the total burden hours per Form SF-1 (1,350) by the number of Form
SF-1s expected under the proposal (7), resulting in 9,450 total
burden hours. Then, we allocate 25 percent of these hours to
internal burden, resulting in 2,363.5 hours. We allocate the
remaining 75 percent of the total burden hours to related
professional costs and use a rate of $400 per hour to calculate the
external professional costs of $2,835,000.
    \514\ To calculate these values, we first multiply the total
burden hours per Form S-1 (1,250) by the average number of Form S-1s
filed during 2004-2009 (4), resulting in 5,000 total burden hours.
Then, we allocate 25 percent of these hours to internal burden,
resulting in 1,250 hours. We allocate the remaining 75 percent of
the total burden hours to related professional costs and use a rate
of $400 per hour to calculate the external professional costs of
$1,500,000.
---------------------------------------------------------------------------

3. Form 10-K
    The ongoing periodic and current reporting requirements applicable
to operating companies differ substantially from the reporting that is
most relevant to investors in asset-backed securities. For asset-backed
issuers, in addition to a limited menu of Form 10-K disclosure items,
the issuer must file a servicer compliance statement, a servicer's
assessment of compliance with servicing criteria, and an attestation of
an independent public accountant as exhibits to the Form 10-K.
    One of our proposed ABS shelf eligibility conditions (i.e.,
criteria that must be met in order to be eligible to register ABS on
Form SF-3) would require the issuer to undertake to file Exchange Act
reports as long as non-affiliates hold any of its securities that were
sold in registered transactions. Except for master trust issuers, the
requirement to file Form 10-K for ABS issuers is typically suspended
after the year of initial issuance because the issuer has fewer than
300 security holders of record.\515\ Therefore, the incremental impact
to the number of Forms 10-K filed by ABS issuers would increase each
year after the proposal is adopted by the number of ABS shelf
offerings. The yearly average of ABS registered shelf offerings with
the Commission over the period from 2004 to 2009 was 929.\516\ In the
first year after implementation, we use 958, which is the average
number of all offerings over 2004-2009, as an estimate for the number
of Forms 10-K we expect to receive. In the second year after
implementation, we increase our estimate of the number of Forms 10-K
expected by 929 to a total of 1,887. In the third year after
implementation, the addition of another 929 brings the total to 2,817.
The average number of Forms 10-K over three years would, therefore, be
1,887. As a result, for PRA purposes, we estimate an increase in Form
10-K filings of 929 filings.
---------------------------------------------------------------------------

    \515\ See Exchange Act Section 15(d).
    \516\ The 929 ABS registered shelf offerings is 97 percent of
the average yearly number of ABS offerings from 2004 through 2009.
---------------------------------------------------------------------------

    We estimate that, for Exchange Act reports, 75% of the burden of
preparation is carried by the company internally and that 25% of the
burden is carried by outside professionals retained by the registrant
at an average

cost of $400 per hour. In 2004, we estimated that 120 hours would be
needed to complete and file a Form 10-K for an ABS issuer. We estimate
that our proposals relating to Form 10-K would not increase the
estimate for the time needed to complete and file Form 10-K for an ABS
issuer.
    However, our proposed amendments may have a limited impact on the
preparation of Form 10-K for the sponsor of the ABS issuer, if the
sponsor is a company that is required to report under the Exchange Act.
Though we are not proposing changes to Form 10-K disclosure
requirements for sponsors, our proposals may impact the work that
sponsors would have to do to disclose in their Form 10-K the securities
they are required to hold as a result of the proposals and the
investments they make to manage risks associated with the new
requirements. We estimate that our proposals will cause an increase in
the number of hours the sponsor will incur to prepare, review and file
Form 10-K by 10 hours. From 2004 to 2009, the number of unique ABS
sponsors was 343, for an average of 57 unique sponsors per year.
Therefore, we estimate that, for PRA purposes, the total annual
increase in the number of hours to prepare, review, and file Form 10-K
would be 112,050.\517\ We allocate 75% of those hours (84,038 hours) to
internal burden and the remaining 25% to external costs totaling
$11,205,000 using a rate of $400 per hour.
---------------------------------------------------------------------------

    \517\ The 112,050 total burden hours are calculated by adding
the impact on ABS issuers, which equals 929 incremental Forms 10-K
times 120 burden hours per filing, and the impact on sponsors of ABS
issuers, which equals 57 sponsors times 10 incremental burden hours.
---------------------------------------------------------------------------

4. Form 10-D
    In 2004, we adopted Form 10-D as a new form for only asset-backed
issuers. This form is filed within 15 days of each required
distribution date on the asset-backed securities, as specified in the
governing documents for such securities. The form contains periodic
distribution and pool performance information. We have derived an
estimate of the number of Form 10-Ds filed by registered ABS issuers
using the average annual number of ABS registered offerings completed
over the period 2004-2009.\518\ The average over those years was 958
offerings annually.
---------------------------------------------------------------------------

    \518\ Even though we adopted Form 10-D in 2004 and its
implementation was not effective until 2006, we use the longer time
period of 2004-2009 to match the years used for our estimate of the
expected Form 10-Ks to be filed.
---------------------------------------------------------------------------

    As discussed above, we are proposing to require, as a condition to
shelf eligibility, an undertaking from the issuer that it will continue
to file Exchange Act reports as long as non-affiliates hold any of its
securities that were sold in registered transactions. As with the Form
10-K, we believe that our proposals would result in an increase in the
number of Form 10-Ds filed. Except for master trust issuers, the
requirement to file Form 10-D for ABS issuers is typically suspended
after the year of initial issuance because the issuer has fewer than
300 security holders of record.\519\ Therefore, the incremental impact
to the number of Forms 10-D filed by ABS issuers would increase each
year after the proposal is adopted by the number of ABS shelf offerings
older than one year where any of its securities are held by non-
affiliates. From 2004 to 2009, the yearly average of ABS registered
shelf offerings filed with the Commission was 929.\520\ Since Form 10-D
is required on a periodic basis based on the distribution schedule of
the security, we estimate the total number of Form 10-Ds filed in the
first year after implementation to be 5,748.\521\ In the second year
after implementation, we increase our estimate of the number of Forms
10-D expected by 5,576 for a total of 11,324.\522\ In the third year
after implementation, the addition of another 5,576 brings the total to
16,899. The average number of Forms 10-D over three years would,
therefore, be 11,324. Therefore, for PRA purposes, we estimate an
increase in Form 10-D filings of 5,576 filings.
---------------------------------------------------------------------------

    \519\ See Exchange Act Section 15(d).
    \520\ The 929 ABS registered shelf offerings is 97 percent of
the average yearly number of ABS offerings from 2004 through 2009.
    \521\ We are estimating that the number of Forms 10-D per year
would be a multiple of six times the number of offerings per year
(958) for a total of 5,748 Form 10-D filings per year. Different
types of asset-backed securities have different distribution
periods, and the Form 10-D is filed each distribution period. We
derived the multiplier of six by comparing the number of Forms 10-D
that have been filed since 2006 with the number of Forms 10-K (which
are only required to be filed once a year) that have been filed.
    \522\ We calculate the incremental number of Forms 10-D by
multiplying our previous estimate of 929 shelf offerings per year by
our estimate of six Forms 10-D filed per offering for a total of
5,576 filings per year.
---------------------------------------------------------------------------

    In 2004, we estimated that it would take 30 hours to complete and
file Form 10-D.\523\ As discussed below, we are proposing to add asset-
level disclosure requirements that relate to ongoing performance of the
assets to the requirements of Form 10-D. For credit card ABS issuers,
we are proposing to add to Form 10-D a requirement that such issuers
provide grouped asset data. Those proposed requirements are included in
our estimate of the asset-level disclosure collection of information
requirements, as discussed below in the section entitled ``Asset Data
File.'' We believe that our other proposed revisions to Form 10-D would
not increase the burden hours for the form. Therefore, we estimate that
the total annual increase in the number of hours to prepare, review,
and file Form 10-D would be 167,280.\524\ We allocate 75% of those
hours (125,460 hours) to internal burden and the remaining 25% to
external costs totaling $16,728,000 using a rate of $400 per hour.
---------------------------------------------------------------------------

    \523\ See the 2004 ABS Adopting Release.
    \524\ The burden hours are calculated by multiplying 5,576
incremental Forms 10-D by the 30 burden hours required to complete
the form for a total of 167,280 hours.
---------------------------------------------------------------------------

5. Form 8-K
    Our current PRA estimate for Form 8-K is based on the use of the
report to disclose the occurrence of certain defined reportable events,
some of which are applicable to asset-backed securities.
    The number of ABS issuers filing Form 8-Ks on an annual basis may
be affected by our proposal to require an ABS issuer that wishes to be
shelf-eligible to undertake to file Exchange Act reports on an ongoing
basis. In addition, our proposal to revise existing Item 6.05 of Form
8-K, which currently requires disclosure for any change in the actual
asset pool over five percent from the description in the prospectus, by
instead requiring an ABS issuer to instead provide information for any
change equal to or greater than one percent in the asset pool from the
prospectus description, may lead to an increase of Form 8-K
filings.\525\ We are also proposing to add a requirement that the
sponsor provide disclosure on Form 8-K for a material change in its
interest in the transaction.\526\
---------------------------------------------------------------------------

    \525\ Our estimate here does not include an increase that would
result in filing Item 6.06 or Item 6.07 Forms 8-K which are instead
included in our burden estimate for the newly proposed collection of
information requirements for asset-level data and the waterfall
computer program.
    \526\ See existing Item 6.03 of Form 8-K.
---------------------------------------------------------------------------

    In 2004, we estimated that the new items added to Form 8-K to
address ABS disclosure would cause an increase of two reports on Form
8-K per ABS issuer per year.\527\ We estimate that our proposals would
cause an increase of 1.5 reports on Form 8-K per ABS issuer per year,
or a total of approximately 1,437 additional reports per year.\528\
---------------------------------------------------------------------------

    \527\ See 2004 ABS Adopting Release.
    \528\ The number of ABS offerings is based on the average number
of ABS deals issued annually over 2004 through 2009.
---------------------------------------------------------------------------

    In 2004, we estimated that an average ABS issuer would spend about
five

hours completing the form.\529\ We estimate that the average burden for
the disclosure per Form 8-K would remain relatively the same.
Accordingly, we estimate the total annual increase in the number of
hours to prepare, review, and file Form 8-K would be 7,185, with 75% of
those hours (5,389) allocated to internal burden and the remaining 25%
allocated to external costs of $718,500 using a rate of $400 per
hour.\530\
---------------------------------------------------------------------------

    \529\ See 2004 ABS Adopting Release.
    \530\ The total burden hours are calculated by multiplying the
expected number of Form 8-K reports per year (1,437) times the
estimated hours per filing (5) for a total of 7,185. Then, we
allocate 75 percent of these hours to internal burden, resulting in
5,389 hours. We allocate the remaining 25 percent of the total
burden hours to related professional costs and use a rate of $400
per hour to calculate the external professional costs of $718,500.
---------------------------------------------------------------------------

6. Regulation S-K and Regulation S-T
    Regulation S-K, which includes the item requirements in Regulation
AB, contains the requirements for disclosure that an issuer must
provide in filings under both the Securities Act and the Exchange Act.
As noted above, Regulation S-T contains the requirements that govern
the electronic submission of documents. In 2004, we noted that the
collection of information requirements associated with Regulation S-K
as it applies to ABS issuers are included in Form S-1, Form S-3, Form
10-K and Form 8-K. We assign one burden hour to Regulation S-K for
administrative convenience to reflect that the changes to the
regulation did not impose a direct burden on companies.\531\
---------------------------------------------------------------------------

    \531\ See 2004 ABS Adopting Release.
---------------------------------------------------------------------------

    The proposed changes would make revisions to Regulation S-K and
Regulation S-T. The collection of information requirements, however,
are reflected in the burden hours estimated for the various Securities
Act and Exchange Act forms related to ABS issuers. The rules in
Regulation S-K and Regulation S-T do not impose any separate burden.
Consistent with historical practice, we have retained an estimate of
one burden hour each to Regulation S-T and Regulation S-K for
administrative convenience.
7. Asset Data File
    This new collection of information corresponds to asset data file
information requirements that we are proposing to add to proposed Form
SF-1, proposed Form SF-3, Form 10-D, and Form 8-K. They would be
required to appear in exhibits to these forms. Our proposed standard
definitions for asset-level information are similar to, and in part
based on, other standards that have been developed by the industry,
such as those developed under ASF's Project RESTART and those developed
by the CRE Finance Council (formerly CMSA). These proposed standard
definitions employ widely used metrics relating to asset-level
information and, based on discussions with the industry, we believe
that much of asset-level information may already be available for
collection, although the format of such information may not be the one
that we propose to require. We also believe that first year
implementation costs may be much more significant than ongoing
implementation costs.
    An ABS issuer filing on proposed Form SF-1 or proposed Form SF-3
would be required to provide this new information. For the most part,
this new information would be provided at the time that the newly
proposed Rule 424(h) filing is required to be filed, at the time the
final prospectus is required to be filed, and after there are certain
changes to the pool, such as the substitution or addition of assets.
Certain information would be required to be filed on an ongoing basis.
We believe the information is currently available to the ABS issuer but
additional time and expense will be involved in including the
information in registration statements in the format that we are
proposing.
    The requirements are tailored by asset class. All asset classes
except credit card receivables and stranded costs are required to
provide asset-level information on each asset in the pool. Information
relating to the performance of the assets would be required to be filed
on an ongoing basis. Credit card ABS issuers would be required to
provide grouped asset data, both at the time of securitization and on
an ongoing basis. The grouped asset data could be incorporated by
reference (from a previously filed Form 10-D).
    We believe that the costs of implementation would include software
costs, costs to tag the required data, costs of maintaining the
required information, and costs of filing. The number of unique ABS
sponsors over 2004-2009 was 343, for an average of 57 unique sponsors
per year. We estimate that there are 10 unique sponsors of credit card
securitizations over a three-year period (or three unique sponsors per
year). We base our burden estimates for this collection of information
on the assumption that most of the costs of implementation of the
proposed asset-level data filing requirements would be incurred before
the sponsor files its first asset-level data filing in compliance with
the proposed rules. Because asset-backed issuers are currently required
by Regulation AB to file pool-level information on the assets in the
underlying pool,\532\ we assume, for purposes of our PRA estimates,
that much of the information that is required to be provided by the new
disclosure requirements should be accessible from existing sponsor data
systems.
---------------------------------------------------------------------------

    \532\ Also, some registered issuers may be providing asset-level
information to investors, although such information is not
standardized.
---------------------------------------------------------------------------

    Because of the number of fields involved, our estimates for the
proposed asset-level requirements are based on EDGAR data on RMBS and
CMBS issuers. We estimate that, for purposes of the PRA burden estimate
for the asset-level disclosure requirements, approximately two percent
of the proposed asset-level data fields that are required at the time
of securitization and approximately two percent of the asset-level data
fields that are required on an ongoing basis would require the sponsor
to adjust its systems and procedures for collecting information on each
asset. We estimate that, for purposes of an initial filing of asset-
level information at the time of securitization, a sponsor would be
required to expend at least 18 minutes for each item where adjustments
must be made for each asset in a pool. We estimate that an RMBS sponsor
would incur a one-time setup cost for the initial filing of 3,194 hours
to adjust its existing systems to provide the required information at
the time of securitization for each asset in the initial filing, 86
hours for a CMBS sponsor, and 2,010 hours for a credit card receivables
sponsor.\533\ After a sponsor has made the necessary adjustments to its
systems and after an initial filing of asset-level data has been made,
we estimate that subsequent filings for asset-level data will take
approximately ten hours to prepare, review, and file. For credit card
ABS sponsors, grouped asset data may be incorporated by reference, as
proposed, and therefore, we are not including additional costs for

subsequent filings by a credit card master trust.
---------------------------------------------------------------------------

    \533\ For RMBS and CMBS issuers, this is based on an average
pool size for RMBS of 3,317 assets and an average pool size for CMBS
of 165 assets and also includes ten hours for tagging and filing the
required asset-level disclosure. Because we believe that the
information that is required by the proposed grouped asset data
requirement would be information that a credit card ABS sponsor
already collects in its existing systems, we believe the initial
set-up costs for a sponsor would not include expenses necessary to
adjust systems to collect new information. However, a sponsor may
expend some additional effort for other adjustments due to the
requirement and therefore, we estimate that the initial filing of
grouped asset data would require 2000 hours for a credit card ABS
sponsor, plus an added ten hours for tagging and filing the
information.
---------------------------------------------------------------------------

    Similarly, we estimate that for purposes of an initial filing of
asset-level ongoing information, a sponsor would be required to expend
at least 18 minutes for each item where adjustments must be made for
each asset in a pool. We estimate that an RMBS sponsor would incur a
one-time set-up cost of 3,811 hours to adjust its existing systems to
provide the required ongoing information for each asset in the initial
filing, 92 hours for a CMBS sponsor, while a credit card receivables
sponsor would not incur additional setup costs for ongoing
information.\534\ After a sponsor has made the necessary adjustments to
its systems in connection with the proposed rule and, after an initial
filing of asset-level ongoing information has been made, we estimate
that subsequent filings for asset-level ongoing information by a
sponsor will take approximately ten hours to prepare, review, and file.
We estimate that filings of grouped asset data for credit card ABS
issuers would take approximately ten hours to prepare, review and file.
---------------------------------------------------------------------------

    \534\ For RMBS and CMBS issuers, this is based on an average
pool size for RMBS of 3,317 assets and an average pool size for CMBS
of 165 assets and also includes ten hours for tagging and filing the
required asset-level disclosure. We do not believe that sponsors
credit card receivables would incur additional setup costs for
filing grouped asset data information on an ongoing basis since the
information that is filed on an ongoing basis is the same
information that is required at the time of securitization.
---------------------------------------------------------------------------

    Based on the number of loans that may be securitized in a
particular offering and the asset-level requirements for each of the
asset classes, and the number of offerings for each of the asset
classes, we estimate that the total annual burden hours for preparing,
tagging and filing asset-level disclosure or grouped asset data at the
time of securitization will be 151,368.\535\ We allocate 25% of those
hours (37,842.04) to internal burden hours for all ABS issuers and 75%
of the hours to out-of pocket expenses for software consulting and
filing agent costs at a rate of $250 per hour totaling $28,381,527.95.
We estimate that the average annual hours for preparing, tagging and
filing asset-level disclosure or grouped asset data on an ongoing basis
with the Form 10-D will be 207,009 hours for all ABS issuers.\536\ We
allocated 75% of those hours (155,256.5 hours) to internal burden hours
and 25% of those hours for out-of-pocket expenses for software
consulting and filing agent costs at a rate of $250 per hour totaling
$12,938,042.83. Thus, we estimate the total annual incremental burden
for the asset-level disclosure requirements or grouped asset data at
193,098.6 hours \537\ and the added total amount of out-pocket expenses
for software and filing agent costs at $41,319,570.78.\538\
---------------------------------------------------------------------------

    \535\ We apportion the burden according to the proportion of
offerings in each asset class using the following asset classes: (1)
CMBS, (2) Credit Cards, (3) RMBS and other. We believe that using
the RMBS estimates to represent the burden for other asset classes
offers a conservative burden estimate because of the number of data
items necessary for RMBS. To calculate the proportions, we divide
the average number of offerings per year for each asset class (79
for credit cards, 43 for CMBS, and 836 for RMBS or other asset
classes) by the average number of offerings for all asset classes
(958).
    \536\ Again, we apportion the burden according to the proportion
of offerings in each asset class using the following asset classes:
(1) CMBS, (2) Credit Cards, (3) RMBS and other. We believe that
using the RMBS estimates to represent the burden for other asset
classes offers a conservative burden estimate because of the number
of data items necessary for RMBS. To calculate the proportions, we
divide the average number of offerings per year for each asset class
(79 for credit cards, 43 for CMBS, and 836 for RMBS or other asset
classes) by the average number of offerings for all asset classes
(958).
    \537\ 193,098.6 = 37,842.04 + 155,256.5.
    \538\ $41,319,570.78 = $28,381,527.95 + $12,938,042.83.
---------------------------------------------------------------------------

8. Waterfall Computer Program
    While the proposed requirement that ABS issuers file machine-
readable computer code detailing the waterfall of the ABS securities
issued would be a new collection of information, we believe issuers
already produce such a code to structure the ABS deal. However, issuers
would bear the costs of converting the code that they typically create
into code that meets our proposed requirements. We believe that a
substantial portion of those costs will be incurred for each sponsor at
the time of implementation of the rule to set up mechanisms to convert
the typical program used for waterfall purposes.
    Some examples of the need for such mechanisms are: (i) Waterfall
programs written in languages not directly portable to Python that will
have to be adapted to the Python language, (ii) code within the
waterfall program that is not required by the rule or necessary for
investors to use and understand the waterfall may need to be removed or
adapted for the program to run as required by the rule, (iii) and
additional functionality of the program, such as a user interface to
input assumptions or to input the asset data file, not currently used
by sponsors will have to be incorporated. We estimate that issuers will
incur a one-time setup cost of 672 hours to create such mechanisms to
meet this filing requirement.\539\ Additionally, we estimate a two-hour
burden at the time of filing for each ABS deal for which a waterfall
program is required to be filed to verify that the mechanisms worked
properly and that the program meets the requirements of the rule.
---------------------------------------------------------------------------

    \539\ The value of 672 hours for setup costs is based on staff
experience and is calculated using an estimate of two computer
programmers for two months, which equals 21 days per month times two
employees times two months times eight hours per day.
---------------------------------------------------------------------------

    As noted above, the number of unique ABS sponsors over 2004-2009
was 343, for an average of 57 unique sponsors per year. Therefore, we
estimate that it would take a total of 38,304 hours for ABS issuers to
set up the mechanisms to file the waterfall computer program.\540\ We
allocate 25 percent of these hours (9,576 hours) to internal burden for
all sponsors. For the remaining 75 percent of these hours (28,728
hours), we use an estimate of $250 per hour for the costs of computer
programmers to derive an external cost of $7,182,000.\541\
---------------------------------------------------------------------------

    \540\ The burden of 38,304 hours to set up mechanisms to file
the waterfall program is calculated by multiplying the average
number of unique sponsors (57) by the estimated set up hours per
sponsor (672).
    \541\ Multiplying the 28,728 external cost hours by the $250 per
hour estimate results in the external cost of $7,182,000.
---------------------------------------------------------------------------

    The yearly burden at the time of filing for each deal is estimated
to be 1,916 hours.\542\ For PRA purposes we allocate 25% of these hours
(479 hours) to internal burden hours and 75% for out-of-pocket expenses
for professional costs totaling $574,800 using a rate of $400 per hour.
Therefore, the total internal burden hours are 10,055 and the total
external costs are $7,756,800.\543\
---------------------------------------------------------------------------

    \542\ Multiplying the average number of ABS issues per year
(958) by the burden hours at the time of filing each deal (2.0)
results in 1,916 hours.
    \543\ We sum the internal burden hours from setup of the
waterfall code mechanisms (9,576) and the per-offering internal
filing burden hours (479) to get the total internal burden of
10,055. The total external cost of $7,756,800 is calculated by
adding the cost from setup ($7,182,000) and the cost from filing
each waterfall at the time of offering ($574,800).
---------------------------------------------------------------------------

9. Form 144A-SF and Form D
    Form 144A-SF is a new collection of information that would cover
the notice of sales of asset-backed securities that would be required
under the proposed revisions to Rule 144A. This notice would contain
information related to major participants in the securitization, the
date of the offering, the type of securities offered, the basic
structure of the securitization and the principal amount of the
securities offered. Over the period 2004-2009, the annual

average number of Rule 144A ABS offerings was 716.\544\
---------------------------------------------------------------------------

    \544\ This is based on ABS issuance data from Asset-Backed Alert
and information from Securities Data Corporation (SDC).
---------------------------------------------------------------------------

    We believe that the burden assigned to Form 144A-SF should reflect
the cost of preparing the notice and the cost of filing the notice. We
estimate that preparing, tagging, and filing the Form 144A-SF will
require approximately 2.0 hours per response. Using the annual average
of 716 Rule 144A offerings, the total burden hours equals 1,432. We
allocate 25% as a burden to the seller and 75% as costs of counsel
utilized for the preparation and filing of the form. Therefore, the
incremental annual impact of Form 144A-SF will be 358 hours and
$429,600 in professional costs using an hourly rate of $400.
    Form D is an existing collection of information under the PRA. Form
D is a notice of sales for offerings made under Regulation D.
Currently, we estimate that the burden hours of Form D to be
approximately 4.0 hours per response, of which one hour is borne
internally and three hours are borne externally. Under the proposal,
Form D would be revised to collect, in addition to the information that
the form currently collects, the same information as proposed Form
144A-SF when filed in connection with an ABS offering. We are aware of
only one Form D filed for an ABS offering in 2009.\545\ Thus, we
believe that the change to this collection of information should be
very small. For PRA purposes, we estimate that the Form D filing burden
would not increase. Therefore, we continue to estimate that the burden
hours for Form D will be 4.0 hours.
---------------------------------------------------------------------------

    \545\ We believe typically private offerings of ABS are
conducted pursuant to Section 4(2) of the Securities Act without
reliance on the safe harbor of Regulation D and are followed by
resale(s) of the securities in reliance on Rule 144A.
---------------------------------------------------------------------------

10. Privately-Issued Structured Finance Product Disclosure
    This new collection of information relates to proposed disclosure
requirements for structured finance product issuers that wish to take
advantage of the safe harbors provided by Rule 144A, Regulation D and
Rule 144. Under the proposed amendments, such issuers would be required
to provide the purchaser or prospective purchaser with the same
information that would be required if the offering were registered with
the Commission. Some of the information that is required for registered
offerings, we believe, is being provided to investors who purchase
structured finance products in the private markets.\546\ For purposes
of the PRA, we are assuming that the hours that private structured
finance product issuers expend to provide information to investors are
approximately the same hours that would be required to prepare
information in the registered context. Therefore, our estimate for this
new collection of information will be based on the incremental costs
that the proposed amendments in this release would include. Although
information for a private ABS issuer is not required to be filed with
the Commission, the cost of preparing such information should be
relatively the same as the estimated burdens for preparing and filing
information required in the registered context. We estimate that it
will take approximately 300 hours per offering to prepare additional
offering information that would be required under the proposed
amendments. This is based on the incremental cost of the proposed
amendments to ABS issuers that register their offerings with the
Commission, along with the cost estimates for the asset data file that
would be filed at the time of securitization and the waterfall computer
program that we are proposing to require be filed for each ABS
offering. Under our proposal, ABS issuers that relied on the safe
harbors would be required to provide the same ongoing information that
would be required in registered offerings. We estimate that it will
take an issuer approximately 18 hours to complete a distribution report
accompanied by asset-level and grouped asset data ongoing information
for the distribution period. This is based on the incremental costs of
providing Form 10-K, Form 10-D, and Form 8-K reports, which would
comprise of the cost estimates for the asset data file that is required
to be filed on an ongoing basis, as proposed.
---------------------------------------------------------------------------

    \546\ Because of the lack of transparency in the private
structured finance product market, we do not have estimates
regarding the amount of information and completion time that a
typical private structured finance product issuer will need in order
to provide investors offering and ongoing information nor estimates
of the cost of such information. As discussed below, we are
requesting comment on this information.
---------------------------------------------------------------------------

    As noted above, the average number of private offerings of ABS per
year pursuant to Rule 144A over the period 2004-2009 was 716. Based on
that number, we estimate an average number of 8,592 ongoing reports
containing distribution information and ongoing asset data file
information would be provided to investors each year,\547\ and a total
of 716 annual reports that would be provided to investors each year.
Therefore, at the time of securitization, we estimate that the proposed
collection of information will impose a total annual burden of 214,791
hours,\548\ with 25% of the cost borne internally (53,698 hours) and
the remainder of hours paid to outside professionals or software
consulting and programming costs ($48,328,318).\549\ For information
that is provided on an ongoing basis, we estimate that the proposed
collection of information will impose a total annual burden of 157,067
hours,\550\ with 75% of the cost borne internally (117,800 hours) and
the remainder paid to outside professionals or software consulting
costs ($9,816,658).\551\ Thus, the total estimate for internal burden
hours is 171,498,\552\ and the total estimate for outside costs is
$58,144,976.\553\
---------------------------------------------------------------------------

    \547\ This is based on an average number of such ongoing reports
that we estimate private structured finance product issuers would
provide to investors over the three years after implementation.
Consistent with our estimates in the registered context, we estimate
that issuers would provide such ongoing reports at a multiple of six
times the number of offerings per year.
    \548\ We calculate the total annual burden of 214,791 hours by
multiplying the expected number of filings per year (716) times the
burden hours per securitization filing (300).
    \549\ We estimate that hours related to providing asset-level
information and the waterfall computer program is allocated to
software consulting or other labor costs ($22,621,125) at a cost of
$250 per hour and hours related to providing other types of
information is allocated to costs of outside professionals
($21,480,000) at a cost of $400 per hour.
    \550\ We calculate the total annual burden of 157,067 hours by
adding the total number of hours we believe it would take to provide
ongoing asset-level information (18 hours*8,592 reports).
    \551\ We estimate that hours relating to asset-level information
paid to software consultants or other labor costs would be paid at
cost of $250 per hour.
    \552\ 171,498 = 53,698 + 117,800.
    \553\ $58,144,976 = $9,816,658 + $48,328,318.
---------------------------------------------------------------------------

11. Summary of Proposed Changes to Annual Burden Compliance in
Collection of Information
    Table 1 illustrates the changes in annual compliance burden in the
collection of information in hours and costs for existing reports and
registration statements and for the proposed new registration
statements for asset-backed issuers. Below, the asset data file is
annotated as ``Asset Data,'' the waterfall computer formula is
annotated as ``WCP'', and privately-issued structured-finance
disclosure is annotated as ``P-SF.'' Bracketed numbers indicate a
decrease in the estimate.

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Decrease or
                                                                Current annual     Proposed     Current burden    Decrease or       Proposed         Current       increase in       Proposed
                             Form                                  responses        annual           hours        increase in     burden hours    professional     professional    professional
                                                                                responses                      burden hours                        costs           costs            costs
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
S-3...........................................................           2,065           1,966         236,959       [30,937.5]       206,021.5     284,350,500     [37,125,000]     247,225,500
S-1...........................................................           1,168           1,164         242,360        [2,362.5]       239,997.5     290,832,000      [1,500,000]     289,332,000
SF-3..........................................................  ..............              94  ..............          31,725           31,725  ..............      38,070,000       38,070,000
SF-1..........................................................  ..............               7  ..............         2,362.5          2,362.5  ..............       2,835,000        2,835,000
10-K..........................................................          13,545          14,474      21,337,939          84,038       21,421,971   2,845,058,500      11,205,000    2,856,263,500
10-D..........................................................          10,000          15,576         225,000         125,460          350,460      30,000,000      16,728,000       46,728,000
8-K...........................................................         115,795         117,232         493,436           5,389          498,825      54,212,000         718,500       54,871,500
Asset Data....................................................  ..............          16,534  ..............         193,099          193,099  ..............      41,319,571       41,319,571
WCP...........................................................  ..............             958  ..............          10,055           10,055  ..............       7,756,800        7,756,800
D.............................................................          25,000          25,000         100,000  ...............         100,000      30,000,000  ...............      30,000,000
144A-SF.......................................................  ..............             716  ..............             358              358  ..............         429,600          429,600
P-SF..........................................................  ..............           9,308  ..............         171,498          171,498  ..............      58,144,976       58,144,976
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12. Solicitation of Comments
    We request comments in order to evaluate: (1) Whether the proposed
collection of information is necessary for the proper performance of
the functions of the agency, including whether the information would
have practical utility; (2) the accuracy of our estimate of the burden
of the proposed collection of information; (3) whether there are ways
to enhance the quality, utility, and clarity of the information to be
collected; and (4) whether there are ways to minimize the burden of the
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology.\554\ We also specifically request comment
regarding:
---------------------------------------------------------------------------

    \554\ We request comment pursuant to 44 U.S.C. 3506(c)(2)(B).
---------------------------------------------------------------------------

     Whether and to what extent the proposed shelf eligibility
requirements would cause a movement in filers that are currently
eligible for shelf registration on Form S-3 out of shelf registration
on proposed Form SF-3;
     For all types of asset classes that are subject to the
proposed asset level data requirements, the cost of adjusting the
sponsor's systems to meet the proposed requirements and the cost of
preparing, tagging, and filing the information; and
     For credit card ABS issuers, whether any grouped asset
data proposed to be required is not currently collected on existing
sponsors' systems and what are the costs of preparing, tagging and
filing such grouped asset data at the time of securitization and on an
ongoing basis;
     To what extent the proposals to require more information
relating to sales of privately-issued structured finance products in
reliance on certain safe harbors would increase the number of hours
that issuers of such securities already expend in providing information
to investors.

Any member of the public may direct to us any comments concerning the
accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons submitting comments on the collection of
information requirements should direct the comments to the Office of
Management and Budget, Attention: Desk Officer for the Securities and
Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and should send a copy to Elizabeth M. Murphy,
Secretary, Securities and Exchange Commission, 100 F Street, NE.,
Washington, DC 20549-1090, with reference to File No. S7-08-10.
Requests for materials submitted to OMB by the Commission with regard
to these collections of information should be in writing, refer to File
No. S7-08-10, and be submitted to the Securities and Exchange
Commission, Records Management, Office of Filings and Information
Services, 100 F Street, NE., Washington, DC 20549. OMB is required to
make a decision concerning the collection of information between 30 and
60 days after publication of this release. Consequently, a comment to
OMB is best assured of having its full effect if OMB receives it within
30 days of publication.

XI. Benefit-Cost Analysis

A. Background

    The proposed amendments to our regulations and forms for asset-
backed securities relate to the offering process, disclosure and
reporting requirements for these securities. We also are proposing
amendments to safe harbor rules for exempt offerings and resales to
require additional disclosure by ABS issuers. In this section, we
examine the benefits and costs of our proposed rules in each of these
areas. We request that commenters provide their views along with
supporting data as to the benefits and costs of the proposed
amendments.
    First, we are proposing to revise shelf registration for ABS
issuers and create new registration forms that would be applicable only
to ABS offerings. Under the proposals, for ABS issuers that wish to
register their offerings on a shelf basis, for offerings to be
conducted after the shelf registration statement is effective,
transaction-specific information relating to each offering of
securities must be filed with the Commission at least five business
days ahead of the first sale in the offering. We also are proposing to
replace the existing shelf eligibility requirement that the securities
must be investment grade rated by an NRSRO with alternate requirements.
Instead of the investment grade ratings requirement, the following
would be required for any offering off the shelf registration
statement:
     The sponsor must retain a portion of each tranche of the
securities sold in the offering, net of hedging and on an ongoing
basis;
     The chief executive officer of the depositor must certify
that the securitized assets backing the issue have characteristics that
provide a reasonable basis to believe that they will produce, taking
into account internal credit enhancements, cash flows at times and in
amounts necessary to service any payments of the securities as
described in the prospectus;
     The pooling and servicing agreement must contain a
provision that would require third party review for assets that were
not repurchased or replaced by an obligated party after being put back
for breach of a representation or warranty; and
     The ABS issuer must undertake to file Exchange Act reports
so long as non-affiliates of the depositor hold any of the issuer's
securities sold in registered transactions.

We also are proposing to eliminate the exception from the 48-hour
preliminary prospectus delivery requirement for ABS adopted in 2004
under Exchange Act 15c2-8(b), such that in connection with all
issuances of ABS, regardless of whether the issuer has previously been
required to file reports pursuant to Sections 13(a) or 15(d) of the
Exchange

Act, or exempted from the reporting requirements by Section 12(h) of
the Exchange Act, broker-dealers would be subject to the 48-hour
preliminary prospectus delivery requirement. Further, we are proposing
several revisions to enhance the disclosures made by asset-backed
issuers in prospectuses and Exchange Act reports. For most asset
classes, we are proposing to require information regarding each asset
in the pool in addition to the existing requirements relating to pool-
level disclosures. Issuers of ABS backed by credit card receivables
would be required to provide grouped asset data. This information would
be provided according to standardized definitions and filed with the
Commission in XML. In addition, we are proposing to require that ABS
issuers file a computer program on EDGAR that gives effect to the flow
of funds, or ``waterfall,'' of the transaction. This computer program
would be required to provide users with the ability to input the asset
data file and other assumptions.
    We also are proposing revisions to our disclosure requirements for
ABS issuers that would require, among other things:
     Additional information on exception loans;
     Enhanced static pool disclosure;
     Disclosure regarding the loans that were put back to the
originator or sponsor for repurchase;
     Additional information regarding an originator, including
its interest in the securitization and, to the extent there is material
risk that the financial condition of the originator could have a
material impact on the origination of the originator's assets in the
pool or on its ability to comply with provisions relating to the
repurchase obligations for assets, its financial condition;
     Additional information regarding a sponsor, including its
interest in the securitization and, to the extent there is a material
risk that the financial condition could have a material impact on its
ability to comply with the provisions relating to the repurchase
obligations for assets or otherwise materially impact the pool, its
financial condition;
     A description of the standards in the pooling and
servicing agreement for modifying the terms of the underlying assets;
     A statement whether the pooling and servicing agreement
contains a fraud representation; and
     The description of the flow of funds in a single place in
the prospectus.

We also are proposing revisions to the definition of an asset-backed
security to further restrict the type of security that may be sold
under the framework set forth in Regulation AB. While securities that
do not meet the proposed definition may still be registered with the
Commission, an issuer may need to provide additional disclosure
regarding the securities and consider issues that are not contemplated
by Regulation AB. We are proposing to limit the amount of prefunding
accounts and revolving periods that may be utilized under the
definition, and we are proposing to exclude master trusts that are
backed by non-revolving assets (e.g., mortgages) from the definition.
    We also address privately-issued structured finance products in our
proposals. In order to foster additional transparency in the exempt
securitization markets, we propose to require the issuer to agree to
provide additional disclosure to the investor for any resale made under
the Rule 144A safe harbor or offering under the Regulation D safe
harbor. We also are proposing to amend the current public information
requirement in Rule 144 to require that, in order to satisfy that
requirement, in the case of a non-reporting ABS issuer, the issuer must
agree to provide additional disclosure to the investor. In addition, we
propose to require that the issuer file with the Commission a notice of
the sales for the initial placement of securities that are to be sold
under Rule 144A that provides basic information on the sale and a
description of the securities sold.

B. Benefits

    The proposed amendments are designed to increase investor
protection by improving the disclosure and offering process of asset-
backed securities, and thereby enhancing the transparency of the
securitization market. This should result in an increase in investors'
understanding of the underlying pool of assets.
    In 2009, there were 87 registered ABS offerings as compared to
1,306 in 2004.\555\ The market for securitized assets has suffered
dramatically, in part due to the perception of inadequacies in the
disclosure and transparency of the underlying pool of assets in the
securitization process.\556\ Securitization is a large component of
borrowing and lending, which can benefit borrowers by lowering borrower
costs.\557\
---------------------------------------------------------------------------

    \555\ This is based on data from Asset-Backed Alert and
information from Securities Data Corporation.
    \556\ See, e.g., Group of Thirty, Financial Reform: A Framework
for Financial Stability (Jan. 15, 2009).
    \557\ U.S. Securities and Exchange Commission, U.S. Department
of Treasury, Congressional Budget Office and U.S. Small Business
Administration, An Interagency Report: Developing a Secondary Market
For Small Business Loans (August 1994), available at http://
www.cbo.gov/doc.cfm?index=5013&type=0.
---------------------------------------------------------------------------

1. Securities Act Registration
    The lack of time to adequately consider deal-specific information
in an offering has been a longstanding concern of ABS investors, as
discussed in the 2004 Adopting Release.\558\ Based on our experience
with the financial crisis, we continue to have concerns regarding the
lack of time for investors to analyze asset-backed securities. By
requiring that information about the specific offering be filed at
least five business days before first sale, we seek to provide
investors with the benefit of additional time to value and assess the
issuance.
---------------------------------------------------------------------------

    \558\ See fn. 174 above.
---------------------------------------------------------------------------

    Unlike other types of securities, the payments on asset-backed
securities primarily depend on the credit quality of the assets in the
underlying pool. Each offering of asset-backed securities involves a
new set of assets, which requires investment analysis to be done anew.
Our proposal to require an issuer to file a form of preliminary
prospectus at least five business days ahead of first sale seeks to
give investors additional time to review offering documents without
unduly burdening issuers.\559\ We believe that this additional time
will benefit investors by increasing their ability to assess an
offering and to perform a better analysis of information provided by
the parties to the securitization. This in turn should lead to better
investment decisions.
---------------------------------------------------------------------------

    \559\ We are also proposing to repeal the exception for asset-
backed securities from the 48-hour preliminary prospectus delivery
requirement in Rule 15c2-8(b). The 48-hour preliminary prospectus
delivery requirement would apply to all ABS issuers, including those
exempted from the requirement to file reports pursuant to section
12(h) of the Exchange Act.
---------------------------------------------------------------------------

    We believe that investment grade credit ratings may no longer be an
appropriate criterion for use as a shelf eligibility requirement for
ABS.\560\ In addition to promoting independent analysis, we believe
that replacing investment grade ratings requirement for shelf
eligibility conditions for ABS offerings would reduce the appearance
that the Commission has placed an imprimatur on credit ratings.
---------------------------------------------------------------------------

    \560\ See Liz Rappaport and Serena Ng, ``Credit Ratings Now
Optional,'' Wall Street Journal, Oct. 29, 2009 (noting sales of
bonds and structuring of complex securities without credit ratings).
---------------------------------------------------------------------------

    Our proposed risk retention requirement for shelf-registration
eligibility is aimed at better aligning the incentives of an ABS
sponsor with those of investors. By doing so, risk retention provides
investors with an assurance that the quality and characteristics of the
underlying assets are consistent

with the disclosures and representations of the sponsor. The proposed
risk-retention requirement may also make it more likely that sponsors
select assets of higher quality for the pool than they would have,
absent the requirement. Thus, although we do not believe that risk
retention would result in only investment-grade ABS being shelf-
registered, we do nonetheless consider it an appropriate partial
replacement for the existing shelf eligibility condition that ABS have
investment-grade rating.
    We are proposing to require the sponsor to retain five percent of
each tranche, net of hedging and on an ongoing basis. Spreading the
sponsor's economic interest across all tranches evenly is designed to
better address the overall risk assessment and quality of the entire
offering rather than only aspects that relate to a specific tranche.
Risk retention in the amount of five percent of a tranche is aimed at
increasing alignment of incentives of transaction participants in
securitizations that will in turn lead to better performing securities
without placing an undue burden on issuers.
    We note that our proposal only mandates the minimum amount of risk
that the issuer is required to retain to have access to shelf
registration. A sponsor may voluntarily retain an amount in a tranche
greater than that required by our proposed requirement, which could
alter the alignment in incentives between the sponsor and the investor.
    We also are proposing that, in the case of revolving exposures, a
sponsor can meet the risk retention requirement by retaining the
originator's interest of not less than five percent. This is proposed
to accommodate the special structure of revolving asset master trusts.
For example, credit card ABS issuers already retain a seller's
percentage that is equivalent to a portion of the pool.\561\ Allowing
an alternative to the proposed vertical slice requirement for these
particular ABS sponsors would benefit investors by allowing incentive
alignment aimed at achieving better quality assets to be compatible
with the nature of revolving assets.
---------------------------------------------------------------------------

    \561\ The originator's interest, also known as the ``seller's
interest,'' also may serve an additional function of absorbing
seasonal fluctuations in credit card receivables balance. See Fitch
IBCA, ABCs of Credit Card ABS, July 17, 1998; Federal Deposit
Insurance Corporation, Manual on Credit Card ABS, available at
http://www.fdic.gov/regulations/examinations/credit_card_
securitization/.
---------------------------------------------------------------------------

    Requiring the sponsor to meet the risk retention condition rather
than the originator may provide benefits to both originators and
investors. We are aware that smaller originators may not have the
resources to retain such risks. In addition, by not placing the
requirement on originators, these institutions could have greater
capital resources available to make loans which could ultimately
benefit borrowers and financial systems as a whole. We are also aware
that implementing an originator-based risk retention requirement would
be difficult in a securitization involving multiple originators and may
unnecessarily increase the cost of such securitizations.
    We believe that our proposal requiring the pooling and servicing
agreement or other governing document for an ABS shelf transaction to
contain a provision that requires third party loan review of loans that
are not repurchased or replaced by the originator after being put back
because of a breach in a representation or warranty should strengthen
the enforcement mechanisms surrounding representations and warranties
for shelf transactions. ABS investors have expressed concerns with the
integrity and enforceability of bargained-for contractual provisions in
underlying transaction documents ABS offerings.\562\ By requiring that
the third party be unaffiliated, investors can be better assured that
the opinion as to whether a representation and warranty has been
breached is impartial. This requirement, which strengthens enforcement
mechanisms of representations and warranties, should incentivize
obligated parties to better consider the characteristics and quality of
the assets underlying the securities, making it an appropriate partial
replacement for the existing shelf eligibility requirement that
requires the securities to have an investment grade rating.
---------------------------------------------------------------------------

    \562\ See fn. 131 and accompanying text.
---------------------------------------------------------------------------

    We believe our proposal to require a certification by the
depositor's chief executive officer will focus the certifier on the
transaction and the disclosure. Such certification should enhance
investors' confidence in the securitization. We believe that a
certification may cause these officials to review more carefully the
disclosure, and in this case the transaction, and to participate more
extensively in the oversight of the transaction making it an
appropriate partial replacement for the existing shelf requirement
relating to investment grade ratings.
    Under Section 15(d) of the Exchange Act, investors in most asset-
backed securities may not receive ongoing reporting pursuant to the
Act, as most ABS issuers may have less than 300 record holders. Given
recent history, we believe ongoing reporting for ABS is important even
if the number of holders is low.\563\ Our proposal to require that the
issuer in an ABS shelf offering undertake to file Exchange Act reports
would provide investors with ongoing access to information. Although
some issuers already provide ongoing information to investors pursuant
to transaction agreement provisions, we believe that our requirements
and the undertaking would impose greater discipline on issuers to
provide such information and thereby provide further transparency for
investors, especially when combined with the proposed loan level
disclosure requirements. Investors would benefit from greater
transparency on the continuing performance, composition and disposition
of assets which can be used to evaluate both their investment as well
as the performance of sponsors and originators.
---------------------------------------------------------------------------

    \563\ See the Committee on Capital Markets Regulation Financial
Crisis Report, at 152-153.
---------------------------------------------------------------------------

2. Disclosure
    We believe that the proposed requirements for asset-level
disclosures in XML format and with standardized data definitions will
benefit investors in several important ways. First, such required
disclosures should reduce investors' cost of information production by
reducing duplicative efforts on their part to gather such data on their
own or purchase it through data intermediaries. Although some ABS
issuers currently provide asset-level data to investors, this is not
the case across all asset classes. For example, issuers of certain
asset classes, such as credit card receivables, dealer floorplans or
equipment loans, typically do not consistently provide asset-level
information. As discussed in further detail below, we are proposing an
exemption from the asset-level disclosure requirement for a few asset
classes. We are unaware of any publicly available data standards for
asset classes other than mortgage-backed securities and currently there
is no mandatory requirement that issuers follow any of these standards
for reporting to investors in asset-backed securities.\564\ For the ABS
offerings of asset classes that fall within our proposed requirement,
our proposal seeks to provide investors with consistent and equal
access to asset-level information.
---------------------------------------------------------------------------

    \564\ See discussion in Section III.A.1. above.
---------------------------------------------------------------------------

    We believe that requiring the asset-level disclosures in XML format
and utilizing standardized definitions of material loan, obligor, and
collateral characteristics will further benefit investors. The machine-
readable format should lower the cost of information processing, and
the standardized

definitions should increase comparability of information across
issuers. Currently, one sponsor's use of a term in asset-level
information may differ from another sponsor's use. For example,
``reduced documentation'' may not have the same meaning from one
sponsor to another or from one originator to another. The XML format
that is proposed to be required, along with the utilization of
standardized definitions, should allow issuers to provide investors
with asset-level information in an immediately usable format. Investors
could promptly download and input this information into software tools
for analysis of the assets in the underlying pool and pricing of the
asset-backed securities.
    This process will be further aided by the proposed requirement to
provide a programming language representation of the ABS waterfall,
which we refer to as the waterfall computer program requirement. This
is intended to benefit investors by facilitating their ability to run
simulations of expected cash flows under different prepayment, loss and
loss-given-default assumptions, while obtaining the full benefit of the
loan-level data that we are proposing to require. Requiring the filing
of a programming language representation of the waterfall will provide
information about the terms of the securities to investors in a form
they can readily use for computerized valuation methods of ABS. This
will make more relevant information available to investors and allow
them to make better-informed investment choices.
    The proposal should eliminate the transaction costs for single
institutional investors individually to script the waterfall provisions
into a programming language representation. This should reduce some of
the information asymmetry between the sponsor and a prospective
investor that arises because the sponsor, as the person creating the
contractual cash flows has access to a programming language
representation of the waterfall, a necessary element of ABS valuation
using computer simulations of security performance, at the time of the
initial public offering, and the investor does not.
    Asset-level data in easy to use format and accompanied by the
waterfall computer program will likely improve investors' ability to
conduct independent analysis and reduce their reliance on credit
ratings. With usable information on the composition of the asset pool,
investors can evaluate the sponsor's disclosed characteristics of the
pool. This, in turn, will allow them not only to price the issue more
efficiently but to evaluate the investment potential of the issue
better. Indeed, there is some evidence that a major benefit of asset-
level disclosure, and more specifically borrower-characteristics
disclosure, is an ability to price ABS more accurately.\565\ In
addition, if asset-level data reduces investors' uncertainty about the
composition of the asset pool, investors should be willing to pay
higher prices for the security.\566\ We believe that the proposed
grouped asset data requirement applicable to credit cards ABS issuers
offers benefits similar to that of the proposed asset-level data
requirements.
---------------------------------------------------------------------------

    \565\ See Joshua Rosner, ``Securitization: Taming the Wild
West,'' in Roosevelt Institute, Make Markets be Markets (Mar. 3,
2010) at 77 (stating that ``In order to accurately price securities,
investors need timely loan-level information on the assets backing
each deal''). See also Paul Bennett, Richard Peach, Stavros
Peristiani, ``How Much Mortgage Pool Information Do Investors
Need?,'' The Journal of Fixed Income, June 2001, Vol. 11, No. 1, at
8-15.
    \566\ Information uncertainty tends to increase credit spreads.
Yu (2005) and Sengupta (1998) show that the cost of bond financing
increases as the borrowing firm's accounting reports become less
informative. Yu, F., ``Accounting Transparency and the Term
Structure of Credit Spreads,'' Journal of Financial Economics (2005)
at 75, 53-84. Sengupta, P., ``Corporate Disclosure Quality and the
Cost of Debt,'' Accounting Review (1998) at 73, 459-474. G[uuml]ntay
and Hackbarth (2006) find that higher dispersion of analysts'
forecasts is associated with significantly higher bond spreads.
G[uuml]ntay, L. and D. Hackbarth, ``Corporate Bond Credit Spreads
and Forecast Dispersion,'' working paper: Washington University--St.
Louis (2006). Thompson and Vaz (1990) document that credit-rating
agency disagreements on a firm's credit rating also widens bond
credit spreads even after controlling for the firm's default risk.
Thompson, G. R. and P. Vaz, ``Dual Bond Ratings: A Test of the
Certification Function of Rating Agencies,'' Financial Review (1990)
at 25, 457-471. Finally, Wittenberg-Moerman (2007) documents that
loan rates are higher for firms with higher bid-ask spreads on loans
traded in the secondary market. Wittenberg-Moerman, Regina, ``The
Impact of Information Asymmetry on Debt Pricing and Maturity,''
working paper: The Wharton School, University of Pennsylvania
(2007).
---------------------------------------------------------------------------

    We also are proposing to require asset-level disclosure be provided
on an ongoing basis. Ongoing disclosure of asset-level information
should encourage better monitoring of the security by investors and
other market participants. Such information would be useful for
tracking the performance of the assets, as well as an assessment of
performance of the originator, sponsor, or servicer. This would allow
investors to continue their independent analysis of the asset-backed
securities rather than rely on NRSRO credit ratings to alert them of
changes in the ABS risk-return profile.
    Our proposed asset-level information requirements, notably, are
tailored by asset class. We have taken under consideration situations
in which the amount of asset-level disclosure would be too voluminous,
or investors are unlikely to find such disclosure meaningful. We have
decided to modify these requirements or not impose them at all, if they
do not appear to justify the compliance costs imposed on issuers. For
example, instead of asset-level information, we propose to require that
issuers of ABS backed by credit card receivables provide grouped asset
data. Such issuers will be required to disclose information on the
assets in the underlying pool by grouping these assets into different
combinations of standardized pool characteristics. Similarly, we
believe that the potential costs of requiring issuers of stranded-costs
ABS to provide asset-level disclosures would not justify the benefits,
so we are not proposing to require such disclosures.\567\
---------------------------------------------------------------------------

    \567\ See Sections III.A.1.b.iv and III.A.2.b above.
---------------------------------------------------------------------------

    Our proposed enhancements to pool-level disclosure are intended to
help elicit important information in areas that became problematic in
the recent financial crisis, such as with respect to exception loans.
We also are proposing to amend the definition of an asset-backed
security to further restrict the type of securities that may utilize
the framework provided in Regulation AB. We believe that the
restrictions on exceptions to the discrete pool requirement of an
asset-backed security benefits investors by maintaining the integrity
of the discrete pool requirement and is consistent with investor demand
for more meaningful asset-level data. Our proposed revisions to Item
6.05 of Form 8-K would require that issuers file a current report and
provide pool information when there is a one percent or greater change
in a material pool characteristic of the asset pool. These revisions to
the rules, we believe, assist in closing existing gaps by which the
asset pool composition could be changed significantly or without
necessary accompanying disclosure. Investors will be able to evaluate
the consequences of asset pool composition changes in order to
determine the continuing suitability of the investment.
    Certain of the proposed disclosure requirements should benefit
investors by helping them to more easily and effectively assess the
structure of the ABS transaction and the parties involved. For example,
where assets have been put back to an originator or sponsor in the
offering in the last three years and those assets have not been
repurchased or replaced, we are proposing to require disclosure of the
number of those assets that have not been repurchased or replaced.
Similarly,

disclosure on the originator's and sponsor's financial condition where
material, as provided in the proposal, should benefit investors by
allowing them to assess whether the condition of the originator or
sponsor may have bearing on their ability to make payments relating to
their repurchase obligations. Our proposed requirement relating to
disclosure of a fraud representation in the transaction documents would
allow an investor to consider the existence of the representation (or
lack thereof) in making an investment decision. Finally, our proposed
disclosure requirement relating to the originator's and sponsor's
interest in the securitization program, including risk retention, would
allow an investor to better consider the incentive structure and other
possible risks relating to such party.
    We also have several proposals relating to the presentation of
information in the prospectus for ABS offerings, including our proposal
on the flow of funds, our proposal eliminating the use of a base
prospectus and accompanying prospectus supplement, and our proposed
revisions to the static pool information requirements. Through such
proposals, we seek to improve the presentation of information in ABS
offering materials, which may be unwieldy and contain duplicative
disclosure, jargon or discussion inapplicable to the specific
transaction at hand. These proposed revisions aim to facilitate more
ready access to the information for investors and other market
participants.
    In addition, in coordination with the expiration of the temporary
accommodation in Rule 312 allowing ABS issuers to file static pool
information on an Internet Web site, issuers would need to file static
pool information with the Commission. We are proposing to permit that
such information be filed in PDF format. Implementation of the
requirement to file static pool information on EDGAR addresses concerns
relating to the maintenance of Web sites and the presentation of static
pool information while our proposal to allow issuers to file such
information in PDF format would allow this disclosure to be provided to
investors in an easy to read format.
3. Privately-Issued Structured Finance Products
    Many ABS and similar structured finance products are offered and
resold in reliance on the Rule 144A safe harbor.\568\ Rule 144A is a
safe harbor from being deemed an underwriter within the meaning of
Sections 2(a)(11) and 4(1) of the Securities Act for the resale of
securities to qualified institutional buyers. Many of the types of
asset-backed securities that caused significant concern in the
financial crisis included securities that are typically sold in private
transactions.\569\ Our proposal to require more disclosure for
privately-issued structured finance products are designed to provide
investors in such securities, which can have complex incentive
structures among various parties and whose valuation is dependent on an
understanding of the assets in the underlying pool, with better
information than they currently receive.
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    \568\ See, e.g., SEC Staff Report, ``Enhancing Disclosure in the
Mortgage-Backed Securities Markets,'' (Jan. 2003), available at
http://www.sec.gov/news/studies/mortgagebacked.htm (noting that
almost all private-label MBS that are not sold pursuant to a
registration statement are sold in the 144A market).
    \569\ See discussion in Section VI. above.
---------------------------------------------------------------------------

    Our proposal to require a notice of sales for the initial placement
of securities to be sold in reliance on Rule 144A, we believe, would
improve transparency in the asset-backed securitization market. This
notice could in turn help regulators with monitoring developments in
the securitization market and determining whether future rulemaking or
other actions with regard to asset-backed securities may be necessary.
This notice could also have the additional benefit of supporting the
Commission's efforts to enforce the federal securities laws relating to
asset-backed securities. The items proposed to be added to Form D for
asset-backed issuers would have similar benefits to the extent ABS
issuers rely on Rule 506 of Regulation D.

C. Costs

    Our proposals for asset-backed securities are designed to improve
disclosure to ABS investors but would impose costs on ABS issuers and
other participants in the chain of securitization in various ways. The
proposals to revise shelf registration and to replace the investment
grade ratings requirement for shelf eligibility would impose additional
costs on ABS issuers offering securities through shelf registration.
Sponsors of shelf registered issuers would also incur direct costs, as
a result of the proposed risk retention shelf eligibility condition
that would require the sponsor to retain and maintain five percent of
each tranche, or, in the case of revolving assets, five percent of the
pool.
    Some of the proposed disclosure requirements refine existing
disclosure requirements; however the proposal to require standardized
asset-level information or grouped asset data and to provide a
computerized program of the issue's waterfall are new disclosure
requirements, and thus issuers would be required to incur additional
costs to which they were previously not subject. Our proposals relating
to the disclosure by privately-issued structured finance product
issuers would impose additional costs on such issuers seeking to rely
on certain regulatory safe harbors.
1. Securities Act Registration
    The proposed requirement to file a form of preliminary prospectus
at least five business days before the date of first sale and the
proposed requirement that brokers deliver a preliminary prospectus 48
hours ahead of sale would require that issuers provide information to
investors earlier in the process than is currently the case. During
that period, issuers may be exposed to the risk of changing market
conditions; however, such uncertainty is similar to that faced by other
issuers of underwritten initial public offerings of debt whose final
offer prices are not set for weeks or months after filing.
    The two methods to satisfy the risk retention shelf eligibility
condition that we are proposing to allow for shelf eligibility may
increase costs of securitization to sponsors. We note, however, if
issuers find the cost of risk retention too high, ABS offerings could
be registered without being subject to a risk retention requirement, as
long as such offerings are registered on proposed Form SF-1. For
purposes of PRA analysis, we estimate the total movement out of the
shelf registration system to be 10% of the current number of shelf
offerings, although not all of this movement is estimated to move to
proposed Form SF-1 and some may move to private markets.
    We also note that the risk retention shelf eligibility condition
may impact the risk management process of a sponsor. Some financial
institutions are impacted through requirements to hold capital against
the risk to which they are exposed, which would put them at a
disadvantage to other institutions. Reserving capital for risk
retention reduces the amount of funds available for lending which will
increase a borrower's cost of funds. Any such reduction in lending
capacity suffered by the ABS issuer may be passed through to the
financial institution's investors and customers as a cost of the
securitization process.

    In addition, as we noted in our PRA estimates, while we are not
imposing additional disclosure requirements for the Form 10-K for
sponsors, they may incur some additional costs in preparing their
annual reports in determining the impact of the required risk retention
on their disclosure. We estimate, for purposes of the PRA, that
sponsors will need an additional 10 hours to prepare their Form 10-K
filings at a total cost of $2,500 per sponsor.\570\
---------------------------------------------------------------------------

    \570\ This estimate is based on the estimated total burden hours
of the amendments associated with the schedules and forms that would
include the new disclosure, an assumed 75%/25% split of the burden
hours between internal staff and external professionals with respect
to proxy and information statements, an assumed 25%/75% split of the
burden hours between internal staff and external professionals with
respect to registration statements, and an hourly rate of $200 for
internal staff time and $400 for external professionals.
---------------------------------------------------------------------------

    Also, under our proposed shelf eligibility conditions, issuers in
shelf registrations would be subject to additional costs of hiring a
third party to review assets that have been put back to an obligated
party, usually the sponsor or originator, for breach of the
representation and warranties. Additionally, the value of these
opinions is dependent on investors' perception of the expertise of the
entity providing the opinion. This proposed shelf eligibility condition
also might create incentives for originators or sponsors to agree to
repurchase or replace assets that have been put back to them even in
cases where these assets were not in breach. Under our proposals, ABS
offerings that are shelf registered would be required to include a
certification signed by the depositor's chief executive officer
regarding the characteristics of the assets, which will impose some
additional disclosure burden.
    Our proposed shelf eligibility condition to require ABS issuers to
undertake to file Exchange Act reports would also impose certain costs
on ABS issuers on shelf. The Exchange Act reporting requirements for
ABS issuers take into account existing reporting obligations to
investors required under ABS transaction agreements. Many ABS
transaction agreements contemplate continued reporting to investors,
but those reports, while provided to investors, are not required to be
filed if the issuer has suspended its Exchange Act reporting
obligation. Because our proposal would require the issuers to undertake
to file reports with the Commission, an ABS issuer registered on shelf
would include additional costs to file ongoing information with the
Commission. Certain types of asset-backed securities, such as ABS
backed by credit cards, continue to issue securities backed by the same
pool, and thus are required to continue to report on an ongoing basis,
and thus would not incur additional costs as a result of the proposed
amendments. Other asset-backed securities are exchange-listed and are
subject to the reporting requirements of Section 12(b) of the Exchange
Act, and thus our proposal would not impose additional costs of them.
We estimate in the PRA that the incremental cost of the proposed
changes relating to Exchange Act reporting is $71,628,900.\571\
---------------------------------------------------------------------------

    \571\ This amount is calculated using the increases in burden
hours for Form 10-K, Form 10-D, and Form 8-K from the PRA. We
allocate 75% of these hours to issuer internal costs at a rate of
$200 per hour and 25% to professional costs at a rate of $400 per
hour.
---------------------------------------------------------------------------

    These proposed shelf eligibility conditions would replace, in part,
the prior reliance on investment grade ratings as a condition for shelf
eligibility. A potential cost of this substitution is that investors
may incorrectly believe that these requirements are an indication that
shelf registrations are, effectively, investment grade offers. Under
the proposed requirements, securitizations would be eligible for shelf
registration if they meet the rule's requirements regardless of their
credit rating, which may or may not be investment grade.
    The costs associated with both the shelf registration requirements
and asset-level disclosures detailed above could be passed down the
chain of securitization. If the market is much more concentrated at the
sponsor level than at the originator level, sponsors may be able to
pass on to originators some of the costs of our proposals. Originators
could, in turn, pass some of these costs onto borrowers, although their
ability to do so might be constrained by competition from non-
securitizing lenders.
2. Disclosure
    Although some issuers currently provide asset-level information,
this is not a consistent practice across all issuers.\572\ Our
proposals to require disclosure of asset-level information are designed
to provide, investors with equal access to such information with
certain exceptions discussed below. This will lead to additional costs
being imposed on sponsors to compile and report asset-level data. As
noted in the PRA, we estimate that it will cost issuers $79,939,291 to
compile and report asset-level information.\573\
---------------------------------------------------------------------------

    \572\ For example, CMBS issuers frequently provide loan-level
information in accordance with industry standards. See fn. 224 above
and accompanying text. RMBS issuers sometimes file loan-level
mortgage schedules with the Commission or provide loan-level
information to rating agencies. See, e.g., ``Moody's Proposes
Enhancements to Non-Prime RMBS Securitization,'' Structured Finance
Special Report,'' Sept. 25, 2008. It is suggested that certain of
the issuers of securities backed by auto loans provide loan-level
information. See ``S&P's Auto Loan-Level Model Enhances
Understanding of Loss Performance,'' Structured Finance, available
at http://www.vehiclefinanceconference.com/pdf/handout5.pdf.
    \573\ The dollar cost of $42,619,856.5 is calculated by
multiplying 110,086.5 internal burden hours by $200 per hour for
internal costs and then adding $20,602,562.5.
---------------------------------------------------------------------------

    Where we believe individual asset-level disclosures would be overly
burdensome and of little utility to investors, we are proposing to
require less granular disclosures or no disclosures altogether. For
instance, credit-card ABS are backed by millions of accounts. For this
ABS class, asset-level disclosures likely would produce an overwhelming
amount of data, which we believe would not be useful for investors.
Thus, we are proposing that issuers of ABS backed by credit and charge
card receivables provide information on the assets in the underlying
pool grouped along specified standardized dimensions. Based on similar
considerations, we propose to exclude from the required asset-level
disclosures issuers of ABS backed by stranded costs.
    Our proposed standard definitions for asset-level information are
similar to, and in part based on, other standards that have been
developed by the industry, such as those developed under ASF's Project
RESTART or those developed by CRE Finance Council. Because these
proposed standard definitions employ widely used metrics for asset-
level information, we also believe that these standards should be
similar to other standards used for reporting purposes, including the
mortgage metrics that national banks and thrifts must provide to the
Office of Comptroller of the Currency and the Office of Thrift
Supervision.\574\ To the extent that there are differences between
standards on the same information, additional costs would be imposed on
issuers and servicers to track the differences between one standard and
another. Further, servicers may incur some costs in monitoring their
compliance with servicing criteria and requirements under the servicing
agreement with respect to reports on asset-level information.
---------------------------------------------------------------------------

    \574\ See OCC Press Release NR 2008-24, ``OCC to Require Data
from Large Bank Mortgage Servicers,'' February 29, 2008 and Letter
to National Bank Mortgage Servicers dated February 29, 2008.
---------------------------------------------------------------------------

    Under the proposed requirements, issuers of ABS would be subject to
additional ongoing asset-level or

grouped asset disclosure requirements. Because we believe the
information required already should be available, we do not expect
significant increase in information gathering costs. However, we do
believe that the costs discussed above of reconciling variable
definitions, tagging required asset data and filing information with
the Commission will be incurred in the process of continued
reporting.\575\ For purposes of our PRA analysis, we estimate that
after the sponsor has incurred initial setup costs and after it has
made its first filing, ongoing asset-level disclosure requirements
would impose an additional cost of 10 burden hours per filing, which is
equivalent to $2,125.\576\
---------------------------------------------------------------------------

    \575\ We note that the CRE Finance Council is now requiring that
asset-level information for commercial mortgage-backed securities be
provided in XML. See CRE Finance Council Investor Reporting Package
x 6.0 Preliminary Exposure Draft 1, Jan. 1, 2009, available
at http://www.crefc.org/. In this regard, issuers of commercial
mortgage-backed securities may already be subject to the costs of
XML data tagging.
    \576\ We allocate 75% of the hours to issuer internal costs at a
rate of $200 per hour and 25% to professional costs at a rate of
$250 per hour.
---------------------------------------------------------------------------

    The proposed requirements for asset data disclosure might have
important implications for originators' ability to remain competitive
and retain their lending market share. Once detailed data on borrower
characteristics matched to loan terms becomes publicly available in XML
format, a disclosing originator's competitors may be able to more
easily infer its loan pricing model and might use the data to increase
their own market share at the disclosing originator's expense. This may
have an adverse impact on the profitability of credit institutions that
choose to securitize some of the credit they extend.
    Disclosures about an originator's or a sponsor's refusal to
repurchase or replace assets put back to them for breach of
representations and warranties (as well as the proposed third party
opinion shelf eligibility condition, as noted above) might create
incentives for originators to agree to repurchase or replace such
assets even in cases where these assets were not in breach. If
investors regard such disclosures as indicative of a willingness to
comply with representations and warranties in the future, then
originators or sponsors might try to preserve their reputation by
taking back assets even when they do not have to do so. This might
create an incentive for sponsors and possibly trustees to ask for
repurchase or replacement of poorly performing assets that represent no
breach of representations or warranties.
    The proposed requirement to provide a programming language
representation of the waterfall computer program would facilitate the
ability of ABS investors to meaningfully use the asset data disclosed
by the ABS issuer at the time of the public offering and with the
monthly or other periodical distribution reports on Form 10-D filed
with the Commission. We believe that the sponsor of an ABS generally
will have in its possession at the time of the public offering a
representation in computer programming language of the waterfall.
However, additional time and expense will be involved in filing this
computer programming language as source code on EDGAR concurrently with
the filing of the Rule 424 prospectus, as the waterfall computer
program may have to be subjected to additional review before it is
filed with the Commission. We are proposing to exempt issuers of
offerings backed by stranded costs from the proposed requirement, as
they are not required to provide asset-level information under the
proposal. As discussed in the PRA section, we believe that initial
startup costs for preparing waterfall computer program for ABS would be
approximately 672 burden hours per sponsor at a cost of $159,600.\577\
Also in our PRA analysis, we estimate the ongoing costs associated with
converting the waterfall computer program to the necessary format to be
two hours per securitization, which equals $700.\578\
---------------------------------------------------------------------------

    \577\ To calculate the total dollar costs, we allocate 25% of
these hours to issuer internal costs at a rate of $200 per hour and
75% to computer programmer costs at a rate of $250 per hour.
    \578\ To calculate the total dollar costs, we allocated 25% of
these hours to issuer internal costs at a rate of $200 per hour and
75% of outside professional costs at a rate of $400 per hour.
---------------------------------------------------------------------------

    The asset data and waterfall computer program disclosure
requirements might impose costs on entities other than the
securitization participants. Making such information available to the
public for free may adversely impact the business model of firms
currently selling such information to investors. If waterfall formulas
are available to investors free of charge, in program form, investors
may face a reduced incentive to purchase existing products that provide
essentially the same service.
    Sponsors may face costs in addition to the initial and ongoing
mechanical costs of waterfall preparation. Increased product
transparency may reduce some effects of product complexity, potentially
enabling investors to more accurately value securities. The resulting
price transparency may place new constraints on sponsors' latitude in
pricing the products, potentially lowering the profitability of
bringing ABS to market.
    Rating agencies may also face costs related to implementation of
the waterfall computer program requirement. To the extent that rating
agency analysis has served as a proxy, for some investors, for in-depth
modeling, investors may rely less on this analysis as a result of being
more readily able to perform their own calculations, potentially on an
automated basis.
    We believe that our proposals to amend the discrete pool exception
in the Regulation AB definition of an asset-backed security, for the
most part, only carve back on outlier structures and should result in
little cost to asset-backed issuers.\579\ Our proposed revisions to the
Regulation AB definition of an asset-backed security should be minimal,
and, if adopted, a security that does not meet the new Regulation AB
definition of an asset-backed security could still register with the
Commission as long as additional, suitable disclosure is provided
regarding the offering, the securities and transaction parties.
---------------------------------------------------------------------------

    \579\ We are aware of only four issuers backed by non-revolving
assets that utilize the master trust structure. Based on staff
review, we believe that use of prefunding accounts is generally
limited to select sponsors, approximately 25 percent or less of the
principal balance or proceeds are set aside for prefunding for those
select sponsors, and the prefunding period in those cases generally
extends for approximately one year. In addition, we believe that
revolving periods are not widely used across asset classes or by
stand-alone amortizing trust structures.
---------------------------------------------------------------------------

    We note that our proposals to revise the pool-level information
requirements and information requirements on originators and sponsors
further refine the disclosure requirements rather than impose
significant burdens, which is why we expect no material increase in
compliance costs. Our proposal to eliminate the base prospectus and
prospectus supplement format for ABS issuers may cause a small increase
in the number of registration statements filed with the Commission and
a corresponding increase in the cost to issuers to prepare and file
such registration statements. In addition, this proposal and our
proposal to require the filing of a post-effective amendment for
additional structural features or credit enhancements could increase
some compliance costs for ABS issuers. However, we believe that our
proposal to allow ABS issuers to use a ``pay-as-you-go'' registration
system for each offering would offset some of those costs by providing
ABS issuers with greater flexibility that would improve the

utility of shelf registration, increase efficiency and thereby
ultimately reduce costs for issuers.
3. Privately-Issued Structured Finance Products
    The costs of complying with the shelf registration requirements may
make alternate offering mechanisms, such as private placements or
exempt offerings more attractive. To improve investor protection in
these types of offerings, our proposed regulations would give investors
the right to obtain the same level of disclosure as required in a
registered Form S-1 or proposed Form SF-1 offering (and ongoing
information that would be required if the issuer were subject to
Exchange Act reporting obligations) when sales are made in reliance on
Rule 506 of Regulation D or resales are made in reliance on Rule 144A.
We also are proposing to require that transaction agreements contain a
provision by which the issuer promises and represents to provide this
disclosure to investors and prospective purchasers upon request.
    While the costs to implementing this new information requirement
may be significant to ABS issuers, we believe that such costs are
justified in light of the role that privately-placed issued ABS played
in the financial crisis. We believe that the recent financial crisis
exposed deficiencies in the information available about CDOs and other
privately-issued structured finance products.\580\ Not only does it
appear that these instruments were not well understood by investors,
but market participants and regulators did not have access to important
information about this significant component of the capital
markets.\581\ We also recognize that the additional proposed
requirements that would be imposed on issuers who wish to rely on the
safe harbors may possibly result in changes in the number of ABS
offerings and increased use of offshore ABS offerings. For purposes of
PRA analysis, we estimate for that total annual number of internal
burden hours that would be imposed by the proposed amendments is
171,498 hours, while the total annual external cost estimate is be
$58,144,976.
---------------------------------------------------------------------------

    \580\ See the 2008 CRMPG III Report, at 53.
    \581\ See testimony of Joseph Mason, ``Hearing on the Role of
Credit Rating Agencies In the Structured Finance Market,'' Before
the Subcommittee on Capital Markets, Insurance, and Government
Sponsored Enterprises, Committee on Financial Services United States
House of Representatives (Sept. 27, 2007) (proposing a resolution to
information asymmetry for structured finance investments, including
CDOs, through changing the manner in which information is gathered
by accountants and regulators and disseminated to market
participants by ratings agencies and markets). See also Anna
Katherine Barnett-Hart, ``The Story of the CDO Market Meltdown: An
Empirical Analysis'' (Mar. 19, 2009) (discussing mis-rating of CDOs
and failure of all market participants, from investment banks to
hedge funds, to understand risk of CDOs) at 3, 40.
---------------------------------------------------------------------------

    We believe that costs of the proposed requirement that issuers file
a notice of sales for the initial placement of securities to be sold in
reliance on Rule 144A should be minimal. In addition, we are proposing
to add disclosure requirements specific to ABS issuers to Form D. For
purposes of PRA, we estimate that proposed requirement on issuers to
file Form 144A-SF would take approximately two hours per response per
year at a total dollar cost of $700.\582\ For purposes of the PRA, the
added requirements to Form D would not increase the current four-hour
estimate for completing the form.
---------------------------------------------------------------------------

    \582\ We allocate 25% of the hours to issuer internal costs at a
rate of $200 per hour and 75% to professional costs at a rate of
$400 per hour.
---------------------------------------------------------------------------

D. Request for Comment

    We seek comments and empirical data on all aspects of this Benefit-
Cost Analysis including identification and quantification of any
additional costs and benefits. Specifically, we ask the following:
     Would the required risk retention threshold for shelf
eligibility be overly burdensome on issuers? If yes, please provide
both qualitative and quantitative information to support your position.
     How does the proposed level of risk retention for shelf
eligibility differ from current industry standards?
     Are there other more cost-effective ways we can
accommodate issuer practices with respect to risk retention in order to
lower overall costs without jeopardizing interest alignment?
     Who will bear the costs of the risk retention shelf
eligibility condition? How would the proposed risk retention shelf
eligibility condition impact borrowers?
     Would the proposed risk retention shelf eligibility
condition impose costs in addition to those identified above, such as
costs arising from systems changes and restructuring business practices
to account for the new risk retention requirements?
     Are the cost estimates per ABS issuance estimated by the
Commission in line with industry's expectations?
     Would these proposals affect originators by making
publicly available asset data that makes it possible to infer their
loan pricing model? Is it possible to quantify or mitigate such
effects?
     Do you believe that the proposed disclosure requirements
will impose costs on other market participants, including firms that
currently provide asset-level data information and waterfall computer
code for a fee?
     Do the proposed disclosure requirements strike an
appropriate balance in requiring sufficient pool-level information? Do
you believe that providing more pool-level information will affect
investors' willingness to analyze the individual assets comprising the
pool? If so, what might be the consequences of such an outcome?
     Are our estimates for costs of disclosing and tagging
asset data file appropriate?
     What type of burden would the proposed waterfall computer
program requirement impose on ABS issuers? What is the magnitude of
that burden?
     What are the costs of our proposal to require that more
information be disclosed to the investor when a sale is made in
reliance on the Rule 144A or Regulation D safe harbors? Are those costs
justified by the benefits provided by the proposals?

XII. Consideration of Burden on Competition and Promotion of
Efficiency, Competition and Capital Formation

    Section 23(a) of the Exchange Act \583\ requires the Commission,
when making rules and regulations under the Exchange Act, to consider
the impact a new rule would have on competition. Section 23(a)(2)
prohibits the Commission from adopting any rule that would impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act. Section 2(b) of the Securities Act
\584\ and Section 3(f) of the Exchange Act \585\ require the
Commission, when engaging in rulemaking that requires it to consider
whether an action is necessary or appropriate in the public interest,
to consider, in addition to the protection of investors, whether the
action would promote efficiency, competition, and capital formation.
Below, we address these issues for each of the proposed substantive
changes to ABS offerings.
---------------------------------------------------------------------------

    \583\ 15 U.S.C. 78w(a).
    \584\ 15 U.S.C. 77b(b).
    \585\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

A. Shelf Registration Requirements

1. Risk Retention
    The impact of our proposed shelf eligibility condition to require
that issuers retain a certain amount of risk in each tranche of the
securitization is similar to the existing regulations imposed by the
EU. Under EU

regulations, certain investing institutions may not hold a position in
asset-backed securities unless the sponsor or originator agrees to
retain a certain amount of the exposures in the securitization. Because
the EU- and the U.S.-issued shelf registered ABS (which had comprised
most of the publicly offered ABS market) would then have comparable
risk retention features, our proposed shelf eligibility condition
should not cause a reduction in U.S. competitiveness from the status
quo that existed prior to the current EU regulations.
    Risk retention may have the additional effect on capital adequacy
for those issuers who are subject to the regulatory capital
requirements. The risk retention requirement may put sponsors subject
to regulatory capital requirements at a competitive disadvantage with
those who are not.
    In addition, we recognize that some issuers may not wish to retain
risk and requiring those issuers to retain risk in order to conduct a
shelf offering could reduce the investment alternatives available to
investors. Therefore, our proposal would allow an issuer to register an
offering on proposed Form SF-1 without retaining risk. The tradeoff
facing the issuer is that offers on proposed Form SF-1 would likely
have a longer wait before being able to go to market, for instance
possibly waiting for the registration statement to be declared
effective for 60 to 90 days compared to five business days for the
proposed revised shelf registration procedures. The amount of time in
non-shelf registration is greater than that of shelf offerings in order
to allow the Commission staff the ability to review and comment on the
filing and give investors additional time to consider the issue and
make a better informed investment decision. These features of our
proposal could have the pro-competitive effect of providing more
alternatives to issuers. Alternatively, some or all issuers could
decide that registration is not an acceptable alternative, which could
result in fewer alternatives for investors.
    The proposed risk retention shelf eligibility condition promotes
capital formation and efficiency by improving the alignment of
sponsors' interest with that of investors. This could result in an
allocation of capital to the most productive uses and lead to gains in
overall economic efficiency.
2. Representations and Warranties in Pooling and Servicing Agreements
    One of the problems in the ABS market that was highlighted during
the financial crisis is the inability to efficiently enforce
contractual provisions and unilateral modification of those ABS
provisions. Our proposed ABS shelf eligibility condition relating to
the representations and warranties stated in a pooling and servicing
agreement promotes a better understanding of the enforceability of
those representations and warranties. As a result, investors should
have greater certainty and transparency about the consequences of
breaches of the representations and warranties. With respect to shelf
offerings of ABS, all other things equal, this proposal is
competitively neutral.
3. Depositor's Chief Executive Officer Certification
    Our ABS shelf eligibility condition that the chief executive
officer of the depositor certify that to his or her knowledge the
assets have characteristics that provide a reasonable basis to believe
that the underlying pool of assets will produce cash flows at times and
in amounts necessary to service payments on the securities as described
in the prospectus promotes capital formation by providing investors in
shelf offerings with additional assurance that the sponsor has
performed the necessary evaluation of the underlying assets and this
evaluation is consistent with the disclosure provided in the
prospectus.
4. Ongoing Exchange Act Reporting
    Our proposals would require that issuers of ABS using shelf
registration provide ongoing Exchange Act reporting. We believe that
this will promote both efficiency and capital formation by making
information useful for monitoring and assessing the performance of both
the assets and the sponsor available to investors and the markets in
general. More public information on an ongoing basis should assist
investors to make better informed decisions on how to allocate capital,
and should promote allocational efficiency by enabling investors to
better match their preferences for risk and return.
5. Eliminate Ratings Requirement
    We propose to eliminate the current ABS shelf eligibility condition
that relies on the ratings provided by an NRSRO. Our proposal, however,
does not prohibit an investor from using a credit rating in its
investment decision in an offering under a shelf registration statement
if they should find this information useful. Rather, we would be
eliminating the reference to credit ratings in our rules in order to
reduce the likelihood of undue reliance and remove the appearance of an
imprimatur that such references may create. This is designed to
decrease the appearance that we sanction the use of ratings over
investor analysis in an investment decision. We believe that doing so
promotes investor protection by reducing the possibility that our rules
encourage investors to rely unduly on ratings \586\ rather than conduct
their own analysis of the securities. If the proposals are adopted,
investors may still utilize ratings. It is also possible that ABS
sponsors will continue to have their offerings rated. Even if ratings
agencies see a decline in their business due to this regulation and
other information being made available by sponsors, we believe that the
benefits of the proposals would justify these potential indirect costs.
The proposals provide an efficient means of assessing the quality and
character of ABS shelf offerings, which thus would not impose a burden
on competition.
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    \586\ In other recent actions, we have addressed significant
issues relating to the credit ratings process by an NRSO, seeking to
improve the transparency relating to ratings shopping, methodologies
of rating the securities. See Amendments to Rules for Nationally
Recognized Statistical Rating Organizations, Release No. 34-61050
(Nov. 23, 2009); Credit Ratings Disclosure, Release No. 33-9070
(Oct. 7, 2009) [74 FR 53086]; Proposed Rules for Nationally
Recognized Statistical Rating Organizations, Release No. 34-61051
(Nov. 23, 2009)[74 FR 63866].
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B. Five-Business Day Filing and Prospectus Delivery Requirements

    In the case of shelf registration, once the registration statement
is effective, we are effectively proposing to increase the time that
issuers are required to provide information about the offering from no
minimum to at least five business days before first sale in the
offering off the shelf. This additional time is designed to provide
investors with additional time to analyze and understand the risk
profile of the securities being offered and to make more informed and
better investment decisions that will improve pricing efficiency, and
should assist investors to make better informed decisions on how to
allocate capital.
    Our proposal to require brokers to provide investors with a
preliminary prospectus at least 48 hours before confirmations are sent
would apply to all registered ABS offerings, regardless of whether they
are made under a shelf registration statement. Given that each ABS
offering requires a consideration of new and different assets, we
propose to treat ABS offerings in this regard similarly to any other
initial public offering of securities. Because all registered ABS
offerings will have the

same requirement, this proposal is competitively neutral with respect
to all public issuers.

C. Disclosure

    As a result of the financial crisis and subsequent events, the
market for securitized assets has suffered dramatically due, in part,
to the recession, lower housing prices and increased consumer debt
load--but also because of perceived problems in the securitization
process that affected investors' willingness to participate in these
issues. Increased transparency of the underlying assets is valuable
because it provides better information that should allow the market to
price these products more accurately. Greater disclosure should give
investors better tools to evaluate the underlying assets and to
determine whether or not to invest in the instrument and at what price.
By doing so, the Commission intends to promote efficient capital
allocation. Consequently, each of these regulations, described
individually below, should provide the following:
     Productive efficiency: The underwriter and sponsor are in
the best position to be the lowest cost providers of the loan level
information that we are proposing. Making such information available
will reduce the amount of investor and third party research that is
repetitive. Requiring that this data be easily machine-readable will
allow parties to perform, at relatively low cost, larger scale analysis
than now occurs.
     Allocational efficiency: Investors will be better able to
match their risk/return preferences with ABS issues having the same
risk return profile;
     Capital formation: Better disclosure should increase
demand for these securities that will then be used to increase capital
formation.\587\
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    \587\ Indeed, this was the original motivation for the
Securities Act of 1933 and the Securities Exchange Act of 1934.
Investing had all but ceased in the Great Depression. The conceptual
framework for these laws was that increased disclosure would promote
ethical behavior in the securities industry leading to greater
investor confidence leading, in turn, to more investment and capital
formation. Revitalization of the securitization market through
additional disclosure has also been espoused by others. See, e.g.,
Ralph Atkins and David Oakley, ``Disclosure move aims to revive ABS
market,'' Financial Times, May 17, 2009 (European Central Bank
pushing for an increase in the amount of information that has to be
disclosed about asset-backed securities as part of efforts to revive
ABS market and encourage investors that have been deterred for lack
of transparency in the market to buy asset-backed securities) and
European Central Bank, Public consultation on the provision of ABS
loan-level information in the Eurosystem collateral framework,
available at http://www.ecb.int/paym/cons/previous/html/abs.en.html.
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    We note that some of our proposals refine rules to provide
investors with a better understanding of the offering, the transaction
parties, or the material characteristics of the pool assets, including
the underwriting of the assets. These proposals do not significantly
change the framework that exists under our current rules for asset-
backed securities.
1. Asset Data File and Waterfall Computer Program
    Under our proposed asset-level disclosure requirements, issuers
would be required to provide certain standardized information on each
asset that is in the pool underlying the securities, or on standardized
groupings in the case of credit card receivables. Such information
would not only be required at the time of securitization but also on an
ongoing basis. This should be an efficiency-enhancing requirement
because issuers and underwriters have ready access to the asset-level
information that we propose be provided; consequently, the information
will be publicized by the lowest cost provider. As evidence that this
is not an onerous burden, some issuers already provide much of the
information to investors (although such information is not
standardized). Nonetheless, where we believe the costs in providing
this information may not be justified in light of the limited benefit
to investors and with consequent potentially negative effects on
efficiency, competition and/or capital formation, we are proposing to
exclude those issuers from the asset-level requirements, or, in the
case of credit card ABS issuers, to modify the approach. Asset data
file information requirements are proposed to be applied equally to
shelf eligible and non-shelf eligible offerings alike, thus applying
the burdens equally to all publicly offered ABS issuers.
    As described in the Benefit-Cost section above, the proposed asset-
level disclosure requirements are likely to increase competition in
lending markets by making information more cheaply available. Large
datasets of loan-level information on credit terms and borrower
characteristics are now available--but often at a considerable cost to
subscribers and with incomplete information for some mortgage
originators of the loans in the underlying pool. The data can be used
to reverse engineer an originator's lending strategy in general or
loan-pricing model in particular. Such information can be used by
lenders to compete more effectively and even more generally can lower
barriers to entry into geographic or product lending markets. By making
this information more cheaply available, small loan originators may
have access in the future to data that only the larger institutions
could afford. As such, the provision of this data will be pro-
competitive in lending markets.
    We are mindful that forced disclosure of detailed information may
create disincentives for innovation. At the present time, however,
asset-level data are sometimes available from third party vendors for a
price. Consequently, there should be little incremental effect on
innovation from our proposed disclosure requirement.
    We expect that the proposed asset-level and waterfall-computer-
program disclosure requirements may negatively impact the profitability
of providers of similar information and products currently being
marketed. If the individual-asset data and cash-flow generating code
are available free of charge, investors will no longer have the
incentive to purchase similar products from third party vendors. Thus,
some data vendor product market share may be negatively impacted by our
requirements. However, the free availability of this data could give
rise to new products from third party vendors who will offer data
analyses, data analysis services and even user software to process the
data that has features absent from the proposed waterfall computer
program requirement.
    Our proposals should benefit consumers because, first, the same
information will be available at lower cost than is now the case and,
second, we expect to see innovations in information processing and
delivery to provide insights to investors that may now be prohibitive.
2. Pay-As-You-Go Registration and Revisions to Registration Process
    Some of our proposals are directed at the format and presentation
in which information is provided to investors to facilitate analysis of
offering materials and, thus, promote more efficient capital formation
through greater understanding of ABS. For example, we propose to
eliminate the base prospectus and prospectus supplement format for
disclosure. We believe that this should significantly improve
disclosure for investors. While we acknowledge that the proposal may
increase costs for issuers by increasing the number of registration
statements that must be filed, our proposal to allow a ``pay-as-you-
go'' registration system for ABS issuers should help to offset those
costs and thereby improve efficiency for ABS issuers.

3. Restrictions on Use of Regulation AB
    Part of our proposed changes would change the definition of an
asset-backed security to restrict the types of structures that could be
utilized under the Regulation AB framework. The proposed revisions
should impact only a few offerings. Inasmuch as this is basically
delineating the securities that are not suitable for the Regulation AB
framework, this action does not significantly change the status quo and
therefore has no effect on efficiency, competition and capital
formation.

D. Safe Harbors for Privately-Issued Structured Finance Products

    We also note that some of our changes to registered offerings of
ABS may make alternate offering mechanisms, such as private placements
or exempt offerings more attractive. We are proposing to revise our
rules relating to offers and sales made in reliance on Rule 506 of
Regulation D and resales made in reliance on Rule 144A to give the
investors the right to obtain the same level of disclosure as required
in a registered Form S-1 or proposed Form SF-1 offerings. This in turn
may make offers and sales pursuant to Section 4(2) of the Securities
Act or resales pursuant to so-called Section 4(1-\1/2\) more attractive
to issuers. We think this will promote efficiency by bringing
transparency to formerly opaque private structured finance product
market, particular for CDOs and similar products.

E. Combined Effect of Proposals

    If sponsors/issuers bear the costs discussed above, this could put
private-label RMBS sponsors/issuers at further disadvantage relative to
government sponsored enterprises \588\ whose RMBS are exempt from SEC
registration (e.g., Freddie Mac, Fannie Mae and Ginnie Mae). Increasing
the costs of securitization may give a competitive advantage to
residential mortgage originators who can securitize through government
sponsored enterprises and may increase the cost of non-conforming loans
to borrowers. Such GSEs are not required to disclose loan-level
information and/or commit to the requirements of SEC registration. If
the proposed costs are sufficiently high relative to the resulting
benefits of these regulations to investors, originators could receive a
better price from selling conforming loans to these agencies as opposed
to private conduits, thus increasing the competitive advantage of GSEs.
In addition, the better selling price of conforming loans to GSEs could
adversely affect originators' incentives to underwrite non-conforming
loans, since these cannot be securitized through GSEs. The combined
effect might be a reduction in the number of assets available for
securitization by non-GSE ABS issuers and could provide GSEs with
greater market power at the expense of conforming loan lenders and non-
conforming borrowers. We believe that to the extent the consideration
of risk and return makes non-GSE more attractive than GSEs, this
competitive advantage could be reduced.
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    \588\ Ambrose, B. and W., Arthur (2002), ``Measuring Potential
GSE Funding Advantages,'' The Journal of Real Estate Finance &
Economics, Vol. 25, No. 2; Passmore, W. (2005), ``The GSE Implicit
Subsidy and the Value of Government Ambiguity,'' REAL ESTATE
ECONOMICS, Vol. 33, No. 3, at 465-486.
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    In summary, taken together the proposed amendments to our
regulations and forms on asset-backed securities are designed to
improve investor protection, reduce the likelihood of undue reliance on
ratings, and increase transparency to market participants. We believe
that the proposals also would improve investors' confidence in asset-
backed securities and help recovery in the ABS market with attendant
positive effects on efficiency, competition and capital formation.
    We request comment on our proposed amendments. We request comment
on whether our proposals would promote efficiency, competition, and
capital formation. Commenters are requested to provide empirical data
and other factual support for their views, if possible. We also request
comment on whether our proposed changes to Exchange Act Rule 15c2-8(b),
the disclosure requirements and Exchange Act forms would impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act.

XIII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996,\589\ a rule is ``major'' if it has resulted, or is likely
to result in: