[17742]
July 1, 2004
TO: FIXED-INCOME ADVISORY COMMITTEE No. 8-04
MONEY MARKET FUNDS ADVISORY COMMITTEE No. 9-04
SEC RULES COMMITTEE No. 58-04
RE: DRAFT INSTITUTE LETTER ON SEC REGULATION OF ASSET-BACKED SECURITIES
As we previously informed you,1 the Securities and Exchange Commission has
published for comment proposed rules governing the issuance of asset-backed securities
(“ABS”). The proposed rules largely codify SEC staff no-action letters and other interpretive
guidance under the Securities Act of 1933 and the Securities Exchange Act of 1934. Specifically,
the proposed rules would: (1) provide tailored disclosure guidance and requirements for
Securities Act and Exchange Act filings involving ABS; (2) update and clarify the Securities Act
registration requirements for ABS offerings; (3) streamline and codify existing interpretive
positions that permit the use of written communications in a registered offering of ABS in
addition to the statutory registration statement prospectus; and (4) consolidate and codify
existing interpretive positions that allow modified Exchange Act reporting that is more tailored
and relevant to ABS. The Institute has prepared a draft comment letter on the proposed rules.
The most significant aspects of the draft letter are summarized below and a copy of the draft
letter is attached.
Comments on the proposed rules are due to the SEC no later than July 12, 2004. We
have scheduled a conference call to discuss the Institute’s draft comment letter for
Wednesday, July 7 at 4:00 p.m. EST. The dial-in number for the call will be 800-857-3796 and
the passcode for the call will be 10054. If you would like to participate on the call, please
contact Stephanie Gerace by phone at 202-326-5833 or by e-mail at sgerace@ici.org. In the
meantime, if you have any comments on the draft letter, please contact the undersigned by
phone at 202-371-5410 or by e-mail at jheinrichs@ici.org.
I. Disclosure in ABS Prospectuses
The proposed rules would add substantial disclosure requirements relating to the
background, experience, performance, and roles of various parties involved with ABS
transactions, such as the sponsor, the depositor, the servicer, and the trustee. The draft letter
supports the proposed requirements for more ABS-tailored disclosure in prospectuses. The
1 Memorandum to Fixed-Income Advisory Committee No. 7-04, Money Market Funds Advisory Committee No. 8-04
and SEC Rules Members No. 81-04, dated June 3, 2004 [17574].
2
letter does suggest that certain other items be added to the required prospectus disclosure in
order to ensure that investors are provided with the information they need to make investment
decisions.
II. Ongoing Disclosure
The proposed rules would codify the modified reporting system under the Exchange
Act that is currently in place for ABS issuers. The draft letter generally supports the proposed
rules’ approach to ongoing reporting. The draft letter notes that the Institute is concerned with
the practice of ABS issuers ceasing to report under the Securities Exchange Act once they
qualify for the automatic suspension under Section 15(d) of that Act. Because most ABS are not
listed on an exchange and are held by less than 300 record holders, they are permitted to
suspend periodic reporting under Section 15(d). The draft letter states that the ability to
suspend reporting under Section 15(d) should be restricted by requiring issuers to waive their
ability to suspend reporting as a condition for registration form eligibility.
III. Delivery of Information Prior to Sale
The proposed rules would codify a series of no-action letters that do not require broker-
dealers under Exchange Act Rule 15c2-8(b) to deliver a copy of a preliminary prospectus to any
person who is expected to receive a confirmation of sale at least 48 hours prior to the sending of
the confirmation. The draft letter states that the Institute continues to believe that, due to the
complex nature of many ABS, delivery of certain information prior to the completion of a
transaction should be required, at least in certain cases. The draft letter notes that the Institute
has previously called for requiring broker-dealers to deliver preliminary prospectuses at least
48 hours prior to the sending of the confirmation statement. The Commission’s proposals
would, however, exempt broker-dealers from Rule 15c2-8(b) and thereby heighten the current
problem of ABS purchasers being forced to make investment decisions under compressed time
periods. The draft letter recommends that if the Commission is unwilling to require prior
delivery of prospectuses, it instead require ABS informational and computational materials
delivered in advance of a prospectus to include certain specified information. The draft letter
states that this would help ensure that investors at least receive the most important information
about an offering in a timely fashion.
Jane G. Heinrichs
Assistant Counsel
Attachment (in .pdf format)