, if,
at the beginning of such fiscal year, the securities of each class,
other than any class of asset-backed securities, to which the
registration statement relates are held of record by less than three
hundred persons.\22\ (emphasis added)
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\22\ 15 U.S.C. 78o(d). We note that our staff has previously
stated in this regard, ``If on the first day of any subsequent
fiscal year the thresholds in Rule 12h-3(b)(1) are exceeded, the
suspension of reporting obligations under Section 15(d) will lapse,
and the issuer would be required to resume periodic and current
reporting under Section 15(d) in the manner specified in Rule 12h-
3(e).'' See Staff Legal Bulletin No. 18 (Mar. 15, 2010), fn. 7.
Consequently, once an issuer has registered an offering under the
Securities Act it needs to consider at the beginning of each fiscal
year whether it has a reporting obligation under Exchange Act Section
15(d). This is the case even if an issuer has previously been eligible
to suspend reporting under Exchange Act Section 15(d). As a result, the
revision to Exchange Act Section 15(d) results in a ``springing''
Section 15(d) reporting obligation for ABS issuers on the first day of
their next fiscal year since, by its terms, Section 15(d) as amended,
does not provide for the suspension of reporting for ABS, unless the
Commission exercises its authority to provide for a suspension or
termination of such reporting. We note that unlike corporate issuers
that can generate new revenue and actively manage their assets and
business, ABS issuers by definition are a discrete pool of self-
liquidating assets. One commentator has noted, among other things, that
historically the transaction documents have not contained provisions
necessary to support an ongoing reporting obligation, or provide for
the funds to cover the costs of taking steps to recommence
reporting.\23\ While the transaction documents may not provide for
recommencing reporting, we note that most transaction documents require
ABS issuers to provide periodic distribution reports to the trustee or
security holders in order to provide information for investors for the
life of the securitization. Taking into account all of these factors,
the staff of the Division of Corporation Finance has issued a no-action
letter applicable to all ABS issuers whose reporting obligations had
been suspended prior to the date of enactment of the Act that states
that, provided the issuer continues complying with requirements under
the transaction agreements to make ongoing information regarding the
ABS and the related pool assets available to security holders in the
manner and to the extent required under those transaction agreements,
the Division would not recommend enforcement action if the issuer
continues to determine its reporting requirements based on the
standards set forth in Section 15(d) of the Exchange Act immediately
prior to enactment of the Act.\24\ The letter also requires as an
additional condition to the no-action position that the issuer retain
the information for at least five years after the ABS are no longer
outstanding and provide copies of such information to the Commission or
its staff upon request.
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\23\ See comment letters from the American Securitization Forum
supra note 16.
\24\ See Staff no-action letter to American Securitization Forum
(January 6, 2011).
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IV. General Request for Comments
We request comment on the specific issues we discuss in this
release, and on any other approaches or issues that we should consider
in connection with the proposed amendments. We seek comment from any
interested persons, including investors, securitizers, ABS issuers,
sponsors, originators, servicers, trustees, disseminators of EDGAR
data, industry analysts, EDGAR filing agents, and any other members of
the public.
V. Paperwork Reduction Act
A. Background
Certain provisions of the disclosure rules and forms applicable to
ABS issuers contain ``collection of information'' requirements within
the meaning of the Paperwork Reduction Act of 1995 (``PRA'').\25\ While
the amendments proposed today do not alter the disclosure requirements
set forth in these rules and forms, the amendment to Exchange Act
Section 15(d) effected by the Act will increase the number of filings
made pursuant to these rules and forms. Accordingly, the Commission is
submitting revised burden estimates for certain of these collections of
information to the Office of Management and Budget (``OMB'') for review
in accordance with the PRA.\26\ An agency may not conduct or sponsor,
and a person is not required to comply with, a collection of
information unless
[[Page 2053]]
it displays a currently valid control number. The titles for the
affected collections of information are:
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\25\ 44 U.S.C. 3501 et seq.
\26\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
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(1) ``Form 10-K'' (OMB Control No. 3235-0063);
(2) ``Form 10-D'' (OMB Control No. 3235-0604);
(3) ``Form 8-K'' (OMB Control No. 3235-0288); and
(4) ``Form 15'' (OMB Control No. 3235-0167).\27\
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\27\ We are proposing to add a new check box to Form 15 (OMB
Control No. 3235-0167) to allow ABS issuers to indicate that they
are relying on proposed Rule 15d-22(b) to suspend their reporting
obligation. We do not believe that the proposed changes will affect
the burden estimates for Form 15.
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The forms were adopted under the Exchange Act and set forth the
disclosure requirements for periodic and current reports filed with
respect to ABS and other types of securities to inform investors.
Compliance with the information collections is mandatory. Responses
to the information collections are not kept confidential and there is
no mandatory retention period for the collections of information.
B. Revisions to PRA Reporting and Cost Burden Estimates
Our PRA burden estimate for Form 10-K, Form 8-K and Form 15 is
based on an average of the time and cost incurred by all types of
public companies, not just ABS issuers, to prepare the collection of
information. Form 10-D is a form that is only prepared and filed by ABS
issuers. Form 10-D is filed within 15 days of each required
distribution date on the ABS, as specified in the governing documents
for such securities, containing periodic distribution and pool
performance information.
Our PRA burden estimates for the collections of information are
based on information that we receive on entities assigned to Standard
Industrial Classification Code 6189, the code used by ABS issuers, as
well as information from outside data sources.\28\ When possible, we
base our estimates on an average of the data that we have available for
years 2004 through 2009. In some cases, our estimates for the number of
ABS issuers that file Form 10-D with the Commission are based on an
average of the number of ABS offerings in 2006 through 2009.\29\
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\28\ We rely on two outside sources of ABS issuance data. We use
the ABS issuance data from Asset-Backed Alert on the initial terms
of offerings, and we supplement that data with information from
Securities Data Corporation (SDC).
\29\ Form 10-D was not implemented until 2006. Before
implementation of Form 10-D, ABS issuers often filed their
distribution reports under cover of Form 8-K.
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1. Statutory Effects
Prior to the amendment to Exchange Act Section 15(d), except for
master trust issuers, the requirement to file Form 10-K for ABS issuers
was typically suspended after the year of initial issuance because the
issuer had fewer than 300 security holders of record. The Act amended
Exchange Act Section 15(d) to remove issuers of a class of ABS from
automatic suspension of the filing requirement. Subsequent to the
enactment of the Act, the number of Forms 10-K and 10-D filed by ABS
issuers is expected to increase each year by the number of ABS
registered offerings and the number of Forms 15 filed by ABS issuers is
expected to decrease by a similar number. The yearly average of ABS
registered offerings with the Commission over the period from 2004 to
2009 was 958. As a result, for PRA purposes, we estimate an annual
increase in Form 10-K filings of 958 filings \30\ and corresponding
increases in Form 10-D filings of 5,748 filings and Form 8-K filings of
1437.\31\ Concurrently, for PRA purposes, we estimate an annual
decrease in Form 15 filings of 958 filings.\32\
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\30\ See the 2010 ABS Proposing Release, supra note 13, at
23402. In order to estimate the number of Forms 10-K filed by ABS
issuers for PRA purposes, we average the number of Forms 10-K over
three years. In the first year after implementation, we use 958 as
an estimate for the number of Forms 10-K we expect to receive. In
the second year, we increase our estimate of the number of Forms 10-
K expected by 958 to a total of 1,916 and in the third year, the
addition of another 958 brings the total to 2,874. The average
number of Forms 10-K over three years would, therefore, be 1,916. As
a result, for PRA purposes, we estimate an increase in Form 10-K
filings of 958 filings. These estimates assume that the market for
ABS returns to historic levels.
\31\ We are estimating that each ABS issuer would have an annual
Form 10-K filing, six Form 10-D filings and 1.5 8-K filings
consistent with our estimates in the 2010 ABS Proposing Release. See
2010 ABS Proposing Release, supra note 13, at n. 521.
\32\ We assume that in any given year the issuers of all 958
registered ABS issued in the prior year would have suspended
reporting using Form 15. The average number of Form 15 over three
years would, therefore, have been 958. After the implementation of
the Act, Form 15 will no longer be used by these ABS issuers as it
was in the past. As a result, for the purposes of PRA, we estimate a
decrease in Form 15 filings of 958.
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We estimate that, for Exchange Act reports generally, 75% of the
burden of preparation is carried by the company internally and that 25%
of the burden is carried by outside professionals retained by the
registrant at an average cost of $400 per hour. Consistent with our
estimates in 2004, we estimate that 120 hours would be needed to
complete and file a Form 10-K for an ABS issuer, 30 hours would be
needed to complete and file a Form 10-D for an ABS issuer, 5 hours
would be needed to complete and file a Form 8-K for an ABS issuer, and
1.5 hours would be needed to complete and file a Form 15 for an ABS
issuer.\33\
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\33\ See 2010 ABS Proposing Release, supra note 13, at 23402-
23403.
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In summation, we estimate, for PRA purposes, increases of 114,960
total burden hours for Form 10-K (958 Forms 10-K times 120 burden hours
per filing), 172,440 total burden hours for Form 10-D (5,748 Forms 10-D
times 30 burden hours per filing), and 7,185 total burden hours for
Form 8-K (1,437 Forms 8-K times 5 burden hours per filing), as well as
a decrease of 1,437 total burden hours for Form 15 (958 Forms 15 times
1.5 burden hours per filing) as a result of the statutory changes to
Exchange Act Section 15(d).\34\ We allocate 75% of those hours (an
increase of 86,220 hours for Form 10-K, 129,330 hours for Form 10-D,
and 5,389 hours for Form 8-K) to internal burden and the remaining 25%
to external costs using a rate of $400 per hour (an increase of
$11,496,000 for Form 10-K, $17,244,000 for Form 10-D and $718,500 for
Form 8-K).
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\34\ We allocate all of the burden for Form 15 filings to
internal burden hours.
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2. Effects on Burden Estimates of the Proposed Rules
We are proposing to permit ABS issuers to suspend their reporting
obligation with respect to a class of ABS for any fiscal year, other
than the fiscal year within which the registration statement became
effective, if, at the beginning of the fiscal year non-affiliates no
longer hold any of the issuer's securities of that class that were sold
in registered transactions. While we expect that issuers will be able
to suspend their reporting obligations in the future, based on average
expected deal life data, for purposes of the PRA, we estimate that the
proposal will not affect our PRA estimates over the next three
years.\35\ We are also proposing to amend Exchange Act Rule 15d-22
relating to reporting and shelf registration and Exchange Act Rule 12h-
3 to conform the rule to Exchange Act Section 15(d). We do not believe
that these proposals will affect our PRA estimates.
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\35\ Since historical data on the numbers of classes of ABS that
reduce their non-affiliated holders to zero is not generally
available, we are using statistics relating to average expected deal
life to establish our PRA estimate. Statistics compiled from SDC
Platinum suggest that the average expected deal life of a class of
ABS is over 5 years.
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[[Page 2054]]
3. Summary of Proposed Changes to Annual Burden Compliance in
Collection of Information
Table 1 illustrates the changes in annual compliance burden in the
collection of information in hours and costs for existing reports for
ABS issuers.
--------------------------------------------------------------------------------------------------------------------------------------------------------
Decrease or
Current Proposed Current Decrease or Proposed Current increase in Proposed
Form annual annual burden hours increase in burden hours professional professional professional
responses responses burden hours costs costs costs
--------------------------------------------------------------------------------------------------------------------------------------------------------
10-K............................ 13,545 14,503 21,363,548 86,220 21,449,768 2,848,473,000 11,496,000 2,859,969,000
10-D............................ 10,000 15,478 225,000 129,330 354,330 30,000,000 17,244,000 47,244,000
8-K............................. 115,795 117,232 493,436 5,389 498,825 54,212,000 718,500 54,930,500
15.............................. 3,000 2,042 4,500 (1,437) 3,063 0 0 0
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4. Solicitation of Comments
We request comments in order to evaluate: (1) Whether the proposed
collection of information is necessary for the proper performance of
the functions of the agency, including whether the information would
have practical utility; (2) the accuracy of our estimate of the burden
of the proposed collection of information; (3) whether there are ways
to enhance the quality, utility, and clarity of the information to be
collected; and (4) whether there are ways to minimize the burden of the
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology.\36\
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\36\ We request comment pursuant to 44 U.S.C. 3506(c)(2)(B).
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Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons submitting comments on the collection of
information requirements should direct the comments to the Office of
Management and Budget, Attention: Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and should send a copy to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090, with reference to File No. S7-02-11.
Requests for materials submitted to OMB by the Commission with regard
to these collections of information should be in writing, refer to File
No. S7-02-11, and be submitted to the Securities and Exchange
Commission, Office of Investor Education and Advocacy, 100 F Street,
NE., Washington, DC 20549-0213. OMB is required to make a decision
concerning the collection of information between 30 and 60 days after
publication of this release. Consequently, a comment to OMB is best
assured of having its full effect if OMB receives it within 30 days of
publication.
VI. Benefit-Cost Analysis
The Exchange Act establishes an ongoing reporting obligation for
each class of ABS for which an issuer has filed a registration
statement that has become effective pursuant to the Securities Act and
grants the Commission authority to provide for the suspension or
termination of the duty to file. In light of the changes made to
Exchange Act Section 15(d) in the Act, the Commission is proposing to
amend Exchange Act Rule 12h-3 and 15d-22, and to provide for the
suspension of the duty to file for certain issuers as discussed in this
release.\37\
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\37\ The proposed amendments to Exchange Act Rules 12h-3 and
15d-22 do not substantively alter the current requirements and
should help issuers comply with their obligations and avoid
confusion.
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We believe that reporting of the ongoing performance of the ABS is
useful to investors and the market by providing readily accessible
information upon which investors may evaluate performance and make
ongoing investment decisions. We also recognize, however, that there is
a point at which the benefits to investors and the market of reporting
diminish. In proposing to provide for the suspension of the duty to
file for ABS issuers when non-affiliated holders no longer hold
securities in the issuer, we have sought to balance the value of the
information to investors and the market with the burden on the issuers
of preparing the reports. We further recognize that there are other
alternatives for determining when the suspension of the duty to file is
appropriate and have sought comment on that issue in this release.
We are sensitive to benefits and costs of the proposed rules, if
adopted. The discussion below focuses on the benefits and costs of the
decisions made by the Commission in the exercise of the new exemptive
authority provided by the Act. We request that commentators provide
their views along with supporting data as to the benefits and costs of
the proposed amendments.
A. Benefits
The proposals would allow an issuer to suspend reporting under
certain circumstances and update certain provisions relating to
reporting obligations under a shelf registration statement. The Act
amended Exchange Act Section 15(d) to eliminate the automatic
suspension of the duty to file ongoing Exchange Act reports for ABS
issuers and granted the Commission authority to issue rules providing
for the suspension or termination of such duty. The proposals would
permit issuers to suspend their reporting obligation under Exchange Act
Section 15(d) for any fiscal year, other than the fiscal year within
which the registration statement became effective, if, at the beginning
of the fiscal year there are no longer ABS of the class that were sold
in a registration statement held by non-affiliates of the depositor.
Permitting such issuers to suspend reporting would allow those issuers
to avoid the costs of preparing and filing annual and periodic reports
with the Commission when non-affiliates of the depositor no longer hold
any outstanding classes of the securities sold in registered
transactions.
B. Costs
In revising Exchange Act Section 15(d), Congress exhibited an
intent to increase the continued reporting by ABS issuers, but gave the
Commission authority to place limitations on that reporting in the
public interest. The Commission is exercising this authority and
proposing a rule which would allow ABS issuers to suspend their
reporting obligation under certain limited conditions. Permitting the
suspension of reporting would limit the ability of market participants
and
[[Page 2055]]
observers to access and review information for those ABS that suspend
reporting. We believe that this cost would be mitigated, since
affiliates would generally be able to receive relevant information
because of their relationship with the depositor. Thus, only non-
holders of a particular ABS would be affected. Furthermore, the utility
of the information to market participants and observers would be
limited since ABS owned solely by affiliates would generally not have a
public market. We recognize that there is an additional cost to
preparing ongoing disclosure for registered transactions relative to
issuing in the private markets. Issuers' willingness to issue
registered ABS may be affected by the proposed threshold at which
issuers may suspend their reporting obligations under Section 15(d), or
another suspension threshold that we may adopt.
C. Request for Comment
We seek comments and empirical data on all aspects of this Benefit-
Cost Analysis including identification and quantification of any
additional benefits and costs.
VII. Consideration of Burden on Competition and Promotion of
Efficiency, Competition and Capital Formation
Section 23(a) of the Exchange Act \38\ requires the Commission,
when making rules and regulations under the Exchange Act, to consider
the impact a new rule would have on competition. Section 23(a)(2)
prohibits the Commission from adopting any rule that would impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act. Section 3(f) of the Exchange Act \39\
requires the Commission, when engaging in rulemaking that requires it
to consider whether an action is necessary or appropriate in the public
interest, to consider, in addition to the protection of investors,
whether the action would promote efficiency, competition, and capital
formation.
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\38\ 15 U.S.C. 78w(a).
\39\ 15 U.S.C. 78c(f).
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The proposed amendments update the reporting requirements for
takedowns from shelf registration in Exchange Act Rule 15d-22 and
provide for the suspension of the duty to file for certain ABS issuers
as discussed in this release. The proposal to allow ABS issuers without
non-affiliated holders to suspend their duty to file would decrease
transparency regarding those issuers, to the extent that non-affiliated
investors and the market use that information. However, the suspension
of the duty to file would reduce compliance costs for issuers which
could increase efficiency and facilitate capital formation.
The Act eliminated the ability of ABS issuers to suspend their duty
to file ongoing reports under Exchange Act Section 15(d). An inability
to suspend the duty to file may encourage some issuers to offer ABS
privately or not to issue ABS at all, rather than registering those ABS
and incurring the ongoing reporting costs. If issuers register fewer
ABS, this would reduce liquidity and decrease transparency in the ABS
market. The current proposal that would allow ABS issuers under limited
circumstances to suspend their duty to file and provide issuers
certainty regarding when they may suspend reporting may encourage some
ABS issuers to register ABS and offer ABS in the public markets, which
would increase liquidity and transparency and facilitate capital
formation.
The clarifications provided in Exchange Act Rule 15d-22 and 12h-3
may have a beneficial effect on the efficiency of managing ABS
offerings, especially takedowns from ABS shelf registration, by
providing issuers with a better understanding of their Exchange Act
reporting obligations and facilitating compliance.
We do not believe the proposed amendments would have an impact or
burden on competition. We request comment on whether the proposed
amendments, if adopted, would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act. Commentators are requested to provide empirical data and other
factual support for their views if possible. We request comment on
whether the proposed amendments, if adopted, would promote efficiency,
competition, and capital formation. Commentators are requested to
provide empirical data and other factual support for their views if
possible.
VIII. Small Business Regulatory Enforcement Fairness Act
For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996,\40\ a rule is ``major'' if it has resulted, or is likely
to result in:
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\40\ Public Law 104-121, Title II, 110 Stat. 857 (1996).
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An annual effect on the U.S. economy of $100 million or
more;
A major increase in costs or prices for consumers or
individual industries; or
Significant adverse effects on competition, investment, or
innovation.
We request comment on whether our proposed amendments would be a
``major rule'' for purposes of the Small Business Regulatory
Enforcement Fairness Act. We solicit comment and empirical data on:
The potential effect on the U.S. economy on an annual
basis;
Any potential increase in costs or prices for consumers or
individual industries; and
Any potential effect on competition, investment, or
innovation.
IX. Regulatory Flexibility Act Certification
The Commission hereby certifies pursuant to 5 U.S.C. 605(b) that
the proposals contained in this release, if adopted, would not have a
significant economic impact on a substantial number of small entities.
The proposals relate to the ongoing reporting requirements for ABS
issuers under the Exchange Act. Exchange Act Rule 0-10(a) \41\ defines
an issuer, other than an investment company, to be a ``small business''
or ``small organization'' if it had total assets of $5 million or less
on the last day of its most recent fiscal year. As the depositor and
issuing entity are most often limited purpose entities in an ABS
transaction, we focused on the sponsor in analyzing the potential
impact of the proposals under the Regulatory Flexibility Act. Based on
our data, we only found one sponsor that could meet the definition of a
small broker-dealer for purposes of the Regulatory Flexibility Act.\42\
Accordingly, the Commission does not believe that the proposals, if
adopted, would have a significant economic impact on a substantial
number of small entities.
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\41\ 17 CFR 240.0-10(a).
\42\ This is based on data from Asset-Backed Alert.
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X. Statutory Authority and Text of Proposed Rule and Form Amendments
We are proposing the amendments contained in this document under
the authority set forth in Section 942 of the Act, and Sections 3(b),
12, 13, 15, 23(a), and 36 of the Exchange Act.
List of Subjects in 17 CFR Parts 240 and 249
Reporting and recordkeeping requirements, Securities.
For the reasons set out above, Title 17, Chapter II of the Code of
Federal
[[Page 2056]]
Regulations is proposed to be amended as follows:
PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF
1934
1. The authority citation for part 240 continues to read as
follows:
Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5,
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4,
80b-11, and 7201 et seq.; and 18 U.S.C. 1350 and 12 U.S.C.
5221(e)(3), unless otherwise noted.
* * * * *
2. Amend Sec. 240.12h-3 by:
a. In paragraph (b)(1) introductory text add ``, other than any
class of asset-backed securities,'' in the first sentence after ``Any
class of securities''; and
b. Adding a Note to paragraph (b).
The addition to read as follows:
Sec. 240.12h-3 Suspension of duty to file reports under section
15(d).
* * * * *
(b) * * *
Note to Paragraph (b): The suspension of classes of asset-
backed securities is addressed in Sec. 240.15d-22.
* * * * *
3. Revise Sec. 240.15d-22 to read as follows:
Sec. 240.15d-22 Reporting regarding asset-backed securities under
section 15(d) of the Act.
(a) With respect to an offering of asset-backed securities
registered pursuant to Sec. 230.415(a)(1)(x) of this chapter:
(1) Annual and other reports need not be filed pursuant to section
15(d) of the Act (15 U.S.C. 78o(d)) regarding any class of securities
to which such registration statement relates until the first bona fide
sale in a takedown of securities under the registration statement; and
(2) The starting and suspension dates for any reporting obligation
under section 15(d) of the Act (15 U.S.C. 78o(d)) with respect to a
takedown of any class of asset-backed securities is determined
separately for each takedown of securities under the registration
statement.
(b) The duty to file annual and other reports pursuant to section
15(d) of the Act (15 U.S.C. 78o(d)) regarding any class of asset-backed
securities is suspended as to any fiscal year, other than the fiscal
year within which the registration statement became effective, if, at
the beginning of the fiscal year there are no longer any asset-backed
securities of such class that were sold in a registered transaction
held by non-affiliates of the depositor.
(c) This section does not affect any other reporting obligation
applicable with respect to any classes of securities from additional
takedowns under the same or different registration statements or any
reporting obligation that may be applicable pursuant to section 12 of
the Act (15 U.S.C. 78l).
PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934
4. The authority citation for part 249 continues to read as
follows:
Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; and 18
U.S.C. 1350, unless otherwise noted.
5. Amend Form 15 (referenced in Sec. 249.323) by adding a checkbox
referring to ``Rule 15d-22(b)'' after the checkbox referring to ``Rule
15d-6''.
Dated: January 6, 2011.
By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2011-416 Filed 1-11-11; 8:45 am]
BILLING CODE 8011-01-P