of the securities and expected economic condition? How could we
structure a shelf eligibility condition to take those variables into
account?
     We considered but are not proposing an alternative way to
satisfy the risk retention shelf eligibility condition based on
retention of randomly-selected exposures. We are concerned about the
ability to subsequently demonstrate the randomness of the random
selection process, including for purposes of monitoring or auditing.
Should we include this alternative? Are there any mechanisms that we
could adopt that would ensure adequate monitoring of the randomization
process if such an alternative were permitted? For example, would our
concerns be addressed if the sponsor was required to provide a third
party opinion that the selection process has been random and that
retained exposures are equivalent (i.e., share a similar risk profile)
to the securitized exposures? Would this be sufficient? Would this
opinion resemble a credit rating, raising the same issues that rule
reliance on credit ratings has had? If this approach were taken, should
we impose any requirements on the characteristics of such a third
party? Should that third party be considered an expert for purposes of
the registration statement?
     If we adopted a random selection alternative, should we
require the same disclosure regarding the securitized exposures that
are subject to risk retention that is required for the assets in the
pool at the time of securitization and on an ongoing basis? Should the
shelf eligibility condition require that the retained exposures be
subject to the same servicing as the securitized exposures?
     Instead of requiring risk retention as a condition for
shelf eligibility, should risk retention be made voluntary for shelf-
eligible offerings and issuers only be required to add specified
disclosure on the interest that the sponsor or other transaction
participants retain? In other words, instead of mandating a certain
amount of risk retention, should the requirement be that issuers
disclose the percentage of risk retained and in what form? As discussed
in greater detail in section III.C.3 of the release, we are also
proposing to revise Items 1104, 1108 and 1110 of Regulation AB to
require disclosure regarding the sponsor's, a servicer's or a 20%
originator's interest retained in the transaction, including amount and
nature of that interest. This information would be required for both
shelf and non-shelf offerings. If those proposed risk retention
disclosure requirements were adopted, would there be a need for or a
significant incremental benefit from mandating specific minimum risk
retention as a condition of shelf eligibility? Could this incremental
benefit be achieved strictly through a market-based mechanism--for
example, through fully-disclosed ABS covenants in which the sponsor
pre-commits to retain a minimum percentage of the risk of the deal, as
opposed to a regulatory requirement? Is the disclosure proposed to be
required below sufficient to achieve such a benefit, and if not, what
additional disclosures should we require? Would disclosure of the risk
retention be a sufficient indicator of shelf-eligible offerings? Should
we condition shelf eligibility on requiring the sponsor to covenant
that it would maintain a minimum percentage of risk retention? If so,
should we provide any limitations on the covenant (e.g., what
percentage of tranche or assets must be retained, manner of sponsor's
retention, no hedging)? What are the limitations to a market-based
mechanism for risk retention? Would such a transaction covenant be
credible and enforceable? Would requiring this transaction covenant,
along with disclosure of risk retention pursuant to the covenant,
sufficiently distinguish those offerings that should be made shelf
eligible from those that should not?
     Should net economic interest be measured at the time of
origination/issuance as proposed? Would a different measurement date be
more appropriate (e.g., the securitization cut-off date)? If the
interest were measured at the time of securitization cut-off date,
could this cause issuers to change various terms? Is the amount of
retention that is required to be retained on an ongoing basis
appropriate? Why or why not?
     Should revolving asset master trusts be permitted to
satisfy the shelf eligibility requirement by retaining the originator's
interest, as proposed? In those cases, should we require as proposed
that the originator's interest and securities held by investors are
collectively backed by the same pool of receivables, and payments of
the originator's interest are not less than five percent of payments of
the securities held by investors collectively? Is that typical in
credit card issuances?
     Are the proposed netting provisions appropriate? Do we
need to provide more guidance on what kind of hedges would be netted
against the retained risk? Is the proposed ``directly related''
standard appropriate? Is it sufficiently clear what type of hedges
would be allowed? Are there certain forms of hedges that we should
indicate would not be netted against the retained risk? Is there any
concern that sponsors may inadvertently hedge the economic risk
required to be retained? If so, do we need to address that and what is
the best way for us to address it? Should we expand the proposed
netting provisions to other types of hedging? Should we narrow the
proposed netting provisions in any way?
     Should the sponsor be allowed to sell off the retained
interest after a certain point in time while non-affiliates of the
depositor still hold securities and still remain shelf eligible? If so,
when? Would that undermine the purpose of the condition? If not, why
not?
     Should there be an alternate condition to the risk
retention shelf eligibility condition? For instance, should risk
retention apply to RMBS

that are backed by mortgages that are not qualified mortgages, as
defined H.R. 1728,\126\ a recent legislative proposal? \127\ Would it
be appropriate to require risk retention unless full documentation has
been provided for the assets, the borrower meets a certain minimum
credit score, or the terms of the loan do not involve balloon payments?
Would such requirements for the mortgages in the pool be a better
condition to shelf eligibility than the proposed risk retention shelf
eligibility condition? Would such a shelf eligibility condition be
difficult to implement? Should we instead condition shelf eligibility
on risk retention for loans with an annual percentage rate that exceeds
the average prime offer rate for a comparable transaction as of the
date the interest rate is set by 1.5 or more percentage points for
loans secured by a first lien on a dwelling, or by 3.5 or more
percentage points for loans secured by a subordinate lien on a
dwelling? \128\ How would we structure a condition that relates to
specified characteristics of the assets for other asset classes that
may not have those variables or those industry standards or have
different underwriting standards? What would be the appropriate
categories and thresholds? Do those appropriate categories and
thresholds differ for different classes? If so, how? Are there
securitized asset classes that have no clear or established standards
that could demarcate assets meriting shelf eligibility and those that
do not?
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    \126\ See, e.g., Mortgage Reform and Anti-Predatory Lending Act,
H.R. 1728, 111th Congress.
    \127\ At Sec.  203 in H.R. 1728, a qualified mortgage is defined
as a mortgage:
    (i) That does not allow a consumer to defer repayment of
principal or interest, or is not otherwise deemed a `non-traditional
mortgage' under guidance, advisories, or regulations prescribed by
the Federal Banking Agencies;
    (ii) That does not provide for a repayment schedule that results
in negative amortization at any time;
    (iii) For which the terms are fully amortizing and which does
not result in a balloon payment, where a `balloon payment' is a
scheduled payment that is more than twice as large as the average of
earlier scheduled payments;
    (iv) Which has an annual percentage rate that does not exceed
the average prime offer rate for a comparable transaction, as of the
date the interest rate is set--
    (I) By 1.5 or more percentage points, in the case of a first
lien residential mortgage loan having an original principal
obligation amount that is equal to or less than the amount of the
maximum limitation on the original principal obligation of mortgage
in effect for a residence of the applicable size, as of the date of
such interest rate set, pursuant to the sixth sentence of section
305(a)(2) the Federal Home Loan Mortgage Corporation Act (12 U.S.C.
1454(a)(2));
    (II) By 2.5 or more percentage points, in the case of a first
lien residential mortgage loan having an original principal
obligation amount that is more than the amount of the maximum
limitation on the original principal obligation of mortgage in
effect for a residence of the applicable size, as of the date of
such interest rate set, pursuant to the sixth sentence of section
305(a)(2) the Federal Home Loan Mortgage Corporation Act (12 U.S.C.
1454(a)(2)); and
    (III) By 3.5 or more percentage points, in the case of a
subordinate lien residential mortgage loan;
    (v) For which the income and financial resources relied upon to
qualify the obligors on the loan are verified and documented
    (vi) In the case of a fixed rate loan, for which the
underwriting process is based on a payment schedule that fully
amortizes the loan over the loan term and takes into account all
applicable taxes, insurance, and assessments;
    (vii) In the case of an adjustable rate loan, for which the
underwriting is based on the maximum rate permitted under the loan
during the first seven years, and a payment schedule that fully
amortizes the loan over the loan term and takes into account all
applicable taxes, insurance, and assessments;
    (viii) That does not cause the consumer's total monthly debts,
including amounts under the loan, to exceed a percentage established
by regulation of the consumer's monthly gross income or such other
maximum percentage of such income as may be prescribed by regulation
under paragraph (4), and such rules shall also take into
consideration the consumer's income available to pay regular
expenses after payment of all installment and revolving debt;
    (ix) For which the total points and fees payable in connection
with the loan do not exceed 2 percent of the total loan amount,
where `points and fees' means points and fees as defined by Section
103(aa)(4) of the Truth in Lending Act (15 U.S.C. 1602(aa)(4)); and
    (x) For which the term of the loan does not exceed 30 years,
except as such term may be extended under paragraph (4).
    \128\ See definition of ``higher-priced mortgage loans'' in 12
CFR 226.35(a) and Truth in Lending, Federal Reserve System, 73 FR
44522 (July 30, 2008).
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     The residual interest of a commercial mortgage
securitization is typically sold to a third party purchaser, also known
as the ``B-piece buyer,'' before the issuance of the securities. In
light of this practice, should we permit third party retention of a
portion of the securitization to fulfill the shelf eligibility
condition? How can we ensure that incentives between the sponsor and
investors are aligned in a manner that results in higher quality if the
sponsor is permitted to sell off its risk to a third party? For
example, should such a shelf eligibility condition require that if a
third party will retain the credit risk, the third party purchaser must
retain a higher percentage (e.g., ten or 15%) of the risk, rather than
five percent? If we allow this approach, should we condition shelf
eligibility on a requirement that the third party separately examine
the assets in the pool and/or not sell or hedge its holdings? Are there
reasons we should, or should not, permit a third party to retain risk
in order to satisfy the proposed risk retention condition? \129\
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    \129\ In recent years, it was not uncommon for the
securitization residual or equity interests to be repackaged into
CDOs and sold in the private markets.
---------------------------------------------------------------------------

     Should any asset classes or types of securities be exempt
from the proposed risk retention shelf eligibility condition or have
different risk retention requirements apply? Because of the unique
nature of residential mortgages in the financial markets, should risk
retention apply to shelf offerings of residential mortgage-backed
securities (RMBS) but not offerings of other ABS? If so, what would be
an appropriate partial substitute for investment grade rating for shelf
eligibility for those other asset classes?
     How would the proposed risk retention shelf eligibility
condition impact how sellers account for the transfer of assets in a
securitization transaction? Is it desirable to revise the proposal to
lessen that impact and if so, how?
     Would the proposal have an impact on the true sale at law
of the assets or on the rights of ABS investors as a result of
conservatorship, receivership or bankruptcy of the originator or
sponsor? If so, how can we revise the proposed risk retention condition
to require risk retention without jeopardizing the transfer of assets
as a true sale at law or the remoteness of those assets in the event of
any bankruptcy, conservatorship, or receivership of the sponsor or
originator?
     We note that FINRA Rule 5130 (Restrictions on the Purchase
and Sale of IPOs of Equity Securities) generally prohibits FINRA
members from selling initial public offerings to broker dealers and
their affiliates. The rule is designed to protect the integrity of the
public offering process by ensuring that: (1) Members make bona fide
public offerings of securities at the offering price; (2) members do
not withhold securities in a public offering for their own benefit or
use securities to reward persons who can give them future business; and
(3) industry insiders do not take advantage of their insider position
to purchase IPOs for their own benefit at the expense of the
public.\130\ Under FINRA's rules, if an ABS is an equity security, it
is excluded from the application of the rule if the security is sold
pursuant to an exemption under the Securities Act or if it is an
offering of investment grade rated ABS. Will this rule have any
significant impact on the ability to retain risk as a requirement for
shelf eligibility? While our rule changes would eliminate references to
credit ratings, sponsors may still obtain ratings, which would
potentially qualify

the offering for this exemption. Alternatively, FINRA could change its
rule to provide the exemption to shelf-eligible ABS rather than
investment grade rated ABS. Are there any other regulations or rules
that may impact the retention of risk?
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    \130\ NASD notice to Members 03-79 (March 23, 2004) Initial
Public Offerings.
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(b) Third Party Review of Repurchase Obligations
    In the underlying transaction agreements for an asset
securitization, sponsors or originators typically make representations
and warranties relating to the pool assets and their origination,
including about the quality of the pool assets. For instance, in the
case of residential mortgage-backed securities, one such representation
and warranty is that each of the loans has complied with applicable
federal, state and local laws, including truth-in-lending, consumer
credit protection, predatory and abusive laws and disclosure laws.
Another representation that may be included is that no fraud has taken
place in connection with the origination of the assets on the part of
the originator or any party involved in the origination of the assets.
Upon discovery that a pool asset does not comply with the
representation or warranty, under transaction covenants, an obligated
party, typically the sponsor, must repurchase the asset or substitute
the non-compliant asset with a different asset that complies with the
representations and warranties.
    The effectiveness of these contractual provisions has been
questioned and lack of responsiveness by sponsors to potential breaches
of the representations and warranties relating to the pool assets has
been the subject of investor complaint.\131\ Transaction agreements
typically have not included specific mechanisms to identify breaches of
representations and warranties or to resolve a question as to whether a
breach of the representations and warranties has occurred.\132\ Thus,
these contractual agreements have frequently been ineffective because
without access to documents relating to each pool asset, it can be
difficult for the trustee, which typically notifies the sponsor of an
alleged breach, to determine whether or not a representation or
warranty relating to a pool asset has been breached. Investors and
trustees must rely on the sponsor to provide the necessary
documentation about the assets in question. Without further safeguards,
the protective quality of the representations and warranties can be
compromised.
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    \131\ See the Committee on Capital Markets Regulation Financial
Crisis Report, at 135 (noting that contractual provisions have
proven to be of little practical value to investors during the
crisis); see also Investors Proceeding with Countrywide Lawsuit,
Mortgage Servicing News, Feb. 1, 2009 (describing class action
investor suit against Countrywide in which investors claim that
language in the pooling and servicing agreements requires the
seller/servicer to repurchase loans that were originated with
``predatory'' or abusive lending practices) and American
Securitization Forum, ASF Releases Model Representations and
Warranties to Bolster Risk Retention and Transparency in Mortgage
Securitizations, (Dec. 15, 2009), available at http://
www.americansecuritization.com/. Only large investors of ABS such as
Fannie Mae and Freddie Mac have been able to exercise repurchase
demands. See Aparajita Saha-Bubna, ``Repurchased Loans Putting Banks
in Hole,'' Wall Street Journal (Mar. 8, 2010) (noting that most
mortgages bouncing back to lenders are coming from Fannie Mae and
Freddie Mac).
    \132\ See also Moody's Investors Service, Inc., Special Report:
Moody's Criteria for Evaluating Representations and Warranties in
U.S. Residential Mortgage Backed Securitizations (RMBS), November
24, 2008 (noting that historically RMBS have not incorporated
mechanisms and procedures to identify breaches of representations
and warranties and recommending that post-securitization forensic
reviews be conducted by an independent third party for delinquent
loans).
---------------------------------------------------------------------------

    We are proposing to require as a condition to shelf eligibility,
that the pooling and servicing agreement or other transaction agreement
for the securitization, which is required to be filed with the
Commission,\133\ contain a specified provision to enhance the
protective nature of the representations and warranties. The specified
provision would require the obligated party (i.e. the representing and
warranting party) to furnish a third party's opinion relating to any
asset for which the trustee has asserted a breach of any representation
or warranty and for which the asset was not repurchased or replaced by
the obligated party on the basis of an assertion that the asset met the
representations and warranties contained in the pooling and servicing
or other agreement.\134\ The third party opinion would confirm that the
asset did not violate a representation or warranty contained in the
pooling and servicing agreement or other transaction agreement. Because
we believe that annual review of the assets is not sufficient to
address investors' concerns regarding the enforceability of these
provisions in the underlying transaction documents, the opinion would
be required to be furnished to the trustee at least quarterly.
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    \133\ ABS issuers are currently required to file these
agreements as an exhibit to the registration statement.
    \134\ See proposed General Instruction I.B.1(b) of proposed Form
SF-3. Under existing rules, the transaction agreement is required to
be filed as an exhibit to the registration statement. See Item 601
of Regulation S-K [17 CFR 229.601].
---------------------------------------------------------------------------

    To better ensure that the opinion is impartial, we are proposing to
require that the third party providing the opinion not be an affiliate
of the obligated party. This proposed third party loan review condition
to shelf eligibility is designed to help ensure that representations
and warranties about the assets provide meaningful protection to
investors, which should encourage sponsors to include higher quality
assets in the asset pool.\135\ As a result, we believe that this
proposed condition is an appropriate partial substitute for the
investment grade ratings requirement.
---------------------------------------------------------------------------

    \135\ As described below, we also propose to add a disclosure
requirement to Exchange Act Form 10-D that would require disclosure
of the number of loans that have been presented for repurchase to
the party obligated to repurchase the assets under the transaction
agreements and the number of those assets that have not been
repurchased or replaced.
---------------------------------------------------------------------------

Request for Comment

     Is this proposed condition an appropriate shelf
eligibility condition for ABS offerings?
     Would this proposed condition, which would only require an
undertaking from the issuer, have a measurable benefit to investors?
Should we require more assurance that third party opinions have been
provided to investors as a condition to shelf eligibility? For example,
should we instead condition eligibility on receipt of a certification
from the trustee in offerings of the same asset class by the depositor
or its affiliates to the effect that all required opinions have been
obtained? Should we condition eligibility on a requirement that the
trustee provide notice if required third party opinions are not
obtained, along with an absence of a notice from the trustee to the
effect that there was a failure to provide required opinions?
     Should we provide more guidelines in this shelf
eligibility condition regarding the specifics of the provision that
would be required to be included in the pooling and servicing or other
agreement? If so, what should be detailed?
     Should the proposed condition provide any further
specification of the terms of the third party opinion provision?
     Is it appropriate to require, as proposed, the third party
to be non-affiliated with the obligated party? Should we specify
further any requirements relating to providers of the third party
opinion? Should we specify that the third party opinion provider must
be an independent expert, similar to what is required in Section
314(d)(1) \136\ of the Trust Indenture Act of 1939? \137\
---------------------------------------------------------------------------

    \136\ 15 U.S.C. 77nnn(d)(1).
    \137\ 15 U.S.C. 77aaa et seq.

---------------------------------------------------------------------------

     Should we specify who should provide the third party
opinion or who should not be permitted to provide the opinion? Should
diligence firms that provide third party pre-securitization review of a
random sample of assets be allowed to provide this opinion? Should we
specify that it must be a legal opinion? Would attorneys or law firms
be willing to provide this opinion? Why or why not? Would it be
appropriate to allow a sponsor's in-house counsel to provide the
opinion? If a law firm provides the opinion, should we prohibit the law
firm that assisted in the offering from providing such an opinion?
     Based on existing attestation standards of either the
PCAOB or AICPA, we do not believe that the proposed opinion could be
provided by a public accountant. Would a public accountant be able to
provide the proposed opinion under existing attestation standards? If
so, which standard or standards should be applied, what level of
assurance should be provided and how should the third party opinion be
reported?
     Should we provide that the third party opinion must cover
all of the representations and warranties in the agreement related to
the assets, as proposed? Instead, are there certain representations and
warranties that are the most significant that the opinion should cover?
Are there types of representations and warranties that the third party
opinion should not be required to opine on? For example, are there
certain representations and warranties that an attorney or a law firm
would not be able to opine on? If so, why?
     Are there any other types of limitations that a third
party opinion provider would or should place on the required opinion?
In general, what type of exam, assessment or evaluation would a third
party opinion provider need to make in order to provide the required
opinion?
     How costly or burdensome would it be for an issuer to be
required to have a third party provide an opinion to satisfy the
proposed shelf eligibility condition? Would this impose too much burden
on ABS issuers? Are there ways to lessen the cost?
     Should the third party opinion be required to be furnished
annually rather than quarterly, as proposed?
     Should we require that the third party opinion also be
filed as an exhibit to an Exchange Act report?
     We are aware of some insurance providers that have offered
to insure in the context of mergers and acquisitions any breach of the
representations and warranties in the transaction agreement. As an
alternative to conditioning ABS shelf eligibility on an undertaking in
the transaction agreement that the issuer furnish a third party opinion
on assets not repurchased (or instead of the proposed condition),
should we allow the issuer to purchase insurance to insure a minimum
amount or percentage of the sponsor or originator's obligations under
the transaction agreement? If so, what kind of disclosure should we
require about the insurance provider? How can we ensure that this
alternative method of meeting shelf eligibility adequately improves the
incentive structure and therefore the quality of the securities?
(c) Certification of the Depositor's Chief Executive Officer
    We also are proposing to establish a requirement that, as a
condition to ABS shelf eligibility to replace investment grade ratings
criteria, the issuer provide a certification signed by the chief
executive officer of the depositor of the securitization regarding the
assets underlying the securities for each offering.\138\ The
certification would require the depositor's chief executive officer to
certify that to his or her knowledge, the assets have characteristics
that provide a reasonable basis to believe they will produce, taking
into account internal credit enhancements, cash flows at times and in
amounts necessary to service payments on the securities as described in
the prospectus. This officer would also certify that he or she has
reviewed the prospectus and the necessary documents for this
certification.\139\
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    \138\ See proposed General Instruction I.B.1(c) to proposed Form
SF-3.
    \139\ This condition is similar to the current disclosure
requirements for asset-backed issuers in the European Union. Annex
VIII, Disclosure Requirements for the Asset-Backed Securities
Additional Building Block, Section 2.1 (European Commission
Regulation (EC) No. 809/2004 (April 29, 2004). The EU requires
asset-backed issuers to disclose in each prospectus that the
securitized assets backing the issue have characteristics that
demonstrate capacity to produce funds to service any payments due
and payable on the securities. Similarly, under the North American
Securities Administrator's Association (NASAA)'s guidelines for
registration of asset-backed securities, sponsors are required to
demonstrate that for securities without an investment grade rating,
based on eligibility criteria or specifically identified assets, the
eligible assets being pooled will generate sufficient cash flow to
make all scheduled payments on the asset-backed securities after
taking certain allowed expenses into consideration. The guidelines
are available at www.nasaa.org.
---------------------------------------------------------------------------

    Because we would frame this ABS shelf eligibility condition as a
certification requirement instead of a disclosure requirement, we are
using slightly different language than a similar EU disclosure
requirement in order to more precisely outline what the officer is
certifying to. We are proposing a certification rather than a
disclosure requirement because we preliminarily believe the potential
focus on the transaction and the disclosure that may result from an
individual providing a certification should lead to enhanced quality of
the securitization.\140\ We believe, as we did when we proposed the
certification for Exchange Act periodic reports, that a certification
may cause these officials to review more carefully the disclosure, and
in this case, the transaction, and to participate more extensively in
the oversight of the transaction.\141\
---------------------------------------------------------------------------

    \140\ For instance, a depositor's chief executive officer may
conclude that in order to provide the certification, he or she must
analyze a structural review of the securitization. Rating agencies
would also conduct a structural review of the securitization when
issuing a rating on the securities.
    \141\ See Certification of Disclosure in Companies' Quarterly
and Annual Reports, Release No. 34-46079 June 14, 2002. See also
Testimony Concerning Implementation of the Sarbanes-Oxley Act of
2002 by William H. Donaldson, Chairman U.S. Securities and Exchange
Commission Before the Senate Committee on Banking, Housing and Urban
Affairs (September 9, 2003) (noting that a consequence of ``the
combination of the certification requirements and the requirement to
establish and maintain disclosure controls and procedures has been
to focus appropriate increased senior executive attention on
disclosure responsibilities and has had a very significant impact to
date in improving financial reporting and other disclosure'').
---------------------------------------------------------------------------

    We are proposing that the statements required in the certification
would be made based on the knowledge of the certifying officer. As
signatories to the registration statement, we would expect that chief
executive officers of depositors would have reviewed the necessary
documents regarding the assets, transactions and disclosures. Under
current requirements, the registration statement for an ABS offering is
required to include a description of the material characteristics of
the asset pool,\142\ as well as information about the flow of funds for
the transaction, including the payment allocations, rights and
distribution priorities among all classes of the issuing entity's
securities, and within each class, with respect to cash flows, credit
enhancement and any other structural features in the transaction.\143\
The proposed certification would be an explicit representation by the
chief executive officer of the depositor of what is already implicit in
this disclosure

contained in the registration statement.\144\ This is similar to the
certifications of Exchange Act periodic reports required by Exchange
Act Rules 13a-14 and 15d-14,\145\ which also refer to the disclosure.
As with the certifications required by these rules, the language of the
proposed certification could not be altered. Instead, any issues in
providing the certification would need to be addressed through
disclosure in the prospectus.\146\ For instance, if the prospectus
describes the risk of non-payment, or probability of non-payment, or
other risks that such cash flows will not be produced or such payments
will not be made, then those disclosures would be taken into
consideration in signing the certification.
---------------------------------------------------------------------------

    \142\ See Item 1111 of Regulation AB [17 CFR 229.1111].
    \143\ See Item 202 of Regulation S-K [17 CFR 229.202] and Item
1113 of Regulation AB [17 CFR 229.1113].
    \144\ This approach is somewhat similar to the approach we took
with Regulation AC, which requires certifications from analysts. We
noted there that Regulation AC makes explicit the representations
that are already implicit when an analyst publishes his or her
views--that the analysis of a security published by the analyst
reflects the analyst's honestly held views. Section II of Regulation
Analyst Certification, Release No. 33-8193 (Feb. 23, 2003) [68 FR
9482].
    \145\ 17 CFR 240.13a-14 and 17 CFR 240.15d-14.
    \146\ See Section III.D.6 of the 2004 ABS Adopting Release.
---------------------------------------------------------------------------

    The chief executive officer of the depositor is already responsible
as signatory of the registration statement for the issuer's disclosure
in the prospectus and can be liable for material misstatements or
omissions under the federal securities laws.\147\ An officer providing
a false certification potentially could be subject to Commission action
for violating Securities Act Section 17.\148\ The certification would
be a statement of what is known by the signatory at the time of the
offering and would not serve as a guarantee of payment of the
securities.
---------------------------------------------------------------------------

    \147\ See Securities Act Section 11 (15 U.S.C. 77k(a)) and
Exchange Act Section 10(b) (15 U.S.C. 78j(b)).
    \148\ 15 U.S.C. 77q(a).
---------------------------------------------------------------------------

    Under our proposal, this certification would be an additional
exhibit requirement for the shelf registration statement that would not
be applicable to the non-shelf registration statement, Form SF-1, and
that would be required to be filed by the time the final prospectus is
required to be filed under Rule 424.\149\ We believe that requiring the
chief executive officer of the depositor to sign the certification is
consistent with other signature requirements for asset-backed
securities.\150\
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    \149\ See proposed revision to Item 601(b) of Regulation S-K.
    \150\ See, e.g., Item 601(b)(31)(ii) of Regulation S-K (exhibit
requirement for ABS regarding certification required by Exchange Act
Rules 13a-14(d) and 15d-14(d)).
---------------------------------------------------------------------------

Request for Comment

     Is our proposal to require certification appropriate as a
condition to shelf eligibility? Would investors find the certification
valuable?
     Is the proposed language for the certification requirement
appropriate? Should we revise it in any way? Should we require that the
officer certify that he has a reasonable basis to believe that the
assets will produce cash flows at times and in amounts necessary to
service payments on the securities as described in the prospectus
(rather than certify that the assets have characteristics that provide
a reasonable basis to believe that the assets will produce cash flows
at times and amounts necessary to service payments as described)?
     Should we identify the level of inquiry required by the
executive officer? Should we specify which documents (other than the
prospectus) would need to be reviewed for purposes of the
certification, and, if so, which ones should we specify?
     Under the proposal, the certifying officer could take into
account internal credit enhancements for purposes of evaluating whether
the assets have characteristics that provide a reasonable basis to
believe they will produce cash flows at times and in amounts necessary
to service payments on the securities as described in the prospectus.
Should we also permit the certifying officer to also take into account
external credit enhancements that may be utilized in the
securitization? \151\
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    \151\ Examples of external credit enhancement may include third
party insurance to reimburse losses on the pool assets or the
securities or an interest rate swap or similar swap transaction to
provide incidental changes to cash-flow and return.
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     Are there concerns that it is not possible for any
individual to be in a position to certify that the assets in the pool
have characteristics that provide a reasonable basis to believe they
will produce, taking into account internal credit enhancements, cash
flows at times and in amounts necessary to service payments on the
securities as described in the prospectus? If so, how can we address
those concerns or are there steps we should take to ensure that the
level of uncertainty in the structure and assets is clear to investors?
     Instead of, or in addition to, requiring a certification,
should we require the sponsor to disclose its estimates of default
probability for all tranches in the transaction, default probability of
loans in the pool, and/or the expected recovery rate on the loans
conditional on default? Such estimates would be expected to be
consistent with assumptions used in sponsors' internal modeling. Would
this disclosure potentially provide investors useful insights into the
sponsor's view of the creditworthiness of pool assets and the
securitization overall? Would it convey information similar to that
contained in credit ratings, which also have, historically, reflected
beliefs about default probabilities and expected recovery rates? Do
sponsors currently have internal models, or make internal assumptions
for valuation purposes, that could be used to readily produce these
numbers? If so, should we require that disclosed estimates be
consistent with those used in sponsors' internal models? Should we
indicate whether or not such disclosures constitute forward-looking
statements?
     Should the chief executive officer of the depositor, as
proposed, be required to sign the certification, or should an
individual in a different position be required to certify? Which
individual should be required to sign the certification? Should we
instead require that the certification be signed by the senior officer
of the depositor in charge of securitization, consistent with other
signature requirements for ABS? Given that the depositor is often a
special purpose subsidiary of the sponsor, would it be more appropriate
to have an officer of the sponsor sign the certification? If so, should
it be the senior officer in charge of securitization or some other
officer of the sponsor?
     Is it appropriate to require the certification be filed as
an exhibit to the registration statement at the time of the final
prospectus by means of a Form 8-K?
(d) Undertaking To File Ongoing Reports
    Our last proposed new shelf eligibility criterion replacing the
investment grade ratings requirement is a requirement that the issuer
provide an undertaking to file Exchange Act reports with the Commission
on an ongoing basis. Exchange Act Section 15(d) requires an issuer with
an effective Securities Act registration statement to file ongoing
reports with the Commission. However, the statute also provides that
for issuers that do not also have a class of securities registered
under the Exchange Act the duty to file ongoing reports is
automatically suspended after the first year 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, typically the reporting
obligations of all asset-

backed issuers,\152\ other than those with master trust
structures,\153\ are suspended after they have filed one annual report
on Form 10-K because the number of record holders falls below, often
significantly below, the 300 record holder threshold.\154\
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    \152\ Under Rule 3b-19 under the Exchange Act [17 CFR 240.3b-
19], an issuer is defined in relation to asset-backed securities in
the following way:
    (a) The depositor for the asset-backed securities acting solely
in its capacity as depositor to the issuing entity is the ``issuer''
for purposes of the asset-backed securities of that issuing entity.
    (b) The person acting in the capacity as the depositor specified
in paragraph (a) is a different ``issuer'' from that same person
acting as a depositor for another issuing entity or for purposes of
that person's own securities.
    \153\ In a securitization using a master trust structure, the
ABS transaction contemplates future issuances of asset-backed
securities backed by the same, but expanded, asset pool that
consists of revolving assets. Pre-existing securities also would
therefore be backed by the same expanded asset pool.
    \154\ 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 Financial Crisis Report, at fn. 349.
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    In the proposing release for Regulation AB, we requested comment on
whether the ability to suspend reporting under Section 15(d) should be
revisited.\155\ One investor group recommended conditioning ABS shelf
registration upon an issuer agreeing either to continue filing reports
under Section 15(d) or to make publicly available on their Web sites
copies of reports that contain the information required by Form 10-
D.\156\ While in 2004 we did not adopt rules that would create ongoing
reporting obligations for asset-backed issuers, we did note that the
concerns raised by investors confirm the importance to investors of
post-issuance reporting of information regarding an ABS transaction in
understanding transaction performance and in making ongoing investment
decisions.\157\
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    \155\ See Section III.D.2 of Asset-Backed Securities, Release
No. 33-8419 (May 3, 2004) [69 FR 26650].
    \156\ See comment letter from Investment Company Institute
(ICI).
    \157\ See Section III.A.3.d of the 2004 ABS Adopting Release. We
noted that modifying the reporting obligation would raise broad
issues about the treatment of other non-ABS issuers that do not have
public common equity. We believe our ABS shelf eligibility proposal
is sufficiently distinguishable from the treatment of non-ABS
issuers.
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    We are proposing to require as a condition to ABS shelf eligibility
that the issuer undertake to file with the Commission reports to
provide disclosure as would be required pursuant to Exchange Act
Section 15(d) and the rules thereunder, if the issuer were required to
report under that section.\158\ The issuer's reporting obligation under
the undertaking would extend as long as non-affiliates of the depositor
hold any of the issuer's securities that were sold in registered
transactions.\159\ We believe that ongoing reporting of an asset-backed
issuer would provide investors and the markets with transparency
regarding many aspects about the ongoing performance of the securities
and servicer in its compliance with servicing criteria, among other
things. We believe this transparency is important for investors and the
market and that it is appropriate to encourage ABS issuers to provide
ongoing reports by conditioning shelf eligibility on an undertaking to
do so. Thus, we believe this requirement is a reasonable additional
condition to shelf eligibility. In conjunction with our proposal to
require asset-level information, it may prove even more useful to
investors.\160\
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    \158\ See proposed Item 512(a)(7)(ii) of Regulation S-K.
    \159\ We also are proposing to add a checkbox to the cover page
of Forms 10-K, 10-D, and 8-K where the issuer would be required to
indicate whether the report is being filed pursuant to the proposed
undertaking.
    \160\ See the Committee on Capital Markets Regulation Financial
Crisis Report, at 151-152 (noting that loan-level data is not useful
if issuers can opt out of periodic reporting and recommending that
the Commission consider whether Section 15(d) of the Exchange Act
should apply to the typical RMBS issuance); Statement of Paul Schott
Stevens President and CEO, ICI, for SEC Roundtable on Oversight of
Credit Rating Agencies, April 15, 2009, available at http://
www.sec.gov/comments/4-579/4579-15.pdf (recommending that the
Commission require disclosure under Regulation AB be required to be
made on an ongoing basis in spite of Section 15(d)).
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    In connection with this shelf eligibility condition, we are
proposing to require disclosure in the prospectus that is filed as part
of the registration statement that the issuer has undertaken and will
file with the Commission the reports as would be required pursuant to
Exchange Act Section 15(d) and the rules thereunder if the issuer were
required to report under that section. Such disclosure would be subject
to the same liability as other disclosure in the prospectus.
    Also, we are proposing to add a disclosure requirement to Item 1106
of Regulation AB \161\ that would require disclosure in a prospectus of
any failure in the last year of an issuing entity established by the
depositor or any affiliate of the depositor to file, or file in a
timely manner, an Exchange Act report that was required either by rule
or by virtue of an undertaking. We are proposing further changes to ABS
shelf eligibility requirements in connection with the proposed
condition, as discussed in the following section.
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    \161\ 17 CFR 229.1106.
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Request for Comment

     We request comment on our proposal to require ABS issuers
who wish to conduct delayed shelf offerings to undertake to file
reports that would be required under Section 15(d) of the Exchange Act
for as long as non-affiliates of the depositor hold any securities that
were sold in registered transactions. Should we impose such a
requirement? Should ABS issuers who use shelf registration be permitted
to terminate their reporting obligations at an earlier period in time
under shelf eligibility conditions? If so, when?
     Should we require, as proposed, the disclosure of any
failure in the last year of an issuing entity established by the
depositor or any affiliate of the depositor to file, or file in a
timely manner, an Exchange Act report that was required either by rule
or by virtue of the proposed undertaking?
     We request comment on all of the four new proposed shelf
eligibility conditions in general. Are the proposed shelf eligibility
conditions appropriate alternatives to the existing investment grade
ratings requirement? If one or more of these proposed criteria are not
adopted, should an investment grade rating continue to determine
whether or not an ABS issuer is eligible for shelf registration? Or
should we prohibit ABS issuers from using shelf registration
altogether? What would the impact be if ABS issuers were prohibited
from utilizing shelf registration? Do the proposed changes to the shelf
registration procedures described above, coupled with the proposed
shelf eligibility conditions, mitigate concerns about ABS issuers using
shelf registration?
     Should our proposed shelf eligibility conditions (or some
subset of them) be used in addition to the existing investment grade
ratings requirement rather than replace it?
     What is the aggregate effect of the proposed revisions to
shelf eligibility criteria and the shelf registration process for ABS
offerings? If these revisions are adopted, would this make using non-
shelf registration (Form SF-1) more attractive to an ABS issuer? How
would this change the costs and benefits analysis for using shelf
registration for ABS issuers? Would this change cause shelf
registration to be less attractive or become uneconomic?
     If we continue to condition shelf eligibility, in part, on
characteristics of the securities that relate to quality, should we
establish shelf eligibility based on different criteria than the four

proposed criteria? Should shelf eligibility be conditioned on a
limitation of the capital structure of ABS offerings? For instance,
should shelf offerings not be allowed to include leveraged tranches or
should we limit the number of tranches? If so, how many (e.g., five,
six, or seven)? Should we put restrictions on the size of each tranche?
If so, how should we do that? Should we limit ABS shelf eligibility to
offerings backed by assets that are seasoned for some period of time?
If so, how much time for each asset class (e.g., six months, one year,
or two years)? Are there certain standardized structures that we should
use as a requirement for shelf offering?
(e) Other Proposed Form SF-3 Requirements
    We are proposing other amendments to Rule 401 and the instructions
in proposed Form SF-3 relating to form eligibility. Currently, to be
eligible to use Form S-3, the existing form for ABS shelf registration,
an issuer must meet the form's registrant requirements, which generally
pertain for ABS issuers to reporting history under the Exchange Act of
the depositor and affiliates of the depositor with respect to the same
asset class, and at least one of the form's transaction requirements.
One of the current ABS transaction requirements for use of Form S-3 is
that the securities are investment grade securities, and above we have
described our proposals for four new transaction requirements for use
of Form SF-3 that would replace the investment grade ratings
requirement (i.e., risk retention, third party opinion review of
repurchase demands, certification, and the undertaking to file Exchange
Act reports). We are proposing to add new registrant requirements that
pertain to compliance with the four proposed transaction requirements.
These registrant requirements would be new shelf eligibility conditions
to registration on proposed Form SF-3, and would also serve as the new
eligibility conditions to be evaluated prior to conducting an offering
off an effective Form SF-3 shelf registration statement.
(i) Registrant Requirements To Be Met for Filing a Form SF-3
    In order to be eligible to file a registration statement on
proposed Form SF-3, we are proposing that the registrant meet the
following new requirements. First, we are proposing to require that to
the extent the sponsor or an affiliate of the sponsor of the ABS
transaction being registered was required to retain risk with respect
to a previous ABS offering involving the same asset class, then, at the
time of filing the registration statement, such sponsor or affiliate
must be holding the required risk.
    Second, we are proposing that to the extent the depositor or an
issuing entity previously established, directly or indirectly, by the
depositor or any affiliate of the depositor were at any time during the
twelve calendar months and any portion of a month immediately preceding
the filing of the registration statement required to comply with the
other transaction requirements of Form SF-3 (``twelve-month look-back
period''), with respect to a previous offering of securities involving
the same asset class, the following requirements would apply:
     Such depositor and each such issuing entity must have
timely filed all the transaction agreements that contained the required
provision relating to the third party opinion review of repurchase
demands; \162\
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    \162\ Under our proposal discussed in Section III.F below, we
are proposing to revise Item 1100(f) to require that exhibits be
filed no later than the date of filing the final prospectus.
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     Such depositor and each such issuing entity must have
timely filed all the required certifications of the depositor's chief
executive officer; and
     Such depositor and each such issuing entity must have
filed all the reports that they had undertaken to file during the
previous twelve months (or such shorter period during which the
depositor or issuing entity had undertaken to file reports) as would be
required under the Section 15(d) of Exchange Act if they were subject
to the reporting requirements of that section.
    Third, as proposed, there must be disclosure in the registration
statement on Form SF-3 stating that these proposed registrant
requirements have been complied with.
    These proposed new registrant requirements are, in many respects,
consistent with the existing Form S-3 registrant requirement relating
to Exchange Act reporting.\163\ As with the existing Form S-3 Exchange
Act reporting registrant requirement, which we are retaining for
proposed Form SF-3, the proposed new registrant requirements would
require specified compliance with respect to previous offerings of the
depositor or its affiliates. The proposed twelve-month look-back period
(except for the requirement relating to risk retention) is also
consistent with the existing Form S-3 Exchange Act reporting registrant
requirement. The proposed new registrant requirement relating to risk
retention requires an issuer to measure its risk retention as of the
date of filing the registration statement, which we believe is a
reasonable requirement. As described in more detail below, we are not
proposing to require the sponsor or an affiliate of the sponsor to
ensure that all risk was retained at all times during the previous
twelve calendar months, for purposes of shelf eligibility, out of a
concern that it may be overly burdensome.
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    \163\ Under existing Form S-3, prior to filing a registration
statement, to the extent the depositor or any issuing entity
previously established by the depositor or an affiliate of the
depositor are or were at any time during the twelve calendar months
and any portion of a month immediately preceding the filing of the
Form S-3 required to file Exchange Act reports, with respect to a
class of asset-backed securities involving the same asset class,
such depositor and each such issuing entity must have filed all
material required to be filed during the twelve months (or shorter
period that the entity was required to have filed such materials).
Also, such material, other than certain specified reports on Form 8-
K, must have been filed in a timely manner. See General Instruction
I.A.4 to Form S-3.
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(ii) Evaluation of Form SF-3 Eligibility in Lieu of Section 10(a)(3)
Update
    Form S-3 eligibility under the current rules is determined at the
time of filing the registration statement and at the time of updating
that registration statement under Securities Act Section 10(a)(3) \164\
by filing audited financial statements. Because ABS registration
statements do not contain financial statements of the issuer, a
periodic determination of whether the issuer can continue to use the
shelf would be specified by rule.\165\ Such an evaluation would also
provide a means for the Commission and its staff to better oversee
compliance with the proposed new Form SF-3 eligibility conditions that
would replace the existing investment grade ratings requirement.
Therefore, in lieu of Section 10(a)(3) updating, we are proposing to
revise Rule 401 to require, as a condition to conducting an offering
off an effective shelf registration statement, an annual evaluation of
whether the Exchange Act reporting registrant requirements have been
satisfied. Under the proposal, an ABS issuer wishing to conduct a
takedown off an effective shelf registration statement must evaluate
whether affiliated issuers that were required to report under Sections
13(a) or 15(d) of the Exchange Act during the previous twelve months,
have filed such reports on a timely basis, as of ninety

days after the end of the depositor's fiscal year end.\166\
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    \164\ 15 U.S.C. 77j(a)(3).
    \165\ See Securities Act Rule 401(b) [17 CFR 230.401(b)].
    \166\ Under this proposal, the related registration statement
could not be utilized for subsequent offerings for at least one year
from the date the issuer that had failed to file Exchange Act
reports then became current in its Exchange Act reports (and the
other requirements had been met).
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(iii) Quarterly Evaluation of Eligibility To Use Effective Form SF-3
for Takedowns
    We also are proposing to require a quarterly evaluation of whether
the ABS issuer has satisfied the proposed new registrant requirements
relating to risk retention, third party opinions, the depositor's chief
executive officer certification, and the undertaking to file ongoing
reports. Under our proposal, an ABS issuer wishing to conduct a
takedown off an effective shelf registration statement must evaluate
its compliance with the proposed new registrant requirements as of the
last day of the most recent fiscal quarter.
(A) Risk Retention
    Accordingly, if the interest that a sponsor was required under the
proposed risk retention shelf eligibility condition to retain during
the previous twelve months (or shorter period as applicable), with
respect to a previous offering of securities off a Form SF-3
registration statement involving the same asset class, was sold off or
hedged as of the last day of the most recent fiscal quarter, the
related shelf registration statement could not be utilized for
subsequent offerings until the fiscal quarter after the sponsor has re-
acquired the risk that was required to be retained (e.g., by removing
the disqualifying hedge or open market purchases of the securities) and
such risk was on the sponsor's books as of the end of the fiscal
quarter. We have provided for quarterly testing because we are
concerned that more frequent testing could be unnecessarily costly. By
requiring an evaluation of risk retention at the end of the quarter, we
are not suggesting that a sponsor could permissibly sell or hedge the
required risk. Such activities would be inconsistent with the risk
retention shelf eligibility condition, with the disclosure relating to
a sponsor's interest in the transaction that we are proposing to
require in the registration statement, and would be subject to our
proposed periodic reporting disclosure requirements related to the
sponsor's interest described in Section III.C.3. below. At the same
time, we are concerned that there may be circumstances where a sponsor
or its affiliates undertake transactions that inadvertently hedge a
required risk retention interest, and discover this after a take-down
off the shelf by an affiliated ABS issuer. We are not proposing that
this would necessarily cause the new offering to be deemed not to have
been registered on the appropriate form. However, we believe that it is
important that our requirements take into consideration a practicable
testing schedule that promotes compliance with the proposed shelf
eligibility criteria without creating undue burdens or uncertainty for
issuers, and we are proposing requirements that would require at least
quarterly testing to achieve that goal. Similarly, with respect to our
proposed registrant requirement relating to risk retention, we are
proposing that an issuer evaluate whether the sponsor has retained
required risk at the time of filing the registration statement.
(B) Transaction Agreements and Officer Certification
    An ABS issuer must also evaluate whether, during the previous
twelve months, the depositor or it affiliates had filed the transaction
agreements required to contain the third party opinion provision and
the depositor's chief executive officer certifications on a timely
basis as of the end of the quarter. If they had not, then the depositor
could not utilize the registration statement or file new registration
statement on Form SF-3 until one year after the required filings were
filed.
(C) Undertaking To File Exchange Act Reports
    Finally, under this proposal, an issuer must evaluate whether
Exchange Act reports, with respect to previous takedowns off an
effective registration statement of the depositor or affiliate of the
depositor, where the issuer had undertaken to file such reports during
the prior twelve months had, in fact, been filed as of the last day of
the most recent fiscal quarter. In this way, the reports required under
Section 13(a) or 15(d) must continue to be timely for shelf eligibility
but reports required pursuant to the undertaking must be current as of
the end of the quarter. As such, the ABS issuer would need to confirm
once a quarter that it continued to be eligible to use the effective
registration statement for takedowns.

Request for Comment

     Should we add, as proposed, registrant requirements that
would require, as a condition to form eligibility, affiliated issuers
of the depositor that had offered securities of the same asset class
that were registered on Form SF-3 to have complied with the risk
retention, third party opinion, certification and ongoing reporting
shelf eligibility conditions that replace the investment grade ratings
requirement? Will these requirements lead to better compliance by ABS
issuers with the new shelf eligibility conditions that we are
proposing?
     Should we require disclosure, as proposed, in the
registration statement that the registrant requirements have been
complied with? Should we specify a location in the registration
statement for such disclosure?
     In our proposed registrant requirements for Form SF-3, we
are proposing to require that sponsors of affiliated issuers have
retained the required risk at the time of filing the registration
statement. Is that appropriate? Should we require continued monitoring
of risk retention compliance instead? Should we provide the loss of
shelf eligibility if the sponsor of a previously established affiliated
issuer has not retained at any time during the previous twelve months
all of the risk that it was required to retain during that time? Or
would such a requirement be overly burdensome?
     Is it appropriate to require, as proposed, that the
certifications and the transaction agreement containing the required
third party opinion provision that are required to be filed pursuant to
our proposed shelf eligibility conditions be filed on a timely basis?
Why or why not?
     We are proposing to require an affiliated issuer that has
undertaken to file Exchange Act reports in the last twelve months to
have filed such reports as required pursuant to the Exchange Act rules.
Is this an appropriate additional registrant requirement for proposed
Form SF-3? Should we also specify that such reports must have been
filed on a timely basis?
     Should we revise Rule 401, as proposed, to require that as
a condition to continued use of an existing shelf registration
statement for takedowns, an issuer conduct a periodic evaluation of
form eligibility? Why or why not? If not, how should we address the
concern that ABS issuers do not file amendments for purposes of Section
10(a)(3)?
     Should we require, as proposed, that an issuer test for
sponsor's compliance with risk retention requirements as of the end of
the fiscal quarter? Could there be situations where a sponsor or its
affiliates undertake transactions that inadvertently hedge a required
risk retention interest? Alternatively, because the testing for
compliance would occur at predictable

intervals, are there concerns that the quarterly test for risk
retention compliance could allow a sponsor to hold less than the
required risk in between testing intervals? Should our requirements
provide for testing that is made at different intervals (e.g., once a
month, once a distribution period, twice a quarter, at minimum number
of random intervals)?
     Should we require that the evaluation of whether Exchange
Act reports of affiliated issuers have been filed on a timely basis be
made as of the 90 days after the depositor's fiscal year, as proposed?
Should the evaluation be made on a different timeframe, such as the
last day of the most recent fiscal quarter, consistent with our other
proposals here?
     Should we require, as proposed, that the evaluation of
whether the registrant requirements relating to risk retention, third
party opinions, certification, and the issuer's undertaking to file
ongoing reports be made as the last day of the most recent fiscal
quarter? Should that evaluation be made at different periods, such as
monthly or annually?
4. Continuous Offerings
    We also are proposing to amend Rule 415 to limit the registration
of continuous offerings for ABS offerings to ``all or none'' offerings.
While we have not encountered particular problems with respect to
continuous ABS offerings to date (and we believe that ABS offerings are
not typically continuous), we believe that our proposal would help
ensure that ABS investors receive sufficient information relating to
the pool assets, if an issuer registered an ABS offering to be
conducted as a continuous offering. We believe that this would close a
potential gap in our regulations for ABS offerings.
    In an all or none offering, the transaction is only completed if
all of the securities are sold. However, in a best-efforts or ``mini-
max'' offering, a variable amount of securities may be sold. In those
latter cases, because the size of the offering would be unknown,
investors would not have the transaction-specific information and, in
particular, would not know the specific assets to be included in the
transaction. Thus, Item 1111, either in its existing form or as
proposed to be amended, could not be complied with.\167\ Under our
proposal, the continuous offering must be commenced promptly and must
be made on the condition that all of the consideration paid for such
security will be promptly refunded to the purchaser unless (A) all of
the securities being offered are sold at a specified price within a
specified time, and (B) the total amount due to the seller is received
by the seller by a specified date.\168\
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    \167\ The staff has advised us that they believe that neither
best efforts offerings nor any continuous offerings have been
utilized in the past for public offerings of asset-backed
securities.
    \168\ All or none offerings are described in Exchange Act Rule
10b-9 [17 CFR 240.10b-9] in the same manner.
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Request for Comment

     Is our proposed amendment to Rule 415 relating to
continuous offerings of ABS appropriate?
     Should we restrict the duration of a continuous offering
of ABS? If so, how long should the offering be permitted to continue?
5. Mortgage Related Securities
    As noted above, mortgage related securities, as that term is
defined in Section 3(a)(41) of the Exchange Act, currently are eligible
for shelf registration regardless of form eligibility. This was a
provision that was added to Rule 415 contemporaneous with the enactment
of SMMEA.\169\ As a result, an offering of mortgage related securities
that does not meet the requirements of Form S-3 can be registered on a
delayed basis on Form S-1.\170\
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    \169\ See Section II.A. and fn. 61 above.
    \170\ See fn. 61 of 2004 ABS Adopting Release.
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    We believe that mortgage related securities should meet all the
requirements we are proposing for shelf eligibility in order to be
eligible for registration on a delayed basis since these securities
present the same complexities and concerns as other asset-backed
securities. To achieve this goal and to better coordinate shelf
registration for all types of asset-backed securities, we are proposing
to amend Rule 415 to eliminate the provision for shelf eligibility for
mortgage related securities regardless of the form that can be used for
registration of the securities.\171\ Under the proposal, offerings of
mortgage related securities will only be eligible for shelf
registration on a delayed basis if, like other asset-backed securities,
they meet the criteria for eligibility for shelf registration that we
are proposing today. Thus, as proposed, delayed shelf offerings of
mortgage related securities must be registered on new proposed Form SF-
3, and accordingly, must meet the eligibility requirements of Form SF-
3.
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    \171\ As proposed, Rule 415(a)(1)(vii) would enumerate the
provision that permits delayed offerings for all asset-backed
securities that are eligible to register on the proposed new Form
SF-3. This provision would include offerings of eligible mortgage
related securities.
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Request for Comment

     We request comment on the proposed amendment for mortgage
related securities. Should we instead treat mortgage related securities
differently from other asset-backed securities by continuing to
condition the ability to conduct a delayed offering of mortgage related
securities on their credit ratings by an NRSRO?
     We are proposing to require that delayed offerings of
mortgage related securities be registered on proposed Form SF-3, the
same registration form for delayed offerings of other asset-backed
securities. Is there any reason to permit delayed offerings of mortgage
related securities on either proposed Form SF-1 or proposed Form SF-3?

C. Exchange Act Rule 15c2-8(b)

    Except for securities issued under master trust structures, shelf-
eligible ABS issuers generally are not reporting issuers at the time of
issuance. Under Exchange Act Rule 15c2-8(b),\172\ with respect to an
issue of securities where the issuer has not been previously required
to file reports pursuant to Sections 13(a) and 15(d) of the Exchange
Act, unless the issuer has been exempted from the requirement to file
reports thereunder pursuant to Section 12(h) of the Exchange Act, a
broker or dealer is required to deliver a copy of the preliminary
prospectus to any person who is expected to receive a confirmation of
sale at least 48 hours prior to the sending of such confirmation (``48-
hour preliminary prospectus delivery requirement''). The rule contains
an exception to the 48-hour preliminary prospectus delivery requirement
for offerings of asset-backed securities eligible for registration on
Form S-3. An exception to the 48-hour preliminary prospectus delivery
requirement was first provided in 1995 by staff no-action
position.\173\ This staff position was later codified in 2004.\174\
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    \172\ 17 CFR 240.15c2-8(b).
    \173\ See fn. 163 of the 2004 ABS Adopting Release and
accompanying text (discussing staff no-action letters providing
relief to ABS issuers from Rule 15c2-8(b)).
    \174\ In the 2004 ABS Adopting Release, we noted some concerns
that investors did not have sufficient time to consider ABS offering
information. However, we determined to codify the staff position in
light of other proposals that we were considering at the time that
sought to address information disparity in the offering process.
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    In light of recent economic events and to make this rule consistent
with our other proposed revisions, we are proposing to eliminate this
exception so that a broker or dealer would be

required to deliver a preliminary prospectus at least 48 hours before
sending a confirmation of sale for all offerings of asset-backed
securities, including those involving master trusts. Because each pool
of assets in an ABS offering is unique, we believe that an ABS offering
is akin to an initial public offering, and therefore we believe the 48-
hour preliminary prospectus delivery requirement in Rule 15c2-8(b)
should apply. Even with subsequent offerings of a master trust, the
offerings are more similar to an initial public offering given that the
mix of assets changes and is different for each offering. Moreover,
requiring that a broker or dealer provide an investor with a
preliminary prospectus at least 48 hours before sending a confirmation
of sale should be feasible and made easier to implement as a result of
our proposal that a form of preliminary prospectus be filed with the
Commission at least five business days in advance of the first sale in
a shelf offering. We, therefore, are proposing to amend Rule 15c2-8(b)
by repealing the exception for shelf-eligible asset-backed securities
from the 48-hour preliminary prospectus delivery requirement.\175\
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    \175\ Because of the other changes we are proposing, we are also
proposing to repeal Rule 190(b)(7). Rule 190(b)(7) provides that if
securities in the underlying asset pool of asset-backed securities
are being registered, and the offering of the asset-backed
securities and the underlying securities is not made on a firm
commitment basis, the issuing entity must distribute a preliminary
prospectus for both the underlying securities and the expected
amount of the issuer's securities that is to be included in the
asset pool to any person who is expected to receive a confirmation
of sale of the asset-backed securities at least 48 hours prior to
sending such confirmation. Rule 190(b)(7) effectively overrules the
exclusion in Rule 15c2-8 for ABS issuers from the 48-hour
preliminary prospectus delivery requirement for particular types of
ABS offerings. Because we are proposing to repeal the Rule 15c2-8
exclusion for ABS issuers, and because our proposed disclosure
requirements regarding the underlying securities for
resecuritizations would require significantly more information than
what is required in Rule 190(b)(7) to be provided in the preliminary
prospectus, we are proposing to delete Rule 190(b)(7).
---------------------------------------------------------------------------

    Under the proposed amendment, a broker or dealer would be required
to comply with the 48-hour preliminary prospectus delivery requirement
with respect to the sale of securities by each ABS issuer, regardless
of whether the issuer has previously been required to file reports
pursuant to Sections 13(a) or 15(d) of the Exchange Act.\176\ In
addition, the 48-hour preliminary prospectus delivery requirement would
also apply to ABS issuers utilizing master trust structures that are
exempt from the reporting requirements pursuant to Section 12(h) of the
Exchange Act. In a master trust securitization, assets may be added to
the pool in connection with future issuances of the securities backed
by the pool.\177\ Although ABS issuers utilizing master trust
structures may be reporting under the Exchange Act at the time of a
``follow-on'' or subsequent offering of securities, additional assets
are added to the entire pool backing the trust in connection with a
subsequent offering of securities. Additional assets are added to the
pool also in connection with a subsequent offering by an issuer
utilizing a master trust structure that is exempt from reporting under
Section 12(h) or the rules thereunder. Requiring a broker-dealer to
deliver a preliminary prospectus at least 48 hours before sending a
confirmation of sale of ABS involving master trust structures issued by
a reporting ABS issuer could afford investors more time to consider
information about the assets that is not provided in Exchange Act
reports.\178\
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    \176\ See definition of issuer in relation to asset-backed
securities in Exchange Act Rule 3b-19.
    \177\ The typical master trust securitization is backed by
assets arising out of revolving accounts such as credit card
receivables or dealer floorplan financings.
    \178\ We note that many such issuers currently often provide
preliminary prospectuses to investors for each offering. Therefore,
we do not believe our proposal would be overly burdensome on such
issuers.
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    We are also proposing a correcting amendment to Rule 15c2-8(j).
Paragraph (j) states that the terms ``preliminary prospectus'' and
``final prospectus'' include terms that are defined in a Rule 434. In
1995, at the same time we adopted Rule 434, we added paragraph (j) to
expand the use of the terms ``preliminary prospectus'' and ``final
prospectus'' to reflect the terminology used in Rule 434.\179\ Rule
434, however, was later repealed in 2005.\180\ Accordingly, we are
proposing to delete paragraph (j), which is no longer applicable.
---------------------------------------------------------------------------

    \179\ See Section II.B.4.a of Prospectus Delivery; Securities
Transactions Settlement, Release No. 33-7168 (May 11, 1995) [60 FR
26604].
    \180\ Rule 434 was repealed in the Offering Reform Release.
---------------------------------------------------------------------------

Request for Comment

     Should we adopt a 48-hour preliminary prospectus delivery
requirement for all ABS issuers, as proposed? Should we instead provide
a different application of the 48-hour preliminary prospectus delivery
requirement for ABS issuers? Should a broker or dealer be required to
deliver a preliminary prospectus for an ABS offering at a different
time from initial public offerings, such as 48 hours before the first
sale in the offering (instead of 48 hours before confirmation)?
     Does our proposal to require filing of a preliminary
prospectus pursuant to proposed Rule 424(h) at least five business days
before the first sale in the offering make the proposed changes to Rule
15c2-8(b) unnecessary? Or is delivery of the preliminary prospectus, as
contemplated by Rule 15c2-8(b), important? Would the proposed amendment
to 15c2-8(b) provide a meaningful change in the information and time
that investors are given to consider offering materials? \181\
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    \181\ The 48-hour preliminary prospectus delivery requirement is
triggered by when a broker-dealer sends a confirmation of sale.
Under Exchange Act Rule 10b-10 [17 CFR 240.10b-10], the Commission's
confirmation rule, broker-dealers must send confirmations to their
customers at or before completion of a securities transaction. Given
the industry practice of a lengthy time to complete an ABS
transaction, a customer may not receive a preliminary prospectus
until well after he or she has made an investment decision. See also
Exchange Act Rule 15c1-1 [17 CFR 240.15c1-1] (defining ``completion
of the transaction'').
---------------------------------------------------------------------------

     How should the prospectus delivery requirement apply to
master trust structures? Is our proposal appropriate with respect to
master trusts? Should we instead amend the rule to apply the 48-hour
preliminary prospectus delivery requirement to master trusts only if
the pool assets have changed by a specified level? If so, what should
that level be (e.g., a change in five, ten, or 20% of pool assets, a
change in a specified percentage such as five, ten, or 20% of the
dollar value of the pool assets as measured by the principal balance, a
significant change in the pool assets)? Are there other ways of
measuring change in pool assets? Should this be determined by asset
class, and if so, which asset classes should be subject to what
standards? For example, should a change in pool assets for purposes of
Rule 15c2-8 be measured differently for credit card ABS than for dealer
floorplan ABS?
     As proposed, there are no specific disclosure requirements
applicable to the 48-hour preliminary prospectus. Do we need to specify
further how much asset or other information should be contained in the
48-hour preliminary prospectus? Or is that unnecessary in light of
proposed Rule 430D and the proposed Rule 424(h) filing requirements?

D. Including Information in the Form of Prospectus in the Registration
Statement

1. Presentation of Disclosure in Prospectuses
    As currently permitted, asset-backed offerings registered on a
shelf basis typically present disclosure through the use of two primary
documents: the ``base'' or ``core'' prospectus and the

prospectus supplement.\182\ The base prospectus filed prior to
effectiveness of the registration statement outlines the parameters of
the various types of ABS offerings that may be conducted in the future,
including asset types that may be securitized, the types of security
structures that may be used and possible credit enhancements or other
forms of support. The registration statement at the time of
effectiveness also contains one or more forms of prospectus supplement,
which outline the format of transaction-specific information that will
be disclosed at the time of each takedown.\183\ At the time of a
takedown, a final prospectus supplement is used which describes the
specific terms of the securities being offered.\184\ The base
prospectus and the final prospectus supplement together form the final
prospectus which is filed with the Commission pursuant to Securities
Act Rule 424(b).\185\
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    \182\ The Form S-3 requirements adopted in 2004 incorporated the
existing practice of using a base and supplement format. In Section
III.A.3.b. of the 2004 ABS Adopting Release, we noted that we did
not intend to change existing practices of asset-backed issuers.
    \183\ Rule 430B describes the type of information that primary
shelf eligible issuers and automatic shelf issuers may omit from a
base prospectus in a Rule 415 offering and include instead in a
prospectus supplement, Exchange Act report incorporated by
reference, or a post-effective amendment. Under Rule 430B a base
prospectus in a shelf registration statement must comply with the
applicable form requirements, but can omit information that is
unknown or not reasonably available to the registrant pursuant to
Rule 409. See Section V.B.1.b.i.(A) of the Offering Reform Release.
    \184\ We note that currently stand alone trust issuers do not
usually provide preliminary prospectuses to investors.
    \185\ See Section III.A.3.b of the 2004 ABS Adopting Release and
Section V.B.1.b.i.(A) of the Offering Reform Release.
---------------------------------------------------------------------------

    This practice has also been utilized by non-ABS issuers. However,
for typical corporate issuers, their base prospectus is substantially
shorter than in an ABS offering as the bulk of the information is
incorporated by reference into the prospectus from the issuer's
Exchange Act reports.
    In the 2004 ABS Adopting Release, we explained that when presenting
disclosure in base prospectuses and prospectus supplements, the base
prospectus must describe the types of offerings contemplated by the
registration statement.\186\ We also noted that a takedown off of a
shelf that involves assets, structural features, credit enhancement or
other features that were not described as contemplated in the base
prospectus will usually require either a new registration statement
(e.g., to include additional assets) or a post-effective amendment
(e.g., to include new structural features or credit enhancement) rather
than simply describing them in the final prospectus filed with the
Commission pursuant to Securities Act Rule 424. However, we admonished
registrants to exercise discretion and describe only those material
asset types and features reasonably contemplated to be included in an
actual takedown in order to make the information easily accessible to
investors.\187\
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    \186\ See Securities Act Rule 409 [17 CFR 230.409] and Section
III.A.3.b. of the 2004 ABS Adopting Release.
    \187\ See Section III.A.3.b of the 2004 ABS Adopting Release.
---------------------------------------------------------------------------

    Today, we also remind issuers of the importance of providing
disclosure in compliance with our plain English rules. Under Securities
Act Rule 421,\188\ information in a prospectus must be presented in a
clear, concise and understandable manner. The note to Rule 421(b)
states that issuers should avoid copying complex information directly
from legal documents without any clear and concise explanation of the
provisions. The rule also cautions against using boilerplate disclosure
and repeating disclosure in different sections of the document because
it increases the size of the document and it does not enhance the
quality of information.\189\
---------------------------------------------------------------------------

    \188\ 17 CFR 230.421. See also A Plain English Handbook: How to
Create Clear SEC Disclosure Documents, available at http://
www.sec.gov/pdf/handbook.pdf.
    \189\ See 17 CFR 230.421(b).
---------------------------------------------------------------------------

    Notwithstanding the discussion in the 2004 ABS Adopting Release and
the provisions of Rule 421, we are concerned that the base and
supplement format has resulted in unwieldy documents with excessive and
inapplicable disclosure that is not useful to investors. Many ABS
prospectuses in this format often include boilerplate disclosure and
complex information that appears to be imported directly from forms of
transaction agreements. Some issuers file a base prospectus that
contemplates multiple asset types, security structures and possible
types of enhancement and support that are never actually utilized in a
takedown. Moreover, the length of a disclosure document for an ABS
offering, as a result of the base and prospectus supplement format, is
often overwhelming and is burdensome for investors to navigate.
    Another problem that has arisen under current practices is that in
some instances, issuers have filed with the Commission at the time of
takedown only the prospectus supplement and not the base prospectus
that was included in the registration statement. Since the base and the
prospectus supplement together form the final prospectus, when an ABS
issuer excludes the base prospectus from the EDGAR filing at the time
of takedown, an investor needs to locate the base prospectus filed with
the initial effective registration statement on Form S-3 on EDGAR.
Given that a shelf registration statement is available for three
years,\190\ it can be unclear what information from the base prospectus
is applicable to the current offering or is superseded by the
supplement.
---------------------------------------------------------------------------

    \190\ See Securities Act Rule 415(a)(5).
---------------------------------------------------------------------------

    The current format has the unintended effect of encouraging a
drafting approach that builds in the largest possible flexibility for
as many differing transactions as possible, although with the negative
effect that an investor bears the burden of determining which
disclosures are relevant to a particular transaction. The current rule
benefits issuers but may not be as useful for investors, when the
registration statement is primarily for the benefit of investors. We
believe we should facilitate investor understanding and access to
prospectuses for ABS and eliminate unnecessary disclosures given to
investors. Investors must be able to readily access and understand the
information for a specific offering. Consequently, we are proposing to
eliminate the practice of providing a base prospectus and a prospectus
supplement for ABS issuers. To accomplish this, we are proposing to add
a provision in new Rule 430D and an instruction to proposed Form SF-3
that would require ABS issuers to file a form of prospectus at the time
of effectiveness of the proposed Form SF-3 and to file a single
prospectus for each takedown, which would require that all of the
information required by Regulation AB be included in the
prospectus.\191\ We believe our proposal will help issuers comply with
our plain English requirements, help reduce the size of the offering
documents, and eliminate the need to review inapplicable disclosure.
---------------------------------------------------------------------------

    \191\ Disclosure may still be incorporated by reference as
allowed by proposed Rule 430D and the applicable Form requirements.
Proposed Rule 430D(c) would provide that information omitted from a
form of prospectus that is part of an effective registration
statement in reliance on Rule 430D(a) that is subsequently included
in the prospectus that is part of a registration statement must
contain all of the information that is required to be included in
the prospectus pursuant to the requirements of the registration
statement with respect to the offering. Under this proposed
requirement, an ABS issuer would not be permitted to include
information on the offering in a prospectus base and supplement
format. We discuss this proposal in more depth in Section II.B.1.b.
---------------------------------------------------------------------------

    Other than the proposed limitation of one depositor and asset class
per registration statement discussed below,

we believe requiring only one form of prospectus with the registration
statement would not limit the flexibility of the issuer to vary its
structural features from takedown to takedown. As is the case today,
assets, structuring and other features may be presented in brackets in
the form of prospectus filed with the registration statement. Under the
proposal, issuers could include the same bracketed information in the
form of prospectus filed with the registration statement. At the time
of the offering, only the disclosure applicable to the transaction at
hand would be included in the prospectus provided to investors and
filed with the Commission.
    Currently, some sponsors create a separate depositor for each of
its various loan programs, and each depositor files its own shelf
registration statement. Other issuers have included multiple
depositors,\192\ multiple base prospectuses and multiple prospectus
supplements all in one registration statement.\193\ Under our proposal,
each depositor would be required to file a separate registration
statement for each form of prospectus. Each registration statement
would cover offerings by one depositor securitizing only one asset
class.\194\ Although this would change current practice for asset-
backed issuers, we believe such a change would make disclosure for
investors much more accessible and useful.
---------------------------------------------------------------------------

    \192\ With respect to registration statements with multiple
depositors, each depositor is an issuer of each takedown of
securities off of a shelf. See Securities Act Rule 191 [17 CFR
230.191].
    \193\ Also, the current instructions to Form S-3 state that a
registration statement may not merely identify several alternative
types of assets that may be securitized. Under current requirements,
a separate base prospectus and form of prospectus supplement must be
presented for each asset class that may be securitized in a discrete
pool in a takedown under that registration statement. See General
Instruction V.A.2 of Form S-3 and Section III.A.3.b. of the 2004 ABS
Adopting Release.
    \194\ For instance, resecuritization transactions of mortgage-
backed securities would be considered a separate asset class from
mortgage-backed securities and, thus, require a separate
registration statement, even if the depositor would be the same. As
we currently require for offerings registered on Form S-3, a
separate registration statement would be required for takedowns
involving pools of foreign assets where the assets originate in
separate countries or the property securing the pool assets is
located in separate countries. In cases where an underlying security
such as a special unit of beneficial interest (SUBI) or collateral
certificate is also registered, the depositor of the underlying SUBI
or collateral certificate would also be included in the same
registration statement. Collateral certificates and SUBIs are
discussed further in Section VII.A. below.
---------------------------------------------------------------------------

Request for Comment

     Is the proposed change to presentation of disclosure in
the prospectus appropriate? Would investors benefit from the proposed
change? Would it be unduly burdensome for issuers to prepare the
disclosure in a single document? If so, how can we better mandate clear
and concise documents so that investors are able and encouraged to
analyze the investment?
     Is our proposal to require a depositor to file a separate
registration statement for each form of prospectus appropriate?
     Are there any particular asset classes that should retain
the base and form of prospectus supplement format? If so, why?
     Should issuers be able to file more than one form of
prospectus with a registration statement? If so, why? If issuers were
permitted to do so, what other steps could be taken to help market
participants understand the transaction?
     Are there other changes we should make to the format and
form of the prospectus to assist investors in analyzing the potential
investment?
2. Adding New Structural Features or Credit Enhancements
    We are also proposing to restrict the ability of ABS issuers to
file a prospectus under Rule 424(b) for the purpose of adding certain
types of information to the form of prospectus. Under the existing Rule
430B, ABS issuers and other issuers are permitted to provide the
information omitted from the prospectus that is part of a registration
statement at the time of the offering as a prospectus supplement, a
post-effective amendment, or where permitted as described below,
through its Exchange Act filings that are incorporated by reference
into the registration statement and prospectus that is part of the
registration statement and identified in a prospectus supplement.\195\
In the 2004 ABS Adopting Release, we stated our longstanding position
that the type or category of asset to be securitized must be fully
described in the registration statement at the time of
effectiveness.\196\ We further explained the structural features
contemplated also should be disclosed, as well as identification of the
types or categories of securities that may be offered, such as
interest-weighted or principal-weighted classes (including IO or PO
securities), planned amortization or companion classes or residual or
subordinated interests.\197\ We stated that a takedown off of a shelf
that involves assets, structural features, credit enhancements or other
features that were not described as contemplated in the base prospectus
will usually require either a new registration statement (e.g., to
include additional assets) or a post-effective amendment (e.g., to
include new structural features or credit enhancement) rather than
simply describing them in the final prospectus filed with the
Commission pursuant to Securities Act Rule 424.\198\ Although, with
Offering Reform, we adopted Rule 430B,\199\ which provides all issuers
on Form S-3 with the alternative to include information previously
omitted in a prospectus filed pursuant to 424(b) or by incorporating
periodic and current Exchange Act reports and the staff has continued
to apply our position articulated in the 2004 ABS Adopting Release. We
confirm that position by proposing to codify our statement regarding
when a post-effective amendment would be required in Rule 430D.\200\
---------------------------------------------------------------------------

    \195\ See Securities Act Rule 430B(d) and Offering Reform
Release Section V.B.1.b.i.(B).
    \196\ See Section III.A.3.b. of the 2004 ABS Adopting Release.
    \197\ See id.
    \198\ See id.
    \199\ See Securities Act Rule 430B(d) and Section V.B.1.b.i.(B)
of the Offering Reform Release.
    \200\ See proposed Securities Act Rule 430D(d)(2).
---------------------------------------------------------------------------

    We are proposing to require that when the issuer desires to add
information that relates to new structural features or credit
enhancement, the issuer must file that information by post-effective
amendment. As a result of this proposal, the staff would have the
opportunity to review new structural features or credit enhancements
that would be contemplated for future offerings. With respect to new
assets, we believe that if the issuer intends to offer securities that
are backed by assets that are not contemplated in the form of
prospectus that is filed as part of the registration statement, a new
registration statement should be filed.\201\
---------------------------------------------------------------------------

    \201\ If the asset pool includes securities, registration would
be required under Securities Act Rule 190.
---------------------------------------------------------------------------

Request for Comment

     Is our proposal to require issuers to file a post-
effective amendment to reflect new structural features or credit
enhancements and provide a related undertaking appropriate?

E. Pay-as-You-Go Registration Fees

    In 2005, we first adopted pay-as-you-go rules \202\ to allow well-
known seasoned issuers using automatic shelf registration statements to
pay filing fees at the time of a securities offering.\203\ To

alleviate some of the burden of managing multiple registration
statements among ABS issuers, we are proposing to allow, but not
require, asset-backed issuers eligible to use Form SF-3 to pay filing
fees as securities are offered off of a shelf registration statement.
If this approach, commonly known as ``pay-as-you-go,'' is adopted for
ABS issuers, no filing fees would need to be paid at the time of filing
a registration statement on Form SF-3. A dollar amount or a specific
number of securities would not be required to be included in the
calculation of the registration fee table in the registration
statement, unless a fee based on an amount of securities is paid at the
time of filing.\204\ However, under our proposal the fee table on the
cover of the registration statement must list the securities or class
of securities registered and must indicate if the filing fee will be
paid on a pay-as-you-go basis.\205\
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    \202\ See Securities Act Rules 456(b) [17 CFR 230.456(b)] and
457(r) [17 CFR 230.457(r)].
    \203\ See Section V.B.2.b.(D) of the Offering Reform Release.
Under the current pay-as-you-go procedure for WKSIs, an issuer can
pay any filing fee, in whole or in part, in advance of takedown or
at the time of takedown providing flexibility in the timing of the
fee payment. Issuers using pay-as-you-go can still deposit monies in
an account for payment of filing fees when due. The fee rules
applicable to the use of such account, also referred to as the
``lockbox account,'' apply. The amount of the fee is calculated
based on the fee schedule in effect when the money is withdrawn from
the lockbox account. This flexibility had been provided so issuers
may determine the fee payment approach most appropriate for them.
See fn. 529 of the Offering Reform Release.
    \204\ See proposed Securities Act Rule 457(s).
    \205\ In the case of ABS, the fee table on the registration
statement would typically list the offering of certificates and
notes as separate classes of securities. Each class (or tranche) of
those certificates and notes offered would not need to be separately
listed on the fee table. However, if the ABS is a resecuritization,
where registration of the underlying securities would be required
under Rule 190 and the underlying security was not listed on the fee
table of the Form SF-3 registration statement, the offering would
require a new registration statement. Likewise, if a servicer or
trustee invests cash collections in other instruments which may be
securities under the Securities Act, such as guarantees or debt
instruments of an affiliate, under Rule 190 those underlying
securities would also need to be registered concurrently with the
asset-backed offering. If those underlying securities were not
listed on the fee table of the registration statement, a new
registration statement would be required.
---------------------------------------------------------------------------

    Under our proposal, the triggering event for a fee payment would be
the filing of a preliminary prospectus under proposed Rule 424(h).\206\
At the time of filing a Rule 424(h) prospectus,\207\ the asset-backed
issuer would include a calculation of registration fee table on the
cover page of the prospectus and would be required to pay the
appropriate fee calculated in accordance with Securities Act Rule
457.\208\
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    \206\ See proposed Securities Act Rule 456(c). Unlike the pay-
as-you-go rules for WKSIs, we do not believe that a cure period is
necessary for ABS issuers because we are proposing to require ABS
issuers to pay the required fee at the time the preliminary
prospectus is filed under Rule 424(h). The timing of the fee payment
for ABS would not give rise to the same effective date and
registration concerns that arise with WKSIs. Section V.B.2.b.(D) of
the Offering Reform Release.
    \207\ If an issuer is filing a Rule 424(h) filing solely in
order to update the fee table and pay additional fees, the 424(h)
filing would not trigger a new five business day waiting period.
    \208\ The amount of the filing fee is calculated based on the
fee schedule in effect at the time of payment (upon filing in
advance, or at the time of an offering) in accordance with the
provisions of Rule 457. Thus the fee amount may be different
depending on the time of payment. Also, as provided in Rule 457(p),
if all or a portion of the securities offered under a registration
statement remain unsold after the offering's completion or
termination, or withdrawal of the registration statement, the
aggregate total dollar amount of the filing fee associated with
those unsold securities may be offset against the total filing fee
due for a subsequent registration statement. Currently, if an ABS
offering is not completed after the fee is paid, the fee could be
applied to future registration statements by the same depositor or
affiliates of the depositor.
---------------------------------------------------------------------------

Request for Comment

     Is our proposal for a pay-as-you go fee alternative for
ABS issuers appropriate? Should ABS issuers be able to register
offerings of an unspecified amount of securities on Form SF-3?
     Would this help with the management of multiple shelves
for asset-backed issuers? Are there other steps we could take to help
sponsors and depositors manage shelves for ABS?
     Should we revise Rule 457(p), as proposed, to clarify that
if an ABS offering is not completed after the fee is paid, the fee
could be applied to future registration statements by the same
depositor or affiliates of the depositor across asset classes?

F. Signature Pages

    We also are proposing to revise the signature pages for
registration statements of asset-backed issuers. Securities Act Section
6 \209\ requires that the registration statement be signed by the
issuer, its principal executive officer or officers, its principal
financial officer, its comptroller or principal accounting officer, and
the majority of its board of directors or persons performing similar
functions. In 2004, we clarified that the depositor is the issuer for
purposes of ABS.\210\ We codified in the general instructions to Forms
S-1 and S-3 that the registration statement must be signed by the
depositor, the depositor's principal executive officer or officers,
principal financial officer and controller or principal accounting
officer, and by at least a majority of the depositor's board of
directors or persons performing similar functions.\211\
---------------------------------------------------------------------------

    \209\ 15 U.S.C. 77f(a).
    \210\ Securities Act Rule 191 and Exchange Act Rule 3b-19 state
that the depositor for the asset-backed securities acting solely in
its capacity as depositor to the issuing entity is the ``issuer''
for purposes of the asset-backed securities of that issuing entity.
These rules also provide that the person acting in the capacity as
such depositor is a different ``issuer'' from that same person
acting as a depositor for another issuing entity or for purposes of
that person's own securities.
    \211\ See General Instruction VI.C of Form S-1 and General
Instruction V.B. of Form S-3.
---------------------------------------------------------------------------

    Asset-backed issuers are not required to file financial statements
of the issuer under our rules or pursuant to their governing documents,
and these issuers do not employ a principal accounting officer or
controller. Thus, because such signatures appear to serve no purpose,
we are proposing to exempt asset-backed issuers from the requirement
that the depositor's principal accounting officer or controller sign
the registration statement.
    The Form 10-K report for ABS issuers must be signed either on
behalf of the depositor by the senior officer in charge of
securitization of the depositor, or on behalf of the issuing entity by
the senior officer in charge of the servicing. In addition, the
certifications for ABS issuers that are required under Section 302 of
the Sarbanes-Oxley Act \212\ must be signed either on behalf of the
depositor by the senior officer in charge of securitization of the
depositor if the depositor is signing the Form 10-K report, or on
behalf of the issuing entity by the senior officer in charge of the
servicing function of the servicer if the servicer is signing the Form
10-K report. We are now proposing to require that the senior officer in
charge of securitization of the depositor sign the registration
statement (either on Form SF-1 or Form SF-3) for ABS issuers. We
believe that requiring such individual to sign the registration
statement is more meaningful in the context of ABS offerings because it
is more consistent with our other signature requirements for ABS
issuers.
---------------------------------------------------------------------------

    \212\ 15 U.S.C. 7241.
---------------------------------------------------------------------------

Request for Comment

     Is our proposed amendment to the registration statement
signature requirements appropriate? Is there any reason we should not
exempt, as we are proposing to do, ABS issuers from the requirement
that the depositor's principal accounting officer or comptroller sign
the registration statement?
     Is our proposal to require the senior officer in charge of
securitization of the depositor to sign the registration statement for
ABS issuers appropriate?

III. Disclosure Requirements

    In addition to reformatting how prospectuses are presented in ABS

offerings, we are proposing several changes to the disclosure
requirements in Regulation AB for asset-backed securities. Three of our
proposals involve significant changes from our current requirements.
First, subject to certain exceptions, we are proposing to require
asset-level information regarding each asset in the pool backing the
securities. Second, we are proposing that issuers of ABS backed by
credit card pools provide standardized grouped account data regarding
the underlying asset pool. Third, we are proposing to require that most
issuers provide the flow of funds, or waterfall, in a waterfall
computer program. In addition, we are proposing changes that refine
other disclosure requirements, including those relating to pool-level
disclosure, the prospectus summary, transaction parties, and static
pool information.

A. Pool Assets

    We are proposing to increase the required disclosure regarding the
assets underlying the ABS. We are proposing that in most ABS offerings
asset-level data be required in the prospectus at the time of offering
and in Exchange Act reports. For credit card ABS issuers, we are
proposing that issuers provide grouped account data. In order to
facilitate investors' use of asset data files, we are proposing that
the data be filed on EDGAR in Extensible Mark-Up Language (XML). We
also are proposing revisions to our pool-level disclosure requirements
designed to enhance the information available to analyze the pool.
    While Regulation AB does not restrict the type or quality of assets
that may be included in the asset pool, our rules under the Securities
Act are designed to assure that a prospectus contains disclosure
regarding the assets that facilitates informed investment
decisions.\213\ We believe access to robust information concerning the
pool assets is important to investors' ability to make informed
investment decisions about asset-backed securities.\214\ We also
believe disclosure about the pool should be as multi-faceted as
necessary to provide a full picture of the composition and
characteristics of the pool assets. In addition, it is critical that
the pool asset information be presented in a comprehensible and clear
fashion.\215\
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    \213\ Item 1111 of Regulation AB contains our disclosure
requirements regarding the pool assets. Item 1111 requires
disclosure of the material aspects of the composition of the asset
pool, sources of pool cash flow, changes to the asset pool, and
rights and claims regarding the pool assets. See Section III.B.5. of
the 2004 ABS Adopting Release.
    \214\ See also Section III.B.5 of the 2004 ABS Adopting Release.
    \215\ See id.
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1. Asset-Level Information in Prospectus
    To augment our current principles-based pool-level disclosure
requirements, we are proposing a new requirement to disclose asset-
level information. Investors, market participants, policy makers and
others have increasingly noted that asset-level information is
essential to evaluating an asset-backed security.\216\ Some have said
that there is a need and investor appetite for increased asset-level
disclosures.\217\ We have heard that understanding a borrower's ability
to repay may be more important than the features of the underlying
loan, or even the collateral, on an asset-level basis.\218\ Others have
stated that having access only to pool data (and not asset-level data)
has made it difficult to discern whether the riskiest loans were to the
most creditworthy borrowers or to the least creditworthy borrowers in
the asset pool.\219\
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    \216\ See, e.g., ``Restoring Confidence in the Securitization
Markets,'' Global Joint Initiative Report, Dec. 3, 2008, at 11.
    \217\ See Committee on Capital Markets Regulation Financial
Crisis Report, at 147 (noting that a survey of data fields provided
to investors did not include 21 data fields considered essential by
all investors surveyed). See also Joshua Rosner, Securitization:
Taming the Wild West, Roosevelt Institute Project on Global Finance,
Make Markets Be Markets (Mar. 2010) at 75 (noting investors need for
timely loan-level performance data in order to accurately price
securities).
    \218\ See Committee on Capital Markets Regulation Financial
Crisis Report, at 151 (recommending that standard, granular, loan-
level data be provided sufficient to allow investors to complete
their own credit analysis). See also Rosner, at 77 (noting that the
lack of clear definitions interferes with investors' ability to
compare performance of various deals, issuers, and underlying
collateral).
    \219\ Testimony of Patricia A. McCoy, Hearing on
``Securitization of Assets: Problems and Solutions'' before the U.S.
Senate Banking Housing and Urban Affairs Subcommittee on Securities,
Insurance and Investment, Oct. 7, 2009.
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    The public availability of asset-level information has been
limited. In the past, some transaction agreements for securitizations
required issuers to provide investors with asset-level information, or
information on each asset in the pool backing the securities.\220\ Such
loan schedules provided to an investor are sometimes filed as part of
the pooling and servicing agreement or as a free writing prospectus. We
believe that all investors and market participants should have access
to the information necessary to assess the credit quality of the assets
underlying a securitization transaction at inception and over the life
of the transaction.\221\
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    \220\ This usually includes information such as the principal
balance at the time of origination, the date of origination, the
original interest rate, the type of loan (e.g., fixed, ARM, hybrid),
the borrower's debt to income ratio, the documentation level for
origination of the loan, and the loan-to-value ratio.
    \221\ Others have noted the importance of loan-level data to
investors. See U.S. Department of Treasury, A New Foundation:
Rebuilding Financial Supervision and Regulation, June 17, 2009;
(noting in particular, that issuers of ABS should be required to
disclose loan-level data); Federal Deposit Insurance Corporation,
Supervisory Insights: Enhancing Transparency in the Structured
Finance Market, available at http://www.fdic.gov/regulations/
examinations/supervisory/insights/sisum08/article01_
transparency.html (stating that a lack of complete and public
dissemination of a securitization's loan-level data reduces
transparency and hampers the investor's ability to fully assess risk
and assign value).
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    For most investors, the usefulness of asset-level data is generally
limited unless the individual data points are standardized.
Standardizing the information facilitates the ability to compare and
analyze the underlying asset-level data of a particular asset pool as
well as compare them with other pools.\222\ Standardized and easily
accessible data points also may facilitate stronger independent
evaluations of ABS by market participants.
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    \222\ See Statement of Former Federal Reserve Governor Randall
S. Kroszner at the Federal Reserve System Conference on Housing and
Mortgage Markets, Washington, DC, Dec. 4, 2008 (stating that a
necessary condition for the potential of private-label MBS to be
realized going forward is for comprehensive and standardized loan-
level data covering the entire pool of loans backing MBS be made
available and easily accessible so that the underlying credit
quality can be rigorously analyzed by market participants).
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    Prior to today, the Commission had not proposed to require asset-
level data or proposed standards for such information. We are aware
that some standards have already been developed for registered and
unregistered offerings of commercial mortgage-backed securities and
residential mortgage-backed securities.\223\ The CRE Finance Council
(formerly Commercial Mortgage Securities Association)'s \224\ Investor
Reporting Package includes data fields on loan, property and bond-level
information for commercial mortgage-backed securities at issuance and
while the securities are outstanding.\225\ The American Securitization
Forum (ASF) \226\ recently published disclosure

and reporting packages for residential mortgage-backed securities that
included standardized definitions for loan or asset-level
information.\227\ The package is part of the group's Project on
Residential Securitization Transparency and Reporting (``Project
RESTART''). The ASF has proposed implementation dates involving new
issuance loans under the Disclosure Package of February 1, 2010.\228\
Other organizations, such as Mortgage Electronic Registration Systems,
Inc. (MERS),\229\ have developed reporting packages to capture and
report data at different times during the life of the underlying
residential or commercial loan. Sellers of mortgage loans to Fannie Mae
and Freddie Mac \230\ are required to deliver loan-level data in a
standardized electronic form.\231\ Other federal agencies, such as the
Office of the Comptroller of the Currency (OCC), and the Office of
Thrift Supervision (OTS) also collect certain loan-level data on
mortgages. The OCC and the OTS gather mortgage performance data from
national banks and thrifts.\232\ We are unaware of any publicly
available data standards for other asset classes and currently there is
no mandatory requirement that issuers follow any of these standards for
reporting to investors in asset-backed securities.
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    \223\ The collection of standardized disclosure given to
investors is generally called a reporting package.
    \224\ The CRE Finance Council (formerly Commercial Mortgage
Securities Association) is a trade organization for the commercial
real estate finance industry.
    \225\ Materials related to the CRE Finance Council Investor
Reporting Package are available at: http://www.crefc.org/.
    \226\ ASF is a securitization industry group that represents
issuers, investors, financial intermediaries, rating agencies, legal
and accounting firms, trustees, servicers, guarantors, and other
market participants.
    \227\ See American Securitization Forum RMBS Disclosure and
Reporting Package Final Release (July 15, 2009), available at http:/
/www.americansecuritization.com/.
    \228\ Implementation dates for ongoing monthly reporting under
the Reporting Package are set for August 1, 2010 on a trial basis
and November 1, 2010 on a permanent basis.
    \229\ MERS is affiliated with the Mortgage Industry Standards
Maintenance Organization (MISMO), a not-for profit subsidiary of the
Mortgage Bankers Association.
    \230\ Fannie Mae and Freddie Mac are government sponsored
enterprises (GSE's) that purchase mortgage loans and issue or
guarantee mortgage-backed securities (MBS). MBS issued or guaranteed
by these GSEs have been and continue to be exempt from registration
under the Securities Act and reporting under the Securities Exchange
Act. As a result, only non-GSE ABS, or so called ``private label''
ABS, will be required to comply with the new rules. For more
information regarding the GSEs, see Task Force on Mortgage-Backed
Securities Disclosure, ``Staff Report: Enhancing Disclosure in the
Mortgage-Backed Securities Markets'' (Jan. 2003) available on our
Web site at http://www.sec.gov/news/studies/mortgagebacked.htm.
    \231\ See Fannie Mae Loan Delivery Data requirements at https://
www.efanniemae.com/sf/refmaterials/prodmortcodes/index.jsp. See also
Freddie Mac Product Delivery requirements at http://
www.freddiemac.com/singlefamily/sell/delivery/.
    \232\ The results are collected and published in a quarterly
Mortgage Metrics Report. The reports are available at http://
www.occ.gov/mortgage_report/MortgageMetrics.htm or at http://
www.ots.treas.gov/?p=Mortgage%20Metrics%20Report. See Joint Press
Release of the Office of the Comptroller of the Currency and the
Office of Thrift Supervision, ``OCC and OTS Expand Data Collection
on Mortgage Performance,'' February 13, 2009, available at http://
www.occ.treas.gov/ftp/release/2009-9.htm. (attaching Web site link
to the data dictionary).
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    Because we believe that issuers should provide transparent and
comparable data, we are proposing to require asset-level information in
a standardized format to be included in the prospectus and periodic
reports and filed on EDGAR. Our proposal specifies and defines each
item that must be disclosed for each asset in the pool. In our
discussion below, we refer to each individual item requirement as an
asset-level data point. Some of the asset-level data points that we are
proposing are indicator fields. Indicator fields will require an answer
of ``yes'' or ``no,'' and are designed to facilitate investor review of
the data.\233\ We are also proposing an instruction to Schedule L that
will contain definitions for some of the terms that we use throughout
the schedule. Because we believe that asset-level data should be
provided to investors and all market participants in a form that
facilitates data analysis, we are also proposing to require that asset-
level data be filed on EDGAR in XML format. These proposals would be in
addition to the disclosure currently required about the composition and
characteristics of the pool of assets taken as a whole. We believe the
pool-level disclosure currently required by Regulation AB is still
important to investment decisions and can facilitate an investor's
understanding of the overall investment opportunity.
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    \233\ For example, we are proposing an asset-level data point to
disclose whether the asset has been modified. The response would be
either yes or no. If the answer is no, a preparer or user of the
data would then know that asset-level data points related to
modifications would not be applicable to that particular asset.
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Request for Comment

     Is our proposal to require asset-level disclosure with
data points identified in our rules appropriate?
     Is a different approach to asset-level disclosure
preferable, such as requiring it generally, but relying on industry to
set standards or requirements? If so, how would data be disclosed for
all the asset classes for which no industry standard exists or for
which multiple standards may exist? To the extent multiple standards
exist, how would investors be able to compare pools? Please be detailed
in your response.
     We note that there are several different standards under
which asset-level data is already required. Would our requirements
impose undue burdens on ABS issuers?
     Should we instead amend our current requirements regarding
pool-level disclosure by requiring issuers to present certain pool-
level tables in a standardized manner? For instance, should we specify
how statistical data should be presented by defining the groups or
incremental ranges that must be presented? What would those appropriate
groups or incremental ranges be for an individual table? For instance,
what would be the appropriate range for obligor income and why? Please
be specific in your response.
     Are the definitions of terms in the proposed instruction
to Schedule L appropriate? Are there any other terms that should be
included in the instruction?

(a) When Asset-Level Data Would Be Required in the Prospectus

    Today we are proposing new Item 1111(h) and Schedule L of
Regulation AB which enumerate all of the data points that must be
provided for each asset in the asset pool at the time of the offering.
Schedule L data would be an integral part of the prospectus, and in
order to facilitate investor analysis prior to the time of sale, we are
proposing to require issuers to provide Schedule L data as of a recent
practicable date that we define as the ``measurement date'' at the time
of a Rule 424(h) prospectus. So that investors receive a data file with
final pool information at the time of the offering, we also are
proposing that an updated Schedule L, as of the cut-off date for the