1) Mar 30 (FRN) -- The Securities and Exchange Commission (“Commission”) is re-proposing amendments to remove the references to credit ratings included in certain Commission rules. Comments are invited by May 23, 2022.
The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), among other things, requires the Commission to remove any references to credit ratings from its regulations. In one rule governing the activity of distribution participants, the Commission is proposing to remove the reference to credit ratings, substitute alternative measures of credit-worthiness, and impose related recordkeeping obligations in certain instances. In another rule governing the activity of issuers and selling security holders during a distribution, the Commission is proposing to eliminate the exception for investment-grade nonconvertible debt, nonconvertible preferred securities, and asset-backed securities.
The Commission is proposing to amend the existing exceptions found in 17 CFR 242.101 (“Rule 101”) and 17 CFR 242.102 (“Rule 102”) for investment-grade nonconvertible debt securities, nonconvertible preferred securities, and asset-backed securities. Specifically, the Commission is proposing to remove the requirement to qualify for the exception in each of these rules that these securities be rated investment grade by at least one nationally recognized statistical rating organization (“NRSRO”). In its place, in Rule 101, the Commission proposes to except (1) nonconvertible debt securities and nonconvertible preferred securities (collectively, “Nonconvertible Securities”) that meet a specified probability of default threshold, and (2) asset-backed securities that are offered pursuant to an effective shelf registration statement filed on the Commission's Form SF-3. In addition, the Commission is proposing to eliminate the existing exception in Rule 102 for investment-grade Nonconvertible Securities, and asset-backed securities. The Commission is also proposing amendments to 17 CFR 240.17a-4(b) (“Rule 17a-4(b)”) under the Securities Exchange Act of 1934 (“Exchange Act”) to require broker-dealers to maintain the written probability of default determination.
FR notice (27 pages): https://www.federalregister.gov/d/2022-06583
2) Mar 23 Fact Sheet: https://www.sec.gov/files/34-94499-fact-sheet.pdf
3) Mar 23 (news release) -- SEC Proposes Amendments to Remove References to Credit Ratings from Regulation M
The Securities and Exchange Commission today voted to propose changes that would remove the references to credit rating agencies from existing exceptions provided in Rule 101 and Rule 102 of Regulation M, a set of rules designed to preserve market integrity by prohibiting activities that could artificially influence the market for an offered security.
"In Section 939A of the Dodd-Frank Act of 2010, Congress directed federal agencies, including the SEC, ‘to remove any reference to or requirement of reliance on credit ratings’ from our rules and to substitute an appropriate standard for credit-worthiness," said SEC Chair Gary Gensler. "The SEC has completed much of this work, and the only remaining references to credit ratings are in Rules 101 and 102 of Reg M. Today’s proposal, if adopted, thus would fulfill Congress’s mandate to remove all such references to credit rating agencies from our rules."
The Commission proposes to replace the credit-rating requirement included in Rule 101’s exception, which is available to distribution participants and their affiliated purchasers, with requirements that the nonconvertible debt securities and nonconvertible preferred securities meet a specified probability of default threshold, and that the asset-backed securities be offered pursuant to an effective shelf registration statement filed on the Commission’s Form SF-3. In addition, the proposed changes would eliminate Rule 102’s exception, which is available to issuers, selling security holders, and their affiliates, for investment grade nonconvertible debt securities, nonconvertible preferred securities, and asset-backed securities.
The Commission also voted to propose a recordkeeping requirement under Rule 17a-4(b)(17) for broker-dealers who make probability of default determinations in reliance on Rule 101’s proposed exception for nonconvertible debt securities and nonconvertible preferred securities.