[Federal Register: October 9, 2009 (Volume 74, Number 195)]
[Proposed Rules]
[Page 52374-52381]
[DOCID:fr09oc09-24]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 230, 239, 240, 242, 249, 270 and 275

[Release Nos. 33-9069; 34-60790; IA-2932; IC-28940; File Nos. S7-17-08,
S7-18-08, S7-19-08]
RIN 3235-AK17, 3235-AK18, 3235-AK19

References to Ratings of Nationally Recognized Statistical Rating
Organizations

AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Proposed rule; re-opening of comment period; request for
additional comments.

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SUMMARY: The Securities and Exchange Commission is re-opening the
comment period on certain of the proposed rule amendments to remove
references to ratings of Nationally Recognized Statistical Rating
Organizations proposed in Release Nos. 33-8940 [73 FR 40106 (July 11,
2008)], 34-58070 [73 FR 40088 (July 11, 2008)], and IC-28327 [73 FR
40124 (July 11, 2008)] ``Proposing Releases''). Today, in a companion
release, the Commission is taking action on some of the amendments in
the Proposing Releases. In view of the continuing public interest in
the Proposing Releases and the Commission's desire to receive
additional comment, we believe that it is appropriate to re-open the
comment period before we take further action on certain proposals made
in the Proposing Releases.

DATES: Comments should be received on or before December 8, 2009.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://
www.sec.gov/rules/proposed.shtml); or
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number S7-17-08, S7-18-08, and/or S7-19-08 on the subject line; or
     Use the Federal eRulemaking Portal (http://
www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number S7-17-08, S7-18-08, and/or
S7-19-08. The file number(s) should be included on the subject line if
e-mail is used. To help us process and review your comments more
efficiently, please use only one method. The Commission will post all
comments on the Commission's Internet Web site (http://www.sec.gov/
rules/proposed.shtml). Comments are also available for public
inspection and copying in the Commission's Public Reference Room, 100 F
Street, NE., Washington, DC 20549 on official business days between the
hours of 10 a.m. and 3 p.m. All comments received will be posted
without change; we do not edit personal identifying information from
submissions. You should submit only information that you wish to make
publicly available.

FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, Associate
Director, Thomas K. McGowan, Deputy Associate Director, Randall W. Roy,
Assistant Director, Joseph I. Levinson, Special Counsel (Net Capital
Requirements and Customer Protection) at<PHONE_NUMBER>; Paula Jenson,
Deputy Chief Counsel, Ignacio Sandoval, Special Counsel (Confirmation
of Transactions) at<PHONE_NUMBER>; Josephine J. Tao, Assistant
Director, Elizabeth A. Sandoe, Branch Chief, and Bradley Gude, Special
Counsel (Regulation M) at<PHONE_NUMBER>; Marlon Quintanilla Paz,
Senior Counsel to the Director at<PHONE_NUMBER>, in the Division of
Trading and Markets; Hunter Jones, Assistant Director, Penelope W.
Saltzman, Assistant Director, or Daniel K. Chang, Attorney at (202)
551-6792, in the Division of Investment Management; or Katherine Hsu,
Special Counsel (Asset-Backed Securities), Blair Petrillo, Special
Counsel at<PHONE_NUMBER>, in the Division of Corporation Finance, U.S.
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549.

SUPPLEMENTARY INFORMATION:

I. Introduction

    On July 1, 2008, the Commission proposed to eliminate references to
ratings issued by nationally recognized statistical rating
organizations (``NRSROs'') in certain rules and forms under the
Securities Exchange Act of 1934 (``Exchange Act''), the Investment
Company Act of 1940 (``Investment Company Act''), the Investment
Advisers Act of 1940 (``Investment Advisers Act''), and the Securities
Act of 1933 (``Securities Act'').\1\ The Commission proposed these
amendments, among other reasons, to address the risk that the reference
to and use of NRSRO ratings in Commission rules could be interpreted by
investors as an endorsement of the quality of the credit ratings issued
by NRSROs, and may encourage investors to place undue reliance on NRSRO
ratings.\2\ The comment period for the Proposing Releases ended on
September 5, 2008. Today, in a companion release, the Commission is
adopting proposed amendments to remove references to ratings issued by
NRSROs in certain rules.\3\ Given regulatory developments,\4\ comments
received on the proposals, and the continuing public interest in the
Proposing Releases, particularly in light of recent economic events,
the Commission is requesting additional public comment on certain
proposed rule changes relating to the use of references to ratings
issued by NRSROs, as detailed below.
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    \1\ See References to Ratings of Nationally Recognized
Statistical Rating Organizations, Exchange Act Release No. 58070
(July 1, 2008) [73 FR 40088 (July 11, 2008)] (proposing amendments
to rules and forms under the Securities Exchange Act) (``Exchange
Act Proposing Release''); References to Ratings of Nationally
Recognized Statistical Ratings Organizations, Investment Company Act
Release No. 28327 (July 1, 2008) [73 FR 40124 (July 11, 2008)]
(proposing amendments to rules under the Investment Company Act and
the Investment Advisers Act) (``Investment Company Act Proposing
Release''); Security Ratings, Securities Act Release No. 8940 (July
1, 2008) [73 FR 40106 (July 11, 2008)] (proposing amendments to
rules and forms under the Securities Act and the Securities Exchange
Act) (``Securities Act Proposing Release'').
    \2\ See Exchange Act Proposing Release, supra note 1, at Section
I; Investment Company Act Proposing Release, supra note 1, at
Section I; and Securities Act Proposing Release, supra note 1.
    \3\ See References to Ratings of Nationally Recognized
Statistical Rating Organizations, Exchange Act Release No. 34-60789
(October 5, 2009) (``NRSRO References Adopting Release'').
    \4\ See, e.g., Money Market Fund Reform, Investment Company Act
Release No. 28807 (June 30, 2009) [74 FR 32688 (July 8, 2009)]
(``Money Market Fund Proposing Release'') (proposing amendments
designed to improve the regulatory framework governing money market
funds and requesting comment on, among other things, whether the
Commission should eliminate Rule 2a-7's use of ratings by NRSROs, or
whether the Commission should adopt other alternatives to encourage
more independent credit risk analysis, including whether the
Commission should reformulate the rule's use of ratings by requiring
the fund's directors to designate specific NRSROs that the board of
directors determines issue credit ratings that are sufficiently
reliable.).
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II. References to Ratings of NRSROs in Exchange Act Rules

    As discussed below, the Commission is deferring consideration of
action and soliciting comment on certain of its proposals relating to
the use of NRSRO credit ratings in the rules and forms proposed in the
Exchange Act Proposing Release.\5\ The Commission is seeking

additional comment on specific issues as well as general comments on
the proposals.
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    \5\ For a detailed discussion of each of these proposals, see
Exchange Act Proposing Release, supra note 1.
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A. Regulation M

    Regulation M is intended to preclude manipulative conduct by
persons with an interest in the outcome of an offering. It governs the
activities of underwriters, issuers, selling security holders, and
others in connection with offerings of securities. In particular, Rules
101 and 102 of Regulation M prohibit, in connection with a distribution
of securities, issuers, selling shareholders, distribution
participants, or any affiliated persons of such persons from directly
or indirectly bidding for, purchasing, or attempting to induce a person
to bid for or purchase a covered security during certain defined
periods. Certain securities are excepted from Rules 101 and 102,
including investment grade non-convertible debt securities, investment
grade non-convertible preferred securities, and investment grade asset-
backed securities.
    In the Exchange Act Proposing Release, the Commission proposed to
change the exceptions in Rules 101(c)(2) and 102(d)(2) of Regulation M
for investment-grade non-convertible debt securities, investment grade
non-convertible preferred securities, and investment grade asset-backed
securities (``Regulation M Proposals'').\6\ The Regulation M Proposals
would have removed references to NRSRO ratings from the determination
of whether such securities would be eligible for the exceptions, and
instead would have excepted non-convertible debt securities and non-
convertible preferred securities based on the ``well-known seasoned
issuer'' (``WKSI'') concept of Securities Act Rule 405.\7\ The
Regulation M Proposals would have also excepted asset-backed securities
that are registered on Form S-3.\8\
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    \6\ See Exchange Act Proposing Release, supra note 1.
    \7\ Id.
    \8\ Id.
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    Commenters that specifically addressed the Regulation M Proposals
expressed uniform opposition.\9\ Many of these commenters stated their
view that the proposal would fail to address the issue of investors'
undue reliance on NRSRO ratings.\10\ Commenters that specifically
addressed the Regulation M Proposal also stated that, because the
Regulation M Proposals would have altered the scope of the exception
for investment-grade non-convertible debt securities, investment-grade
non-convertible preferred securities, and asset-backed securities, the
Regulation M Proposals would have placed new burdens on issuers and
underwriters by imposing the restrictions of Regulation M on currently
excepted investment-grade securities.\11\ Additionally, commenters that
specifically addressed the Regulation M Proposal expressed the view
that certain issuers of high yield securities that are currently
subject to Regulation M, but are arguably more vulnerable to
manipulation than securities currently excepted from Regulation M,
would have been excepted from Rules 101 and 102 of Regulation M by the
Regulation M Proposals.\12\ These commenters suggested retaining the
NRSRO references in Regulation M and did not generally suggest
alternatives to the Regulation M Proposals that would achieve our goals
while addressing these concerns.\13\
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    \9\ We received five comment letters that specifically addressed
the Regulation M proposals and each opposed the proposals. Letter
from Keith F. Higgins, Chair, Committee on Federal Regulation of
Securities, American Bar Association (``ABA''), to Florence E.
Harmon, Acting Secretary, dated October 10, 2008 (``ABA Letter 1'');
Letter from Robert Dobilas, CEO and President, Realpoint LLC, to
Secretary, dated September 8, 2008; Letter from Jeremy Reifsnyder
and Richard Johns, Co-chairs, ASF Credit Rating Agency Task Force,
to Florence E. Harmon, Acting Secretary, dated September 5, 2008
(``ASF Letter''); Letter from Deborah A. Cunningham and Boyce I.
Greer, Co-chairs, SIFMA Credit Rating Agency Task Force, to Florence
E. Harmon, Acting Secretary, dated September 4, 2008 (``SIFMA
Letter''); and Letter from Mayer Brown LLP, to Florence E. Harmon,
Acting Secretary, dated September 4, 2008 (``Mayer Brown Letter'').
There were comment letters supportive of the Commission's effort to
minimize undue reliance on NRSRO ratings by market participants,
however, these commenters did not discuss Regulation M. See, e.g.,
Letter from Suzanne C. Hutchinson, Executive Vice President,
Mortgage Insurance Companies of America, to Florence E. Harmon,
Acting Secretary, dated September 5, 2008.
    \10\ See, e.g., SIFMA Letter (``Regulation M is primarily
directed at the actions of the issuers of securities and the
investment banks who underwrite them; in contrast, the investors
that the Commission is concerned with are not users of Regulation
M'').
    \11\ ABA Letter 1, SIFMA Letter.
    \12\ ABA Letter 1, SIFMA Letter.
    \13\ The ABA did, however, suggest that should the Commission
insist on using the WKSI standard for investment-grade non-
convertible debt and investment-grade non-convertible preferred
securities, it do so only as an alternative to the current
exceptions at Rules 101(c)(2) and 102(d)(2). ABA Letter 1. However,
the ABA expressed its ``strong[] belie[f] that the Commission should
retain the current exceptions.'' Id.
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    The Commission is deferring consideration of action on the
Regulation M Proposals. In light of the uniform opposition in the
comment letters and the Commission's remaining concern regarding the
undue influence of NRSRO ratings, the Commission is seeking additional
comment. The Commission is continuing to consider its proposed
amendments as well as other changes to Rules 101(c)(2) and 102(d)(2) of
Regulation M to address concerns with regard to references to NRSRO
ratings, and it continues to invite comments suggesting alternative
proposals to achieve the Commission's goals, as well as comments on the
Regulation M Proposals generally.\14\ In assessing the Commission's
proposals and alternatives to these proposals, the Commission would
consider a number of factors, including: \15\
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    \14\ The Commission specifically invited commenters to suggest
alternatives to the Regulation M Proposals in the Proposing Release,
see Exchange Act Proposing Release, supra note 1, at 40096, but none
were received at that time.
    \15\ While the Commission asked similar questions in the
Exchange Act Proposing Release relating to the specific Regulation M
Proposals, the Commission will consider these factors in connection
with any alternative proposal suggested by commenters.
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     Is the alternative comparable in scope to the existing
exceptions? Does the alternative except roughly the same type and
quantity of securities as the current exceptions for non-convertible
debt, non-convertible preferred, and asset-backed securities?
     Does the alternative capture securities that are traded on
basis of their yields, are largely fungible and less likely to be
subject to manipulation? Are there factors in addition to yield and
fungible nature that effect the trading of nonconvertible and asset
backed securities?
     What effect(s) of the alternative, if any, would you
anticipate in the investment-grade debt market and high-yield debt
market?
     To the extent the alternative excepts non-convertible
debt, non-convertible preferred, and asset-backed securities that are
not currently excepted, how are those newly excepted securities less
likely to be subject to manipulation?
     Will the alternative remove the exception for certain non-
convertible debt, non-convertible preferred, and asset-backed
securities that fall within the current exceptions?
     Does the alternative provide an equally bright-line
demarcation that is not unduly reliant on NRSRO ratings?
     Is the alternative easy for all persons subject to Rules
101 and 102 of Regulation M to determine (i.e., can it be determined by
publicly available sources of information)?
    Please provide empirical data, when possible, and cite to economic
studies to support alternative approaches. Please suggest additional
factors that you believe should be considered in assessing
alternatives. Please discuss whether and to what extent investors rely
upon the current Rule 101 and 102

exceptions for investment-grade non-convertible and asset-backed
securities when making a decision to invest in such securities. Please
also discuss whether, given that Rules 101 and 102 of Regulation M are
directed at distribution participants, issuers and selling security
holders, Rules 101 and 102 of Regulation M pose any danger of undue
reliance on NRSRO ratings by investors.

B. Rule 10b-10

    Exchange Act Rule 10b-10,\16\ the Commission's transaction
confirmation rule for broker-dealers, generally requires broker-dealers
that effect transactions for customers in securities, other than U.S.
savings bonds or municipal securities,\17\ to provide those customers
with written notification, at or before completion of a securities
transaction, disclosing certain information about the terms of the
transaction. Specifically, Rule 10b-10 requires the disclosure of the
date, time, identity, and number of securities bought or sold; the
capacity in which the broker-dealer acted (e.g., as agent or
principal); yields on debt securities; and under specified
circumstances, the amount of compensation the broker-dealer will
receive from the customer and any other parties. In doing so, the rule
serves a basic investor protection function by conveying information
that: (1) Allows customers to verify the terms of their transactions;
(2) alerts customers to potential conflicts of interest; (3) acts as a
safeguard against fraud; and (4) allows customers a means of evaluating
the costs of their transactions and the quality of the broker-dealer's
execution and order-handling.
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    \16\ 17 CFR 240.10b-10.
    \17\ Municipal securities are covered by Municipal Securities
Rulemaking Board rule G-15, which applies to all municipal
securities brokers and dealers.
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    Paragraph (a)(8) of Rule 10b-10, which the Commission adopted in
1994, requires a broker-dealer to inform the customer in the
transaction confirmation if a debt security, other than a government
security, is unrated by an NRSRO.\18\ While paragraph (a)(8) was
intended to alert customers to the potential need to obtain more
information about a security from a broker-dealer, it was not intended
to suggest that an unrated security is inherently riskier than a rated
security.\19\ The Commission proposed to delete paragraph (a)(8) of the
Rule in light of present concerns regarding undue reliance on NRSRO
ratings and confusion about the significance of those ratings.\20\ The
Commission also stated that, in the absence of this requirement,
broker-dealers could voluntarily include this information in
confirmations they send to customers.\21\
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    \18\ See Exchange Act Release No. 34962 (November 10, 1994) [59
FR 59612 (November 17, 1994)] (File No. S7-6-94) (``1994 Adopting
Release'').
    \19\ Id. The Commission stated in the 1994 Adopting Release that
``[i]n most cases, this disclosure should verify information that
was disclosed to the investor prior to the transaction. If a
customer was not previously informed of the security's unrated
status, the confirmation disclosure may prompt a dialogue between
the customer and the broker-dealer.''
    \20\ Exchange Act Proposing Release, supra note 1, 73 FR at
40092.
    \21\ Id.
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    Four commenters expressed views regarding the proposed deletion of
paragraph (a)(8) from Rule 10b-10.\22\ One commenter maintained that
deleting the requirement could be confusing and misleading to
customers, who might presume that the security was rated because the
non-rated status would no longer appear on the confirmation.\23\ This
commenter also noted that customers could be confused by a lack of
uniformity in confirmations, if some broker-dealers chose to continue
including the non-rated status on confirmations while others did
not.\24\ Another commenter stated that investors benefit from, and
broker-dealers are not materially burdened by, the disclosure
requirement in paragraph (a)(8).\25\ One commenter expressed the view
that deleting paragraph (a)(8) would be appropriate, and noted that a
proposed FINRA rule would, among other things, require brokers-dealers
to provide investors with the lowest credit rating on a security.\26\
Finally, one commenter suggested that if paragraph (a)(8) were deleted,
it could be replaced with the use of a credit spread as a credit risk
measure.\27\
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    \22\ See Realpoint Letter; SIFMA Letter; Letter from Cate Long,
Multiple-Markets to Secretary, Securities and Exchange Commission,
dated September 5, 2008 (``Multiple-Markets Letter''); Tom McNerney,
Managing Director, Data and Analytics and Marcus Schuler, Managing
Director, Regulatory Affairs, Markit to Securities and Exchange
Commission, dated September 5, 2008 (``Markit Letter'').
    \23\ See SIFMA Letter.
    \24\ Id.
    \25\ See Realpoint Letter. This commenter also urged the
Commission to ``at a minimum, retain the existing requirement * * *
[and] strongly consider requiring that the confirmation disclose
whether the security is rated by an NRSRO who was not and is not
being compensated'' directly or indirectly by the issuer. Id.
    \26\ See Multiple-Markets Letter. This commenter stated that a
proposed FINRA rule ``serves to protect investors but could be
enhanced by the addition of an alternative method of showing credit
quality'' by requiring broker-dealers to ``provide the investor with
the `average' rating across NRSROs.'' Id. The Commission is
considering the FINRA proposed rule change separately. See Exchange
Act Release No. 56661 (October 15, 2007) [72 FR 59321 (October 19,
2007)] (File No. SR-NASD-2005-100).
    \27\ See Markit Letter. ``The usage of credit spreads for this
purpose would be much more accurate, and would be capable of
revealing that many unrated securities are actually less risky than
rated ones.'' Id.
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    After considering the comments, the Commission has determined to
seek further comment on this proposal before considering action. The
Commission is continuing to consider the relative benefits of retaining
this information in the transaction confirmation against the benefits
of removing the reference to whether a security is unrated. The
Commission notes in this regard that the current requirement to
disclose when a debt security is unrated by an NRSRO provides investors
with an item of factual information that is conveyed together with
additional factual information about the terms of the trade. Moreover,
we are still evaluating the impact that eliminating this disclosure
requirement would have against the possibility of permitting broker-
dealers to continue providing, on a voluntary basis, information on the
confirmation that a debt security is not rated. In addition, we are
concerned that customers may potentially be confused by the lack of a
disclosure that they may be accustomed to receiving.
    At the same time, the Commission remains concerned that customers
may place undue reliance on NRSRO ratings and that there may continue
to be confusion about the significance of those ratings. Therefore, the
Commission will continue to consider whether to delete paragraph (a)(8)
of Rule 10b-10, particularly in light of comments received to date, and
invites further comment on the proposed deletion of Rule 10b-10(a)(8),
including comments that suggest alternative proposals to achieve the
Commission's stated goals. In continuing to assess these issues, the
Commission requests comments on the following:
     Would the investor protection function of Rule 10b-10 be,
in any way, undercut by deleting paragraph (a)(8) from the Rule? Are
there any other alternatives for providing customers with this
information?
     What types of securities would typically be unrated by an
NRSRO? What types of issuers would typically not have their securities
rated by an NRSRO?
     Could the disclosure that a security is unrated be removed
from the confirmation without creating customer confusion? If so, given
the historical use and investor expectations related to this
disclosure, could it be removed without implying that a security is in
fact rated?

Would the suggested approach vary if certain broker-dealers continued
to voluntarily disclose that securities were unrated? Should broker-
dealers be required to alert customers that the unrated status of a
security is no longer being disclosed? If so, for how long?
     The preliminary note to Rule 10b-10 provides: ``This
section requires broker-dealers to disclose specified information in
writing to customers at or before completion of a transaction. The
requirements under this section that particular information be
disclosed is not determinative of a broker-dealer's obligation under
the general antifraud provisions of the federal securities laws to
disclose additional information to a customer at the time of the
customer's investment decision.'' If paragraph (a)(8) were deleted,
would the preliminary note to Rule 10b-10 affect a broker-dealer's
decision to nonetheless continue to voluntarily disclose whether a
security is unrated?
     One approach for addressing possible customer confusion if
some broker-dealers continue to disclose that a security is unrated,
while others do not, could be to prohibit broker-dealers from making
this disclosure on the confirmation. Such an approach, however, could
be viewed as inconsistent with broker-dealers' obligations under the
general antifraud provisions of the federal securities laws, as
highlighted in the preliminary note to Rule 10b-10, to disclose
material information to their customers. We invite comment on this
approach, and particularly on how a broker-dealer, if it considered the
fact that a security was unrated to be material, could disclose this
information to customers other than on the confirmation.
     If paragraph (a)(8) were deleted, is there a disclosure
that should be required in the confirmation on a transitional or
permanent basis that would help prevent customer confusion? For
example, should the Commission require broker-dealers, either
permanently or temporarily for a transition period, to disclose that
broker-dealers are no longer required to include on the confirmation
the fact that a security is unrated? Should such a disclosure be made
on the confirmation, the account statement, or in a separate document
accompanying the confirmation or account statement? What are the costs
associated with providing this disclosure on the confirmation, the
account statement or in a separate document?
     If the requirement to disclose that a security is unrated
were deleted from Rule 10b-10, would broker-dealers nevertheless feel
compelled to include the disclosure in order to satisfy their
suitability or other sales practice obligations?
     Should the requirement to disclose that a security is
unrated be replaced by a requirement to provide a general statement
regarding the importance of considering an issuer's creditworthiness?
     If the requirement to disclose that a security is unrated
were deleted from the rule, are there alternative external or objective
measures of credit risk that could be substituted for ratings by an
NRSRO? Is it practicable to replace it with a requirement to disclose
specific information regarding an issuer's creditworthiness? If so,
what specific information should the Commission consider including?
     Are credit spreads \28\ a viable method of addressing an
issuer's creditworthiness? For example, is there a consistent,
reliable, and generally agreed upon method for determining credit
spread? How could information about credit spread be presented so that
it could be readily understood by customers, particularly retail
customers?
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    \28\ ``Credit spread'' has been defined to mean the
``differences in yield resulting from different levels of credit
risk.'' See Oxford Dictionary of Finance and Banking 100 (3rd ed.
2005). See also Barron's Dictionary of Finance and Investment Terms
152 (6th ed. 2003) (defining ``credit spread'' as the ``difference
in value of two options, when the value of the one sold exceeds the
value of the one bought. The opposite of a debt spread.'').
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C. Net Capital Rule

    The Commission proposed to remove, with limited exceptions, all
references to NRSROs from the net capital rule for broker-dealers, Rule
15c3-1 under the Exchange Act (``Net Capital Rule'').\29\ Under the Net
Capital Rule, broker-dealers are required to maintain, at all times, a
minimum amount of net capital, generally defined as a broker-dealer's
net worth (assets minus liabilities), plus certain subordinated
liabilities, less certain assets that are not readily convertible into
cash (e.g., fixed assets), and less a percentage of certain other
liquid assets (e.g., securities). When calculating net capital, broker-
dealers are permitted to take a lower capital charge, called a
``haircut,'' for certain types of securities that are rated investment
grade by an NRSRO.
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    \29\ 17 CFR 240.15c3-1; see Exchange Act Proposing Release,
supra note 1, 73 FR at 40092.
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    As the Commission stated in proposing to remove references to
NRSROs from the Net Capital Rule, broker-dealers are sophisticated
market participants regulated by at least one self-regulatory
organization. Accordingly, the Commission expressed its preliminary
belief that broker-dealers would be able to assess the creditworthiness
of the securities they own without undue hardship.\30\ In lieu of the
references to NRSROs in the Net Capital Rule, the Commission proposed
substituting two subjective standards for credit risk and liquidity
risk. For the purposes of determining haircuts on commercial paper, the
Commission proposed to replace the current NRSRO ratings-based
criterion with a requirement that the instrument be subject to a
minimal amount of credit risk and have sufficient liquidity such that
it can be sold at or near its carrying value almost immediately.\31\
For the purposes of determining haircuts on nonconvertible debt
securities as well as on preferred stock, the Commission proposed to
replace the current NRSRO ratings-based criterion with a requirement
that the instrument be subject to no greater than moderate credit risk
and have sufficient liquidity such that it can be sold at or near its
carrying value within a reasonably short period of time.\32\ The
proposed standards were intended to advance the purpose the NRSRO
ratings-based standards were designed to advance, which is to enable
broker-dealers to make net capital computations that reflect the market
risk inherent in the positioning of those particular types of
securities. Notwithstanding the Commission's belief that broker-dealers
have the financial sophistication and resources to make these
determinations,\33\ the Commission stated that it would be appropriate,
as one means of complying with the proposed amendments, for broker-
dealers that wished to continue to rely on credit ratings of NRSROs to
do so.\34\
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    \30\ See Exchange Act Proposing Release, supra note 1, 73 FR at
40092.
    \31\ Id.
    \32\ Id.
    \33\ See Exchange Act Proposing Release, supra note 1, 73 FR at
40093.
    \34\ See Exchange Act Proposing Release, supra note 1, 73 FR at
40092.
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    The majority of the commenters to the Commission's proposal to
remove references to NRSROs from the Net Capital Rule were opposed to
the change.\35\ Generally, commenters stated

that they preferred the existing rule because it is a bright line
objective test that is relatively inexpensive to utilize.\36\
Commenters asserted that the new subjective standards that rely on the
discretion of an interested decision-maker (i.e., the broker-dealer
itself) would increase uncertainty, decrease transparency, and decrease
market confidence in the financial strength of broker-dealers.\37\
Commenters expressed their belief that the direct conflict of interest
that would exist for broker-dealers to overestimate the
creditworthiness of a security to minimize the amount of required net
capital would lead broker-dealers to maintain too little net capital
and would have the effect of increasing systemic risk.\38\ Commenters
also stated that the proposed changes would require increased oversight
by Commission staff to enforce the use of internal processes in capital
charge calculations.\39\ In this regard, commenters noted that
Commission staff would need to review procedures at each broker-dealer,
and each review would need to include the algorithms of broker-dealer
internal processes, requiring intensive scrutiny at both large and
small broker-dealers.\40\ Further, commenters argued that not all
broker-dealers are ``sophisticated'' and have sufficient resources or
expertise to develop their own internal processes for rating
securities.\41\ A minority of commenters supported the proposal to
remove references to NRSROs from the net capital rule.\42\ One
commenter argued that NRSROs have too much influence on the ``quality
assessments of securities that the SEC's regulated financial
institutions have been required to make.'' \43\
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    \35\ See, e.g., SIFMA Letter; Markit Letter; Letter from Jeffrey
T. Brown, Senior Vice President, Charles Schwab Co., Inc.,
Washington, District of Columbia to Florence E. Harmon, Acting
Secretary, Commission dated September 5, 2008 (``Schwab Letter'');
Letter from Kent Wideman, Group Managing Director, Policy and Rating
Committee, DBRS and Mary Keogh, Managing Director, Policy and
Regulatory Affairs, DBRS dated September 8, 2008; Letter from Robert
Dobilas, CEO and President, Realpoint LLC dated Sept. 8, 2008;
Gregory W. Smith, General Counsel, Colorado Public Employees'
Retirement Association to Nancy M. Morris, Secretary, Commission
dated September 5, 2008.
    \36\ See, e.g., SIFMA Letter.
    \37\ Letter from Keith F. Higgins, Chair, Committee on Federal
Regulation of Securities, and Vicki O. Tucker, Chair, Committee on
Securitization and Structured Finance, Business Law Section,
American Bar Association to Florence E. Harmon, Acting Secretary,
Commission dated September 12, 2008 (``ABA Letter 2''); SIFMA
letter.
    \38\ ABA Letter 2.
    \39\ Schwab Letter.
    \40\ Schwab Letter.
    \41\ ABA Letter 2; Schwab Letter.
    \42\ See Letter from Suzanne C. Hutchinson, Executive Vice
President, Mortgage Insurance Companies of America; Letter from
Lawrence J. White, Professor of Economics, Stern School of Business,
New York University, New York, New York to Commission dated
September 5, 2008 (``White Letter'').
    \43\ White Letter.
---------------------------------------------------------------------------

    After considering these comments, the Commission has determined to
solicit further comment before considering action on the proposed rule
amendments to remove references to NRSROs from the Net Capital Rule. In
evaluating whether to take action in the future, the Commission would
consider, among other things, whether the haircut for the position
would be appropriate given the risks inherent in the position. The
relevant risks would include the price volatility, creditworthiness,
and liquidity of the position. Additionally, in evaluating whether to
adopt any amendments, the Commission would consider, among other
things, the costs of an objective approach versus a subjective test;
whether any alternative objective approaches exist; whether the
proposed rule would create conflicts of interest that may result in
undesirable consequences, such as increasing systemic risk; and whether
broker-dealers have sufficient resources and expertise to implement the
proposed rule.
    The Commission generally requests comments on whether it should
retain the NRSRO reference in the Net Capital Rule, as well as all
aspects of the proposed rule and reiterates its request for comment in
the Exchange Act Proposing Release. Further, the Commission seeks
comments on the factors it would consider in determining whether to
amend the requirements for determining haircuts for proprietary
securities positions. The Commission also requests comments on the
following specific questions:
     Are there factors other than creditworthiness and
liquidity that should be required to be considered in determining the
appropriate haircut for a proprietary securities position?
     What would be the cost to broker-dealers to develop,
document, and enforce internal procedures to evaluating the
creditworthiness and liquidity of proprietary securities positions?
     Do certain broker-dealers lack sufficient resources or
expertise to independently assess the creditworthiness of securities?
     How could the concern that a broker-dealer would have an
incentive to downplay the credit risk associated with a particular
security to minimize capital charges be addressed? Would reviews of
internal procedures by examiners be sufficient to address this concern?
Are there other methods, such as reviews by internal or external
auditors, that could effectively address this concern? Do other
objective measures of credit risk exist, and could they be used in
place of NRSRO ratings to address this concern?
     If the Commission decides to adopt the proposal to replace
the current NRSRO ratings-based criterion with a requirement that the
instrument be subject to a minimal amount of credit risk and have
sufficient liquidity, and permits broker-dealers to continue to rely on
credit ratings of NRSROs as one mean of complying with the proposed
amendments, should the Commission nevertheless require that the
standard that results in a higher determination of credit risk be used
for each individual instrument?
     If the Commission replaces the current NRSRO ratings-based
criterion with a requirement that the instrument be subject to a
minimal amount of credit risk and have sufficient liquidity such that
it can be sold at or near its carrying value within a reasonably short
period of time, should the Commission also require that broker-dealers
consult credit ratings of NRSROs for that instrument, comparing which
method requires the higher capital charge, and require that the broker-
dealer take the higher capital charge?
     Conversely, if broker-dealers continue to rely on credit
ratings of NRSROs, either because the Commission does not remove the
reference to NRSROs from the Net Capital Rule or as one means of
complying with the proposed amendments, should the Commission require
an analysis of the debt instrument that is independent of the NRSRO
credit rating (e.g., an internal risk assessment or one performed by a
third-party vendor) to support the use of the credit rating of NRSROs,
and if the analysis does not support the credit rating, require that
the broker-dealer take the higher capital charge?

III. References to Ratings of NRSROs in Securities Act Rules

    In the Securities Act Proposing release, the Commission proposed
changes to certain eligibility criteria for issuers to conduct primary
offerings ``off the shelf'' under Securities Act Rule 415 \44\ and
Forms S-3 and F-3 \45\ and changes to other rules that refer to that
eligibility.\46\ In addition, the Commission proposed changes to Rule
436(g) under the Securities Act.\47\ Today, in a companion release, the
Commission is proposing amendments to our rules to require disclosure
of information regarding credit ratings used by registrants in
connection with a registered offering of securities so that investors
will better understand the credit rating and its limitations and, in
another companion release, the

Commission is soliciting comment on whether it should propose
rescinding Rule 436(g) under the Securities Act.\48\ The Commission is
deferring consideration of action at this time on the other proposals
in the Securities Act Proposing Release. However, in view of the
continuing public interest in the Proposing Releases and the
Commission's desire to receive additional comment, the Commission is
re-opening the comment period for the Securities Act Proposing Release.
As the Commission continues to evaluate and consider the proposed rule
revisions outlined in this section, the Commission will review whether
there are appropriate alternatives to references to credit ratings by
NRSROs in those rules and forms.
---------------------------------------------------------------------------

    \44\ 17 CFR 230.415.
    \45\ 17 CFR 239.13 and 17 CFR 239.33.
    \46\ For a more detailed discussion of each of these proposals,
see Securities Act Proposing Release, supra note 1.
    \47\ 17 CFR 230.436(g).
    \48\ See the releases considered by the Commission on September
17, 2009 regarding proposed amendments to require disclosure of
information about credit ratings used by registrants in connection
with registered offerings, and soliciting comment on whether the
Commission should propose to rescind Rule 436(g) under the
Securities Act.
---------------------------------------------------------------------------

    Under existing requirements, an issuer's ability to conduct shelf
offerings of non-convertible debt or asset-backed securities (ABS) may
depend on, among other things, the securities' credit ratings. In
particular, a primary offering of non-convertible debt securities is
eligible for registration on Form S-3 or Form F-3, regardless of the
issuer's public float or reporting history, if the securities are
investment grade rated.\49\ Securities registered on Form S-3 or Form
F-3 may be offered on a delayed, or ``shelf,'' basis.\50\ An offering
of asset-backed securities is eligible for shelf registration on Form
S-3 or Form F-3 if the securities are investment grade rated and the
offering meets certain other conditions.\51\ In addition, a subset of
asset-backed securities, ``mortgage-related securities,'' that, among
other things, are rated in one of the two highest rating categories by
an NRSRO,\52\ may be offered on a delayed basis, regardless of the form
on which the offering is registered.\53\
---------------------------------------------------------------------------

    \49\ See General Instruction I.B.2 of Form S-3 and General
Instruction I.B.2 of Form F-3.
    \50\ See 17 CFR 230.415(a)(1)(x).
    \51\ See General Instruction I.B.5. of Form S-3.
    \52\ The term ``mortgage related securities'' is defined by
Section 3(a)(41) of the Exchange Act [15 U.S.C. 78c(a)(41)].
    \53\ See 17 CFR 230.415(a)(1)(vii).
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    In the Securities Act Proposing Release, the Commission proposed to
replace the shelf eligibility requirements that rely on investment
grade ratings with alternate requirements.\54\ For the registration of
a non-convertible debt offering on Form S-3 or Form F-3, the Commission
proposed to require that, instead of having investment grade rated
securities, a registrant must have issued $1 billion of non-convertible
securities in registered primary offerings over the prior three years.
For shelf eligibility of ABS offerings, including offerings of mortgage
related securities, the Commission proposed to replace the investment
grade ratings requirement with requirements that initial and subsequent
resales of ABS offerings be made in minimum denominations of $250,000
and that initial sales of the securities be made only to ``qualified
institutional buyers,'' as that term is defined in Securities Act Rule
144A.\55\ We also proposed revisions to related rules and form
requirements. We received letters from 35 commenters on these
proposals. Most commenters opposed the proposed amendments that would
replace the investment grade ratings component of the shelf eligibility
requirements.\56\
---------------------------------------------------------------------------

    \54\ See Securities Act Proposing Release, supra note 1.
    \55\ 17 CFR 230.144A.
    \56\ See ABA Letter 1; ABA Letter 2; SIFMA Letter; Letter from
Thomas G. Berkmeyer, Associate General Counsel, American Electric
Power Service Corporation to Secretary, Commission dated September
4, 2008; ASF Letter; Letter from Shirley Baum, Senior Attorney,
Pinnacle West Capital Corporation to Secretary, Commission dated
September 5, 2008; Letter from Walter E. Skrowronski, President,
Boeing Capital Corporation to Secretary, Commission dated September
26, 2008; Schwab Letter; Letter from Constance Curnow to Christopher
Cox, Chairman, Commission dated August 28, 2008; Letter from Davis
Polk & Wardwell to Florence E. Harmon, Acting Secretary, Commission
dated September 4, 2008; Letter from Debevoise & Plimpton LLP to
Florence E. Harmon, Acting Secretary, Commission dated September 3,
2008 (``Debevoise Letter''); Letter from Dewey & LeBoeuf LLP to
Florence Harmon, Acting Secretary, Commission dated September 5,
2008; Letter from James P. Carney, Vice President and Assistant
Treasurer, Dominion Resources, Inc. to Florence E. Harmon, Acting
Secretary, Commission dated September 5, 2008; Letter from David K.
Owens, Executive Vice President, Business Operations Group, Edison
Electric Institute to Commission dated September 5, 2008; Letter
from Joseph J. Novak, General Counsel, Incapital, LLC to Florence E.
Harmon, Acting Secretary, Commission dated September 5, 2008; Letter
from Richard A. Lococo, Senior Vice President & Deputy General
Counsel, Manulife Financial Corporation to Commission dated
September 5, 2008; Mayer Brown Letter; Letter from John A. Courson,
Chief Operating Officer, Mortgage Bankers Association to Jill M.
Peterson, Assistant Secretary, Commission dated September 5, 2008;
Letter from Michael W. Rico, Assistant Treasurer, PNM Resources,
Inc. to Office of the Secretary, Commission dated September 5, 2008;
Letter from W. Paul Bowers, Executive Vice President and Chief
Financial Officer, Southern Company to Florence Harmon, Acting
Secretary, Commission dated September 5, 2008; Letter from Vincent
L. Ammann, Jr., Vice President and Chief Financial Officer, WGL
Holdings, Inc. and Washington Gas Light Company to Florence Harmon,
Acting Secretary, Commission dated September 10, 2008; Letter from
James C. Fleming, Wisconsin Energy Corporation to Secretary,
Commission, dated September 5, 2008.
---------------------------------------------------------------------------

    At this time, the Commission is deferring consideration of action
on the proposals to amend the investment grade ratings component of the
Form S-3 or Form F-3 eligibility requirements and, as noted above, we
are soliciting further comment on the proposals. With respect to the
ABS shelf eligibility requirements, the staff of the Division of
Corporation Finance is currently engaged in a broad review of the
Commission's regulation of asset-backed securities including
disclosure, offering process, and reporting of asset-backed issuers. In
connection with that review, the staff is evaluating alternatives to
the investment grade rating requirements, including alternatives other
than the type of purchaser or the denomination of the security. The
Commission believes that any proposal for an alternative to investment
grade ratings for the purpose of ABS shelf eligibility will be better
considered together with other possible proposals to the regulations
governing the offer and sale of asset-backed securities.

IV. References to Ratings of NRSROs in Investment Company Act and
Investment Advisers Act Rules

    In the Investment Company Act Proposing Release, the Commission
proposed to amend four of the Commission's rules under the Investment
Company Act \57\ (Rules 2a-7, 3a-7, 5b-3, and 10f-3) and one rule under
the Investment Advisers Act \58\ (Rule 206(3)-3T) that refer to credit
ratings by NRSROs.\59\ These rules use the credit ratings issued by
NRSROs in different contexts, and for different purposes, to
distinguish among various grades of debt and other rated securities.
---------------------------------------------------------------------------

    \57\ 15 U.S.C. 80a. Unless otherwise noted, all references to
rules under the Investment Company Act will be to Title 17, Part 270
of the Code of Federal Regulations [17 CFR 270].
    \58\ 15 U.S.C. 80b. Unless otherwise noted, all references to
rules under the Investment Advisers Act will be to Title 17, Part
275 of the Code of Federal Regulations [17 CFR 275].
    \59\ Investment Company Act Proposing Release, supra note 1.
---------------------------------------------------------------------------

    The Commission proposed to amend each rule to omit references to
NRSRO ratings and, except with respect to one of the rules, substitute
alternative provisions that were designed to achieve the same purpose
as the ratings.\60\ The Commission received 66

comment letters on the proposal, most of which opposed the
proposals.\61\ Commenters expressed a variety of concerns regarding the
proposed amendments. For example, some commenters expressed concern
that the proposed amendments would replace an objective standard of an
NRSRO rating with a riskier, subjective determination by the board of
directors, which would be difficult to apply and would increase the
burden on the fund's board.\62\ Several commenters also asserted it was
premature for the Commission to consider eliminating NRSRO ratings from
Commission rules given the Commission's ongoing initiatives to address
issues such as improving the accuracy of NRSRO ratings and eliminating
NRSRO conflicts of interest.\63\
---------------------------------------------------------------------------

    \60\ See Investment Company Act Proposing Release, supra note 1,
at Section III. As discussed in the Investment Company Act Proposing
Release, we did not propose an alternative provision for one of the
NRSRO references in Rule 3a-7, which excludes structured finance
vehicles from the definition of ``investment company'' subject to
certain conditions. We did not provide an alternative for the
requirement that structured financings offered to the general public
have an investment grade rating because we believed that these
offerings generally were not made to retail investors. See id. 73 FR
at nn. 41-42 and accompanying and following text.
    \61\ See, e.g., Letter from Ronald W. Forbes and Rodney D.
Johnson, Independent Directors of the Blackrock money market funds
to Florence Harmon, Acting Secretary, dated September 10, 2008;
Letter from Robert G. Zack, Executive Vice President and General
Counsel, OppenheimerFunds, Inc. to Florence Harmon, Acting
Secretary, dated September 4, 2008. The comment letters are
available for public inspection and copying in the Commission's
Public Reference Room, 100 F Street, NE, Washington, DC 20549 on
official business days between the hours of 10 am and 3 pm (File No.
S7-19-08), and also are available on the Commission's Internet Web
site (http://www.sec.gov/comments/s7-19-08/s71908.shtml).
    \62\ See, e.g., Letter from David Oestreicher, Chief Legal
Counsel, T. Rowe Price Associates, Inc. to Florence Harmon, Acting
Secretary, dated September 5, 2008.
    \63\ See, e.g., ABA Letter 2; SIFMA Letter. A few commenters
also stated that removing the references may lead to a significant
risk of unintended adverse consequences to capital markets,
regulatory community and other industries that have regulatory
requirements involving NRSRO ratings and may not address concerns
about undue investor reliance on NRSRO ratings. See, e.g., SIFMA
Letter; Debevoise Letter; Letter from Nathan Douglas, Secretariat,
Institutional Money Market Funds Association to Florence Harmon,
Acting Secretary, dated September 5, 2008).
---------------------------------------------------------------------------

    In a companion release the Commission is issuing today, the
Commission is adopting certain of the proposed amendments to Rules 5b-3
and 10f-3 under the Investment Company Act.\64\ The Commission is
deferring consideration of action on the remaining proposed amendments
to Rules 2a-7, 3a-7, and 5b-3 under the Investment Company Act and Rule
206(3)-3T under the Investment Advisers Act in light of the comments
received on the proposed amendments and further actions the Commission
is considering in separate rulemakings.
---------------------------------------------------------------------------

    \64\ See NRSRO References Adopting Release, supra note 3.
---------------------------------------------------------------------------

    Rule 2a-7 under the Investment Company Act governs the operation of
money market funds, which rely on the rule to use different valuation
and pricing methods than other investment companies (``funds'') are
permitted to use, to help maintain a stable share price. The rule
contains conditions that restrict money market funds' portfolio
investments to securities that have received certain minimum credit
ratings from NRSROs or comparable unrated securities.\65\ This past
June, the Commission proposed amendments to Rule 2a-7 and related rules
designed to improve the regulatory framework governing money market
funds.\66\ In that release, the Commission requested further comment on
whether we should eliminate the use of NRSRO ratings in Rule 2a-7,
including whether we should consider establishing a roadmap for phasing
in the eventual removal of NRSRO references from the rule. We also
asked whether we should adopt other alternatives to encourage more
independent credit risk analysis, including whether we should
reformulate the rule's use of ratings by requiring a money market
fund's directors to designate specific NRSROs that the board determines
issue ratings that are sufficiently reliable.\67\
---------------------------------------------------------------------------

    \65\ For example, Rule 2a-7 limits a money market fund's
portfolio investments to securities that have received credit
ratings from at least one NRSRO in one of the two highest short-term
rating categories or, if unrated, be of comparable quality. Rule 2a-
7(a)(10) (definition of ``Eligible Security'').
    \66\ See Money Market Fund Reform, Investment Company Act
Release No. 28807 (June 30, 2009) [74 FR 32688 (July 8, 2009)].
    \67\ See id. at Section II.A.2.a.
---------------------------------------------------------------------------

    Rule 3a-7 under the Investment Company Act excludes structured
finance vehicles from the Act's definition of ``investment company''
subject to certain conditions.\68\ The conditions include the
requirement that structured financings offered to the general public be
rated by at least one NRSRO in one of the four highest ratings
categories, with certain exceptions.\69\ As discussed above, Commission
staff is developing proposals regarding the offer and sale of asset-
backed securities, which may affect the exemptive relief provided by
Rule 3a-7.\70\ In considering those changes, the Commission may revisit
the use of NRSRO ratings in the offer and sale of asset-backed
securities.
---------------------------------------------------------------------------

    \68\ Structured financings meet the definition of investment
company under Section 3(a) of the Act because they issue securities
and invest in, own, hold, or trade securities. Almost none of the
structured financings, however, are able to operate under the Act's
requirements. See Exclusion from the Definition of Investment
Company for Structured Financings, Investment Company Act Release
No. 19105 (Nov. 19, 1992) [57 FR 56248 (Nov. 27, 1992)].
    \69\ Rule 3a-7(a)(2).
    \70\ See supra Section III.
---------------------------------------------------------------------------

    Rule 5b-3 under the Investment Company Act permits a fund, subject
to certain conditions, to treat a repurchase agreement as an
acquisition of the securities collateralizing the repurchase agreement
in determining whether the fund is in compliance with two provisions of
the Act that may affect a fund's ability to invest in repurchase
agreements.\71\ The rule permits a fund to treat a repurchase agreement
as an investment in the underlying collateral if the agreement is
``collateralized fully,'' and some types of collateral must have
received certain credit ratings in order to meet this standard.\72\
This reference to credit ratings is used to determine credit risk and
liquidity of collateral securities that the fund may look to in meeting
the diversification requirements of the Investment Company Act.\73\
Fourteen commenters opposed the proposed amendment to eliminate NRSRO
ratings references from this definition because, among other reasons,
it would replace an objective standard with a subjective standard that
would be difficult to apply.
---------------------------------------------------------------------------

    \71\ Section 5(b)(1) of the Act limits the amount that a fund
that holds itself out as being a diversified investment company may
invest in the securities of any one issuer (other than the U.S.
Government). Section 12(d)(3) of the Investment Company Act
generally prohibits a fund from acquiring an interest in a broker,
dealer, or underwriter. Because a repurchase agreement may be
considered to be the acquisition of an interest in the counterparty,
Section 12(d)(3) may limit a fund's ability to enter into repurchase
agreements with many of the firms that act as repurchase agreement
counterparties.
    \72\ See Rule 5b-3(c)(1)(iv).
    \73\ See Rule 5b-3(c)(1)(iv)(C)-(D).
---------------------------------------------------------------------------

    Rule 5b-3 includes a second reference to NRSRO ratings, in the
definition of ``refunded security.'' \74\ The rule allows a fund for
purposes of the Investment Company Act's diversification requirements
to treat the acquisition of a refunded security as the acquisition of
U.S. government securities that are pledged to make payments to
investors if, among other conditions, an independent certified public
accountant has certified to the escrow agent that the government
securities will satisfy all scheduled payments on the refunded
security.\75\ Three commenters opposed

eliminating this NRSRO reference on the grounds it could increase fund
expenses and decrease liquidity if funds chose not to bid on refunded
securities for which certifications are not available. As discussed in
the NRSRO References Adopting Release, because we understand that bond
indentures or resolutions authorizing the issuance of the refunded
bonds typically require that the escrow agent receive the requisite
certification, we do not share these commenters' concerns and are
amending Rule 5b-3 to eliminate this reference to NRSRO ratings.\76\
---------------------------------------------------------------------------

    \74\ A ``refunded security'' is a debt security whose principal
and interest are to be paid by U.S. government securities that have
been irrevocably placed in an escrow account and pledged only to
payment of the principal and interest on the debt security. See Rule
5b-3(c)(4).
    \75\ See Rule 5b-3(c)(4)(iii) (requiring at the time the
deposited securities are placed in the escrow account that an
independent accountant has certified to the escrow agent that the
deposited securities will satisfy all scheduled payments of
principal, interest, and applicable premiums in the refunded
securities).
    \76\ See NRSRO References Adopting Release, supra note 3, at
Section II.B.1.
---------------------------------------------------------------------------

    Finally, Rule 206(3)-3T under the Investment Advisers Act
establishes a temporary alternative means for investment advisers who
are registered with the Commission as broker-dealers to meet the
requirements of Section 206(3) of the Advisers Act when they act in a
principal capacity in transactions with certain of their advisory
clients.\77\ The rule contains a condition that excludes securities
from coverage under the rule if the adviser or its close affiliate is
the issuer or an underwriter of the security, unless it is an
underwriter of non-convertible debt securities rated in one of the four
highest rating categories of at least two NRSROs.\78\ The Commission
intends to consider taking separate, broader, action on Rule 206(3)-3T,
which is set to expire at the end of this year.\79\
---------------------------------------------------------------------------

    \77\ Rule 206(3)-3T [17 CFR 275.206(3)-3T]. See also Temporary
Rule Regarding Principal Trades with Certain Advisory Clients,
Investment Advisers Act Release No. 2653 (September 24, 2007) [72 FR
55022 (September 28, 2007)] (``Principal Trade Rule Release'').
Section 206(3) of the Investment Advisers Act makes it unlawful for
any investment adviser, directly or indirectly ``acting as principal
for his own account, knowingly to sell any security to or purchase
any security from a client * * * without disclosing to such client
in writing before the completion of such transaction the capacity in
which he is acting and obtaining the consent of the client to such
transaction.'' 15 U.S.C. 80b-6(3).
    \78\ Rule 206(3)-3T(c).
    \79\ See Principal Trade Rule Release, supra note 77.
---------------------------------------------------------------------------

    As previously mentioned, the Commission is deferring consideration
of action on the proposals to remove NRSRO references from the rules
described above under the Investment Company Act and Investment
Advisers Act. Our broader consideration of each of these rules will
afford us the opportunity to re-evaluate credit rating references in
those rules.
    The Commission generally requests further comment on the proposed
amendments described above to Rules 3a-7 and 5b-3 under the Investment
Company Act and Rule 206(3)-3T under the Investment Advisers Act. We
also request specific comment on whether the rules should require, in
place of existing references to credit ratings, alternate standards
that would use (i) credit ratings as a minimum standard, and (ii)
additional criteria that must be met with regard to evaluating the
securities, such as determinations of credit quality, liquidity, or
appropriateness of the security as an investment for the particular
purchaser. This approach, if applied to Rules 3a-7 and 5b-3 under the
Investment Company Act and Rule 206(3)-3T under the Investment Advisers
Act, would be designed to help reduce undue reliance on ratings by
requiring an additional evaluation of credit quality, while retaining
the external or objective measure of the NRSRO rating. Under Rule 2a-7
in its current form, for example, a determination that a security is an
``eligible security'' as a result of its NRSRO ratings is a necessary
but not sufficient finding in order for a money market fund to acquire
the security. The rule also currently requires a determination that the
security presents minimal credit risks, and specifically requires that
the determination ``be based on factors pertaining to credit quality in
addition to any ratings assigned to such securities by an NRSRO.'' \80\
Although the Commission, as noted above, is continuing to consider
whether to remove references to credit ratings from Rule 2a-7
altogether, we request comment on whether we should consider the two-
step approach of existing Rule 2a-7 for the other rules (i.e., Rules
3a-7, 5b-3, and 206(3)-3T) that contain references to NRSRO credit
ratings. Alternatively, are there other objective measures of credit
risk, and should they be used in place of NRSRO ratings to address the
concerns addressed by the rules?
---------------------------------------------------------------------------

    \80\ Rule 2a-7(c)(3)(i).
---------------------------------------------------------------------------

V. Request for Comment

    The Commission generally requests comment on the Proposing Releases
as indicated above, including whether the Commission should remove
references to credit ratings by NRSROs in Commission rules and the
appropriate factors to consider in making this determination. The
Commission asks that commenters provide specific reasons and
information to support alternative recommendations. Please provide
empirical data, when possible, and cite to economic studies, if any, to
support alternative approaches.

    By the Commission.

    Dated: October 5, 2009.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-24365 Filed 10-8-09; 8:45 am]

BILLING CODE 8011-01-P


[Federal Register Volume 85, Number 117 (Wednesday, June 17, 2020)]
[Notices]
[Pages 36579-36580]
[FR Doc No: 2020-13014]

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

DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

[Docket No. RM98-1-000]

Records Governing Off-the-Record Communications; Public Notice

    This constitutes notice, in accordance with 18 CFR 385.2201(b), of
the receipt

of prohibited and exempt off-the-record communications.
    Order No. 607 (64 FR 51222, September 22, 1999) requires Commission
decisional employees, who make or receive a prohibited or exempt off-
the-record communication relevant to the merits of a contested
proceeding, to deliver to the Secretary of the Commission, a copy of
the communication, if written, or a summary of the substance of any
oral communication.
    Prohibited communications are included in a public, non-decisional
file associated with, but not a part of, the decisional record of the
proceeding. Unless the Commission determines that the prohibited
communication and any responses thereto should become a part of the
decisional record, the prohibited off-the-record communication will not
be considered by the Commission in reaching its decision. Parties to a
proceeding may seek the opportunity to respond to any facts or
contentions made in a prohibited off-the-record communication and may
request that the Commission place the prohibited communication and
responses thereto in the decisional record. The Commission will grant
such a request only when it determines that fairness so requires. Any
person identified below as having made a prohibited off-the-record
communication shall serve the document on all parties listed on the
official service list for the applicable proceeding in accordance with
Rule 2010, 18 CFR 385.2010.
    Exempt off-the-record communications are included in the decisional
record of the proceeding, unless the communication was with a
cooperating agency as described by 40 CFR 1501.6, made under 18 CFR
385.2201(e)(1)(v).
    The following is a list of off-the-record communications recently
received by the Secretary of the Commission. The communications listed
are grouped by docket numbers in ascending order. In addition to
publishing the full text of this document in the Federal Register, the
Commission provides all interested persons an opportunity to view and/
or print the contents of this document via the internet through the
Commission's Home Page (http://ferc.gov) using the ``eLibrary'' link.
Enter the docket number excluding the last three digits in the docket
number field to access the document. At this time, the Commission has
suspended access to the Commission's Public Reference Room, due to the
proclamation declaring a National Emergency concerning the Novel
Coronavirus Disease (COVID-19), issued by the President on March 13,
2020. For assistance, contact the Federal Energy Regulatory Commission
at<EMAIL_ADDRESS>or toll free at<PHONE_NUMBER>, or for
TTY, contact<PHONE_NUMBER>.

------------------------------------------------------------------------
             Docket No.                File date  Presenter or requester
------------------------------------------------------------------------
Prohibited:
  None..............................
Exempt:
  RP20-859-000......................   5-27-2020  U.S. Congress \1\
------------------------------------------------------------------------
\1\ U.S. Senators John Hoeven, Kevin Cramer, and U.S. Representative
  Kelly Armstrong.

    Dated: June 9, 2020.
Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. 2020-13014 Filed 6-16-20; 8:45 am]
BILLING CODE 6717-01-P


[Federal Register: December 9, 2009 (Volume 74, Number 235)]
[Notices]
[Page 65110-65112]
[DOCID:fr09de09-40]

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DEPARTMENT OF ENERGY

Federal Energy Regulatory Commission

Combined Notice of Filings 1

December 02, 2009.
    Take notice that the Commission received the following electric
corporate filings:
    Docket Numbers: EC10-27-000.
    Applicants: Empire Generating Co, LLC, Niagara Mohawk Power
Corporation.
    Description: Joint Application for Authorization of Transfer of
Certain Limited Interconnection Related Facilities Under Section 203 of
the FPA and Request for Waivers of Filing Requirements and 21-Day
Comment Period.
    Filed Date: 12/01/2009.
    Accession Number: 20091201-5158.
    Comment Date: 5 p.m. Eastern Time on Tuesday, December 22, 2009.

    Take notice that the Commission received the following electric
rate filings:

    Docket Numbers: ER03-1330-002.
    Applicants: Ebersen, Inc.
    Description: Ebersen, Inc submits an application for market-base
rate authority.
    Filed Date: 11/30/2009.
    Accession Number: 20091201-0057.
    Comment Date: 5 p.m. Eastern Time on Monday, December 21, 2009.

    Docket Numbers: ER10-310-000.
    Applicants: Algonquin Energy Services Inc.
    Description: Algonquin Energy Services, Inc submits application for
market based rate authority for certain waivers and blanket approvals,
and request for expedited Treatment.
    Filed Date: 11/25/2009.
    Accession Number: 20091130-0026.
    Comment Date: 5 p.m. Eastern Time on Wednesday, December 16, 2009.

    Docket Numbers: ER10-316-000.
    Applicants: Midwest Independent Transmission System Operator, Inc.
    Description: Midwest ISO submits their proposed clean up filing
required by the Commission's Order 714.
    Filed Date: 11/24/2009.
    Accession Number: 20091125-0130.
    Comment Date: 5 p.m. Eastern Time on Tuesday, December 15, 2009.

    Docket Numbers: ER10-323-000.
    Applicants: Tilton Energy LLC.
    Description: Tilton Energy LLC submits Rate Schedule FERC No 1.
    Filed Date: 11/25/2009.
    Accession Number: 20091130-0025.
    Comment Date: 5 p.m. Eastern Time on Wednesday, December 16, 2009.

    Docket Numbers: ER10-324-000.
    Applicants: E. ON U.S. LLC.
    Description: EON US LLC submits Emergency Energy Transaction
Protocol Agreement.
    Filed Date: 11/25/2009.
    Accession Number: 20091130-0024.
    Comment Date: 5 p.m. Eastern Time on Wednesday, December 16, 2009.

    Docket Numbers: ER10-325-000.
    Applicants: Dynegy Midwest Generation, Inc.
    Description: Dynegy Midwest Generation, Inc revised Rate Schedule
FERC No 5.
    Filed Date: 11/25/2009.
    Accession Number: 20091130-0023.
    Comment Date: 5 p.m. Eastern Time on Wednesday, December 16, 2009.

    Docket Numbers: ER10-326-000.
    Applicants: New England Power Pool.
    Description: The New England Power Pool submits transmittal letter
and counterpart signature pages of their agreement dated as of 9/1/71
re member applications and termination of memberships etc.
    Filed Date: 11/30/2009.
    Accession Number: 20091202-0005.
    Comment Date: 5 p.m. Eastern Time on Monday, December 21, 2009.

    Docket Numbers: ER10-327-000.
    Applicants: Dynegy Midwest Generation, Inc.
    Description: Dynegy Midwest Generation, Inc submits an Amended and
Restated Black Start Service Agreement dated 11/25/09 with Ameren
Services Company et al.
    Filed Date: 11/30/2009.
    Accession Number: 20091202-0004.
    Comment Date: 5 p.m. Eastern Time on Monday, December 21, 2009.

    Docket Numbers: ER10-328-000.
    Applicants: Niagara Mohawk Power Corporation.
    Description: Niagara Mohawk Power Corporation submit revised tariff
sheets to the Open Access Transmission Tariff etc.
    Filed Date: 11/30/2009.
    Accession Number: 20091202-0003.
    Comment Date: 5 p.m. Eastern Time on Monday, December 21, 2009.

    Docket Numbers: ER10-329-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Southwest Power Pool, Inc submits an executed service
agreement for Network Integration Transmission Service with Kansas
Electric Power Cooperative etc.
    Filed Date: 11/30/2009.
    Accession Number: 20091202-0002.
    Comment Date: 5 p.m. Eastern Time on Monday, December 21, 2009.

    Docket Numbers: ER10-322-000.
    Applicants: Northeast Utilities Service Company.
    Description: Western Massachusetts Electric Co submits a Notice of
Cancellation of Rate Schedule FERC No 402 and all supplements etc.
    Filed Date: 11/24/2009.
    Accession Number: 20091125-0141.
    Comment Date: 5 p.m. Eastern Time on Tuesday, December 15, 2009.

    Docket Numbers: ER10-330-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Southwest Power Pool, Inc submits proposal to revise
its Open Access Transmission Tariff to incorporate resident load
reporting deadline.
    Filed Date: 12/01/2009.
    Accession Number: 20091202-0001.
    Comment Date: 5 p.m. Eastern Time on Tuesday, December 22, 2009.

    Docket Numbers: ER10-332-000.
    Applicants: Pacific Gas and Electric Company.
    Description: Pacific Gas and Electric Company submit Service
Agreement No 9 et al. to FERC Electric Tariff, First Revised Volume No
4.
    Filed Date: 12/01/2009.
    Accession Number: 20091202-0012.
    Comment Date: 5 p.m. Eastern Time on Tuesday, December 22, 2009.

    Docket Numbers: ER10-331-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Southwest Power Pool, Inc submits an executed amended
Service Agreement with Kansas City Power & Light Greater Missouri
Operations Company etc.
    Filed Date: 11/30/2009.
    Accession Number: 20091202-0006.
    Comment Date: 5 p.m. Eastern Time on Monday, December 21, 2009.

    Docket Numbers: ER10-333-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Southwest Power Pool, Inc submits an executed service
agreement for Network Integration Transmission Service etc.
    Filed Date: 11/30/2009.
    Accession Number: 20091202-0007.
    Comment Date: 5 p.m. Eastern Time on Monday, December 21, 2009.

    Docket Numbers: ER10-334-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Southwest Power Pool, Inc submits an executed service
agreement for Network Integration Transmission Service between
Southwest Power Pool, Inc as Transmission Provide and Kansas Municipal
Energy Agency et al.
    Filed Date: 11/30/2009.
    Accession Number: 20091202-0008.
    Comment Date: 5 p.m. Eastern Time on Monday, December 21, 2009.

    Docket Numbers: ER10-335-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Southwest Power Pool, Inc submits an executed service
agreement for Network Integration Transmission Service between
Southwest Power Pool, Inc as Transmission Provide and City of
Coffeyville, Kansas et al.
    Filed Date: 11/30/2009.
    Accession Number: 20091202-0009.
    Comment Date: 5 p.m. Eastern Time on Monday, December 21, 2009.

    Docket Numbers: ER10-336-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Southwest Power Pool, Inc submits an executed service
agreement for Network Integration Transmission Service between
Southwest Power Pool, Inc as Transmission Provide and the Empire
District Electric Company etc.
    Filed Date: 11/30/2009.
    Accession Number: 20091202-0010.
    Comment Date: 5 p.m. Eastern Time on Monday, December 21, 2009.

    Docket Numbers: ER10-337-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Southwest Power Pool, Inc submits an executed service
agreement for Network Integration Transmission Service between
Southwest Power Pool, Inc as Transmission Provide and Kansas Power and
Light Company etc.
    Filed Date: 11/30/2009.
    Accession Number: 20091202-0011.
    Comment Date: 5 p.m. Eastern Time on Monday, December 21, 2009.

    Docket Numbers: ER10-338-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Southwest Power Pool, Inc submits executed service
agreement for Network Integration Transmission Service between SPP and
Kansas Electric Power Cooperative et al.
    Filed Date: 12/01/2009.
    Accession Number: 20091202-0013.
    Comment Date: 5 p.m. Eastern Time on Tuesday, December 22, 2009.

    Docket Numbers: ER10-339-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Southwest Power Pool, Inc submits executed service
agreement for Firm Point to Point Transmission Service between SPP and
Midwest Energy, Inc.
    Filed Date: 12/01/2009.
    Accession Number: 20091202-0014.
    Comment Date: 5 p.m. Eastern Time on Tuesday, December 22, 2009.

    Docket Numbers: ER10-340-000.
    Applicants: California Independent System Operator Corporation.
    Description: California Independent System Operator Corporation
submits Amendment No 4 to Interconnected Control Area Operating
Agreement between the ISO and Nevada Power Company.
    Filed Date: 12/01/2009.
    Accession Number: 20091202-0018.
    Comment Date: 5 p.m. Eastern Time on Tuesday, December 22, 2009.

    Docket Numbers: ER10-341-000.
    Applicants: Southwest Power Pool, Inc.
    Description: Southwest Power Pool, Inc submits executed service
agreement for Network Integration Transmission Service between SPP and
Grand River Dam Authority et al.
    Filed Date: 12/01/2009.
    Accession Number: 20091202-0017.
    Comment Date: 5 p.m. Eastern Time on Tuesday, December 22, 2009.

    Docket Numbers: ER10-342-000.
    Applicants: California Independent System Operator Corporation.
    Description: California Independent System Operator Corporation
submits Pseudo Participating Generator Agreement.
    Filed Date: 12/01/2009.
    Accession Number: 20091202-0016.
    Comment Date: 5 p.m. Eastern Time on Tuesday, December 22, 2009.

    Docket Numbers: ER10-344-000.
    Applicants: PJM Interconnection, LLC.
    Description: PJM Interconnection, LLC Request for Limited Tariff
Waiver.
    Filed Date: 12/01/2009.
    Accession Number: 20091201-5152.
    Comment Date: 5 p.m. Eastern Time on Tuesday, December 22, 2009.

    Take notice that the Commission received the following electric
reliability filings:

    Docket Numbers: RD10-4-000.
    Applicants: North American Electric Reliability Corporation.
    Description: Petition of the North American Electric Reliability
Corporation for Approval of Two Reliability Standards Revisions to
Withdraw MISO Waivers.
    Filed Date: 11/20/2009.
    Accession Number: 20091120-5150.
    Comment Date: 5 p.m. Eastern Time on Wednesday, December 23, 2009.

    Any person desiring to intervene or to protest in any of the above
proceedings must file in accordance with Rules 211 and 214 of the
Commission's Rules of Practice and Procedure (18 CFR 385.211 and
385.214) on or before 5 p.m. Eastern time on the specified comment
date. It is not necessary to separately intervene again in a subdocket
related to a compliance filing if you have previously intervened in the
same docket. Protests will be considered by the Commission in
determining the appropriate action to be taken, but will not serve to
make protestants parties to the proceeding. Anyone filing a motion to
intervene or protest must serve a copy of that document on the
Applicant. In reference to filings initiating a new proceeding,
interventions or protests submitted on or before the comment deadline
need not be served on persons other than the Applicant.
    The Commission encourages electronic submission of protests and
interventions in lieu of paper, using the FERC Online links at http://
www.ferc.gov. To facilitate electronic service, persons with Internet
access who will eFile a document and/or be

listed as a contact for an intervenor must create and validate an
eRegistration account using the eRegistration link. Select the eFiling
link to log on and submit the intervention or protests.
    Persons unable to file electronically should submit an original and
14 copies of the intervention or protest to the Federal Energy
Regulatory Commission, 888 First St., NE., Washington, DC 20426.
    The filings in the above proceedings are accessible in the
Commission's eLibrary system by clicking on the appropriate link in the
above list. They are also available for review in the Commission's
Public Reference Room in Washington, DC. There is an eSubscription link
on the Web site that enables subscribers to receive e-mail notification
when a document is added to a subscribed dockets(s). For assistance
with any FERC Online service, please e-mail<EMAIL_ADDRESS>
or call<PHONE_NUMBER> (toll free). For TTY, call<PHONE_NUMBER>.

Nathaniel J. Davis, Sr.,
Deputy Secretary.
[FR Doc. E9-29274 Filed 12-8-09; 8:45 am]

BILLING CODE 6717-01-P


[Federal Register Volume 81, Number 195 (Friday, October 7, 2016)]
[Notices]
[Pages 69859-69860]
[FR Doc No: 2016-24320]

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DEPARTMENT OF LABOR

Occupational Safety and Health Administration

[Docket No. OSHA-2016-0001]

National Advisory Committee on Occupational Safety and Health
(NACOSH); Charter Renewal

AGENCY: Occupational Safety and Health Administration (OSHA), Labor.

ACTION: Renewal of the NACOSH charter.

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SUMMARY: The Secretary of Labor (Secretary) will renew the charter for
NACOSH.

FOR FURTHER INFORMATION CONTACT: Ms. Michelle Walker, OSHA Directorate
of Technical Support and Emergency Management, Occupational Safety and
Health Administration, Room N-2625, U.S. Department of Labor, 200
Constitution Avenue NW., Washington, DC 20210; telephone<PHONE_NUMBER>
(TTY<PHONE_NUMBER>); email<EMAIL_ADDRESS>
SUPPLEMENTARY INFORMATION: The Secretary will renew the NACOSH charter.
The charter will expire two years from the date it is filed.
    NACOSH was established by Section 7(a) of the Occupational Safety
and Health Act of 1970 (OSH Act) (29 U.S.C. 651, 656) to advise,
consult with and make recommendations to the Secretary and the
Secretary of Health and Human Services on matters relating to the
administration of the OSH Act. NACOSH is a non-discretionary advisory
committee of indefinite duration.
    NACOSH operates in accordance with the Federal Advisory Committee
Act (FACA) (5 U.S.C. App. 2), its implementing regulations (41 CFR part
102-3), and OSHA's regulations on NACOSH (29 CFR part 1912a). Pursuant
to FACA (5 U.S.C. App. 2, 14(b)(2)), the NACOSH charter must be renewed
every two years.
    The new charter increases the estimated annual operational costs
for NACOSH by approximately 3 percent (to $186,500 from $181,000).
    The new NACOSH charter is available to read or download at http://www.regulations.gov (Docket No. OSHA-2016-0001), the federal
eRulemaking portal. The charter also is available on the NACOSH page on
OSHA's Web page at http://www.osha.gov and at the OSHA Docket Office,
N-2625, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210; telephone<PHONE_NUMBER>. In addition, the
charter is available for viewing or download at the Federal Advisory
Committees Database at http://www.facadatabase.gov.

Authority and Signature

    David Michaels, Ph.D., MPH, Assistant Secretary of Labor for
Occupational Safety and Health, directed the preparation of this notice
under the authority granted by 29 U.S.C. 656; 5 U.S.C. App. 2; 29 CFR
part 1912a; 41 CFR part 102-3; and Secretary of Labor's Order No. 1-
2012 (77 FR 3912 (1/25/2012)).

    Signed at Washington, DC, on October 4, 2016.
David Michaels,
Assistant Secretary of Labor for Occupational Safety and Health.
[FR Doc. 2016-24320 Filed 10-6-16; 8:45 am]
 BILLING CODE 4510-26-P


[Federal Register Volume 77, Number 198 (Friday, October 12, 2012)]
[Notices]
[Pages 62275-62277]
[FR Doc No: 2012-25079]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-67983; File No. SR-ICC-2012-17]

Self-Regulatory Organizations; ICE Clear Credit LLC; Notice of
Filing and Order Granting Accelerated Approval of Proposed Rule Change
To Revise Rules Related To Legal Segregation With Operational
Commingling

October 4, 2012.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that
on September 21, 2012, ICE Clear Credit LLC (``ICC'') filed with the
Securities and Exchange Commission (``Commission'') the proposed rule
changes described in Items I and II below, which Items have been
prepared primarily by ICC. The Commission is publishing this notice to
solicit comments on the proposed rule change from interested persons
and to approve the proposed rule change on an accelerated basis.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance
of the Proposed Rule Change

    ICC submits proposed amendments to its Rules to implement the
enhanced margin segregation model for cleared swaps that the Commodity
Futures Trading Commission (``CFTC'') adopted in Part 22 of the CFTC
regulations (generally referred to as ``legal segregation with
operational commingling'' or ``LSOC''). CFTC rules require ICC (like
other derivatives clearing organizations) to implement LSOC by November
8, 2012. As result of the LSOC requirements, ICC principally proposes
to (i) introduce new procedures for allocating initial margin to the
positions carried for each customer on a customer-by-customer basis,
(ii) introduce new procedures for calling for, holding and returning
customer margin in light of the requirement to allocate initial margin
on a customer-by-customer basis, and (iii) change the default
``waterfall'' to limit ICC's ability to use customer margin in the
event that a clearing member defaults, consistent with the requirements
of LSOC. The LSOC requirements are intended to mitigate the risk that
one customer of a clearing member would suffer a loss because of a
default by another clearing member. ICC will also be removing existing
provisions of the Rules that addressed the holding of excess margin and
will not be necessary in ICC's initial implementation of LSOC.
    ICC proposes to amend Parts 3, 4, 8, 20 and 20A of the ICC Rules,
as well as related definitions, to incorporate Part 22 of the CFTC
Regulations. The other proposed changes in the ICC Rules reflect
conforming changes and drafting clarifications and do not affect the
substance of the ICC Rules or forms of cleared products. All
capitalized terms not defined herein are defined in the ICC Rules.

II. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, ICC included statements
concerning the purpose of and basis for the proposed rule changes and
discussed any comments it received on the proposed rule changes. The
text of these statements may be examined at the places specified in
Item III below. ICC has prepared summaries, set forth in sections A, B,
and C below, of the most significant aspects of these statements.\3\
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    \3\ The Commission has modified the text of the summaries
prepared by ICC to reflect information communicated during phone
calls with Michelle Weiler, Assistant General Counsel, on October 2
and October 3, 2012.
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A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change

    As noted above, the principal purpose of the proposed rule
amendments is intended to update the particular characteristics of the
Rules applicable to the segregation of customer margin. Specifically,
the proposed rule changes affect Parts 3, 4, 8, 20 and 20A of the ICC
Rules, and related definitions, by providing, in summary, that initial
margin allocated to a particular customer's positions may not be used
to cover losses arising from another customer's positions. Each of
these changes is described in detail as follows.
    In Part 1 of the ICC Rules, the definitions of ``custodial asset
policies,'' ``custodial client omnibus margin account,'' ``eligible
custodial assets,''

``excess margin,'' ``net client omnibus margin account,'' ``net margin
requirement,'' and ``Participant excess margin'' have been deleted to
reflect the LSOC model and particularly the elimination of provisions
relating to holding excess margin at ICC. New definitions for ``client
omnibus margin account'' and ``non-Participant party portfolio'' have
been added to accommodate the LSOC model, including the customer-by-
customer tracking of initial margin and positions.
    Existing Rule 304(b), which pertains to offsets, has been revised
to conform to LSOC requirements that ICC calculate and collect Client-
Related Initial Margin on a gross basis as opposed to a net basis.
Existing Rule 307 has been revised so that the Statement of Open
Positions now lists the Net House Margin Requirement and the Net
Client-Related Mark-To-Market Margin Requirement, and Existing Rule 308
has been modified so that the Statement of Initial Margin states the
Net House Margin Requirement and the Non-Participant Party Portfolio
Margin Requirement for each Non-Participant Party Portfolio.
    Existing Rule 401(a) has been revised so that it only applies to
house margin. ICC has adopted a new Rule 401(b) that governs for
client-related margin, which is the margin posted by a Participant in
respect of Client-Related Positions. To comply with LSOC as it relates
to ``initial margin,'' under new Rule 401(b)(i), ICC will calculate the
initial margin requirement separately for each Non-Participant Party
Portfolio and compare it to the value of initial margin provided by the
Participant and allocated by ICC under CFTC Rules to that portfolio. In
each margin cycle, ICC will call for additional initial margin for each
Non-Participant Party Portfolio for which there is a shortfall. ICC
will separately make available for return to the Participant any excess
initial margin held with respect to a Non-Participant Party Portfolio.
    For ``mark-to-market margin'' under new Rule 401(b)(ii), ICC will
continue to calculate a net amount for all Client-Related Positions in
all Non-Participant Party Portfolios and compare it to the value of the
mark-to-market margin held by ICC or the value of the mark-to-market
margin held or deemed held by the Participant. For each margin cycle,
ICC will make a net call or payment of mark-to-market margin, as
appropriate.
    Under the proposed revised Rule 402(h), ICC has incorporated the
new CFTC Rule 22.15, which limits ICC's use of the Initial Margin
posted in respect of Client-Related Positions. Revisions to Rule 406
eliminate various provisions that are now covered by CFTC regulations
and are no longer necessary with the implementation of the LSOC
framework. Further, under the proposed new Rule 406(l), ICC states that
it will not accept the deposit of Margin from a Participant in respect
of Client-Related Positions in excess of the amount required by ICC.
    ICC proposes to revise Rule 20-605(c)(i)(A) in order to modify the
default ``waterfall'' for application of resources in the Closing-out
Process for Client-Related Positions upon a Participant default to
reflect new CFTC Rule 22.15. The principal change to the rule is in
subclause (C), which provides that ICC is only entitled to use Initial
Margin allocated to a particular Non-Participant Party Portfolio to
cover losses from that portfolio. Initial Margin for Client-Related
Positions could not otherwise be applied by ICC as part of the default
waterfall. Rule 20-605(c)(i)(A) and (B) also contain various non-
substantive drafting improvements and clarifications as compared to the
existing Rule. Revisions to Rule 20-605(d) address ICC's ability to
allocate margin to a particular Non-Participant Party Portfolio for
purposes of the default waterfall. ICC has also made conforming changes
to Chapter 8 of the Rules, which addresses the use of the guaranty fund
in the default waterfall.
    The proposed changes to Part 20A of the ICC Rules, which address
transfer of positions, are also intended to conform to the changes in
the default waterfall.
    Finally, in addition to rule changes designed to address Part 22 of
the CFTC Regulations, existing Rule 405 has been deleted because it is
no longer applicable.

B. Self-Regulatory Organization's Statement on Burden on Competition

    ICC does not believe the proposed rule change would have any
impact, or impose any burden, on competition.

C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants or Others

    Written comments relating to the proposed rule change have not been
solicited or received. ICC will notify the Commission of any written
comments received by ICC.

III. Solicitation of Comments

    Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Comments may be submitted by any of
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to<EMAIL_ADDRESS>Please include
File Number SR-ICC-2012-17 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street NE.,
Washington, DC 20549-1090.

All submissions should refer to File Number SR-ICC-2012-17. This file
number should be included on the subject line if email is used. To help
the Commission process and review your comments more efficiently,
please use only one method. The Commission will post all comments on
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all
written statements with respect to the proposed rule change that are
filed with the Commission, and all written communications relating to
the proposed rule change between the Commission and any person, other
than those that may be withheld from the public in accordance with the
provisions of 5 U.S.C. 552, will be available for Web site viewing and
printing in the Commission's Public Reference Room, 100 F Street NE.,
Washington, DC 20549, on official business days between the hours of
10:00 a.m. and 3:00 p.m. Copies of such filings will also be available
for inspection and copying at the principal office of ICC and on ICC's
Web site at https://www.theice.com/publicdocs/regulatory_filings/ICEClearCredit_092112.pdf.
    All comments received will be posted without change; the Commission
does not edit personal identifying information from submissions. You
should submit only information that you wish to make available
publicly. All submissions should refer to File Number SR-ICC-2012-17
and should be submitted on or before November 2, 2012.

IV. Commission's Findings and Order Granting Accelerated Approval of
Proposed Rule Change

    Section 19(b) of the Act \4\ directs the Commission to approve a
proposed rule change of a self-regulatory organization if it finds that
such proposed rule

change is consistent with the requirements of the Act and the rules and
regulations thereunder applicable to such organization. The Commission
finds that the proposed rule change is consistent with the requirements
of the Act, in particular the requirements of Section 17A of the Act,
and the rules and regulations thereunder applicable to ICC.\5\
Specifically, the Commission finds that the proposed rule change is
consistent with Section 17A(b)(3)(F) of the Act, which requires, among
other things, that the rules of a registered clearing agency be
designed to assure the safeguarding of securities and funds which are
in the custody or control of the clearing agency or for which it is
responsible and to protect investors and the public interest.\6\
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    \4\ 15 U.S.C. 78s(b).
    \5\ 15 U.S.C. 78q-1. In approving this proposed rule change, the
Commission has considered the proposed rule's impact on efficiency,
competition, and capital formation. 15 U.S.C. 78c(f).
    \6\ 15 U.S.C. 78q-1(b)(3)(F).
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    In its filing, ICC requested that the Commission approve this
proposed rule change on an accelerated basis for good cause shown. ICC
believes there is good cause for accelerated approval because the rule
change is required to be in compliance with Part 22 of the CFTC
Regulations, which will become effective on November 8, 2012.
    The Commission finds good cause, pursuant to Section 19(b)(2) of
the Act,\7\ for approving the proposed rule change prior to the 30th
day after the date of publication of notice in the Federal Register
because, as a derivatives clearing organization registered with the
CFTC, ICC must amend certain of its rules to comply with CFTC's Part 22
Regulations that will become effective on November 8, 2012.
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    \7\ 15 U.S.C. 78s(b)(2).
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V. Conclusion

    It is therefore ordered, pursuant to Section 19(b)(2) of the Act,
that the proposed rule change (SR-ICC-2012-17) be, and hereby is,
approved on an accelerated basis.

    For the Commission, by the Division of Trading and Markets,
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-25079 Filed 10-11-12; 8:45 am]
BILLING CODE 8011-01-P