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

    The costs associated with this disclosure should be minimal as the
issuer should already have this information, or be able to easily
generate the information, in light of the more detailed disclosure
required by other item requirements in Regulation AB. Furthermore, this
is not a new requirement, but rather a clarification of our position on
what should be provided in the prospectus summary. Finally, if this
disclosure is not appropriate for a particular asset class, then
existing Item 1103(a) addresses this concern by indicating that the
disclosure is only required where applicable.\814\
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    \814\ See Item 1103(a) of Regulation AB [17 CFR 229.1103(a)]
(stating in providing the information required by Item 503(a) of
Regulation S-K, provide the following information in the prospectus
summary, as applicable).
---------------------------------------------------------------------------

C. Modification of Underlying Assets

1. Proposed Rule and Comments on Proposed Rule
    In the 2010 ABS Proposing Release, we proposed to replace Item
1108(c)(6) of Regulation AB with a more detailed and specific
disclosure requirement in Item 1111.\815\ Item 1108(c)(6) requires
disclosure to the extent material of any ability of the servicer to
waive or modify any terms, fees, penalties, or payments on the assets
and the effect of exercising such ability, if material, on the
potential cash flows from the assets. The proposed requirement in Item
1111 would require a description of the provisions in the transaction
agreements governing modification of the assets and disclosure
regarding how modifications may affect cash flows from the assets or to
the securities. We received only one comment on the proposal, which
supported the proposed amendments.\816\
---------------------------------------------------------------------------

    \815\ 17 CFR 229.1111. In the 2010 ABS Proposing Release, we
proposed to amend Item 1111 to require disclosure regarding
deviations to disclosed underwriting standards. The proposal would
have also required disclosure of the steps taken by the originator
to verify information received during the underwriting process.
These proposals and the comments on the proposals were later
considered and acted upon in connection with the rules implementing
Section 945 of the Dodd-Frank Act. See Issuer Review of Assets in
Offerings of Asset-Backed Securities, Release No. 33-9176 (Jan. 20,
2011).
    \816\ See letter from MBA I.
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2. Final Rule and Economic Analysis of the Final Rule
    We are adopting the final rule, as proposed. We continue to believe
that the ability of the servicer to modify any terms, fees, and
penalties and the effect of this ability on potential cash flows
remains an important factor to investors. We believe that more granular
data about this ability will enable investors to better assess the
possibility of a potential change in the cash flows, which should, in
turn, promote more efficient allocation of capital. To the extent
issuers will be providing more detail than they previously provided,
issuers' costs to provide the required disclosure will likely increase.

D. Disclosure of Fraud Representations

    We also proposed to revise Item 1111(e) to require disclosure of
whether a representation was included among the representations and
warranties 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. In proposing this
requirement, we believed that it was important that any fraud
representation be highlighted to investors.
    Several commenters were opposed to the proposed requirement.\817\
One commenter noted that both its investor and issuer members agreed
that the absence of fraud in the origination is an element of several
representations and warranties concerning the pool assets, such as the
representation and warranty stating that the pool assets were
originated in compliance with the requirements of law and applicable
underwriting standards, and that the pool assets are legal, valid, and
binding payment obligations of the related obligors.\818\ This
commenter further noted that singling out a fraud representation in the
disclosure was unnecessary and duplicative in light of our other
proposal that would require issuers to provide disclosure on
representations and warranties. Another commenter stated that the
proposed requirement did not pass a reasonable

cost-benefit test and, without clarifying why, stated that the
disclosure would not benefit investors.\819\ This commenter suggested
that we not adopt the proposed requirement and instead require a
restatement or identification of the specific fraud representation, if
any, included in the transaction ``rather than including a binary
response to whether or not there is a fraud representation.'' \820\
---------------------------------------------------------------------------

    \817\ See letters from ASF I, ELFA I, and MBA I.
    \818\ See letter from ASF I.
    \819\ See letter from ELFA I (noting that a general ``fraud
representation'' is difficult to make due to the potential chain of
parties involved in a single lease/loan including the lessee,
manufacturer, dealer, broker, lessor/lender and servicer).
    \820\ See letter from ELFA I.
---------------------------------------------------------------------------

    After considering the comments we received, we are not adopting the
proposed revisions to Item 1111(e). As one commenter noted, the absence
of fraud may be an element of several representations and warranties
concerning the pool assets and therefore is already adequately
disclosed under the current requirements of Item 1111(e).

E. Static Pool Disclosure

1. Disclosure Required
(a) Proposed Rule
    In the 2010 ABS Proposing Release, we noted that since the adoption
of Regulation AB we have observed that static pool information provided
by asset-backed issuers may vary greatly within the same asset class.
Variations exist not only with the type or category of information
disclosed but also with the manner in which it is disclosed. As a
result, static pool information between different sponsors has not
necessarily been comparable, which reduces its value to investors.
    To address this problem, we proposed revisions to Item 1105 of
Regulation AB \821\ to increase the clarity, transparency, and
comparability of static pool information. Some of the proposed rules
would apply to all issuers, and other proposed rules would apply only
to amortizing asset pools and not to revolving asset master trusts. For
all issuers, we proposed the following five requirements.\822\ First,
we proposed to require appropriate introductory and explanatory
information to introduce the characteristics. Second, we proposed to
require that issuers describe the methodology used in determining or
calculating the characteristics and describe any terms or abbreviations
used. Third, we proposed to require a description of how the assets in
the static pool differ from the pool assets underlying the securities
being offered. Fourth, we proposed to require additional disclosure if
an issuer does not include static pool information or includes
disclosure that is intended to serve as alternative static pool
information. Finally, we proposed to require graphical presentation of
the static pool information, if doing so would aid in understanding.
---------------------------------------------------------------------------

    \821\ 17 CFR 229.1105.
    \822\ See the 2010 ABS Proposing Release at 23385.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Commenters were generally supportive of these proposed rules \823\
and mostly requested that the Commission clarify certain aspects.\824\
Some commenters were supportive of the proposal to provide narrative
disclosure.\825\ One commenter stated that the inclusion of explanatory
information introducing the characteristics of the static pool would
increase the clarity of the required static pool disclosure.\826\ Other
commenters requested greater clarification about the narrative
disclosure requirements. For instance, one commenter believed that it
was unclear whether ``narrative disclosure'' would permit presentation
in tabular format.\827\ Another commenter expressed concern with the
RMBS example provided in the 2010 ABS Proposing Release and noted that
one of the aspects we listed--the number of loans that were exceptions
to standardized underwriting--is qualitatively different and more
granular and detailed than the other aspects listed (i.e., number of
assets and types of mortgages).\828\
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    \823\ See letters from AMI, ASF I, BoA I, CFA I, MSCI,
Prudential I, and Realpoint.
    \824\ See letters from ASF I and VABSS I.
    \825\ See letters from AMI and ASF I.
    \826\ See letter from ASF I.
    \827\ See letter from VABSS I.
    \828\ See letter from ASF I. See also the 2010 ABS Proposing
Release at 23385. In the 2010 ABS Proposing Release, we illustrated
the narrative disclosure that would be required using RMBS as an
example. We noted that for a pool of RMBS the disclosure would
include the number of assets, the types of mortgages, and the number
of loans that were exceptions to the standardized underwriting
criteria.
---------------------------------------------------------------------------

    One commenter, supportive of the proposal to require a description
of the methodology used in determining or calculating the
characteristics, urged the Commission to require that the methodologies
used by issuers be standardized to facilitate comparison of securities
within the same asset class.\829\ This commenter also emphasized that
key defined terms, such as ``delinquency'' and ``default'' must be
standardized.
---------------------------------------------------------------------------

    \829\ See letter from AMI.
---------------------------------------------------------------------------

    Several commenters provided differing views on whether the proposal
to require a description of how the assets in the static pool differ
from the pool assets underlying the securities being offered was
necessary or helpful to investors. One commenter indicated that this
disclosure is helpful in understanding ``pool construction risk.''
\830\ Another commenter, however, argued that it did not understand how
this requirement adds anything to the proposed narrative
disclosure.\831\
---------------------------------------------------------------------------

    \830\ See letter from Prudential I (recommending that ``[t]he
prospectus should highlight the extent to which the current
collateral pool was originated with the same or differing
underwriting criteria, loan terms, and/or risk tolerances than the
static pool data'').
    \831\ See letter from VABSS I (stating its hope that the
Commission is not suggesting that, for each offering, registrants
should include a description of how the securitized pool differs
from each of the 3 to 25 static pools, as the commenter believes
that such disclosure would simply compare the disclosed metrics for
each pool and therefore would provide no incremental value to
investors).
---------------------------------------------------------------------------

    With respect to requiring an issuer to explain why it did not
provide static pool information or provided alternative information,
one commenter interpreted this proposal as capable of being satisfied
through summary disclosure stating that either the data are not
available or that static pool disclosure is immaterial.\832\
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    \832\ See letter from BoA I (urging reconsideration of any
standard that would require disclosure of a ``detailed analysis of
materiality'' and stating that ``[a]n analysis of an issuer's
methodology for making materiality determinations is not a proper
subject of prospectus disclosure'').
---------------------------------------------------------------------------

    One commenter opposed requiring the graphical presentation of
static pool information in addition to the proposed narrative
description.\833\ This commenter asserted its belief that graphical
presentation is not market practice, has ``highly questionable
utility'' and is possibly misleading. This commenter supported,
however, graphical presentation of delinquency, loss, and prepayment
information for amortizing pools.
---------------------------------------------------------------------------

    \833\ See letter from BoA I.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    After considering the comments provided, we are adopting the
requirements as proposed.\834\ First, we are amending Item 1105 to
require narrative disclosure that provides introductory and explanatory
information to introduce the static pool information presented. We
continue to believe that a brief snapshot of the static pool
information presented will benefit investors by providing them with
context in which to evaluate the information, especially for those
investors who lack sophisticated

analytical tools.\835\ We do not intend for the requirement to cause
issuers to repeat the underlying static pool disclosure in the
narrative; rather we intend for the requirement to serve as a clear and
brief introduction of the static pool disclosure in order to provide
context to investors. We do believe, however, that the type of
narrative disclosure that we are requiring is best presented in
paragraph format, and not in tabular format as one commenter
recommended, in order for the narrative description to clearly convey
to investors the differences in the assets being securitized in the
deal and the assets comprising the static pools.\836\
---------------------------------------------------------------------------

    \834\ See Item 1105 of Regulation AB [17 CFR 229.1105].
    \835\ See the 2010 ABS Proposing Release at 23385.
    \836\ See letter from VABSS I. Issuers can supplement the
narrative disclosure that is required to be provided in paragraph
format with graphical presentation if doing so would aid in
understanding.
---------------------------------------------------------------------------

    To aid issuers in understanding what the narrative disclosure would
typically include, and as commenters noted, we provided an example in
the 2010 ABS Proposing Release, as we have done in other releases, to
illustrate the disclosure principle.\837\ In our example, for a pool of
RMBS, the disclosure would typically include, among other things, the
number of loans that were exceptions to the standardized underwriting
criteria. As noted above, one commenter expressed concern and noted
that the number of loans that were exceptions to the standardized
underwriting criteria was qualitatively different and granular than the
other two characteristics in the example and raised questions for
issuers as how to apply the disclosure standard in a principled way to
distinguish among various credit characteristics of the pool.\838\ We
believe that for RMBS, the number of exceptions to the standardized
underwriting criteria is an important credit characteristic for issuers
to highlight in the narrative disclosure. Inclusion of a significant
number of mortgages that deviate from the underwriting standards could
pose a risk to the performance of the RMBS. We believe disclosure of
the number of loans that were exceptions to standardized underwriting
criteria is likely to be important to highlight for other asset classes
as well. Issuers should highlight those characteristics that would be
most important for investors to be aware of before analyzing the actual
static pool disclosure, which for some asset classes can be extensive.
---------------------------------------------------------------------------

    \837\ See the 2010 ABS Proposing Release at 23385.
    \838\ See letter from ASF I. We discuss amendments to Item 1111
requiring specific data about the amount and characteristics of
assets that deviate from the disclosed origination standards in
Section III.A.2.a) Disclosure Requirements for All Asset Classes and
Economic Analysis of These Requirements.
---------------------------------------------------------------------------

    Second, we are adopting, as proposed, an amendment to require
issuers to describe the methodology used in determining or calculating
the characteristics and also to describe any terms or abbreviations
used.\839\ We believe that this requirement will provide clarity and
transparency to investors and assist them in determining whether the
calculations or terms are comparable across issuers. This will benefit
investors because it will facilitate their ability to make better
informed investment decisions. One commenter urged the Commission to
direct that the methodologies and key terms used by issuers be
converged and standardized over time so that investors can compare
securities within the same asset class.\840\ Although we are not
adopting standardized methodologies and terms for static pool
disclosure, the proposal we are adopting requires asset-level
disclosures for ABS backed by certain asset types.\841\ As a result of
the new asset-level requirements, the data used to produce the static
pool information for these asset classes will be standardized.
---------------------------------------------------------------------------

    \839\ See Item 1105 of Regulation AB [17 CFR 229.1105].
    \840\ See letter from AMI.
    \841\ See also Section III.A Asset-Level Disclosure Requirement.
---------------------------------------------------------------------------

    Third, we are requiring a description of how the assets in the
static pool differ from the pool assets underlying the securities being
offered.\842\ We continue to believe that this requirement benefits
investors by providing them with context in which to evaluate the
information without sophisticated data analysis tools and, as one
commenter noted, to evaluate pool construction risk. If the pool in the
offering is materially different from prior pools, then the issuer
should describe the difference so that investors can factor in that
difference when examining the static pool information. We agree with
one commenter's statement that ``[t]he prospectus should highlight the
extent to which the current collateral pool was originated with the
same or differing underwriting criteria, loan terms and/or risk
tolerances than the static pool data.'' \843\ We also believe that in
cases where the assets of the pool being securitized were underwritten
through different origination channels (e.g., loans originated directly
through an originator's retail channel or through unaffiliated mortgage
brokers) compared to prior securitized pools, disclosure of the
proportion of assets originated through each channel should be
provided. To address commenters' concerns, we are clarifying that we
are requiring ``a clear and concise description'' of the material
differences, if any, from the pool being securitized, but not a
detailed comparison.\844\
---------------------------------------------------------------------------

    \842\ See Item 1105 of Regulation AB [17 CFR 229.1105].
    \843\ See letter from Prudential I.
    \844\ See letter from VABSS I.
---------------------------------------------------------------------------

    Fourth, as proposed, the final rule states that the static pool
information should be presented graphically if doing so would aid in
understanding.\845\ As with the other requirements discussed above, we
believe graphical presentations help investors to more easily evaluate
material information, without the use of sophisticated analytical
tools. One commenter stated that the graphical presentation has
``highly questionable utility'' and also may be misleading under many
circumstances.\846\ We are requiring the issuer to provide a graphical
illustration only if it would be helpful; therefore, if an issuer
believes that providing graphical presentation of the static pool
information would not be useful for understanding the data or
misleading, then the issuer would not be required to provide it.
However, we generally believe that graphical presentation of
information can be beneficial to investors by helping them to quickly
spot trends, which may not be evident by looking at the numbers alone.
---------------------------------------------------------------------------

    \845\ See Item 1105 of Regulation AB [17 CFR 229.1105].
    \846\ See letter from BoA I.
---------------------------------------------------------------------------

    Finally, in addition to providing investors with a clear and brief
introduction of the static pool data, we are also requiring issuers to
provide disclosure in cases where an issuer does not include static
pool information or includes disclosure that is intended to serve as
alternative static pool information.\847\ It is not always apparent why
one issuer does not provide static pool information or provides
alternative disclosure in lieu of such information, when other issuers
within the same asset class provide the information. Therefore, we are
requiring that issuers explain why they have not included static pool
disclosure or why they have provided alternative information. One
commenter interpreted this requirement as capable of being satisfied
through summary disclosure, such as stating that the data is not
available or not material.\848\ While we are not requiring that the
issuer provide an extensive explanation, the issuer should provide some
explanation beyond a conclusory statement that the information is not

available or not material. If the information is not included because
it is not material, an issuer should explain why the data is
immaterial, such as if the assets differ so significantly from the
assets in the pool being offered.
---------------------------------------------------------------------------

    \847\ See Item 1105 of Regulation AB [17 CFR 229.1105].
    \848\ See letter from BoA I.
---------------------------------------------------------------------------

    We believe that taken together the static pool disclosure
requirements adopted will benefit investors by providing them with more
clearly explained and more consistently presented information about
static pools, thereby facilitating their understanding of how the
performance of the static pools may or may not be indicative of how the
current pool may perform. This will help investors make better informed
investment decisions and lead to more efficient allocation of capital.
The requirements will be costly to issuers to the extent that they
require reformatting information such as in graphical format. We expect
that these costs will be minimal because issuers can use off-the-shelf
software to create the graphs. Issuers will also incur costs for
analyzing prior pools as compared to the current offering, but these
costs should not be significant since they will have all the necessary
information.
2. Amortizing Asset Pools
(a) Proposed Rule
    We proposed to add an instruction to Item 1105(a)(3)(ii) of
Regulation AB to require the static pool information related to
delinquencies, losses, and prepayments be presented in accordance with
the existing guidelines outlined in Item 1100(b) \849\ for amortizing
asset pools. Additionally, we proposed to amend Item 1105(a)(3)(iv) to
require graphical presentation of delinquency, losses, and prepayments
for amortizing asset pools.
---------------------------------------------------------------------------

    \849\ 17 CFR 229.1100(b). Item 1100(b) requires that information
be presented in a certain manner. For example, it requires that
information regarding delinquency be presented in 30-day increments
through the point that assets are written off or charged off as
uncollectable.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Comments received on the proposed changes for amortizing asset
pools were mixed. With respect to requiring that delinquencies, losses,
and prepayments be presented in accordance with Item 1100(b), several
commenters supported the proposal,\850\ and several other commenters
opposed.\851\ Those commenters opposing the requirement were most
concerned about the one-size-fits-all approach to Item 1100(b)(1). They
stated, for example, that reporting delinquencies, losses, and
prepayments in 30- or 31-day increments through charge-off would be for
a longer period of time than required under general principles of
materiality.\852\ In regard to the graphical presentation requirement,
one commenter noted that graphical presentations provide immediate
recognition of changes in asset performance.\853\ Commenters that
opposed the requirement argued that not all graphical presentations are
useful or meaningful, especially for asset classes with extensive
data.\854\
---------------------------------------------------------------------------

    \850\ See letters from BoA I and Realpoint.
    \851\ See letters from ASF I and VABSS I.
    \852\ Id. These commenters requested that the Commission tailor
Item 1100(b) according to asset class. For instance, ASF requested
that the Commission modify Item 1100(b)(1) for RMBS and CMBS as
follows: Present delinquency information in 30- or 31-day increments
through the point that the loans are 179 or 180 days delinquent,
followed by an additional 180-day increment (i.e., through the point
that the loans are 359 or 360 days delinquent), and a final
increment of 359 or 360 days or more. For ABS supported, directly or
indirectly, by motor vehicles, equipment and other similar physical
assets with finite lives over which their value depreciates, ASF and
VABSS requested that Item 1100(b)(1) be modified so that delinquency
information is presented in 30- or 31-day increments through the
point that the loans are 119 or 120 days delinquent, followed by a
final increment of 119 or 120 days or more.
    \853\ See letter from CFA I. See also letters from AMI and BoA I
(supporting the graphical requirement for amortizing asset pools).
    \854\ See letters from ASF I and VABSS I.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    We are adopting the proposed rules for amortizing asset pools with
modification in response to comments. We remain concerned that the
inconsistent presentation of delinquencies, losses, and prepayments
across issuers within the same asset class has resulted in a lack of
clarity and comparability.\855\ To address this concern, we are adding
an instruction to Item 1105(a)(3)(ii) of Regulation AB to require for
amortizing asset pools that the static pool information related to
delinquencies, losses, and prepayments be presented in accordance with
Item 1100(b) with respect to presenting such information in 30- or 31-
day increments. In response to commenters' concerns with requiring such
presentation through charge-off, the final instruction requires that
delinquencies, losses, and prepayments be presented in 30- or 31-day
increments through no less than 120 days.\856\ We believe that this
revised time period balances commenters' concerns with the cost and
burden of having to track and report this information in a more
granular manner for a longer period of time while still providing
investors with a more comprehensive picture of the delinquencies,
losses, and prepayments in a uniform manner across asset classes. We
also note that this revised time period is consistent with the new
asset-level data requirement for presentation of delinquencies and
losses in RMBS.\857\ While investors will not receive as granular a
presentation as proposed (through charge-off), investors investing in
asset classes required to provide asset-level disclosures will be
receiving more detailed information about the payment status of each
individual asset, such as the paid through date.\858\ We recognize that
to the extent that issuers will now be required to present
delinquencies and losses for a longer period of time than previously
provided in the distribution reports, such issuers will incur some
costs. We believe, however, the benefits gained from standardized and
comparable delinquency and loss disclosure justify the costs issuers
may incur to provide the information.
---------------------------------------------------------------------------

    \855\ See the 2010 ABS Proposing Release at 23385.
    \856\ See letters from ASF I and VABSS I.
    \857\ See new Item 1(g)(33) of Schedule AL.
    \858\ See new Item 1(g)(28) of Schedule AL. See Section
III.A.2.b Asset Specific Disclosure Requirements and Economic
Analysis of These Requirements. Due to the transition period for
implementing the loan-level requirements, there will be a period of
time during which investors will not have access to this more
granular data about assets in prior securitized pools. See Section
IX.B Transition Period for Asset-Level Disclosure Requirements.
---------------------------------------------------------------------------

    In addition to requiring that delinquencies, losses, and
prepayments be presented in accordance with Item 1100(b) through no
less than 120 days, we are amending Item 1105(a)(3)(iv) to require the
graphical presentation of this information for amortizing asset pools.
We acknowledge commenters' concern that the substantial quantitative
data associated with some prior securitized pools could make graphical
presentation of the data ``unintelligible'' and that investors may
prefer actual data over graphs because they cannot ascertain the data
from the graphs and they can take the tabular data and create their own
graphs.\859\ We believe, however, that static pool data alone,
depending on the volume and type of data, can be difficult to analyze
without the use of sophisticated analytical tools. Requiring graphical
presentation of this information will benefit investors by enabling
them to analyze the information without such tools.\860\ In addition,
graphical presentation of the information highlights possible data
segments that warrant further analysis and may therefore facilitate a
more

tailored and efficient in-depth analysis. We also note that the
inherent function of static pool information (i.e., analyzing trends
within a sponsor's program by comparing originations at similar points
in the assets' lives) is well-suited for graphical presentation as it
allows for better detection of patterns that may not necessarily be
evident from overall portfolio numbers.
---------------------------------------------------------------------------

    \859\ See letter from VABSS I.
    \860\ See letters from AMI, BoA I, and CFA I (noting that
graphical representation of this information provides investors with
an immediate recognition of changes in asset performance in
successive pools and thus an indication of the underwriting
standards of the issuers).
---------------------------------------------------------------------------

3. Filing Static Pool Data
(a) Proposed Rule
    We proposed to permit issuers to file their static pool information
required under Item 1105 of Regulation AB on EDGAR in Portable Document
Format (``PDF'') as an official filing in lieu of, as currently
required, including the information directly in the prospectus (or
incorporating by reference) in ASCII or HTML format.\861\
---------------------------------------------------------------------------

    \861\ Rule 312 of Regulation S-T permitted issuers for ABS filed
on or before June 30, 2012, to post their static pool information on
an Internet Web site under certain conditions in lieu of filing the
static pool information on EDGAR. We are not removing Rule 312 of
Regulation S-T in connection with this rulemaking since issuers that
previously provided static pool information via a Web site are
required to retain all versions of the information provided through
the Web site for a period of not less than five years. Issuers are
no longer able to use Rule 312 as a means to provide their static
pool information. We are, however, removing Item 512(l) of
Regulation S-K, the undertaking previously required for providing
static pool information on a Web site under Rule 312 of Regulation
S-T because this undertaking is no longer applicable. We are also
removing paragraph (d)(6)(iii) of Securities Rule 433 which had
permitted issuers to include a Web site address for static pool
information in a free writing prospectus.
---------------------------------------------------------------------------

    As is the case today, however, issuers can incorporate static pool
information filed on a Form 8-K or as an exhibit to a Form 8-K by
reference into a prospectus.\862\ We proposed that all static pool
disclosure, if filed on a Form 8-K, be filed under a new item number so
that investors could easily locate the information that is incorporated
by reference into the prospectus. We also proposed to create a new
exhibit number to Item 601 of Regulation S-K for static pool
information filed as an exhibit to a Form 8-K or prospectus.
---------------------------------------------------------------------------

    \862\ See the 2004 Adopting Release at 1541.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Commenters were generally opposed to our PDF proposal, favoring
data formats other than PDF for static pool information. One commenter
stated that PDF makes detailed analysis ``difficult'' and ``time-
consuming.'' \863\ Another commenter preferred a format that is readily
importable to Excel or a comparable database program.\864\ One
commenter stated its belief that EDGAR in its current form will not
facilitate the usability of static pool information, such as allowing
investors to download the data in a format that investors can use with
their own analytical tools and applications.\865\ With respect to our
proposal to house all static pool information filed on Form 8-K under a
new item number, commenters were supportive of the proposal.\866\
---------------------------------------------------------------------------

    \863\ See letter from CFA I.
    \864\ See letter from Prudential I.
    \865\ See letter from ASF I. See also letter from American
Securitization Forum regarding the filing of static pool information
dated May 4, 2012 submitted in response to the 2010 ABS Proposing
Release (``ASF V'') (noting that its investor members supported
upgrading EDGAR to allow for a number of file types, including PDF
and Excel, but did not specify whether PDF would in fact facilitate
the usability of the static pool data).
    \866\ See letters from MBA I and Prudential I. Prudential
suggested requiring the issuer to include a link in the prospectus
to the relevant information in order to assist investors in locating
the information. As is the case today, filers may reference a
previously submitted filing in the prospectus; however, filers are
generally not permitted to include external references. See EDGAR
Manual (Volume II), Section 5, for additional information and
instruction about acceptable external references.
---------------------------------------------------------------------------

(c) Final Rule and the Economic Analysis of the Final Rule
    Given commenters' concerns regarding the usability of static pool
information in PDF, we are not adopting our proposal to permit issuers
to file their static pool information in PDF as an official filing.
This decision benefits investors because they will continue to receive
static pool information in a more usable format compared to PDF.
Issuers, however, will be precluded from taking advantage of any cost
savings that could be achieved by filing the static pool information in
PDF.
    We are adopting the proposed rules to amend Form 8-K and Item 601
of Regulation S-K. We believe that these amendments will benefit
investors in searching and locating the static pool information filed
on EDGAR. Therefore, if the issuer wishes to incorporate static pool
information by reference to a Form 8-K filing rather than to include it
in the prospectus, then an issuer must file it under new Item 6.06 of
Form 8-K. If the issuer files the static pool information as an exhibit
to a Form 8-K to be incorporated into a prospectus, the issuer must
file the static pool information as Exhibit 106. Under the final rule,
issuers will be required to include a statement in the prospectus that
the static pool information incorporated by reference is deemed to be a
part of the prospectus and also identify the Form 8-K on which the
static pool information was filed by including the CIK number, file
number, exhibit number (if applicable) and the date on which the static
pool information was filed. Investors will benefit by being able to
more easily search and locate static pool information incorporated by
reference into the prospectus, and the only cost issuers are likely to
incur is to update their information systems to reflect the new Form 8-
K item requirement and exhibit number, which we believe should be
minimal.
    We also proposed that the information should be filed with the Form
8-K on the same date that the preliminary prospectus is required to be
filed.\867\ We are adopting that proposal with one clarification.
Consistent with current practices under existing requirements, issuers
may incorporate by reference the same static pool information into the
prospectus of one or more offerings of the same asset class as long as
the information meets the requirements of Item 1105 of Regulation
AB,\868\ which states that the most recent periodic increment for the
static pool data must be of a date no later than 135 days after the
first use of the prospectus.\869\ The amended requirement clarifies
that issuers are required to provide information by the date that the
prospectus is required to be filed rather than on the same date the
prospectus is filed (i.e., permitting incorporation of a previously-
filed Form 8-K), and thereby allows issuers to continue to have the
flexibility to incorporate the static pool information by reference
into prospectuses of multiple deals.
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    \867\ In the 2010 ABS Proposing Release, we proposed that
``[t]he static pool disclosure must be filed as an exhibit with this
report by the time of effectiveness of a registration statement on
Form SF-1, on the same date of the filing of a form of prospectus,
as required by Rule 424(h) (17 CFR 230.424(h)) and a final
prospectus meeting the requirements of section 10(a) of the
Securities Act (15 U.S.C. 77j(a)) filed in accordance with Rule
424(b) (17 CFR 230.424(b)).''
    \868\ 17 CFR 229.1105(a)(3)(ii).
    \869\ We established a requirement regarding the age of the most
recent periodic increment to ensure the currency of the data. See
the 2004 Adopting Release at 1540.
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F. Other Disclosure Requirements That Rely on Credit Ratings

    Items 1112 and 1114 of Regulation AB require the disclosure of
certain financial information regarding significant obligors of an
asset pool and significant credit enhancement providers relating to a
class of asset-backed securities. An instruction to Item 1112(b)
provides that no financial information regarding a significant obligor
is required if the obligations of the significant obligor, as they
relate to the pool assets, are backed by the full faith and credit of a
foreign government and the pool assets are securities that

are rated investment grade by an NRSRO.\870\ Item 1114 of Regulation AB
contains a similar instruction that relieves an issuer of the
obligation to provide financial information when the obligations of the
credit enhancement provider are backed by a foreign government and the
credit enhancement provider has an investment-grade rating.\871\ We
proposed to revise Item 1112 and Item 1114 to eliminate the exceptions
based on investment-grade ratings.
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    \870\ Instruction 2 to Item 1112(b) of Regulation AB [17 CFR
229.1112(b)].
    \871\ Instruction 3 to Item 1114 [17 CFR 229.1114]. Under both
Items 1112 and 1114, to the extent that pool assets are not
investment-grade securities, information required by paragraph (5)
of Schedule B of the Securities Act may be provided in lieu of the
required financial information. Paragraph 5 of Schedule B requires
disclosure of three years of the issuer's receipts and expenditures
classified by purpose in such detail and form as the Commission
prescribes.
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    We received only one comment on this proposal, which supported the
proposal.\872\ We are adopting the amendments to Items 1112 and 1114 as
proposed. We continue to believe that these changes are consistent with
the requirements of Section 939A of the Dodd-Frank Act, which requires
us to reduce regulatory reliance on credit ratings, and our revisions
to eliminate ratings from the shelf eligibility criteria for asset-
backed issuers. We believe that this will allow investors to directly
consider the financial condition of significant obligors and credit
enhancement providers rather than rely solely on the implication of
these parties' credit ratings. Because the information now required to
be disclosed is likely available to the issuer, the revisions to Item
1112 and Item 1114 will not impose substantial costs or burdens on an
asset-backed issuer.
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    \872\ See letter from BoA I.
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V. Securities Act Registration

A. Background and Economic Discussion

    Securities Act shelf registration provides important timing and
flexibility benefits to issuers. An issuer with an effective shelf
registration statement can conduct delayed offerings ``off the shelf''
under Securities Act Rule 415 without staff action.\873\ Asset-backed
securities are often registered on a Form S-3 registration statement
and later offered ``off the shelf'' if, in addition to meeting other
specified criteria,\874\ the securities are rated investment grade by
an NRSRO. We continue to recognize that ABS issuers have expressed the
desire to use shelf registration to access the capital markets quickly.
ABS issuers' interest in shelf registration is also evidenced by the
lack of ABS issuers using Form S-1.\875\
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    \873\ As discussed in the 2010 ABS Proposing Release,
contemporaneous with the enactment of the Secondary Mortgage Market
Enhancement Act of 1984 (SMMEA), which added the definition of
``mortgage related security'' to the Exchange Act, we amended
Securities Act Rule 415 to permit mortgage related securities to be
offered on a delayed basis, regardless of which form is utilized for
registration of the offering (Pub. L. No. 98-440, 98 Stat. 1689).
SMMEA was enacted by Congress to increase the flow of funds to the
housing market by removing regulatory impediments to the creation
and sale of private mortgage-backed securities. An early version of
the legislation contained a provision that specifically would have
required the Commission to create a permanent procedure for shelf
registration of mortgage related securities. The provision was
removed from the final version of the legislation, however, as a
result of the Commission's decision to adopt Rule 415, implementing
a shelf registration procedure for mortgage related securities. See
H.R. Rep. No. 994, 98th Cong., 2d Sess. 14, reprinted in 1984 U.S.
Code Cong. & Admin. News 2827. See also Shelf Registration, Release
No. 33-6499 (Nov. 17, 1983) [48 FR 52889] at footnote 30 (noting
that mortgage related securities were the subject of pending
legislation). In 1992, in order to facilitate registered offerings
of asset-backed securities and eliminate differences in treatment
under our registration rules between mortgage related asset-backed
securities (which could be registered on a delayed basis) and other
asset-backed securities of comparable character and quality (which
could not), we expanded the ability to use ``shelf offerings'' to
other asset-backed securities. See Simplification of Registration
Procedures for Primary Securities Offerings, Release No. 33-6964
(Oct. 22, 1992) [57 FR 32461]. Under the 1992 amendments, offerings
of asset-backed securities rated investment grade by an NRSRO
(typically one of the four highest categories) could be shelf
eligible and registered on Form S-3. The eligibility requirement's
definition of ``investment grade'' was largely based on the
definition in the existing eligibility requirement for non-
convertible corporate debt securities.
    \874\ In addition to investment-grade rated securities, an ABS
offering is shelf-eligible only if the following conditions are met:
delinquent assets must not constitute 20% or more, as measured by
dollar volume, of the asset pool as of the measurement date; and
with respect to securities that are backed by leases other than
motor vehicle leases, the portion of the securitized pool balance
attributable to the residual value of the physical property
underlying the leases, as determined in accordance with the
transaction agreements for the securities, does not constitute 20%
or more, as measured by dollar volume, of the securitized pool
balance as of the measurement date. To the extent the depositor or
any issuing entity previously established, directly or indirectly,
by the depositor or any 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 registration statement
on Form S-3 subject to the requirements of Section 12 or 15(d) of
the Exchange Act (15 U.S.C. 78l or 78o(d)) 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 regarding such asset-backed securities pursuant
to Section 13, 14 or 15(d) of the Exchange Act (15 U.S.C. 78m, 78n
or 78o(d)) for such period (or such shorter period that each such
entity was required to file such materials). Such material (except
for certain enumerated items) must have been filed in a timely
manner. We did not propose changes to these other eligibility
conditions.
    \875\ According to EDGAR, since 2008, no ABS issuer has filed a
registration statement on Form S-1 that went effective.
---------------------------------------------------------------------------

    In the 2010 ABS Proposing Release, we proposed, among other things,
new registration procedures, registration forms and shelf eligibility
requirements for asset-backed security issuers. The 2010 ABS Proposals
sought to address a number of concerns about the ABS offering process
and ABS disclosures that were subsequently addressed in the Dodd-Frank
Act, while others were not addressed by the Dodd-Frank Act. Two of the
proposed shelf eligibility requirements--risk retention \876\ and
continued Exchange Act reporting \877\--were addressed by provisions of
the Dodd-Frank Act. In July 2011, we re-proposed some of the 2010 ABS
Proposals in light of the changes made by the Dodd-Frank Act and
comments we received.
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    \876\ In the 2010 ABS Proposing Release, we proposed to require
that sponsors of ABS transactions retain a specified amount of each
tranche of the securitization, net of hedging. Section 941 of the
Dodd-Frank Act added new Section 15G of the Exchange Act. Section
15G generally requires the Federal Reserve Board, the Federal
Deposit Insurance Corporation, the Office of the Comptroller of the
Currency, the Commission and in the case of the securitization of
any ``residential mortgage asset,'' together with the Department of
Housing and Urban Development and the Federal Housing Finance
Agency, to jointly prescribe regulations relating to risk retention.
In March 2011, the agencies proposed rules to implement Section 15G
of the Exchange Act. In August 2013, the agencies re-proposed the
rules. See the 2011 Risk Retention Proposing Release and the 2013
Risk Retention Re-Proposing Release.
    \877\ The Commission proposed in the 2010 ABS Proposals to
require that an ABS issuer undertake to file Exchange Act reports
with the Commission on an ongoing basis as a condition to shelf
eligibility. The 2010 ABS Proposals also proposed to require an
issuer to confirm, among other things, whether Exchange Act reports
required pursuant to the undertaking were current as of the end of
the quarter in order to be eligible to use the effective
registration statement for takedowns. Section 942(a) of the Dodd-
Frank Act eliminated the automatic suspension of the duty to file
under Section 15(d) of the Exchange Act for ABS issuers, and granted
authority to the Commission to issue rules providing for the
suspension or termination of such duty. In the 2011 ABS Re-Proposing
Release, we stated that due to the amendment to Section 15(d), the
proposed shelf eligibility requirement to undertake to file Exchange
Act reports is no longer necessary, including the quarterly
evaluation by issuers of compliance with the undertaking. In August
2011, we adopted rules to provide for suspension of the reporting
obligations for asset-backed securities issuers when there are no
asset-backed securities of the class sold in a registered
transaction held by non-affiliates of the depositor. See footnote
543.
---------------------------------------------------------------------------

    The 2011 ABS Re-Proposals for ABS shelf registration eligibility
were also part of several rule revisions we are considering in
connection with Section 939A of the Dodd-Frank Act. Section 939A of the
Dodd-Frank Act requires

that we review any regulation issued by us that requires the use of an
assessment of the credit-worthiness of a security or money market
instrument and any references to or requirements in such regulations
regarding credit ratings. Once we have completed that review, the
statute provides that we modify any regulations identified in our
review to remove any reference to or requirement of reliance on credit
ratings and to substitute in such regulations such standard of credit-
worthiness as we determine to be appropriate. In that connection, we
take into account the context and purposes of the affected rules.

B. New Registration Procedures and Forms for ABS

1. New Shelf Registration Procedures
    Under existing rules, as with current offerings of other types of
securities registered on Form S-3 and Form F-3, the shelf registration
statement for an offering of ABS will often be effective weeks or
months before a takedown is contemplated. The prospectus in an
effective registration statement must describe, among other things, the
type or category of assets to be securitized, the possible structural
features of the transaction, and identification of the types or
categories of securities that may be offered.\878\ Pursuant to existing
Securities Act Rules 409 and 430B,\879\ the prospectus in the
registration statement may omit the specific terms of a takedown if
that information is unknown or not reasonably available to the issuer
when the registration statement is made effective.\880\ For ABS
offerings off the shelf, because assets for a pool backing the
securities will not be identified until the time of an offering,
information regarding the actual assets in the pool and the material
terms of the transaction are typically only included in a prospectus or
prospectus supplement that is required to be filed with the Commission
by the second business day after first use.\881\ This information
includes information about the structure of the cash flows, the pool,
underwriting criteria for the assets and exceptions made to the
underwriting criteria, identification of the originators of the assets
and other information that is related to the identification of specific
assets for the pool. We understand that the creation of an asset pool
to support securitized products is a dynamic and ongoing process in
which changes can take place up until pricing. As a result, the new
rules we are adopting maintain the fundamental framework of shelf
registration for delayed ABS offerings, but provide new important
protections for investors who choose to commit capital to the ABS
transactions.
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    \878\ The form of prospectus in an effective registration
statement should also include disclosure about the risks associated
with changes in interest rates or prepayment levels as well as the
various scenarios under which payments on the ABS could be impaired.
    \879\ 17 CFR 230.409 and 17 CFR 230.430B.
    \880\ The prospectus disclosure in the registration statement is
often presented through a ``base'' or ``core'' prospectus and a
prospectus supplement. We are eliminating this type of presentation
for ABS issuers. See Section V.D.1 Presentation of Disclosure in
Prospectuses.
    \881\ An instruction to Rule 424(b) [17 CFR 230.424(b)] requires
that a form of prospectus or prospectus supplement relating to a
delayed offering of mortgage-backed securities or an offering of
asset-backed securities be filed no later than the second business
day following the date it is first used after effectiveness in
connection with a public offering or sales, or transmitted by a
means reasonably calculated to result in filing with the Commission
by that date.
---------------------------------------------------------------------------

    We also recognize that it is important for investor protection
that, in addition to receiving adequate information to make an
investment decision, ABS investors also have adequate time to analyze
the information and the potential investment. For the most part, each
ABS offering off of a shelf registration statement involves securities
backed by different assets, so that, in essence, from an investor point
of view, each offering requires a new investment analysis. Information
about the underlying assets is an important piece of information for
analyzing the ability of those assets to generate sufficient funds to
make payments on the securities. Furthermore, some have noted the lack
of time to review transaction-specific information as hindering
investors' ability to conduct adequate analysis of the securities.\882\
We believe that a process for ABS offerings where investors and
underwriters have additional time to conduct their review of offerings
will result in improved investor protections and promote a more
efficient asset-backed market, even if issuers may not always be able
to complete their offering as swiftly as they could in the past.
Therefore, we are adopting rules designed to increase the amount of
time that investors have to review information about a particular shelf
takedown, which we believe will allow for better analysis of ABS in
lieu of undue reliance on security ratings.
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    \882\ See, e.g., Section I.B. of CFA Institute Centre for
Financial Market Integrity and Council of Institutional Investors,
U.S. Financial Regulatory Reform: The Investor's Perspective, July
2009 (noting that securitized products are sold before investors
have access to a comprehensive and accurate prospectus, noting that
each ABS offering involves a new and unique security, and
recommending that the Commission adopt rules to improve the
timeliness of disclosures to investors); Securitization of Assets:
Problems & Solutions Hearing Before the Subcomm. on Sec., Ins., &
Inv. of the S. Comm. on Banking, Housing & Urban Affairs, 111th
Cong. 11 (2009) (statement of William W. Irving) (recommending that
there be ample time before a deal is priced for investors to review
and analyze a full prospectus and not just a term sheet); The State
of Securitization Markets Hearing Before the Subcomm. on Sec., Ins.,
& Inv. of the S. Comm. on Banking, Housing & Urban Affairs, 112th
Cong. 9 (2011) (statement of Chris J. Katopis, Executive Director of
the Association of Mortgage Investors) (recommending that there be a
``cooling off period'' when ABS are offered to provide investors
with enough time to review and analyze prospectus information prior
to making investment decisions). See also footnote 885 listing those
commenters supporting the waiting period proposal.
---------------------------------------------------------------------------

a) Rule 424(h) and Rule 430D
(1) Proposed Rule
    In the 2010 ABS Proposing Release, we proposed to require that an
ABS issuer using a shelf registration statement on proposed Form SF-3
file a preliminary prospectus containing transaction-specific
information at least five business days in advance of the first sale of
securities in the offering. This requirement would allow investors
additional time to analyze the specific structure, assets and
contractual rights of each transaction. We proposed this requirement in
response to investors' concerns that ABS issuers were not providing
them enough time to review the transaction-specific information, which
hindered their ability to conduct adequate analysis of the securities.
We noted in the 2011 ABS Re-Proposal that the five business-day waiting
period was also intended to reduce undue reliance on security ratings,
thus part of our efforts to remove the prior investment-grade ratings
requirement.\883\ We believed that requiring such information to be
filed at least five business days before the first sale of securities
in the offering balances the interest of ABS issuers in quick access to
the capital markets and the need of investors to have more time to
consider transaction-specific information. In the 2010 ABS Proposing
Release, we explained that we considered whether a longer minimum time
period than five business days would be more appropriate.\884\ We had
proposed five business days because we believed that the companion
proposals requiring the filing of standardized and tagged asset-level
information and a computer program could reduce the amount of time
required by investors to

consider transaction specific information. The proposal also provided
that a material change from the information provided in the preliminary
prospectus, other than offering price, would require a new preliminary
prospectus to be filed and therefore, a new five business-day waiting
period.
---------------------------------------------------------------------------

    \883\ See the 2010 ABS Proposing Release at 23334, including
footnote 80, and the 2011 ABS Re-Proposal at 47950, including
footnote 19.
    \884\ Some have suggested that investors be provided with up to
two weeks to analyze asset information. See, e.g., Joshua Rosner,
Securitization: Taming the Wild West, in Roosevelt Institute, Make
Markets be Markets 73 (2010).
---------------------------------------------------------------------------

(2) Comments on Proposed Rule
    Comments received on this proposal were mixed. Several commenters
supported the proposal that a preliminary prospectus be filed five
business days in advance of the first sale.\885\ Two commenters
generally supported the proposed five business-day waiting period and
also provided additional feedback on other time periods.\886\ One of
the commenters recommended that investors should have not less than
three days to evaluate an ABS offering,\887\ while the other stated
that two business days for repeat issuers may be sufficient.\888\
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    \885\ See letters from AFL-CIO dated Aug. 2, 2010 submitted in
response to the 2010 ABS Proposing Release, AMI, CalPERS, CFA I,
CREFC I, Rylee Houseknecht dated Apr. 26, 2010 submitted in response
to the 2010 ABS Proposing Release, ICI I, Jamie L. Larson dated Apr.
27, 2010 submitted in response to the 2010 ABS Proposing Release,
MetLife I, MBA I, Prudential I, and Realpoint.
    MBA also requested that issuers, particularly CMBS issuers, also
have the ability to update without restarting the five business-day
period. See letter from MBA I (noting that while a five business-day
minimum waiting period prior to the first sale will occasionally
impose an ``unwelcome timing constraint,'' the minimum waiting
period is unlikely to make shelf registration sufficiently less
attractive if the rule provides flexibility for issuers to provide
updates with a shorter waiting period). Comments about the waiting
period for updates are addressed below.
    \886\ See letters from ICI I (noting that if the Commission
considers a shorter period, investors should be provided with no
less than a three-day period) and CFA II (reiterating their support
for the proposed five business-day waiting period).
    \887\ See letter from ICI I.
    \888\ See letter from CFA I.
---------------------------------------------------------------------------

    Other commenters opposed the five business-day waiting period \889\
and suggested shorter alternatives such as two business days prior to
the first sale,\890\ one business day,\891\ or no waiting period.\892\
One commenter suggested that the waiting period vary by asset
class.\893\ Another commenter recommended a one business-day waiting
period for a category of ``well-known seasoned asset-backed sponsors''
that meet certain issuer classification (e.g., seasoned depositors and
sponsors with established securitization programs that have issued more
than a threshold aggregate amount and/or over a specified period of
time), asset class classification (e.g., master trusts where the asset
pool does not change materially from transaction to transaction and a
specified dollar amount of transactions have been issued and supported
by the pool), or transaction structure (e.g., transactions by the same
depositor or sponsor, where issuances involve waterfall structures that
do not change materially from transaction to transaction).\894\ Along
the same lines, another commenter suggested that certain types of ABS
offerings do not warrant any mandatory waiting periods because of their
frequency and nature (e.g., where a sponsor, its parent or a subsidiary
has completed at least one public offering within the preceding two
years of securities in the same asset class and where the cash flows
and structure are substantially similar to a prior public
offering).\895\ Several commenters argued that a five business-day
waiting period is more consistent with the time delays associated with
an equity initial public offering (``IPO''), and noted that the
proposed rule could lead to the ``perverse result'' that a well-known
seasoned issuer can issue relatively risky forms of capital such as
equity or unsecured debt without any required waiting period, but
secured debt, generally regarded as less risky, would have a waiting
period.\896\
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    \889\ See letters from ABA I, ASF I, AmeriCredit, CNH I, SIFMA
I, and Wells Fargo I.
    \890\ See letters from ABA I (suggesting two business days for
all ABS transactions other than those by widely followed, well-known
ABS issuers), ASF I, AmeriCredit, BoA I, CNH I, Vanguard, VABSS I
(recommending no mandatory minimum waiting period, but suggesting
two business days if a minimum is imposed), and Wells Fargo I.
    \891\ See letter from ABA I (one business day is appropriate for
widely-followed, well-known ABS issuers, sponsors or asset classes
or structures, similar to the well-known seasoned issuer concept).
    \892\ See letter from VABSS I.
    \893\ See letter from SIFMA I (suggesting a two business-day
period for bank credit card or charge card receivables; three
business days for private-label credit card or charge card
receivables, motor vehicle loans/leases, student loans, or equipment
loans or leases; and five business days for any other asset class,
including RMBS and CMBS).
    \894\ See letter from ABA I (noting that some programmatic
issuers have issued hundreds of billions of dollars of ABS over
decades, using securitization programs that have consistent
documentation from deal to deal, and are well-known to their
investor base which, as a result, needs less time to absorb
transaction details).
    \895\ See letter from VABSS I.
    \896\ See letters from AmeriCredit and VABSS I.
---------------------------------------------------------------------------

    While we did not specifically request further comment on this topic
in the 2011 ABS Re-Proposing Release, several commenters offered
comment on the proposal. For the most part, commenters reiterated their
suggestions from their comment letters on the 2010 ABS Proposing
Release. Several commenters agreed that a preliminary prospectus should
be provided to investors in advance.\897\ Some commenters noted concern
if the proposed time period were to be shortened.\898\ One commenter
reiterated its suggestion for different filing requirements based on
asset class.\899\ Another commenter suggested a one business-day
waiting period for ``widely followed, programmatic ABS issuers'' and a
two business-day waiting period for all others.\900\
---------------------------------------------------------------------------

    \897\ See letters from ABA II, AFME, and CFA II.
    \898\ See letters from Better Markets and ICI II (also
suggesting a time period of no less than three business days).
    \899\ See letter from SIFMA III-dealers and sponsors (stating
that ``at least two business days before the date of the first sale
in the offering, in the case of ABS backed by bank credit card or
charge card receivables; at least three business days before the
date of the first sale in the offering, in the case of ABS backed by
private-label credit card or charge card receivables, motor vehicle
loans or leases, student loans, or equipment loans or leases; and at
least five business days before the date of the first sale in the
offering, in the case of ABS backed by any other asset class,
including residential or commercial mortgage loans'').
    \900\ See letter from ABA II.
---------------------------------------------------------------------------

    As noted above, the proposal provided that a material change from
the information provided in a preliminary prospectus, other than
offering price, would require a new preliminary prospectus and
therefore, a new five business-day waiting period. Some investor
commenters supported the proposal to require a new waiting period for
any material changes.\901\ However, several commenters recommended
changes to this aspect of the proposal.
---------------------------------------------------------------------------

    \901\ See letters from AMI, MetLife I, and Prudential I.
---------------------------------------------------------------------------

    Some commenters, believing the five business-day waiting period
after material changes was too long, suggested shorter periods.\902\
Commenters recommending shorter periods generally argued that in most
cases a material change can be easily identified and reviewed and will
not

take investors the same amount of time to consider as compared to the
first review of the entire preliminary prospectus.\903\ Some investor
commenters suggested that the waiting period should be shortened
because investors will have the opportunity to become familiar with the
transaction documents during the initial marketing period.\904\ One
commenter stated that a five business-day waiting period unnecessarily
exposes well-established sponsors to market and execution risk without
providing a meaningful benefit to investors and recommended both a
shorter waiting period and a requirement that material changes be
disclosed in a supplement to the preliminary prospectus to facilitate
easy identification of such changes.\905\
---------------------------------------------------------------------------

    \902\ See letters from ABA I, ASF I (expressed views of issuers
and investors only) (supporting a one business-day minimum if a
minimum period is imposed but noting that even a one business-day
minimum period could be overly rigid and unnecessarily long in some
cases), AmeriCredit, AMI, BoA I, CNH I, CREFC I (suggesting a
waiting period up to five business days based upon the nature of the
change and the length of time that would be needed for the market to
digest that change in accordance with past experience, and that
sponsors should be given the latitude to determine the appropriate
length of review on a case-by-case basis based on their ``unique''
understanding of the CMBS market and experience with the investor
community), MBA I, Prudential I, SIFMA I (expressed views of issuers
and investors only), VABSS I, and Wells Fargo I (asserting that one
business day should be sufficient where a material change was made
during the first day of the initial waiting period, and two business
days if made later in the initial period).
    \903\ See letters from BoA I and SIFMA I (expressed views of
issuers and investors only). See also AmeriCredit (suggesting an
additional waiting period should apply only in cases where the
material changes significantly affect the asset pool, the cash flows
or the transaction structure, otherwise no waiting period should be
required, such as when ``upsizing'' a transaction due to strong
investor demand), CREFC I (stating that a free writing prospectus
that highlights a material change will expedite and improve the
review of changes by the investor community rather than requiring
review of an entirely new 424(h) filing), and MBA I (noting that
investors in CMBS do not need five business days to understand all
material changes, and that CMBS issuers commonly issue ``pre-pricing
updates,'' often no more than one or two pages, to investors prior
to pricing to convey any material changes since the preliminary
prospectus and also suggesting that the period be shortened to one
day or have the rule focus more on the length of time necessary for
an investor to understand the change rather than the materiality of
the change).
    \904\ See letters from AMI and Prudential I.
    \905\ See letter from ABA I.
---------------------------------------------------------------------------

    Some commenters suggested that no additional waiting period after
material changes may be necessary.\906\ One investor commenter
recommended a new filing and a new five business-day period only if a
change to the transaction occurs that a reasonable investor would
consider material to an investment decision, such as: Changes to more
than 1% of the collateral pool, including changes at the property,
tenant or borrower level; any changes to the priority of payment (i.e.,
waterfall); any changes of any service provider or party to the
transaction; or any changes to the terms in the documents related to
the transaction, including changes to any representations and
warranties, covenants or indemnities originally contained in such
documents.\907\
---------------------------------------------------------------------------

    \906\ See letters from ASF I (expressed views of issuers and
investors only) and BoA I. These commenters reasoned that existing
Rule 159 provides adequate protections by promoting the delivery of
updated information in a manner that provides investors with an
opportunity to evaluate the disclosure prior to contract of sale.
    \907\ See letter from MetLife I.
---------------------------------------------------------------------------

    Commenters also requested that we provide additional clarity
regarding the material changes to the preliminary prospectus that would
trigger a new five business-day waiting period.\908\ One of those
commenters stated that changes in pool composition as a result of
ordinary events, such as payments of interest or principal, should not
require additional disclosure or a renewed waiting period unless such
payments reflect another material change.\909\ Several commenters
recommended that the requirement should not focus so much on the
materiality of the change in terms of its economic impact or
importance, but rather on the likely extent of the effect of such a
change on the disclosure itself and the need for more time to
review.\910\
---------------------------------------------------------------------------

    \908\ See letters from ABA I, BoA I, CREFC I, ICI I, and MBA I.
    \909\ See letter from ABA I.
    \910\ See letters from BoA I, CREFC I, and MBA I (noting that
many material changes (e.g., a change in payment priority) that are
important can nevertheless be easily described and quickly
understood, particularly if one has already received a preliminary
prospectus).
---------------------------------------------------------------------------

    We also received comments on our proposal to permit omission of
pricing information in the required preliminary prospectus. One
commenter recommended that we define what is contemplated by the phrase
``information dependent on pricing'' and whether this would include
only quantitative pricing terms, or whether it could also include other
additional information that is typically determined at pricing (e.g.,
selection of a swap counterparty, weighted average life calculations,
or, in the case of credit card master trusts, transaction size and
minimum principal receivables balance requirements).\911\ Along the
same lines, several commenters suggested an accommodation for
transactions involving derivative contracts.\912\ Another commenter
suggested that the preliminary prospectus should have a section that
specifically discusses any aspect of the transaction that is ``to be
determined'' at the time of the filing.\913\
---------------------------------------------------------------------------

    \911\ See letter from ABA I.
    \912\ See letters from ASF I and BoA I (explaining that in these
cases the preliminary prospectus could not include information
relating to a specific swap counterparty or other information
dependent on the pricing because the optimal pricing of the
derivative and the counterparty with the most competitive bid cannot
be determined by the issuer until the time of pricing for the
offered securities).
    \913\ See letter from Prudential I.
---------------------------------------------------------------------------

    We did not receive comments on our proposed conforming revisions to
the undertakings that are required by Item 512 of Regulation S-K \914\
in connection with a shelf registration statement for ABS. We also did
not receive comments on our proposed addition to Item 512 to require an
issuer to undertake to file the information required to be contained in
a preliminary prospectus.
---------------------------------------------------------------------------

    \914\ 17 CFR 229.512.
---------------------------------------------------------------------------

(3) Final Rule and Economic Analysis of the Final Rule
(a) Rule 424(h) Filing
    Under the final rule, with respect to any takedown of securities in
a shelf offering of asset-backed securities where information is
omitted from an effective registration statement in reliance on new
Rule 430D, as discussed below, a form of prospectus meeting certain
requirements must be filed with the Commission in accordance with the
new Rule 424(h) preliminary prospectus at least three business days
prior to the first sale of securities in the offering.\915\ After
considering the various comments received on the initial five-business
day waiting period, we have shortened the waiting period as proposed
from five business days to three business days. We believe that three
business days balances the benefit to investors of providing additional
time to conduct an analysis of the offering--a longstanding concern of
ABS investors \916\--and the concerns of issuers expressed in the
comment letters. While the final rule imposes a minimum three-day
waiting period, issuers may provide additional time to potential
investors to consider the offering.
---------------------------------------------------------------------------

    \915\ Sale includes ``contract of sale.'' See footnote 391 and
accompanying text of the Securities Offering Reform Release. We are
clarifying the final rule to note that the preliminary prospectus
must be filed two business days after first use but no later than
three business days before first sale. See also letter from SIFMA I
(noting that the Commission should make clear that a preliminary
prospectus must be filed not later than the earlier of (i) the
applicable number of business days before the date of the first
sale, or (ii) or the second business day after fist use).
    \916\ See the 2004 ABS Adopting Release at 1527. Although the
investment analysis does not have to be completely done anew for
master trust transactions since the asset pools do not necessarily
change with each takedown, we believe that the three business-day
waiting period is still important for investors in such transactions
as investors are not only reviewing the assets but also any changes
to the structure to ensure that it will produce the expected cash
flows, which can be intricate and complex for master trusts.
---------------------------------------------------------------------------

    We recognize that the final rule will require issuers to provide
information to investors earlier in the process than was often provided
for ABS issued before the crisis. During the required waiting period,
issuers may be exposed to the risk of changing market conditions
because they may have to hold the underlying assets on their balance
sheets (inventory risk), and the risk may have larger impact on small
sponsors with smaller balance sheets. To assess the magnitude of this
risk and the costs that it may impose on issuers, we

analyzed time series changes in the price of the Bank of America
Merrill Lynch U.S. Fixed Rate Asset Backed Securities Index
(R0A0).\917\ Average index returns for the pre-crisis, crisis, and
post-crisis periods are presented in Table 1. To assess the cost of the
three business-day waiting period that we are adopting against the cost
of reasonable alternatives, we calculated index returns over one,
three, five and ten days. Outside of the volatile 2008-2009 crisis
period, the average change in ABS market conditions as measured by
index returns is below 1.5 basis points (bps) for all horizons (1, 3,
5, and 10 days) with the standard deviation below 15bp for three-day
returns. These results suggest that the economic exposure of issuers to
market conditions (opportunity cost) is relatively small for all
waiting period lengths in the range from 1 day to 10 days, but
increases with the horizon. Further, reducing the waiting period from 5
days to 3 days lowers the riskiness of returns by more than 15% (the
standard deviation drops from 17bps to 14bps). To put these numbers in
perspective, for a $100 million ABS issuance that is similar to the
above-mentioned R0A0 ABS index, a three business-day waiting period
during the analyzed period would result in an expected change of less
than $10,000 and a 10% likelihood of a more than $230,000 increase or
decrease in the value of the issuance. Additionally, exposure to
several sources of risk, for example, the three-day interest rate risk
or credit spread risk, can be hedged with forward contracts, further
reducing potential exposure to losses due to a three-day delay in
offering.\918\
---------------------------------------------------------------------------

    \917\ The Bank of America Merrill Lynch U.S. Fixed Rate Asset
Backed Securities Index (the ``Index'') tracks the performance of
U.S. dollar denominated investment-grade fixed rate asset-backed
securities issued in the U.S. domestic market. Qualifying securities
must have an investment-grade rating (based on an average of
Moody's, S&P, and Fitch ratings). In addition, qualifying securities
must have the following: (1) A fixed rate coupon (including callable
fixed-to-floating rate securities); (2) at least one year remaining
term to final stated maturity; (3) at least one month to the last
expected cash flow; (4) an original deal size for the collateral
group of at least $250 million; (5) a current outstanding deal size
for the collateral group greater than or equal to 10% of the
original deal size; and (6) a minimum outstanding tranche size of
$50 million for senior tranches and $10 million for mezzanine and
subordinated tranches. Floating rate, inverse floating rate,
interest only, and principal only tranches of qualifying deals are
excluded from the Index as are all tranches of re-securitized and
agency deals. Securities to be sold in reliance on Securities Act
Rule 144A qualify for inclusion in the Index.
    \918\ The inventory risk can also be transferred to underwriters
that would commit to buy the issue from securitizers.

Table 1--Index Returns Are Calculated Using the Price of Bank of America Merrill Lynch U.S. Fixed Rate Asset Backed Securities Index for the 5/6/2004 to
                                          12/31/2013 Period. Three, Five, and Ten Day Returns Are Overlapping.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                            1-day                     3-day                     5-day                    10-day
                                      Number of  -------------------------------------------------------------------------------------------------------
            Time period                 daily                    Standard                  Standard                  Standard                  Standard
                                    observations    Average     deviation     Average     deviation     Average     deviation     Average     deviation
--------------------------------------------------------------------------------------------------------------------------------------------------------
5/6/2004-12/31/2007...............           954       0.0000       0.0011      -0.0001       0.0017      -0.0002       0.0020      -0.0003       0.0025
1/1/2008-12/31/2009...............           524      -0.0001       0.0021      -0.0003       0.0037      -0.0005       0.0050      -0.0009       0.0077
1/1/2010-12/31/2013...............          1046       0.0000       0.0006       0.0000       0.0011       0.0000       0.0014       0.0000       0.0020
2004-2013 excl. 2008-2009.........          2000       0.0000       0.0009       0.0000       0.0014      -0.0001       0.0017      -0.0001       0.0022
--------------------------------------------------------------------------------------------------------------------------------------------------------

    As noted above, comments received on the waiting period were mixed
on the appropriate length of time for the initial waiting period before
first sale with mostly investors supporting \919\ an initial waiting
period of five business days and issuers mostly opposing \920\ such a
requirement. Commenters opposing five business days provided various
suggested alternatives to the proposal--ranging from two business days
prior to first sale to no waiting period at all.\921\ Some of these
commenters recommended that the length of the waiting period be
determined based on asset class or whether the issuer is a repeat
issuer.\922\ Because we believe that, regardless of the asset class or
whether the issuer is well-known, investors should have more time to
conduct their analysis before making an investment decision than was
provided previously, we are not adopting such distinctions based on
asset class or type of issuer. We also believe that given the
complexity of ABS transactions that two-business days, and especially
one-business day, would not provide investors with enough time to
conduct their due diligence.\923\ As a result, we believe that a
minimum of three business days strikes the appropriate balance of
providing investors with more time to analyze the information related
to the transaction while also minimizing issuers' exposure to changing
market conditions and giving them flexibility in timing of ABS
issuance.
---------------------------------------------------------------------------

    \919\ See footnote 885.
    \920\ See footnote 889.
    \921\ See footnotes 890, 891, and 892.
    \922\ See footnote 893.
    \923\ Even though most ABS offerings are structured as shelf
offerings, each takedown off a shelf registration statement is more
akin to an IPO given that each ABS offering consists of new assets
and a new structure, which requires investors to conduct their
investment analysis anew to make an informed investment decision.
---------------------------------------------------------------------------

    Finally, while we have observed that post-crisis ABS issuers have
provided investors with additional time, we are concerned that market
practice could change in a heated market with many issuers possibly
reverting to the practice of providing investors with insufficient time
and causing investors to place undue reliance on ratings. Because of
this concern and our belief that investors should conduct their own due
diligence rather than unduly rely on ratings, we are mandating a
waiting period of at least three-business days as part of our
rules.\924\ We are persuaded by commenters that neither a new
preliminary prospectus nor a restart of the waiting period is necessary
for material changes because, in most cases, a material change can be
easily identified and reviewed and therefore may not take an investor
as long to review compared to the first review of the preliminary
prospectus.\925\ The final rule will require that the issuer disclose
any material changes in a supplement to the preliminary prospectus that
must be filed with the Commission at least 48 hours before the date and
time of the first sale.\926\ The supplement must

provide a description of how the information in the initial preliminary
prospectus has changed so that the changes are apparent to investors.
---------------------------------------------------------------------------

    \924\ See letter from ICI I (noting that although they support
an initial five-business day waiting period, should the Commission
decide to reduce the waiting period, that investors should have not
less than three business days to evaluate an ABS shelf offering).
    \925\ See, e.g., letters from ABA I, AmeriCredit, ASF I (issuers
and investors), SIFMA I, VABSS I, and Wells Fargo I.
    \926\ The changes must be filed in a supplement in accordance
with Rule 424(h)(2); provided that if the material change relates to
the assets within the pool also provide the information required by
Item 1125. Whether a change is material for purposes of the
requirement will depend on the facts and circumstances. See TSC
Industries, Inc. v. Northway, Inc., 426 U.S. 438, 448-49 (1976). See
also Basic v. Levinson, 485 U.S. 224, 231 (1988).
---------------------------------------------------------------------------

    This revision will help to address cost and other concerns
expressed by issuers and others about the proposed amount of waiting
time after a material change and the concerns about filing an entirely
new preliminary prospectus. It should reduce some commenters' concerns
regarding exposure to market risk and unnecessary delay. We are
concerned, however, that extensive material changes, even after an
initial waiting period for the preliminary prospectus, could be
difficult for investors to review in this shortened timeframe;
therefore, we are requiring issuers to clearly delineate in a
prospectus supplement what material information has changed and how the
information has changed from the initial preliminary prospectus. We
expect that the asset-level disclosure requirements that we are
adopting, which will provide investors with standardized machine-
readable data about the pool assets, will facilitate investors' ability
to update their investment analysis quickly. As a result, we do not
believe that investors will need as much time to review the supplement
as they will need for their initial review of the preliminary
prospectus.
(b) New Rule 430D
    Prior to the rules we are adopting, the framework for ABS shelf
offerings, along with shelf offerings for other securities, was
outlined in Rule 430B of the Securities Act. Rule 430B describes the
type of information that primary shelf-eligible and automatic shelf
issuers may omit from a base prospectus in a Rule 415 offering and
include instead in a prospectus supplement, Exchange Act reports
incorporated by reference, or a post-effective amendment, and addresses
both the treatment of prospectuses filed pursuant to Rule 424(b) and
effective date triggers for securities sold off the shelf registration
statement.\927\ As discussed above, we are adopting new Rule 430D to
provide the framework for shelf offerings of asset-backed securities
pursuant to revised Rule 415(a)(1)(vii) or (xii); therefore, ABS
issuers eligible to conduct shelf offerings are no longer eligible to
use Rule 430B. By removing ABS shelf offerings from existing Rule 430B
and creating new Rule 430D, we are providing a shelf offering framework
that is appropriately tailored to ABS shelf offerings and that
incorporates the new preliminary prospectus requirement.\928\
---------------------------------------------------------------------------

    \927\ See Section V.B.1.b of the Securities Offering Reform
Release.
    \928\ For offerings of ABS on Form SF-1, existing Securities Act
Rule 430A would apply.
---------------------------------------------------------------------------

    New Rule 430D requires that, with respect to each offering, all the
information previously omitted from the prospectus filed as part of an
effective registration statement must be filed at least three business
days in advance of the first sale of securities in the offering in
accordance with new Rule 424(h), except for the omission of information
with respect to the offering price, underwriting syndicate (including
any material relationships between the registrant and underwriters not
named therein), underwriting discounts or commissions, discounts or
commissions to dealers, amount of proceeds or other matters dependent
upon the offering price to the extent such information is unknown or
not reasonably available to the issuer pursuant to Rule 409. The
information required to be filed pursuant to Rule 424(h) includes,
among other things, information about the specific asset pool that is
backing the securities in the takedown and the structure of the
transaction. As summarized above, commenters requested that we clarify
what we mean by information with respect to the offering price. We note
that new Rule 430D largely conforms to existing Rule 430B but is
tailored to ABS shelf offerings; therefore, the type of information
permitted to be omitted from a preliminary prospectus is the same as
the information that Rule 430B permitted to be omitted from the base
prospectus in a shelf offering prior to this rulemaking.
    As we stated in the 2010 ABS Proposing Release, so long as a form
of prospectus has been filed in accordance with Rule 430D,\929\ asset-
backed issuers can continue to utilize a free writing prospectus or ABS
informational and computational materials in accordance with existing
rules.\930\ Because we believe that investors should have access to a
comprehensive prospectus that contains all of the required information,
a free writing prospectus or ABS informational and computational
materials could not be used for the purpose of meeting the requirements
of new Rule 424(h). As proposed, the Rule 424(h) preliminary prospectus
filing will be deemed part of the registration statement on the earlier
of the date such form of prospectus is filed with the Commission or, if
used earlier, the date of first use.\931\ A final prospectus for ABS
shelf offerings should continue to be filed pursuant to Rule 424(b).
Consistent with Rule 430B for shelf offerings of corporate issuers,
under new Rule 430D, the filing of the final prospectus under Rule
424(b) will trigger a new effective date for the registration statement
relating to the securities to which such form of prospectus relates for
purposes of liability.
---------------------------------------------------------------------------

    \929\ Rule 430D(c) provides that a form of prospectus that omits
information as provided in the rule will be a permitted prospectus.
Thus, after a registration statement is filed, offering participants
can use a form of prospectus that omits information in accordance
with the rule.
    \930\ ABS informational and computational materials, as defined
in Item 1101 of Regulation AB [17 CFR 229.1101], may be used in
accordance with Securities Act Rules 167 and 426 [17 CFR 230.167 and
17 CFR 230.426]. Materials that constitute a free writing
prospectus, as defined in Securities Act Rule 405 [17 CFR 230.405]
may be used in accordance with Securities Act Rules 164 and 433 [17
CFR 230.164 and 17 CFR 230.433].
    \931\ This is consistent with the existing provisions for other
preliminary prospectuses. See Rule 430B(e).
---------------------------------------------------------------------------

    To reflect the requirements under new Rule 424(h) and new Rule
430D, we are also adopting, as proposed, conforming revisions to the
undertakings that are required by Item 512 of Regulation S-K \932\ in
connection with a shelf registration statement. For the most part, ABS
issuers will continue to provide the same undertakings that have been
required of ABS issuers conducting delayed shelf offerings. In light of
adopting the new Rule 424(h) preliminary prospectus, we are adopting
conforming revisions to the undertakings relating to the determination
of liability under the Securities Act as to any purchaser in the
offering. In particular, the issuer must undertake that information
that was omitted from an effective registration statement and then
later included in a Rule 424(h) preliminary prospectus shall be deemed
part of and included in the registration statement on the earlier of
the date the Rule 424(h) preliminary prospectus was filed with the
Commission, or if used earlier, the date it was first used after
effectiveness. Also, in light of the new Rule 424(h) preliminary
prospectus, under our revisions to Item 512 of Regulation S-K, an
issuer is required to undertake to file the information required to be
contained in a Rule 424(h) filing with respect to any offering of
securities.
---------------------------------------------------------------------------

    \932\ 17 CFR 229.512.
---------------------------------------------------------------------------

2. Forms SF-1 and SF-3
(a) Proposed Rule
    In order to delineate between ABS filers and corporate filers and,
more importantly, to tailor requirements for ABS offerings, we proposed
to add new

registration forms that would be used for any sales of a security that
is an asset-backed security, as defined in Item 1101 of Regulation
AB.\933\ New forms named Form SF-1 and Form SF-3 would require all the
items applicable to ABS offerings that are currently required in Form
S-1 and Form S-3 as modified by the proposals in the 2010 ABS Proposing
Release and the 2011 ABS Re-Proposal. Under the proposal, ABS offerings
that qualify for shelf registration would be registered on proposed
Form SF-3, and all other ABS offerings would be registered on Form SF-
1.\934\
---------------------------------------------------------------------------

    \933\ 17 CFR 229.1101(c).
    \934\ We also proposed to make conforming changes throughout our
rules to refer to the new forms. See, e.g., proposed revisions to
Securities Act Rules 167 and 190(b)(1) and the exhibit table in Item
601 of Regulation S-K.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Several commenters specifically supported adopting new Forms SF-1
and SF-3 and none opposed.\935\
---------------------------------------------------------------------------

    \935\ See letters from ABA I and MBA I.
---------------------------------------------------------------------------

(c) Final Rule and Economic Analysis of the Final Rule
    We are adopting new Forms SF-1 and SF-3 for ABS offerings, which
are largely based on existing Forms S-1 and S-3. ABS offerings that
qualify for shelf registration will be registered on Form SF-3, and all
other ABS offerings will be registered on Form SF-1. These new
registration forms are tailored to ABS offerings and incorporate the
offering and disclosure changes that we are adopting. The new forms
will help in providing organizational clarity to our registration forms
and their requirements.\936\ In addition to providing organizational
clarity to our forms, the new forms will facilitate easy identification
of registered ABS offerings. We acknowledge, however, that ABS issuers
may incur some costs in revising their information systems to reflect
the new forms, but we believe that such one-time costs will be
justified by the benefits of tailoring the registration system for ABS
offerings.\937\
---------------------------------------------------------------------------

    \936\ For example, prior to the adoption of these new
registration forms for ABS, ABS form requirements were included with
some other form requirements that were not applicable to ABS
offerings. New Form SF-1, as proposed, does not include the
instructions as to summary prospectuses. We also note that we are
adopting, as proposed, some disclosure requirements that were
previously located in Form S-3 that are now in Form SF-3, such as
transaction requirements from Form S-3 relating to delinquent assets
and residual value for certain securities. See General Instruction
I.B.1(e)-(f) of Form SF-3. We are also retaining the existing
registrant requirement in Form S-3 relating to delinquent filings of
the depositor or an affiliate of the depositor for purposes of new
Form SF-3.
    \937\ Economic analysis of the new disclosure requirements
required by the new forms, such as asset-level data, and the new
shelf eligibility requirements are discussed in the sections
describing those changes.
---------------------------------------------------------------------------

3. Shelf Eligibility for ABS Offerings
    In the 2010 ABS Proposing Release, we proposed revisions to both
the registrant and the transaction shelf eligibility requirements for
ABS issuers.\938\ In particular, ABS issuers would no longer establish
shelf eligibility through an investment-grade credit rating. The
proposals were part of a broad ongoing effort to remove references to
NRSRO credit ratings from our rules in order to reduce the risk of
undue ratings reliance and eliminate the appearance of an imprimatur
that such references may create.\939\ In place of credit ratings, we
had proposed to establish four shelf eligibility criteria that would
apply to mortgage-related securities and other asset-backed securities
alike.\940\ Similar to the existing requirement that the securities
must be investment grade, the 2010 ABS Proposal for registrant and
transaction requirements were designed to provide that asset-backed
securities that are eligible for delayed shelf registrations are shelf
appropriate. As noted above, the 2011 ABS Re-Proposal for registrant
and transaction requirements for shelf did not contain a requirement
for risk retention or a requirement to include an undertaking to
provide Exchange Act reports in light of the changes mandated by the
Dodd-Frank Act.\941\
---------------------------------------------------------------------------

    \938\ See the 2010 ABS Proposing Release at 23338.
    \939\ See the Security Ratings Release.
    \940\ The four proposed shelf criteria from the 2010 ABS
Proposing Release included: (1) A certification filed at the time of
each offering off of a shelf registration statement, or takedown, by
the chief executive officer of the depositor that the assets in the
pool have characteristics that provide a reasonable basis to believe
that they will produce, taking into account internal credit
enhancements, cash flows to service any payments on the securities
as described in the prospectus; (2) Retention by the sponsor of a
specified amount of each tranche of the securitization, net of the
sponsor's hedging (also known as ``risk retention'' or ``skin-in-
the-game''); (3) A provision in the pooling and servicing agreement
that requires the party obligated to repurchase the assets for
breach of representations and warranties to periodically furnish an
opinion of an independent third party regarding whether the
obligated party acted consistently with the terms of the pooling and
servicing agreement with respect to any loans that the trustee put
back to the obligated party for violation of representations and
warranties and which were not repurchased; and (4) An undertaking by
the issuer to file Exchange Act reports so long as non-affiliates of
the depositor hold any securities that were sold in registered
transactions backed by the same pool of assets. See the 2010 ABS
Proposing Release at 23338-48.
    \941\ See footnotes 876 and 877.
---------------------------------------------------------------------------

    We believe the new transaction and registrant shelf eligibility
requirements being adopted will continue to allow ABS issuers to access
the market quickly by conducting delayed shelf offerings (rather than
registering each offering on Form SF-1), while imposing conditions that
we think are appropriate in light of the compressed timing and lack of
staff review inherent in the shelf offering process. These new shelf
eligibility conditions should encourage ABS issuers to design and
prepare ABS offerings with greater oversight and care and, along with
providing investors stronger enforcement mechanisms in the transaction
agreements, should incentivize issuers to provide investors with
accurate and complete information at the time of the offering. We
believe that such transactions are appropriate for public offerings off
a shelf without prior staff review.
(a) Shelf Eligibility--Transaction Requirements
    The new transaction requirements for shelf offerings include:
     A certification filed at the time of each offering from a
shelf registration statement, or takedown, by the chief executive
officer of the depositor concerning the disclosure contained in the
prospectus and the structure of the securitization;
     A provision in the underlying transaction agreements
requiring review of the assets for compliance with the representations
and warranties following a specific level of defaults and security
holder action;
     A provision in the underlying transaction agreements
requiring repurchase request dispute resolution; and
     A provision in the underlying transaction agreements to
include in ongoing distribution reports on Form 10-D a request by an
investor to communicate with other investors.
    In both the 2010 ABS Proposing Release and the 2011 ABS Re-
Proposing Release, we did not propose to change the other current ABS
shelf offering transaction requirements related to the amount of
delinquent assets in the asset pool and the residual values of
leases.\942\ Therefore, those transaction requirements remain unchanged
and have been moved to new Form SF-3.
---------------------------------------------------------------------------

    \942\ See footnote 874.
---------------------------------------------------------------------------

(1) Certification
(a) Proposed Rule
    As part of the 2010 ABS Proposing Release, we proposed to require a
certification by the depositor's chief executive officer as a criterion
for shelf eligibility.\943\ After considering the

comments received on the proposed certification in the 2010 ABS
Proposing Release, we re-proposed the requirement in the 2011 ABS Re-
Proposing Release. The re-proposed requirement would require the CEO or
the executive officer in charge of securitization for the depositor to
certify that:
---------------------------------------------------------------------------

    \943\ In the 2010 ABS Proposing Release, we proposed that the
depositor's chief executive officer 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.
Under the 2010 ABS Proposal, the chief executive officer would also
certify that he or she has reviewed the prospectus and the necessary
documents for this certification.
---------------------------------------------------------------------------

     The executive officer has reviewed the prospectus and is
familiar with the structure of the securitization, including without
limitation the characteristics of the securitized assets underlying the
offering, the terms of any internal credit enhancements, and the
material terms of all contracts and other arrangements entered into to
effect the securitization;
     Based on the executive officer's knowledge, the prospectus
does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading;
     Based on the executive officer's knowledge, the prospectus
and other information included in the registration statement of which
it is a part, fairly present in all material respects the
characteristics of the securitized assets underlying the offering
described therein and the risks of ownership of the asset-backed
securities described therein, including all credit enhancements and all
risk factors relating to the securitized assets underlying the offering
that would affect the cash flows sufficient to service payments on the
asset-backed securities as described in the prospectus; and
     Based on the executive officer's knowledge, taking into
account the characteristics of the securitized assets underlying the
offering, the structure of the securitization, including internal
credit enhancements, and any other material features of the
transaction, in each instance, as described in the prospectus, the
securitization is designed to produce, but is not guaranteed by the
certification to produce, cash flows at times and in amounts sufficient
to service expected payments on the asset-backed securities offered and
sold pursuant to the registration statement.
    In the 2011 ABS Re-Proposal, we stated, 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, which is intended to
result in shelf-eligible ABS being of a higher quality than ABS
structured without such oversight.\944\
---------------------------------------------------------------------------

    \944\ See the 2011 ABS Re-Proposal at 47951-52 and the 2010 ABS
Proposal at 23345. See also Certification of Disclosure in
Companies' Quarterly and Annual Reports, Release No. 34-46079 (June
14, 2002) and Concerning Implementation of the Sarbanes-Oxley Act of
2002: Hearing Before the S. Comm. on Banking, Housing, and Urban
Affairs, 108th Cong. (2003) (statement of William H. Donaldson,
Chairman of the U.S. Securities and Exchange Commission) (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'').
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(b) Comments on Proposed Rule
    Comments on the certification requirement in the 2010 ABS Proposing
Release were mixed. Some commenters supported our proposed
certification by noting, among other things, that the certification
would create accountability at the highest levels of an issuer's
organization and more careful issuer review of the securitization.\945\
Other commenters generally opposed the proposed certification in the
2010 ABS Proposing Release for various reasons, including that the
certification would constitute a guarantee or would cause undue
reliance on the certification.\946\
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    \945\ See letters from CalPERS, CFA I, Mass. Atty. Gen., SIFMA I
(expressed views of investors only), and Vanguard.
    \946\ See letters from ABA I, ABAASA I, ASF I, BoA I, CNH I,
CREFC I, FSR, J.P. Morgan I, MetLife I, MBA I, Sallie Mae I, SIFMA I
(expressed views of dealers and sponsors only), and Wells Fargo I.
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    In response to comments on the proposed certification, in the 2011
ABS Re-Proposing Release, we re-proposed the certification taking into
account commenters' concerns and recommendations. Comments received on
the re-proposed certification requirement were mixed. Several
commenters generally supported the re-proposed certification for
similar reasons as articulated in comments on the 2010 proposed
certification.\947\ For example, one commenter agreed with our view
that the certification may result in a more careful review of the
disclosure and transaction by the issuer, and ultimately in higher-
quality ABS eligible for shelf.\948\ Other commenters generally opposed
the re-proposed certification shelf requirement.\949\ Although the
investors of a trade association applauded the intention behind the
proposed certification requirement and concurred with us that executive
oversight of a securitization transaction is important, they also
expressed concern about the certification imposing a barrier to new ABS
issuance.\950\ Some of these commenters contended that the proposed
certification would not provide any additional benefits by noting the
existing regulatory framework for accountability and their trust in the
market's determination of the issuer's soundness.\951\
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    \947\ See letters from Better Markets, CFA II, and ICI II.
    \948\ See letter from CFA II (also noting support for the
proposed requirement that an officer sign the certification, as
opposed to engaging ``an independent evaluator'').
    \949\ See letters from ABA II, Bank of America Corp. dated Oct.
4, 2011 submitted in response to the 2011 ABS Re-Proposing Release
(``BoA II''), CREFC II, Kutak Rock, LLP dated Sept. 27, 2011
submitted in response to the 2011 ABS Re-Proposing Release
(``Kutak''), MBA III, SIFMA II-investors, SIFMA III-dealers and
sponsors, and Wells Fargo II.
    \950\ See letter from SIFMA II-investors (noting that, as
investors, they would like nothing more than to have individual
officers stand firmly behind the product of their employers;
however, also noting that the certification requirements, as
proposed, were broad and executives would fear litigation if, in
fact, the securities failed to perform as expected).
    \951\ See letters from BoA II, CREFC II, Kutak, and Sallie Mae
II.
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    Commenters provided differing views on the scope of the
certification. Some commenters believed the certification should
encompass both the structure of the transaction and the prospectus
disclosure, as proposed.\952\ One commenter, supportive of the re-
proposed certification, emphasized that the quality of an ABS offering
is fundamentally a function of whether the assets and structure are
capable of producing sufficient cash flows to service payments.\953\ On
the other hand, several commenters believed that the certification
should focus only on the disclosure in the prospectus and not on the
performance of the assets for various reasons, including the role of
the executive officers and their limited credit analysis
expertise.\954\
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    \952\ See letters from Better Markets (specifically stating that
the certification must cover expected cash flows from the offering)
and ICI II.
    \953\ See letter from Better Markets.
    \954\ See letters from ABA II, American Bankers Association/ABA
Securities Association dated Nov. 10, 2011 submitted in response to
the 2011 ABS Re-Proposing Release (``ABAASA II''), AFME, American
Securitization Forum dated Oct. 4, 2011 submitted in response to the
2011 ABS Re-Proposing Release (``ASF III''), CREFC II, Kutak, SIFMA
II-investors, SIFMA III-dealers and sponsors, and Wells Fargo II
(suggesting that the certification should consist only of paragraph
2).
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    Many commenters also offered alternative language or specific
changes

to the text of the certification to address their concerns. The
specific changes included: Using defined terms, adding materiality to
certain parts of the certification, replacing the term ``fairly
presented,'' and permitting the certifier to take into consideration
external credit enhancement. We considered these specific changes and
made revisions to the certification, which are reflected in the final
version of the certification that we are adopting. Below we discuss
these recommendations and the revisions made to each paragraph of the
certification in order to highlight how we have addressed commenters'
concerns.
(c) Final Rule and Economic Analysis of the Shelf Certification
Requirement
    After taking into consideration the comments we received and
alternatives to the re-proposed certification, we are adopting as one
of the transaction requirements for shelf eligibility that a
certification about the disclosures contained in the prospectus and the
structure of the securitization be provided by the chief executive
officer of the depositor at the time of each takedown. We believe, as
discussed more fully below, that requiring the chief executive officer
to sign a certification at the time of each takedown will help to
ensure that he or she is actively involved in the oversight of the
transaction when the actual structuring occurs. We have made
significant changes to the language of the certification to address
commenters' concerns, which are described below.
    The financial crisis revealed several failures of the ABS market.
Some issuers of asset-backed securities were creating securitization
transactions without considering whether the assets or the structuring
of cash flows could support the scheduled distributions due to
investors.\955\ In addition, it has been difficult to hold senior
officers of ABS issuers accountable for the failure to provide accurate
information.
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    \955\ See, e.g., Susanne Craig & Kara Scannell, Goldman Settles
Its Battle with SEC, Wall St. J., July 16, 2010, at A1 and John
Griffin and Gonzalo Maturana, ``Who Facilitated Misreporting in
Securitized Loans?,'' working paper, 2013 (for evidence that
underwriters were aware of some types of asset quality
misrepresentation by loan originators, but nevertheless facilitated
issuance of RMBS backed by such assets).
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    At the time of filing a shelf registration statement, the chief
executive officer of the depositor, as well as the depositor's other
principal officers, are required to sign the registration statement and
are liable under Securities Act Section 11 for material misstatements
or omissions in the registration statement, subject to a due diligence
defense. As a result, signers of a registration statement are expected
to satisfy themselves about the accuracy of disclosure at the time of
effectiveness. The disclosure at the time of effectiveness of the shelf
registration statement does not typically include transaction specific
information because the shelf registration process permits a separation
between the time of effectiveness and the time securities are offered
in a takedown. Shelf takedowns sometimes occur long after the
effectiveness of the registration statement, and the signers of a
registration statement are not required to sign a prospectus supplement
for a takedown. Thus, the process that an officer signing the
registration statement would undertake at the time of shelf
effectiveness might not necessarily be followed at the time of a
takedown. At the time of a takedown, some of these officers may not
have carefully reviewed the prospectus disclosures for the accuracy of
the disclosures of the pool assets, cash flows, and other transaction
features. We believe that investors' willingness to participate in ABS
offerings may have suffered, in part, because of a belief by investors
that sufficient attention may not have been devoted to the preparation
of the disclosures in prospectuses, especially in asset classes
characterized by the largest losses and due diligence failures.
    Prior to today, a certification by the chief executive officer of
the depositor has not been a requirement at the time of registered
offerings of ABS. As part of the Sarbanes-Oxley Act (``SOX'') enacted
in 2002, CEOs of operating companies are required to certify to the
accuracy of the financial statements of their companies.\956\ Those SOX
certifications are filed with their periodic reports and then
incorporated by reference into their shelf registration statements. The
same does not apply to ABS. The SOX certifications that are provided by
ABS issuers are limited to the disclosures regarding periodic
distributions and servicing of the underlying assets since ABS issuers
do not provide financial statements. Further, the information in
periodic reports relates to an individual ABS transaction, and
therefore in most cases, periodic reports of one ABS offering would be
unrelated to future offerings of ABS off the same shelf. Thus, the
periodic reports of an ABS issuer are not typically incorporated into
the shelf registration statement.
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    \956\ Pub. L. 107-204, Section 302, 116 Stat. 745 (2002).
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    We believe, therefore, that because of the market failures
described above and where the depositor is a limited purpose entity
created by the sponsor for a particular securitization program, it is
appropriate to condition shelf eligibility on a certification
requirement that should result in a review of the disclosure at the
time of a takedown similar to what would occur if the offering were
being conducted at the time of effectiveness of the initial
registration statement. As noted above, the shelf requirements and
practices under the existing regulatory structure were not sufficient
to address the failures in the market to provide accurate and full
information to investors. An ABS offering most resembles an IPO,\957\
which under our rules would not be eligible for shelf registration. The
principal executive officer signs the registration statement for an
IPO, but no similar process is involved at the time of an offering of
ABS off a shelf registration statement. Corporate issuers that are
eligible for shelf registration file periodic reports that are
certified by their principal executive and financial officers and, for
Section 11 purposes, the filing of the annual report on Form 10-K is
considered an amendment to a shelf registration statement with a new
effective date. We believe that requiring the certification with each
takedown will put ABS issuers on a similar footing in that this
requirement will provide an incentive for all CEOs to participate more
extensively in the oversight of the transaction at the time of
takedown. We acknowledge that the certification shelf transaction
requirement will impose additional costs on ABS issuers, as discussed
more fully below.
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    \957\ See footnote 923.
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    The depositor's chief executive officer will need to certify to the
characteristics of the asset pool, the payment and rights allocations,
the distribution priorities and other structural features of the
transaction. We note that because the chief executive officer could
rely, in part, on the review that is already required in order for an
issuer to comply with Securities Act Rule 193, much of the additional
costs will relate to reviewing the securitization structure to have a
reasonable basis to conclude that the expected cash flows are
sufficient to service payments or distributions in accordance with
their terms.\958\ We also

note that the certification requirement does not dictate that the chief
executive officer follow any particular procedures in order to make the
certification. By allowing the issuers to determine what procedures are
necessary to meet the obligations of the certification, we have
attempted to mitigate the costs associated with compliance. The new
certification, however, is intended to increase oversight by the chief
executive officer, which will likely require that issuers create or
strengthen internal controls and procedures to enable the chief
executive officer to meet the certification obligation under the new
requirement. To the extent that issuers already regularly monitor and
evaluate their policies and procedures, their incremental costs will be
lower than those issuers with less robust controls and procedures.
Because the size and scope of these internal systems is likely to vary
among issuers, it is difficult for us to provide an accurate cost
estimate.\959\
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    \958\ See Securities Act Rule 193 (requiring, at a minimum, that
the issuer review must be designed and effected to provide
reasonable assurances that the disclosure regarding the pool assets
in the prospectus is accurate in all material respects). In that
rulemaking, we also added Item 1111(a)(7) to Regulation AB [17 CFR
229.1111(a)(7)] to require disclosure in the prospectus regarding
the nature of the review performed by the issuer, and the findings
and conclusions of the review of the assets. See the January 2011
ABS Issuer Review Release.
    \959\ The number of ABS deals by each depositor annually varies
widely. According to ABS issuance databases ABAlert and CMAlert, the
maximum annual number of ABS issued by a single depositor was 175
(Countrywide Home Loans in 2005), the maximum annual number issued
post-crisis was 15 (Citibank in 2013), and, in the real estate
sector, 14 (Redwood Trust in 2013), the median is 2 deals per year
per depositor both pre- and post-crisis.
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    The final rules may also affect competition in the asset-backed
securities market. For example, the requirement that the chief
executive officer provide a certification concerning the disclosures
contained in the prospectus and the structure of the securitization is
based on the intent that the certification will strengthen oversight
over the transaction. Prior to today, a certification by the chief
executive officer has not been a requirement of public offerings of
ABS. Just as every issuer in an IPO must go through a process to
satisfy itself with the disclosure in a prospectus, ABS issuers must
institute controls in order to provide the certification. The burden of
the certification requirements will likely fall disproportionately on
smaller-sized sponsors to the extent that there are direct fixed (i.e.,
non-scalable) costs related to administrative and legal expenses. This
could ultimately result in smaller sponsors not registering their
offerings on shelf (by registering their ABS on Form SF-1 instead),
offering them through unregistered offerings, or quitting the
securitization markets altogether, thereby reducing competition.\960\
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    \960\ We considered academic studies that examined the overall
impact of the SOX requirements, which included officer certification
as one element, for information about the possible differential