[Federal Register Volume 76, Number 151 (Friday, August 5, 2011)]
[Proposed Rules]
[Pages 47948-47984]
[FR Doc No: 2011-19300]

Vol. 76

Friday,

No. 151

August 5, 2011

Part V

Securities and Exchange Commission

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

17 CFR Parts 229, 230, 239, et al.

Re-Proposal of Shelf Eligibility Conditions for Asset-Backed
Securities; Proposed Rule

Federal Register / Vol. 76, No. 151 / Friday, August 5, 2011 /
Proposed Rules

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

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 230, 239 and 249

[Release Nos. 33-9244; 34-64968; File No. S7-08-10]
RIN 3235-AK37

Re-Proposal of Shelf Eligibility Conditions for Asset-Backed
Securities

AGENCY: Securities and Exchange Commission.

ACTION: Re-proposed rule.

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

SUMMARY: We are revising and re-proposing certain rules that were
initially proposed in April 2010 related to asset-backed securities in
light of the provisions added by the Dodd-Frank Wall Street Reform and
Consumer Protection Act and comments received on our April 2010
proposals. Specifically, we are re-proposing registrant and transaction
requirements related to shelf registration of asset-backed securities
and changes to exhibit filing deadlines. In addition, we are requesting
additional comment on our proposal to require asset-level information
about the pool assets. We continue to consider the other matters in our
April 2010 proposing release.

DATES: Comments should be received on or before October 4, 2011.

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

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/proposed.shtml);
     Send an e-mail to<EMAIL_ADDRESS>Please include
File Number S7-08-10 on the subject line; or
     Use the Federal Rulemaking Portal (http://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

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

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

FOR FURTHER INFORMATION CONTACT: Rolaine Bancroft, Senior Special
Counsel, Robert Errett, Special Counsel, or Jay Knight, Special
Counsel, in the Office of Structured Finance, at<PHONE_NUMBER>,
Division of Corporation Finance, U.S. Securities and Exchange
Commission, 100 F Street, NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION: We are proposing amendments to Item 601\1\
of Regulation S-K; \2\ Items 1100, 1101, 1109, 1119, and 1121 \3\ of
Regulation AB \4\ (a subpart of Regulation S-K); Rules 401 and 415,\5\
under the Securities Act of 1933 (``Securities Act''); \6\ and Form 10-
D \7\ under the Securities Exchange Act of 1934 (``Exchange Act'').\8\
We also are proposing to add Form SF-3 \9\ under the Securities Act.
---------------------------------------------------------------------------

    \1\ 17 CFR 229.601.
    \2\ 17 CFR 229.10 et al.
    \3\ 17 CFR 229.1100, 17 CFR 229.1101, 17 CFR 229.1109, 17 CFR
229.1119, 17 CFR 229.1121.
    \4\ 17 CFR 229.1100 through 17 CFR 229.1123.
    \5\ 17 CFR 230.401 and 17 CFR 230.415.
    \6\ 15 U.S.C. 77a et seq.
    \7\ 17 CFR 249.312.
    \8\ 15 U.S.C. 78a et seq.
    \9\ 17 CFR 239.45.
---------------------------------------------------------------------------

Table of Contents

I. Background
II. Securities Act Shelf Registration
    A. Proposed Form SF-3
    B. Shelf Eligibility for Delayed Offerings
    1. Revised and Re-Proposed Transaction Requirements
    (a) Certification
    (b) Credit Risk Manager and Repurchase Request Dispute
Resolution Provisions
    (c) Investor Communication
    2. Revised and Re-Proposed Registrant Requirements
    3. Annual Evaluation of Form SF-3 Eligibility in Lieu of Section
10(a)(3) Update
    (a) Annual Compliance Check related to Timely Exchange Act
Reporting
    (b) Annual Compliance Check Related to the Fulfillment of the
Transaction Requirements in Previous ABS Offerings
    4. General Requests for Comment on Shelf Eligibility
III. Disclosure Requirements
    A. Exhibits To Be Filed With Rule 424(h) Filing
    B. Requests for Comment on Asset-Level Information
    1. Section 7(c) of the Securities Act
    2. Additional Requests for Comment on Asset-Level Data
    3. Additional Requests for Comment on When to Require Schedule L
    4. Additional Requests for Comment on Privately-Issued
Structured Finance Products
    C. Waterfall Computer Program
IV. Transition Period
V. General Request for Comment
VI. Paperwork Reduction Act
    A. Background
    B. Revisions to PRA Reporting and Cost Burden Estimates
    1. Form S-3 and Form SF-3
    2. Form 10-D
    3. Regulation S-K
    4. Summary of Proposed Changes to Annual Burden Compliance in
Collection of Information
    5. Solicitation of Comments
VII. Economic Analysis
    A. Background
    B. ABS Shelf Eligibility Proposals
    1. Benefits
    2. Costs
    C. Disclosure Requirements
    1. Benefits
    2. Costs
    D. Requests for Comment
VIII. Small Business Regulatory Enforcement Fairness Act
IX. Regulatory Flexibility Act Certification
X. Statutory Authority and Text of Proposed Rule and Form Amendments

I. Background

    In April 2010, we proposed rules that would revise the disclosure,
reporting and offering process for asset-backed securities
(``ABS'').\10\ In light of the problems exposed by the financial
crisis, we had proposed significant revisions to our rules governing
offers, sales and reporting with respect to asset-backed securities.
These 2010 ABS Proposals were designed to improve investor protection
and promote more efficient asset-backed markets.
---------------------------------------------------------------------------

    \10\ See Asset-Backed Securities, SEC Release No. 33-9117 (April
7, 2010) [75 FR 23328] (the ``2010 ABS Proposing Release'' or the
``2010 ABS Proposals'').
---------------------------------------------------------------------------

    Among other things, in the 2010 ABS Proposing Release we proposed
eligibility requirements to replace the current credit rating
references in shelf eligibility criteria for asset-backed security
issuers. We also proposed to require that, with some exceptions,
prospectuses for public offerings of asset-backed securities and
ongoing Exchange Act reports contain specified asset-level information
about each of the assets in the pool in a standardized tagged data
format. Our proposal also included disclosure requirements as
conditions to exemptions from offering registration. Further, we
proposed to require asset-backed issuers to provide investors with more
time to consider

transaction-specific information about the pool assets.
    The Dodd-Frank Wall Street Reform and Consumer Protection Act (the
``Act'') was enacted in July 2010.\11\ The April 2010 ABS proposals
sought to address a number of concerns about the ABS offering process
and ABS disclosures that were subsequently addressed in the Act, while
others were not referenced in the Act. Specifically, two of the
proposed requirements--risk retention \12\ and continued Exchange Act
reporting \13\--will be required for most registered ABS offerings as a
result of changes mandated by provisions of the Act. We are re-
proposing some of the 2010 ABS Proposals at this time in light of the
changes made by the Act and comments we received.
---------------------------------------------------------------------------

    \11\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010).
    \12\ In the 2010 ABS Proposing Release, we proposed to require
sponsors of ABS transactions retain a specified amount of each
tranche of the securitization, net of hedging. Section 941 of the
Act added new Section 15G of the Exchange Act. Section 15G generally
requires the Federal Reserve Board, the Federal Deposit Insurance
Corporation, the Office of the Comptroller of the Currency, the
Commission and in the case of the securitization of any
``residential mortgage asset,'' together with the Department of
Housing and Urban Development and the Federal Housing Finance
Agency, to jointly prescribe regulations relating to risk retention.
In March 2011, the agencies proposed rules to implement Section 15G
of the Exchange Act. See Credit Risk Retention, SEC Release No. 34-
64148 (March 30, 2011) [76 FR 24090] (the ``Risk Retention Proposing
Release'' or ``Risk Retention Proposals'').
    \13\ The Commission proposed in the 2010 ABS Proposals to
require that an ABS issuer undertake to file Exchange Act reports
with the Commission on an ongoing basis as a condition to shelf
eligibility. The 2010 ABS Proposals also proposed to require an
issuer to confirm, among other things, whether Exchange Act reports
required pursuant to the undertaking were current as of the end of
the quarter in order to be eligible to use the effective
registration statement for takedowns. Section 942(a) of the Act
eliminated the automatic suspension of the duty to file under
Section 15(d) of the Exchange Act for ABS issuers, and granted
authority to the Commission to issue rules providing for the
suspension or termination of such duty. Due to the amendment to
Section 15(d), the proposed shelf eligibility requirement to
undertake to file Exchange Act reports is no longer necessary,
including the quarterly evaluation by issuers of compliance with the
undertaking. In January 2011, we proposed rules to provide for
suspension of the reporting obligations for asset-backed securities
issuers when there are no asset-backed securities of the class sold
in a registered transaction held by non-affiliates of the depositor.
See Suspension of the Duty to File Reports for Classes of Asset-
Backed Securities Under Section 15(d) of the Securities Exchange Act
of 1934, Release No. 34-63652 (Jan. 6, 2011) [76 FR 2049].
---------------------------------------------------------------------------

    Our re-proposals for ABS shelf registration eligibility are also
part of several rule revisions we are considering in connection with
Section 939A of the Act. Section 939A of the Act requires that we
``review any regulation issued by [us] that requires the use of an
assessment of the credit-worthiness of a security or money market
instrument and any references to or requirements in such regulations
regarding credit ratings.'' Once we have completed that review, the
statute provides that we modify any regulations identified in our
review to ``remove any reference to or requirement of reliance on
credit ratings and to substitute in such regulations such standard of
credit-worthiness'' as we determine to be appropriate. In that
connection, we take into account the context and purposes of the
affected rules.
    Our re-proposals today for shelf eligibility would require:
     A certification filed at the time of each offering off of
a shelf registration statement, or takedown, by the chief executive
officer of the depositor or executive officer in charge of
securitization of the depositor concerning the disclosure contained in
the prospectus and the design of the securitization.
     Provisions in the underlying transaction agreements
requiring the appointment of a credit risk manager to review assets
upon the occurrence of certain trigger events and provisions requiring
repurchase request dispute resolution;
     A provision in an underlying transaction agreement to
include in ongoing distribution reports on Form 10-D a request by an
investor to communicate with other investors; and
     An annual evaluation of compliance with the registrant
requirements.
    We are also re-proposing revised filing deadlines for exhibits in
shelf offerings to require that the underlying transaction agreements,
in substantially final form, be filed and made part of a registration
statement by the date the preliminary prospectus is required to be
filed under the 2010 ABS Proposal.\14\
---------------------------------------------------------------------------

    \14\ See discussion regarding proposed Rules 424(h) and 430D
below in Section II.
---------------------------------------------------------------------------

    We are requesting additional comment on our 2010 ABS Proposals
relating to asset-level data in light of Section 942(b) of the Act and
comments we received on the 2010 ABS Proposals. Section 942(b) of the
Act adds Section 7(c) of the Securities Act to require the Commission
to adopt regulations requiring an issuer of an asset-backed security to
disclose, for each tranche or class of security, certain loan level
information regarding the assets backing that security.\15\ Lastly, we
are requesting additional comment on our 2010 ABS Proposals relating to
privately-offered structured finance products.
---------------------------------------------------------------------------

    \15\ See Section 7(c) of the Securities Act.
---------------------------------------------------------------------------

II. Securities Act Shelf Registration

    Securities Act shelf registration provides important timing and
flexibility benefits to issuers. An issuer with an effective shelf
registration statement can conduct delayed offerings ``off the shelf''
under Securities Act Rule 415 without staff action.\16\ Under our
current rules, asset-backed securities may be registered on a Form S-3
registration statement and later offered ``off the shelf'' if, in
addition to meeting other specified criteria,\17\ the securities

are rated investment grade by a nationally recognized statistical
rating organization (NRSRO). As we explained in the 2010 ABS Proposing
Release, we recognize that asset-backed issuers have expressed the need
to use shelf registration to access the capital markets quickly.\18\
Our re-proposed shelf eligibility requirements are designed to help
ensure a certain quality and character for asset-backed securities that
are eligible for delayed shelf registrations given the speed of these
offerings. We discuss our proposed revisions to the registrant and
transaction requirements for shelf eligibility below.\19\
---------------------------------------------------------------------------

    \16\ As discussed in the 2010 ABS Proposing Release,
contemporaneous with the enactment of Secondary Mortgage Market
Enhancement Act of 1984 (SMMEA), which added the definition of
``mortgage related security'' to the Exchange Act, we amended
Securities Act Rule 415 to permit mortgage related securities to be
offered on a delayed basis, regardless of which form is utilized for
registration of the offering (Public Law 98-440, 98 Stat. 1689).
SMMEA was enacted by Congress to increase the flow of funds to the
housing market by removing regulatory impediments to the creation
and sale of private mortgage-backed securities. An early version of
the legislation contained a provision that specifically would have
required the Commission to create a permanent procedure for shelf
registration of mortgage related securities. The provision was
removed from the final version of the legislation, however, as a
result of the Commission's decision to adopt Rule 415, implementing
a shelf registration procedure for mortgage related securities. See
H.R. Rep. No. 994, 98th Cong., 2d Sess. 14, reprinted in 1984 U.S.
Code Cong. & Admin. News 2827; see also Shelf Registration, Release
No. 33-6499 (Nov. 17, 1983) [48 FR 52889], at n. 30 (noting that
mortgage related securities were the subject of pending
legislation). In 1992, in order to facilitate registered offerings
of asset-backed securities and eliminate differences in treatment
under our registration rules between mortgage related asset-backed
securities (which could be registered on a delayed basis) and other
asset-backed securities of comparable character and quality (which
could not), we expanded the ability to use ``shelf offerings'' to
other asset-backed securities. See Simplification of Registration
Procedures for Primary Securities Offerings, Release No. 33- 6964
(Oct. 22, 1992) [57 FR 32461]. Under the 1992 amendments, offerings
of asset-backed securities rated investment grade by an NRSRO
(typically one of the four highest categories) could be shelf
eligible and registered on Form S-3. The eligibility requirement's
definition of ``investment grade'' was largely based on the
definition in the existing eligibility requirement for non-
convertible corporate debt securities.
    \17\ In addition to investment grade rated securities, an ABS
offering is eligible for Form S-3 registration only if the following
conditions are met: (i) Delinquent assets must not constitute 20% or
more, as measured by dollar volume, of the asset pool as of the
measurement date; and (ii) with respect to securities that are
backed by leases other than motor vehicle leases, the portion of the
securitized pool balance attributable to the residual value of the
physical property underlying the leases, as determined in accordance
with the transaction agreements for the securities, does not
constitute 20% or more, as measured by dollar volume, of the
securitized pool balance as of the measurement date. See General
Instruction I.B.5 of Form S-3. Moreover, to the extent the depositor
or any issuing entity previously established, directly or
indirectly, by the depositor or any affiliate of the depositor are
or were at any time during the twelve calendar months and any
portion of a month immediately preceding the filing of the
registration statement on Form S-3 subject to the requirements of
Section 12 or 15(d) of the Exchange Act (15 U.S.C. 78l or 78o(d))
with respect to a class of asset-backed securities involving the
same asset class, such depositor and each such issuing entity must
have filed all material required to be filed regarding such asset-
backed securities pursuant to Section 13, 14 or 15(d) of the
Exchange Act (15 U.S.C. 78m, 78n or 78o(d)) for such period (or such
shorter period that each such entity was required to file such
materials). Such material (except for certain enumerated items) must
have been filed in a timely manner. See General Instruction I.A.4 of
Form S-3. We are not proposing changes to these other eligibility
conditions.
    \18\ According to EDGAR, in 2006 and 2007, only three ABS
issuers filed registration statements on Form S-1 that went
effective. See the 2010 ABS Proposing Release at 23334.
    \19\ In addition to the removal of references to ratings from
the shelf eligibility requirements, we note that our 2010 ABS
Proposing Release included proposals to increase the amount of time
that investors are required to be provided to review information
regarding a particular shelf takedown and, therefore, promote
analysis of asset-backed securities in lieu of undue reliance on
security ratings for shelf offerings. New Rule 424(h), as proposed
in the 2010 Proposing Release, would require an ABS issuer using a
shelf registration statement on proposed Form SF-3 to file a
preliminary prospectus containing transaction-specific information
at least five business days in advance of the first sale of
securities in the offering. Proposed new Rule 430D would require the
framework for shelf registration of ABS offerings and related Rule
424(h) filing requirements for a preliminary prospectus. Under
proposed Rule 430D, the Rule 424(h) preliminary prospectus must
contain substantially all the information for the specific ABS
takedown previously omitted from the prospectus filed as part of an
effective registration statement, except for pricing information.
These proposals remain outstanding. See the 2010 ABS Proposing
Release at 23335.
---------------------------------------------------------------------------

A. Proposed Form SF-3

    In the 2010 ABS Proposing Release, given the distinctions between
ABS offerings and other registered securities offerings, we proposed to
add new registration forms that would be used for any sale of a
security that meets the definition of an asset-backed security,\20\ as
defined in Item 1101 of Regulation AB.\21\ The proposed new forms,
which would be named Form SF-1 and Form SF-3,\22\ would require
disclosure in accordance with all the items applicable to ABS offerings
that are currently required in Form S-1 and Form S-3 as modified by the
2010 ABS Proposals. Offerings that qualify for delayed shelf
registration \23\ would be registered on proposed Form SF-3, and all
other ABS offerings would be registered on Form SF-1.\24\
---------------------------------------------------------------------------

    \20\ See the ABS 2010 ABS Proposing Release at 23337.
    \21\ 17 CFR 229.1101(c).
    \22\ The proposed forms would be referenced in 17 CFR 239.44 and
17 CFR 239.45.
    \23\ In this release, we also refer to such offerings on current
Form S-3 and proposed Form SF-3 as ``shelf offerings.'' Note that in
the 2010 ABS Proposing Release, we proposed to limit the
registration of continuous ABS offerings to ``all or none''
offerings on Form SF-3. That proposal remains unchanged and
outstanding. See the 2010 ABS Proposing Release at 23350.
    \24\ We are not re-proposing any part of Form SF-1 today.
Therefore, our 2010 ABS Proposal for Form SF-1 remains outstanding.
---------------------------------------------------------------------------

    With respect to proposed Form SF-3, we are only re-proposing
certain registrant and transaction requirements contained in the
instructions to the Form. The other parts of proposed Form SF-3, which
include, among other things, disclosure requirements and instructions
for signatures, remain unchanged and outstanding.\25\
---------------------------------------------------------------------------

    \25\ The proposed text of the entire Form SF-3 is included in
Section XI of this release, as proposed in the 2010 ABS Proposing
Release and revised for the registrant and transaction requirements
that we are re-proposing today.
---------------------------------------------------------------------------

B. Shelf Eligibility for Delayed Offerings

    Under the 2010 ABS Proposals, ABS issuers would no longer establish
shelf eligibility through an investment grade credit rating.\26\ The
proposals were part of our broad ongoing effort to remove references to
NRSRO credit ratings from our rules in order to reduce the risk of
undue ratings reliance and eliminate the appearance of an imprimatur
that such references may create.\27\ In place of credit ratings, we had
proposed to establish four shelf eligibility criteria that would apply
to mortgage-related securities and other asset-backed securities alike:
---------------------------------------------------------------------------

    \26\ See the 2010 ABS Proposing Release at 23338.
    \27\ See the Security Ratings Release.
---------------------------------------------------------------------------

     A certification filed at the time of each offering off of
a shelf registration statement, or takedown, by the chief executive
officer of the depositor that the assets in the pool have
characteristics that provide a reasonable basis to believe that they
will produce, taking into account internal credit enhancements, cash
flows to service any payments on the securities as described in the
prospectus;
     Retention by the sponsor of a specified amount of each
tranche of the securitization,\28\ net of the sponsor's hedging (also
known as ``risk retention'' or ``skin-in-the-game'');
---------------------------------------------------------------------------

    \28\ We use the term ``sponsor'' to mean the person who
organizes and initiates an asset-backed securities transaction by
selling or transferring assets, either directly or indirectly,
including through an affiliate, to the issuing entity. See Item
1101(l) of Regulation AB.
---------------------------------------------------------------------------

     A provision in the pooling and servicing agreement that
requires the party obligated to repurchase the assets for breach of
representations and warranties to periodically furnish an opinion of an
independent third party regarding whether the obligated party acted
consistently with the terms of the pooling and servicing agreement with
respect to any loans that the trustee put back to the obligated party
for violation of representations and warranties and which were not
repurchased; and
     An undertaking by the issuer to file Exchange Act reports
so long as non-affiliates of the depositor hold any securities that
were sold in registered transactions backed by the same pool of
assets.\29\
---------------------------------------------------------------------------

    \29\ See the 2010 ABS Proposing Release at 23338-23348.
---------------------------------------------------------------------------

    Similar to the existing requirement that the securities must be
investment grade, the 2010 ABS Proposals for registrant and transaction
requirements were designed to provide that asset-backed securities that
are eligible for delayed shelf-registrations have certain quality and
character.
    Our re-proposal for registrant and transaction requirements for
shelf does not contain a requirement for risk retention because, as
noted above in Section I, the Risk Retention Proposals are currently
being considered by the joint regulators.\30\ The Risk Retention
Proposals would apply to both registered and non-registered ABS.
Although we may consider whether additional risk retention requirements
for shelf eligibility are appropriate after the risk retention rules
are adopted by the joint regulators, at this point we believe that it
would be preferable not to have different risk retention requirements
for our shelf eligibility rules. We had proposed that the sponsor of
any securitization retain risk in each tranche of the securitization as
a partial replacement for the investment grade ratings requirement
because we believe that securitizations with sponsors that have
continuing risk exposure would likely be higher quality than those
without, and we anticipate that the final risk retention rules adopted
by the joint regulators should also promote that goal. In addition, we
believe disparate risk retention requirements could be

confusing and impose unnecessary burdens on the ABS markets.
Consequently, we are eliminating the risk retention requirement from
our proposal at this time.
---------------------------------------------------------------------------

    \30\ See fn. 12.
---------------------------------------------------------------------------

    Further, our re-proposal for registrant and transaction
requirements for shelf does not contain a requirement to include an
undertaking to provide Exchange Act reports because, as noted above in
Section I, Section 942(a) of the Act eliminated the automatic
suspension of the duty to file under Section 15(d) of the Exchange Act
for ABS issuers and granted the Commission the authority to issue rules
providing for the suspension or termination of such duty.\31\ As a
result, ABS issuers with Exchange Act Section 15(d) reporting
obligations will continue to report without regard to the shelf
eligibility requirements.
---------------------------------------------------------------------------

    \31\ See fn. 13.
---------------------------------------------------------------------------

    As noted above, our re-proposals are limited to certain registrant
and transaction requirements contained in the instructions to the Form.
The other parts of proposed Form SF-3, such as disclosure and
instructions for signatures, remain unchanged and outstanding. We
believe that the re-proposed transaction requirements described below
would allow ABS issuers to access the market quickly, while providing
improved investor protections that would be indicative of a higher
quality security, making them appropriate replacements for the
investment grade rating condition to eligibility for a delayed shelf
offering.
1. Revised and Re-Proposed Transaction Requirements
    We are revising and re-proposing certain transaction requirements
for shelf to replace the current investment grade rating criterion. As
noted above, in light of the Act, our re-proposal does not include a
risk retention requirement or a requirement that the issuer undertake
to continue Exchange Act reporting. As explained in further detail
below, under the re-proposal, the proposed transaction requirements for
shelf offerings would include:
     A certification filed at the time of each offering off of
a shelf registration statement, or takedown, by the chief executive
officer of the depositor or executive officer in charge of
securitization of the depositor concerning the disclosure contained in
the prospectus and the design of the securitization;
     Provisions in the underlying transaction agreements
requiring the appointment of a credit risk manager to review the
underlying assets upon the occurrence of certain trigger events and
provisions requiring repurchase request dispute resolution; and
     A provision in an underlying transaction agreement to
include in ongoing distribution reports on Form 10-D a request by an
investor to communicate with other investors.
    In the 2010 ABS Proposing Release, we did not propose to change the
other current ABS shelf offering transaction requirements related to
the amount of delinquent assets in the asset pool and residual values
of leases and we are not proposing to change these requirements in this
release.\32\
---------------------------------------------------------------------------

    \32\ See fn. 17.
---------------------------------------------------------------------------

(a) Certification

    We are re-proposing the transaction requirement, which partially
replaces the investment grade ratings criterion for shelf eligibility,
for ABS shelf offerings to require that a certification be provided by
either the chief executive officer of the depositor or the executive
officer in charge of securitization of the depositor. In the 2010 ABS
Proposing Release, we proposed that the depositor's chief executive
officer certify that to his or her knowledge, the assets have
characteristics that provide a reasonable basis to believe they will
produce, taking into account internal credit enhancements,\33\ cash
flows at times and in amounts necessary to service payments on the
securities as described in the prospectus.\34\
    This officer would also certify that he or she has reviewed the
prospectus and the necessary documents for this certification.\35\ We
believe, as we did when we proposed the certification for Exchange Act
periodic reports, that a certification may cause these officials to
review more carefully the disclosure, and in this case, the
transaction, and to participate more extensively in the oversight of
the transaction, which is intended to result in shelf eligible ABS
being of a higher quality than ABS structured without such
oversight.\36\ In response to the 2010 ABS Proposing Release, the
investor members of one commentator agreed and emphasized that the
certification would be a valuable and appropriate requirement for shelf
eligibility, encouraging more careful issuer review of
securitizations.\37\ Other commentators, however, expressed concern
regarding the certification and suggested that the certification
instead just relate to disclosure.\38\
---------------------------------------------------------------------------

    \33\ We note internal credit enhancement would include
guarantees applicable to the underlying loans. See letter from
Sallie Mae on the 2010 ABS Proposing Release (requesting that the
Commission clarify that internal credit enhancement should include
all guarantees applicable to government guaranteed student loans).
The public comments we received are available on our Web site at
http://www.sec.gov/comments/s7-08-10/s70810.shtml.
    \34\ As we explained in the 2010 ABS Proposing Release, this
condition is similar to the current disclosure requirements for
asset-backed issuers in the European Union. Annex VIII, Disclosure
Requirements for the Asset-Backed Securities Additional Building
Block, Section 2.1 (European Commission Regulation (EC) No. 809/2004
(April 29, 2004). The EU requires asset-backed issuers to disclose
in each prospectus that the securitized assets backing the issue
have characteristics that demonstrate capacity to produce funds to
service any payments due and payable on the securities. Similarly,
under the North American Securities Administrator's Association
(NASAA)'s guidelines for registration of asset-backed securities,
sponsors are required to demonstrate that for securities without an
investment grade rating, based on eligibility criteria or
specifically identified assets, the eligible assets being pooled
will generate sufficient cash flow to make all scheduled payments on
the asset-backed securities after taking certain allowed expenses
into consideration. The guidelines are available at http://www.nasaa.org. In the 2010 ABS Proposing Release, we explained that
because the certification is framed as an ABS shelf eligibility
condition instead of a disclosure requirement, we proposed slightly
different language than a similar EU disclosure requirement in order
to more precisely outline what the officer is certifying to. We
proposed a certification rather than a disclosure requirement
because we believe the potential focus on the transaction and the
disclosure that may result from an individual providing a
certification should lead to enhanced quality of the securitization.
    \35\ As we noted in the 2010 ABS Proposing Release, a
depositor's chief executive officer may conclude that in order to
provide the certification, he or she must analyze a structural
review of the securitization. Rating agencies also typically conduct
a structural review of the securitization when issuing a rating on
the securities.
    \36\ See Certification of Disclosure in Companies' Quarterly and
Annual Reports, Release No. 34- 46079 June 14, 2002. See also
Testimony Concerning Implementation of the Sarbanes-Oxley Act of
2002 by William H. Donaldson, Chairman U.S. Securities and Exchange
Commission Before the Senate Committee on Banking, Housing and Urban
Affairs (September 9, 2003) (noting that a consequence of ``the
combination of the certification requirements and the requirement to
establish and maintain disclosure controls and procedures has been
to focus appropriate increased senior executive attention on
disclosure responsibilities and has had a very significant impact to
date in improving financial reporting and other disclosure'').
    \37\ See letter from Securities Industry Financial Markets
Association (SIFMA) (investors) on the 2010 ABS Proposing Release.
    \38\ Several commentators offered, as an alternative, that the
CEO of the depositor certify to the adequacy and accuracy of the
disclosure in the offering documents. See letters from American Bar
Assosciation (ABA); American Bankers Association and ABA Securities
Association (ABASA); American Securitization Forum (ASF); Australian
Securitisation Forum (AusSF); Bank of America (BOA); CNH Capital
America (CNH); Financial Services Roundtable (FSR); J.P. Morgan
Chase & Co. (JP Morgan); Mortgage Bankers Association (MBA); SIFMA
(dealers and sponsors); Sallie Mae; and Wells Fargo on the 2010 ABS
Proposing Release.
---------------------------------------------------------------------------

    Although integrally related to the disclosure about the structure,
assets and securities, we preliminarily believe the certification
should not be limited to

disclosure. An asset-backed security is the product of multiple and
varied contracts. The certification is designed to encourage better
oversight by an executive officer of the securitization process. The
certification also is proposed as a partial substitute for the
investment grade rating. As such, we believe it is appropriate to
require that the depositor have some belief that the securities being
offered and sold pursuant to a shelf registration are of a certain
quality. The proposed certification is not a condition for selling or
registering asset-backed securities and, in fact, as is the case today,
securities that are part of the same transaction may be privately
offered and sold and thus would not be subject to the certification.
For these reasons, we are not limiting the proposed certification to
disclosure as suggested by some commentators. However, we agree that
having the certification address disclosure more directly may also
improve the oversight and therefore the quality of the securities.
Consequently, we are proposing to revise the certification to
explicitly address disclosure matters, as described below.
    We anticipate that in order to provide the proposed certification,
a certifier could rely, in part, on the review that would already be
required in order for an issuer to comply with recently adopted Rule
193.\39\ Rule 193 implements Section 945 of the Act by requiring that
any issuer registering the offer and sale of an ABS perform a review of
the assets underlying the ABS. Under the rule, at a minimum, such
review must be designed and effected to provide reasonable assurance
that the disclosure regarding the pool assets in the prospectus is
accurate in all material respects. In addition to a review of the
assets, the proposed certification, however, would require a review of
the structure of the securitization.
---------------------------------------------------------------------------

    \39\ 17 CFR 230.193. In that rulemaking, we also added new Item
1111(a)(7) to Regulation AB [17 CFR 229.1111(a)(7)] to require
disclosure in prospectuses of the nature of the review of the assets
performed by an issuer, including whether the issuer of any ABS
engaged a third party for purposes of performing the review of the
pool assets underlying an ABS and the findings and conclusions of
the review of the assets. See Issuer Review of Assets in Offerings
of Asset-Backed Securities, Release No. 33-9176 (Jan. 20, 2011) [76
FR 4231] the ``January 2011 ABS Issuer Review Release'').
---------------------------------------------------------------------------

    Several commentators on the 2010 ABS Proposing Release opposed the
certification requirement because they argued, in general, that the
depositor's chief executive officer could not be expected to have the
knowledge necessary to certify the performance of the securities.\40\
We understand that an executive officer of the depositor may rely on
the work of other parties to assist him or her with structuring an ABS
transaction. We do believe however, that the chief executive officer of
a depositor should provide appropriate oversight so that he or she
would be able to make the certification.
---------------------------------------------------------------------------

    \40\ See letters from ABA; ABASA; Association of Mortgage
Investors (AMI); ASF; BOA; CNH; Discover Financil Services
(Discover); FSR; JP Morgan; Sallie Mae; SIFMA (dealers and
sponsors); and Wells Fargo on the 2010 ABS Proposing Release.
---------------------------------------------------------------------------

    In the 2010 ABS Proposing Release, we also explained that the
certification would be a statement of what is known by the signatory at
the time of the offering and would not serve as a guarantee of payment
of the securities. However, we received comment letters expressing
general concern that the text of the proposed certification could be
viewed as a guarantee of the future performance of the assets
underlying the ABS.\41\ In contrast, one investor commentator noted
that the certification would not serve as a guarantee, but instead
would serve to create accountability and align interests, much like
other certification requirements that already exist in the securities
regulation and accounting practices.\42\ To address commentators'
concerns, we are re-proposing the requirement to revise the text of the
certification to state that the securitization is not guaranteed by
this certification to produce cash flows at times and amounts
sufficient to service the expected payments on the asset-backed
securities. Furthermore, we have revised the language so that it no
longer addresses how the securities ``will'' pay or perform but instead
focuses on the design of the transaction.
---------------------------------------------------------------------------

    \41\ See letters from ASF (issuer members), ABASA, CRE Finance
Council (CREFC) and Wells Fargo on the 2010 ABS Proposing Release.
    \42\ See letter from Vanguard on the 2010 ABS Proposing Release.
---------------------------------------------------------------------------

    We are also re-proposing the requirement in order to allow either
the chief executive officer of the depositor or the executive officer
in charge of securitization of the depositor to sign the certification.
In the 2010 ABS Proposing Release, we had proposed that the chief
executive officer of the depositor sign the certification. We explained
that the chief executive officer of the depositor is already
responsible as signatory of the registration statement for the issuer's
disclosure in the prospectus and is subject to liability for material
misstatements or omissions under the federal securities laws.\43\ We
would expect that chief executive officers of depositors, as
signatories to the registration statement, would have reviewed the
necessary documents regarding the assets, transactions and
disclosures.\44\ We believe that requiring the chief executive officer
of the depositor to sign the certification is consistent with other
signature requirements for asset-backed securities.\45\
---------------------------------------------------------------------------

    \43\ See Securities Act Section 11 (15 U.S.C. 77k(a)) and
Exchange Act Section 10(b) (15 U.S.C. 78j(b)).
    \44\ We also noted that an officer providing a false
certification potentially could be subject to Commission action for
violating Securities Act Section 17 (15 U.S.C. 77q(a)).
    \45\ See, e.g., Item 601(b)(31)(ii) of Regulation S-K (exhibit
requirement for ABS regarding certification required by Exchange Act
Rules 13a-14(d) and 15d-14(d)).
---------------------------------------------------------------------------

    In the 2010 ABS Proposing Release, we asked whether an individual
in a different position should be required to provide the
certification, and in particular, whether the senior officer in charge
of securitization for the depositor should sign the certification.
Moreover, the 2010 ABS Proposals included a requirement that the senior
officer in charge of the securitization of the depositor sign the
registration statement for ABS issuers, instead of the principal
accounting officer or controller of the depositor.\46\ Several
commentators suggested that the proposed certification be signed by the
senior officer in charge of securitization of the depositor in order to
provide consistency with our outstanding signature page proposal.\47\
We agree with commentators' suggestions and believe that requiring such
individual to sign the certification would serve the goal of
encouraging more extensive oversight of ABS transaction as well as
being consistent with our other signature requirements for ABS issuers.
However, we believe the officer signing the certification should be an
executive officer. The definition of ``executive officer'' is already
provided in Securities Act Rule 405.\48\ ``Executive officer in charge
of

securitization'' rather than ``senior officer in charge of
securitization'' is more consistent with our other regulations
requiring executive officers be signators and our view that more
extensive oversight by an executive officer may improve the quality of
the securities. Therefore, we are proposing to require that an
executive officer in charge of securitization be permitted to sign the
certification.
---------------------------------------------------------------------------

    \46\ In the 2010 ABS Proposing Release, we recognized that
providing signatures of the principal accounting officer or
controller of the depositor appears to serve no purpose because ABS
issuers are not required to file financial statements under our
rules or pursuant to their governing documents, and ABS issuers do
not employ a principal accounting officer or controller. Thus, we
stated our belief that requiring the senior officer in charge of the
securitization to sign the registration statement would be more
meaningful in the context of ABS offerings because it is more
consistent with our other signature requirements for ABS issuers for
Form 10-K. See the 2010 ABS Proposing Release at 23354.
    \47\ See letters from ABA; ABASA; ASF; JP Morgan; MBA and Wells
Fargo on the 2010 ABS Proposing Release.
    \48\ The term executive officer, when used with reference to a
registrant, means its president, any vice president of the
registrant in charge of a principal business unit, division or
function (such as sales, administration or finance), any other
officer who performs a policy making function or any other person
who performs similar policy making functions for the registrant.
Executive officers of subsidiaries may be deemed executive officers
of the registrant if they perform such policy making functions for
the registrant. [17 CFR 230.405].
---------------------------------------------------------------------------

    Similar to the 2010 ABS Proposal, under the re-proposal, the
statements required in the certification would be made based on the
knowledge of the certifying person. We would expect that a chief
executive officer and executive officer in charge of securitization of
the depositor would have reviewed the necessary documents regarding the
assets, transactions and disclosures. Under current requirements, the
registration statement for an ABS offering is required to include a
description of the material characteristics of the asset pool,\49\ as
well as information about the flow of funds for the transaction,
including the payment allocations, rights and distribution priorities
among all classes of the issuing entity's securities, and within each
class, with respect to cash flows, credit enhancement and any other
structural features in the transaction.\50\ The proposed certification
would be an explicit representation by the certifying person of what is
implicit in what should already be disclosed in the registration
statement.\51\ If the certifying person did not believe the
securitization was designed to produce cash flows at times and in
amounts sufficient to service expected payments on the asset-backed
securities being registered, disclosure about such insufficiency would
be required under Securities Act Rule 408 and Exchange Act Rule 10b-
5.\52\ Similarly, the executive officer would not be able to sign the
certification if he or she knew or expected that the design of the
securitization would not produce cash flows at times and in amounts
sufficient to service expected payments on the asset-backed securities.
---------------------------------------------------------------------------

    \49\ See Item 1111 of Regulation AB [17 CFR 229.1111].
    \50\ See Item 202 of Regulation S-K [17 CFR 229.202] and Item
1113 of Regulation AB [17 CFR 229.1113].
    \51\ This approach is somewhat similar to the approach we took
with Regulation AC, which requires certifications from analysts. We
noted there that Regulation AC makes explicit the representations
that are already implicit when an analyst publishes his or her
views--that the analysis of a security published by the analyst
reflects the analyst's honestly held views. Section II of Regulation
Analyst Certification, Release No. 33-8193 (Feb. 23, 2003) [68 FR
9482].
    \52\ 17 CFR 230.408 and 17 CFR 240.10b-5.
---------------------------------------------------------------------------

    Commentators also were concerned about the scope of the
certification because, as proposed, the certification would apply to
``any payments of the securities as described in the prospectus.'' A
few commentators raised the point that the lower or junior tranches of
a securitization are offered at steep discounts because investors
expect that the assets will not produce the cash flows necessary to
service any payments of those securities.\53\ Those lower tranches
typically have not been sold in registered transactions because they
did not satisfy the current investment grade ratings transaction
requirement. In order to provide clarity, we are re-proposing the text
of the certification so that the certification would apply to the
securities offered and sold pursuant to the registration statement and
thus would not apply to privately offered and sold securities even if
issued by the same issuing entity. Under our re-proposal, this
certification would be an additional exhibit requirement for the shelf
registration statement that would not be applicable to the non-shelf
registration statement, proposed Form SF-1. We are proposing the
certification be dated as of the date of the final prospectus under
Rule 424 and would be required to be filed by the time the final
prospectus is required to be filed under Rule 424.\54\
---------------------------------------------------------------------------

    \53\ See letters from ABA, ASF, and Sallie Mae on the 2010 ABS
Proposing Release.
    \54\ See proposed revision to Item 601(b) of Regulation S-K.
---------------------------------------------------------------------------

    Reflecting revisions in response to comments, as described above,
the revised proposed certification would be required to be provided by
the CEO or the executive officer in charge of securitization for the
depositor and would state that,
     The executive officer has reviewed the prospectus and is
familiar with the structure of the securitization, including without
limitation the characteristics of the securitized assets underlying the
offering, the terms of any internal credit enhancements, and the
material terms of all contracts and other arrangements entered in to
effect the securitization;
     Based on the executive officer's knowledge, the prospectus
does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not
misleading;
     Based on the executive officer's knowledge, the prospectus
and other information included in the registration statement of which
it is a part, fairly present in all material respects the
characteristics of the securitized assets underlying the offering
described therein and the risks of ownership of the asset-backed
securities described therein, including all credit enhancements and all
risk factors relating to the securitized assets underlying the offering
that would affect the cash flows sufficient to service payments on the
asset-backed securities as described in the prospectus; and
     Based on the executive officer's knowledge, taking into
account the characteristics of the securitized assets underlying the
offering, the structure of the securitization, including internal
credit enhancements, and any other material features of the
transaction, in each instance, as described in the prospectus, the
securitization is designed to produce, but is not guaranteed by this
certification to produce, cash flows at times and in amounts sufficient
to service expected payments on the asset-backed securities offered and
sold pursuant to the registration statement.\55\
---------------------------------------------------------------------------

    \55\ We note that an executive officer in delivering the
certificate is precluded from taking into account external credit
enhancements because the certification is expressly directed to the
design of the securitization and whether or not taking into account
the characteristics of the securitized assets underlying the
offering, the structure of the securitization, including internal
credit enhancements, and any other material features of the
transaction, in each instance, as described in the prospectus, such
securitization is designed to produce cash flows at times and in
amounts sufficient to service expected payments on the asset-backed
securities offered and sold pursuant to the registration statement.
An example of an external credit enhancement is a third party
insurance to reimburse losses on the pool assets or the securities.
---------------------------------------------------------------------------

Request for Comment
    1. Is our proposal to require a certification by the chief
executive officer of the depositor or the executive officer in charge
of securitization appropriate as a condition to shelf eligibility?
Would the proposed certification encourage more extensive oversight of
the transaction, and, therefore, be a partial indicator of an ABS that
is a higher quality security?
    2. Does the re-proposed language clarify that the certification
does not constitute a guarantee?
    3. Are the chief executive officer of the depositor or the
executive officer in charge of securitization of the depositor the
appropriate parties that should

provide the certification, as proposed? Some of our signature
requirements related to ABS refer to ``senior officer in charge of
securitization.'' \56\ Should we revise all of those references to
conform so that they refer to executive officer in charge of
securitization?
---------------------------------------------------------------------------

    \56\ The Form 10-K [17 CFR 249.310] report for ABS issuers must
be signed either on behalf of the depositor by the senior officer in
charge of securitization of the depositor, or on behalf of the
issuing entity by the senior officer in charge of the servicing. In
addition, the certifications for ABS issuers that are required under
Section 302 of the Sarbanes-Oxley Act must be signed either on
behalf of the depositor by the senior officer in charge of
securitization of the depositor if the depositor is signing the Form
10-K report, or on behalf of the issuing entity by the senior
officer in charge of the servicing function of the servicer if the
servicer is signing the Form 10-K report.
---------------------------------------------------------------------------

    4. Is the text of the proposed certification appropriate? Would
having an executive officer certify that taking into account the
structure of the transaction, the disclosure in the prospectus, the
exhibits to the registration statement, and the information currently
known to the executive officer about the securitized assets backing the
securities offered and sold pursuant to the registration statement,
there is a reasonable basis to conclude that those assets will generate
cash flows in amounts and at times that will permit those securities to
make the payments described in the transaction documents, achieve the
same result as the proposed certification? Would this certification be
appropriate if it also stated that this certification is only an
expression of the executive officer's current belief and is not a
guarantee that those assets will generate such cash flows, and there
may be current facts not known to the executive officer and there may
be future developments that would cause his or her opinion to change or
that would result in those assets not generating such cash flows?
    5. Would it be more appropriate to tie the certification to current
investment grade rating standards? For instance, should the executive
officer certify that the securities being offered and sold under the
registration statement have adequate capacity to meet financial
commitments, similar to some definitions of investment grade
securities?
    6. Are there other certifications that would more effectively
promote accountability and oversight of the transaction by the
executive officer, resulting in shelf eligible ABS being of a higher
quality?
    7. Would a certification limited to the disclosure in the
prospectus effectively promote accountability and oversight of the
transaction by the executive officer resulting in shelf-eligible ABS
being of higher quality? If so, would the following language be
appropriate: I, [certifying individual], certify that:
    1. I have reviewed the prospectus relating to [title of securities
the offer and sale of which are registered] and am familiar with the
structure of the securitization, including the characteristics of the
securitized assets underlying the offering, the terms of any internal
credit enhancements and the material terms of all contracts and other
arrangements entered in to the effect the securitization];
    2. Based on my knowledge, the prospectus does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading; and
    3. Based on my knowledge, the prospectus and other information
included in the registration statement of which it is a part, fairly
present in all material respects the characteristics of the securitized
assets underlying the offering described therein and the risks of
ownership of the asset-backed securities described therein, including
all credit enhancements and all risk factors relating to the
securitized assets underlying the offering that would affect the cash
flows sufficient to service payments on the asset-backed securities as
described in the prospectus.
    8. We note above that the proposed certification would be an
explicit representation of the certifying person of what is already
implicit in the disclosure contained in the registration statement and
that as a signatory of the registration statement for the issuer's
disclosure in the prospectus, the executive officer can be liable for
material misstatements or omissions under the federal securities laws.
Would the certification create new potential liability for the
certifier?
    9. If the CEO or executive officer in charge of securitization of
the depositor provides the certification, as proposed, and obtains
assistance from a third party, should we require disclosure about the
third party? Should the disclosure requirement be the same as or
similar to the possible disclosures regarding an independent evaluator
that we describe below? If not the same, what disclosures about the
third party should be required?
    10. Is it appropriate to require the certification be made as of
the date of the final prospectus, as proposed? Should it instead be
made as of the date when the securities are first sold? \57\ Or should
it be made as of the date of the Rule 424(h) preliminary prospectus?
---------------------------------------------------------------------------

    \57\ [17 CFR 230.159]. Rule 159 provides the following: (a) For
purposes of section 12(a)(2) of the Securities Act only, and without
affecting any other rights a purchaser may have, for purposes of
determining whether a prospectus or oral statement included an
untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading at the time
of sale (including, without limitation, a contract of sale), any
information conveyed to the purchaser only after such time of sale
(including such contract of sale) will not be taken into account and
(b) For purposes of section 17(a)(2) of the Act only, and without
affecting any other rights the Commission may have to enforce that
section, for purposes of determining whether a statement includes or
represents any untrue statement of a material fact or any omission
to state a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not
misleading at the time of sale (including, without limitation, a
contract of sale), any information conveyed to the purchaser only
after such time of sale (including such contract of sale) will not
be taken into account.
---------------------------------------------------------------------------

    11. Is it appropriate to require the certification be filed as an
exhibit to the registration statement at the time of the final
prospectus by means of a Form 8-K, as proposed? Or would it be more
appropriate to require the certification be filed at the same time as
the proposed Rule 424(h) preliminary prospectus? \58\
---------------------------------------------------------------------------

    \58\ See discussion below in Section III.A.
---------------------------------------------------------------------------

    12. In lieu of the requirement that the chief executive officer or
executive officer in charge of securitization of the depositor provide
a certification, should we allow an opinion to be provided by an
``independent evaluator'' regarding the ABS that would provide the same
assurances as the certification? Would permitting such an opinion
encourage appropriate oversight of the transaction structure for
purposes of determining shelf eligibility? Would allowing an opinion by
an independent evaluator give issuers the flexibility to engage a third
party to give the certification that would otherwise be required of the
CEO or the executive officer in charge of securitization? If we permit
an independent evaluator to provide an opinion in lieu of an officer
certification, would it be appropriate for us to require that the text
of the opinion be the same as the proposed text for the certification
by the CEO or executive officer in charge of securitization of the
depositor?
    13. We note that if we permit an opinion to be provided, we
anticipate that the opinion would need to be filed as an exhibit to the
registration statement and the independent evaluator would need to
consent to being named as an ``expert'' in the registration statement
and be subject to

the liability provisions of Section 11 of the Securities Act.\59\ Would
these requirements be appropriate? Would third parties be willing to
act as independent evaluators on this basis?
---------------------------------------------------------------------------

    \59\ Section 7 of the Securities Act requires the consent of any
person, whose profession gives authority to a statement made by him,
is named as having prepared or certified any part of the
registration statement, or is named as having prepared or certified
a report or valuation for use in connection with the registration
statement. See also Securities Act Section 11 [15 U.S.C. 77k].
---------------------------------------------------------------------------

    14. How would we define an independent evaluator for purposes of
providing the opinion? For example, would it be appropriate to define
an independent evaluator as a person who: (i) Has expertise and
experience in structuring and evaluating asset-backed securities; (ii)
is not affiliated with the issuer or any person involved in the
organization or operation of the issuer; \60\ (iii) itself, and any of
its affiliates, does not knowingly have, or does not have the intention
to acquire, any direct or indirect beneficial interest in any
securities issued or assets held by the issuer, and (iv) does not have
any other material business or financial relationship with the issuer
or any person involved in the organization or operation of the
issuer.\61\ Should we impose any additional or different requirements
on an independent evaluator?
---------------------------------------------------------------------------

    \60\ An ``affiliate'' of, or a person ``affiliated'' with, a
specified person, is defined in Commission rules to mean ``a person
that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the
person specified.'' See, e.g., Securities Act Rule 405 and Exchange
Act Rule 12b-2. The term ``control'' also is defined in those rules
as ``the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract, or
otherwise.''
    \61\ This requirement would not preclude an independent
evaluator to serve as an independent evaluator in other ABS
transactions of the same sponsor or depositor.
---------------------------------------------------------------------------

    15. What steps should the issuer (or another person on behalf of
the issuer) need to take to determine whether a prospective independent
evaluator meets specified criteria? Should it be able to rely on a
statement of the evaluator, for example, that it has the required
expertise and experience?
    16. Would a provision prohibiting ownership of beneficial interests
in securities issued by the issuer or assets held by the issuer and any
other material business or financial relationships facilitate the
evaluator's independence?
    17. Should we place limits on whether an independent evaluator in
one transaction could serve as an independent evaluator in other ABS
transactions of the same sponsor or depositor?
    18. What types of entities are likely to serve as independent
evaluators? We anticipate that firms, such as asset management firms,
consultants, credit enhancement providers and rating agencies could
serve as independent evaluators. Should any types of persons or
entities be excluded from being independent evaluators?
    19. Should rating agencies be permitted to serve as independent
evaluators? If so, should a rating agency hired to issue a credit
rating on an ABS also be able to serve as an independent evaluator on
the same transaction?
    20. Would it be appropriate for a duly authorized person of the
independent evaluator to sign on behalf of the independent evaluator?
Should the signature of an individual from the independent evaluator be
required?
    21. Should we require that if an opinion is provided by an
independent evaluator, that the prospectus include specific information
about the independent evaluator such as the name of the independent
evaluator, its form of organization, its experience with evaluating
ABS, the manner in which the independent evaluator was compensated for
the certification, and to the extent material, any affiliations between
the independent evaluator and the issuer as well as other transaction
parties? In addition, should we add a requirement to describe the basis
on which the person responsible for selecting the independent evaluator
determined that the evaluator selected has the requisite expertise and
experience? Should we require disclosure regarding the process
undertaken by the opinion provider and the factual and analytical bases
for such opinion? Should we require any additional disclosure?

(b) Credit Risk Manager and Repurchase Request Dispute Resolution
Provisions

    Commentators on the 2010 ABS Proposing Release suggested that a
different third party mechanism for investigating and resolving
breaches of representations and warranties concerning the pool assets
would better serve the interests of investors than the proposed shelf
eligibility criterion regarding representations and warranties.\62\
Based on comments received on the 2010 ABS Proposing Release, we are
proposing, as a second transaction requirement for ABS shelf offerings,
that the underlying transaction documents of an ABS include provisions
requiring that the trustee of the issuing entity appoint a credit risk
manager to review the underlying assets upon the occurrence of certain
trigger events and provide its report to the trustee of the findings
and conclusions of the review of the assets. We are also proposing as a
part of this shelf eligibility condition to require certain provisions
in the underlying transaction agreements in order to resolve repurchase
request disputes. As we explain further below, these proposals would be
in lieu of the proposed shelf eligibility condition to require a
provision in the pooling and servicing agreement to require the party
obligated to repurchase assets for breach of representations and
warranties to periodically furnish an opinion of an independent third
party. We believe that this revised proposal would better strengthen
the enforceability of contract terms surrounding the representations
and warranties regarding the pool assets for ABS shelf transactions and
incentivize obligated parties to better consider the characteristics
and quality of the assets underlying the securities, making it an
appropriate partial replacement for investment grade ratings.
---------------------------------------------------------------------------

    \62\ See letters from ABASA; ASF; BOA; JPMorgan; Metlife;
Prudential Investment Management (Prudential); SIFMA; Group of 16
Vehicle ABS Issuers (Vehicle ABS Group); Vanguard; Wells Fargo on
the 2010 ABS Proposing Release. As we noted in previous Commission
releases, the effectiveness of the contractual provisions related to
representations and warranties has been questioned and the lack of
responsiveness by sponsors to potential breaches of representations
and warranties in the pool assets has been the subject of investor
complaint. Transaction agreements typically have not included
specific mechanisms to identify breaches of representations and
warranties or to resolve a question as to whether a breach of the
representations and warranties has occurred. Thus, these contractual
agreements have frequently been ineffective because, without access
to documents relating to each pool asset, it can be difficult for
the trustee, which typically notifies the sponsor of an alleged
breach, to determine whether or not a representation or warranty
relating to a pool asset has been breached. See the 2010 ABS
Proposing Release and Disclosure for Asset Backed Securities
Required by Section 943 of the Dodd-Frank Wall Street Reform and
Consumer Protection Act, SEC Release No. 33-9175 (January 20, 2011)
[76 FR 4489] (the ``943 Release'') at 4490.
---------------------------------------------------------------------------

    We have noted in previous Commission releases that in the
underlying transaction agreements for an asset securitization, sponsors
or originators typically make representations and warranties relating
to the pool assets and their origination, including representations
about the quality of the pool assets.\63\ For instance, in the case of
residential mortgage-backed securities, one typical representation and
warranty is that each of the loans has complied with

applicable federal, state and local laws, including truth-in-lending,
consumer credit protection, predatory and abusive laws and disclosure
laws. Another representation that may be included is that no fraud has
taken place in connection with the origination of the assets on the
part of the originator or any party involved in the origination of the
assets. Upon discovery that a pool asset does not comply with the
representation or warranty, under transaction covenants, an obligated
party, typically the sponsor, must repurchase the asset or substitute a
different asset that complies with the representations and warranties
for the non-compliant asset.
---------------------------------------------------------------------------

    \63\ See the 2010 ABS Proposing Release. See also the 943
Release.
---------------------------------------------------------------------------

    In January 2011, we adopted new rules to implement Section 943 of
the Act, requiring disclosure related to representations and warranties
in ABS offerings (the ``943 Release''). While our new rules under
Section 943 require disclosure of fulfilled and unfulfilled repurchase
request activity, they do not directly address the enforceability, as a
practical matter, of put back provisions in the underlying transaction
agreements. As we noted in the 943 Release, the effectiveness of the
contractual provisions related to representations and warranties has
been questioned and lack of responsiveness by sponsors to potential
breaches of the representations and warranties relating to the pool
assets has been the subject of investor complaint.\64\
---------------------------------------------------------------------------

    \64\ See the 943 Release at 4490.
---------------------------------------------------------------------------

    In order to address this investor concern, in the 2010 ABS
Proposing Release, we proposed a condition to shelf eligibility that
would require a provision in the pooling and servicing agreement that
would require the party obligated to repurchase the assets for breach
of representations and warranties to periodically furnish an opinion of
an independent third party regarding whether the obligated party acted
consistently with the terms of the pooling and servicing agreement with
respect to any loans that the trustee put back to the obligated party
for violation of representations and warranties and which were not
repurchased.\65\ Several commentators from both the issuer and investor
community were concerned that this proposal was unduly complex, costly,
and would not achieve its goals. Instead, commentators generally
suggested that a better way to address the concern regarding
enforceability of repurchase obligations related to breaches of
representations and warranties would be to require a review of the
underlying assets by an independent third party, or ``credit risk
manager''.\66\ After considering the comment letters received, we are
proposing as the second transaction requirement for shelf offerings to
replace investment grade ratings, in lieu of the proposed requirement
for a third-party opinion, that the underlying transaction documents
include provisions requiring a credit risk manager to review the
underlying assets upon the occurrence of certain trigger events that
are described below. Under the proposal, the credit risk manager \67\
would be appointed by the trustee,\68\ not be affiliated with any
sponsor, depositor or servicer in the transaction, and would have
authorization to access the underlying loan documents.\69\ By requiring
that the trustee appoint the credit risk manager and requiring that
there be no affiliation with the sponsor, depositor or servicer, we are
attempting to address any potential conflicts that could arise between
the credit risk manager and the obligated party. In addition, we are
requiring that the credit risk manager have access to copies of the
underlying loan documents so it can perform its duties under the
proposed requirement.
---------------------------------------------------------------------------

    \65\ See the 2010 ABS Proposing Release at 23344.
    \66\ See letters from ASF, ABASA, BOA, Vanguard, SIFMA, Wells
Fargo, Metlife, Prudential, JPMorgan on the 2010 ABS Proposing
Release.
    \67\ See proposed Item 1101(m) of Regulation AB.
    \68\ See letter from Prudential on the 2010 ABS Proposing
Release.
    \69\ Under our proposal, the credit risk manager could also be
the same party serving another role in the same transaction, such as
the trustee, custodian or an operating advisor (as proposed in the
Risk Retention Proposals) as long as it is not affiliated with the
sponsor, depositor or servicer. See the Risk Retention Proposing
Release at 24109. See also letters from ASF, BOA and SIFMA.
---------------------------------------------------------------------------

    We are proposing that the credit risk manager review the underlying
assets of the ABS for compliance with the representations and
warranties on the underlying pool assets upon the occurrence of trigger
events which would be specified in the transaction agreements. We are
proposing to require that the transaction agreements require, at a
minimum, review by the credit risk manager (1) when the credit
enhancement requirements, such as required reserve account amounts or
overcollateralization percentages, as specified in the underlying
transaction agreements, are not met; and (2) at the direction of
investors pursuant to the processes provided in the transaction
agreement and disclosed in the prospectus. These two trigger events
should facilitate the ability of transaction parties to pursue
transaction remedies, which we believe would be a feature of a higher
quality security, as well as directly address commentators' concerns
related to representations, warranties and enforcement mechanisms in
underlying transaction agreements for the reasons we describe below. At
the same time, we are not proposing to mandate that transaction parties
follow specific procedures related to the review or repurchase process
because we preliminarily believe transaction parties should have the
flexibility to tailor the procedures to each ABS transaction, taking
into account the specific features of the transaction and/or asset
class. Our proposal would require that the transaction agreements
require a review by the credit risk manager, at a minimum, in certain
specified instances described below. However, the transaction
agreements could, at the election of the transaction parties, specify
additional triggers for a credit risk manager review. We also expect
that the transaction parties may develop more specific and robust
procedures for monitoring and reviewing the assets that support the
ABS.\70\
---------------------------------------------------------------------------

    \70\ Some commentators suggested that the credit risk manager be
required to review the assets at other trigger events. ASF (investor
members) and Metlife suggested that review be required at
objectively defined trigger events such as when loans default
shortly after origination, when loans become seriously delinquent
(60 days), or when the servicer or trustee suspects a breach. ASF
(sponsor members) suggested that review be required by terms of the
transaction agreement only or when a bona fide and substantiated
allegation of breach by a security holder is received. SIFMA
suggested that review be required when the credit risk manager
determines it is appropriate to assert a claim for breach on behalf
of the securitization trust, in the interests of all investors in
the aggregate, or as directed by an investor subject to certain
standards. We request comment below on whether we should require any
of these suggestions in addition to our proposals or as alternatives
to our proposal.
---------------------------------------------------------------------------

    Credit enhancement or other structural support for asset-backed
securities can be provided in a variety of ways, including both
internally structured support as well as externally provided
enhancement or support.\71\ For example, internal credit enhancement is
structured into the transaction to increase the likelihood that one or
more classes of asset-backed securities will pay in accordance with
their terms, such as subordination provisions, overcollateralization,
reserve accounts, cash collateral accounts or spread accounts.
Accordingly, the underlying transaction agreements typically require
that internal credit enhancement be maintained at a specified amount.
We believe it would be appropriate for the credit risk manager to
review defaulted assets when the credit enhancements (including
structural supports, such as subordination), fall below the required
target levels, as specified in the

underlying transaction agreements, because if that happens, then losses
may be higher than originally expected, thereby calling into question
whether the defaulted assets met the representations and warranties
provided in the underlying transaction documents.\72\
---------------------------------------------------------------------------

    \71\ See the 2004 ABS Adopting Release at 1548.
    \72\ For example, if the overcollateralization target amount
specified in the transaction document is 3%, then the credit risk
manager would be required to conduct a review of the defaulted
assets for compliance with representations and warranties when it
falls below 3%.
---------------------------------------------------------------------------

    As we explained in the 943 Release, investors have demanded that
trustees enforce repurchase covenants because transaction agreements do
not typically contain a provision for an investor to directly make a
repurchase demand.\73\ However, many investors have been frustrated
with the structure and process because, as discussed above, trustees
have not enforced repurchase rights and investors have been unable to
locate other investors in order to force trustees to do so.\74\ In
response to this concern, we are proposing as a part of the second
shelf eligibility condition that the transaction agreements be required
to provide a process whereby investors are able to direct the credit
risk manager to review assets for potential breaches of a
representation or warranty because we believe that such a requirement
facilitates an investor's ability to pursue remedies under the
transaction agreement, contributing to a higher quality security. As
noted above, we are allowing for flexibility by not specifying the
procedural requirements by which investors may make the request.
However, because commentators on the 2010 ABS Proposing Release
suggested several mechanisms that could be appropriate for investor-
directed review of assets and requests for repurchase, we are
requesting comment on whether we should specify those procedures as
conditions to shelf eligibility.\75\ Under the proposal, transaction
parties would retain the flexibility to determine the appropriate
procedures and times for investor-directed review of underlying assets
for each ABS and whatever mechanism is provided would be described in
the prospectus.
---------------------------------------------------------------------------

    \73\ See the 943 Release at 4498.
    \74\ Typically, investor rights require a minimum percentage of
investors acting together in order to enforce the representation and
warranty provisions contained in the underlying transaction
agreements. We discuss our ABS shelf proposal related to investor
communication in Section II.B.1.c. below. See also Alex Ulam,
``Investors Try to Use Trustees as Wedge in Mortgage Put-Back
Fight,'' American Banker (Jun. 27, 2011) (noting that investor votes
are required in order to force a trustee to take action).
    \75\ See letter from Metlife on the 2010 ABS Proposing Release
(suggesting that bondholders representing 5% or more of a
transaction be able to direct the trustee to poll investors on
whether to initiate a review of assets. Following such a vote, the
sponsor would need to repurchase any non-compliant asset and if the
sponsor did not comply, then disputes would be submitted to
independent arbitration). See also letters from ASF and SIFMA on the
2010 ABS Proposing Release.
---------------------------------------------------------------------------

    We are also proposing to require as part of the second shelf
eligibility condition that the underlying transaction agreements
require that the credit risk manager provide its report to the trustee
of the findings and conclusions of its review of the assets.\76\ The
trustee could then use the report to determine whether a repurchase
request would be appropriate under the terms of the transaction
agreements, thereby enhancing the effectiveness of the contract
provisions of the ABS contributing to the higher quality of the
securities. Although we are not proposing to specify the format of the
report, we are requesting comment on whether specifying the format of
the report is necessary.
---------------------------------------------------------------------------

    \76\ A ``report of findings and conclusions'' of a review is
similar in concept to the requirements of new Rule 193 and Item
1111(a)(7) of Regulation AB. As discussed above, those new rules
will require the issuer of an ABS to conduct a review of the pool
assets underlying an ABS at the time of securitization and disclose
of the findings and conclusions of the review of the assets. See
Section II.B.1.a. and fn. 39. We note that the issuer review would
be performed at the time of securitization, while the proposed
credit risk manager review would be performed pursuant the processes
provided in an underlying transaction agreement.
---------------------------------------------------------------------------

    We are proposing disclosure requirements in prospectuses and in
ongoing reports about the credit risk managers. In prospectuses, we are
proposing to require disclosure of the name of the credit risk manager,
its form of organization, the extent of its experience serving as a
credit risk manager for ABS transactions involving similar pool assets,
and the manner and amount in which the credit risk manager is
compensated for its services.\77\ In addition, disclosure would be
required about the credit risk manager's duties and responsibilities
under the governing documents and under applicable law, any limitations
on the credit risk manager's liability under the transaction
agreements, any indemnification provisions, and any contractual
provisions or understanding regarding the credit risk manager's
removal, replacement or resignation, as well as how any related
expenses would be paid.\78\ Further, disclosure would be required, to
the extent material, about any affiliations and relationships between
the credit risk manager and other transaction parties.\79\ These
disclosure requirements are similar to current disclosure requirements
for trustees.\80\
---------------------------------------------------------------------------

    \77\ See proposed Item 1109(c) of Regulation AB in the 2010 ABS
Proposing Release.
    \78\ See proposed Item 1109(c) of Regulation AB in the 2010 ABS
Proposing Release.
    \79\ See proposed Item 1119(a)(7) of Regulation AB in the 2010
ABS Proposing Release.
    \80\ See Item 1109 of Regulation AB [17 CFR 229.1109].
---------------------------------------------------------------------------

    In ongoing reports on Form 10-D, if during the distribution period
the credit risk manager is required to review the assets, we are
proposing to require disclosure of the event(s) that triggered the
review by the credit risk manager during the distribution period. We
are also proposing that if a report by the credit risk manager of the
findings and conclusions of its review of assets that is provided to
the trustee during the distribution period, that the full report be
filed as an exhibit to the Form 10-D.\81\ In addition, we are proposing
that if, during the distribution period, a credit risk manager has
resigned, or has been removed, replaced or substituted, or if a new
credit risk manager has been appointed, disclosure would be required of
the date the event occurred, and the circumstances surrounding the
change. If a new credit risk manager has been appointed, disclosure
required by proposed Item 1109(b) of Regulation AB would be required.
---------------------------------------------------------------------------

    \81\ The report would be filed as an additional exhibit under
Exhibit 99. See Item 601(b)(99) of Regulation S-K [17 CFR
229.601(b)(99)].
---------------------------------------------------------------------------

    In order to provide a timely mechanism for enforcement of
repurchase requirements, we are also proposing to require as a part of
the second condition to shelf eligibility that the underlying
transaction documents include repurchase request dispute resolution
procedures. Under the proposal, the transaction agreements would be
required to provide that if an asset, subject to a repurchase request
pursuant to the terms of the transaction agreements, is not repurchased
by the end of the 180-day period beginning when notice is received,
then the party submitting such repurchase request shall have the right
to refer the matter, at its discretion, to either mediation or third-
party arbitration, and the party obligated to repurchase must agree to
the selected resolution method.\82\ Our proposal would give a
requesting party the ability to compel the obligated party to submit to
dispute resolution if the obligor did not repurchase the assets.
However, because we understand that a party obligated to repurchase
will need the time to investigate a repurchase request, our proposal
would allow 180

days before a requesting party had the right to compel mediation or
arbitration.\83\ Of course, the transaction agreements could call for a
period shorter than 180 days.
---------------------------------------------------------------------------

    \82\ See, e.g., letters from Center for Audit Quality (CAQ),
Group of 14 CMBS investors (CMBS Investors), Ernst & Young (E&Y),
Prudential on the 2010 ABS Proposing Release.
    \83\ See letter from Prudential on the 2010 ABS Proposing
Release (suggesting that a sponsor should have a specified amount of
time to challenge any third party claim). See also letter from SIFMA
on the 2010 ABS Proposing Release (suggesting that arbitration be
available if the parties do not resolve the repurchase request
within 180 days).
---------------------------------------------------------------------------

    We believe that investors and issuers should both benefit from our
proposals to require a credit risk manager and the proposed repurchase
request dispute resolution provisions because they are designed to
facilitate a timely resolution of repurchase claims. We also believe
that these mechanisms are appropriate as one of the requirements for
shelf eligibility because they provide enhanced mechanisms for
transaction parties to pursue contract remedies, thereby contributing
to the quality of the security. Our proposal does not specify whether
mediation or arbitration must be agreed to by the obligated party in
the dispute resolution provision. We preliminarily believe that the
requesting party should have the flexibility to select the appropriate
mechanism to resolve repurchase disputes, although we request comment
on whether we should mandate one or the other.
Request for Comment
    22. Is the requirement of a credit risk manager review of the
underlying assets appropriate as a condition for shelf eligibility, as
proposed? Is it appropriate to require certain terms requiring
repurchase dispute resolution in the underlying transaction documents,
as a condition for shelf eligibility, as proposed?
    23. Is it appropriate to require that the trustee appoint the
credit risk manager, as proposed? Should another party be able to
appoint the credit risk manager? Should we specify terms for removal
and re-appointment of the credit risk manager?
    24. Is it appropriate to require that the credit risk manager not
be an affiliate of any sponsor, depositor, or servicer, as proposed?
Would an affiliate of the sponsor, depositor or servicer be able to
objectively perform the credit risk manager review function? Should we
require that the credit risk manager be required to represent that no
conflict of interest exists between itself and any transaction party,
including investors? \84\ Would it be appropriate for the trustee to
also be the credit risk manager?
---------------------------------------------------------------------------

    \84\ See letter from Prudential on the 2010 ABS Proposing
Release.
---------------------------------------------------------------------------

    25. Is it appropriate to require that the credit risk manager be
given access to copies of the underlying documents related to the pool
assets, as proposed? Should the requirement be limited in any way? Are
there any privacy considerations? If so, should we require a covenant
in the underlying transaction documents that all information be kept
confidential?
    26. Should we specify an additional requirement that the credit
risk manager be given access to all underwriting guidelines and any
other documents necessary to evaluate the loans? \85\
---------------------------------------------------------------------------

    \85\ See letter from SIFMA on the 2010 ABS Proposing Release.
---------------------------------------------------------------------------

    27. What types of entities are likely to serve as credit risk
managers? Should any types of persons or entities be excluded from
being credit risk managers?
    28. Are the proposed triggers for review by the credit risk manager
appropriate? Is it appropriate to require review when a transaction's
required credit enhancement falls below defined target levels, as
proposed? Should we specify which types of credit enhancement would be
subject to the requirement (e.g., overcollateralization, reserve
account)? If so, what types of credit enhancement features should we
specify and why? Are there any asset classes, or securitization
structures, where no target credit enhancement is specified? Is it
appropriate that triggers relating to credit enhancement include
structural supports, such as subordination? Are there any other
features that should be or should not be included as credit enhancement
for purposes of triggering a credit risk manager review?
    29. As noted above, we intend that shelf-eligible transaction
agreements, at a minimum, provide for the specified trigger events for
a credit risk manager review. Will market practice develop to add
additional triggers, if any, as circumstances warrant?
    30. Is it appropriate to require review by the credit risk manager
at the direction of investors, pursuant to the processes provided in
the transaction agreement and disclosed in the prospectus? Should we
specify the procedures for the investor directed review process? If so,
what should the requirements be and why? For example, should we require
that investors representing 5% or more of investors in interest (i.e.,
investors that are not affiliates of the sponsor or servicer) be able
to direct a review? Should the percentage of investors required to
initiate a review be higher or lower? If the percentage is higher, such
as 25%, should we require that investors representing 5% or more of
investors in interest first be able to direct the trustee to poll
investors on whether to initiate a review of assets? \86\ As an
alternative to specifying procedures, would it be appropriate to
specify certain maximum conditions, where the percentage of investors
required to direct review could be no more than a certain percentage,
such as 5%, 10%, or 25%?
---------------------------------------------------------------------------

    \86\ See letter from Metlife on the 2010 ABS Proposing Release.
---------------------------------------------------------------------------

    31. Is our proposal to require a provision that the credit risk
manager provide its report to the trustee of the findings and
conclusions of its review of the assets appropriate? Should we specify
the format of the report?
    32. Is our proposal to require the report of the credit risk
manager be filed as an exhibit to the Form 10-D filing covering the
period in which the report is given to the trustee appropriate? Should
it be filed sooner, such as on a Form 8-K within four business days of
receipt by the trustee? Should we also require that a summary of the
report by the credit risk manager of the findings and conclusions of
its review of assets be included in the Form 10-D?
    33. Are the proposed disclosure requirements in prospectuses
regarding credit risk managers appropriate? Should we require any
additional disclosure?
    34. Should our rules include any other specific triggers for
review? Should we require review based on specific triggers, such as
the occurrence of delinquency of a specified duration, such as 60, 90,
or 120 days? Should we require review of early payment defaults, (e.g.,
loans that become delinquent within the first 60, 90 or 120 days past
origination)? \87\ Should we require review of all loans for which the
servicer or trustee suspects a breach? If so, how should we define this
trigger? Would any of these requirements be in addition to, or as an
alternative to the proposed requirements?
---------------------------------------------------------------------------

    \87\ See letter from Metlife on the 2010 ABS Proposing Release.
---------------------------------------------------------------------------

    35. Should we require that the credit risk manager have discretion
to assert a claim for breach on behalf of the securitization trust, in
the interests of all investors in the aggregate? \88\ Would this
requirement be in addition to, or as an alternative to the proposed
requirements? Should we specify some or all of the procedures related
to the review or repurchase process?
---------------------------------------------------------------------------

    \88\ See letter from SIFMA on the 2010 ABS Proposing Release.

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

    36. Is our proposal to require ongoing disclosure about the credit
risk manager and its activities in Form 10-D appropriate? Is our
proposal to require disclosure about the event(s) that triggered a
credit risk manager review appropriate? Is it appropriate to require
the disclosure only with respect to those triggers that are proposed
for shelf eligibility (i.e., credit enhancement trigger and investor
directed review), as proposed? Or should disclosure be required with
respect to any review undertaken by a credit risk manager, pursuant to
the provisions in the agreement?
    37. Is it appropriate to require disclosure in the Form 10-D of a
change of credit risk manager as proposed?
    38. In addition to the proposed shelf eligibility and disclosure
requirements, should we require that each party with a repurchase
obligation provide an annual certificate to the trustee and noteholders
certifying that all loans required to be repurchased under the
transaction documents have been repurchased or detail why any loans
identified as breaching a representation or warranty were not
removed.\89\
---------------------------------------------------------------------------

    \89\ See letter from Sallie Mae on the 2010 ABS Proposing
Release.
---------------------------------------------------------------------------

    39. Is our proposal to require dispute resolution provisions in the
underlying transaction documents as a shelf eligibility condition,
appropriate? Is it appropriate to require that requesting parties wait
180 days until they can force the obligated part to submit to dispute
resolution? Should the period be longer or shorter? Should we not
specify a particular period, but instead require there to be a set time
period in the transaction agreements? Is it appropriate to require that
the obligated party agree to either mediation or arbitration, as
proposed? Should we require that all the parties agree to either
mediation or arbitration? Or should we require one or the other? Is it
appropriate to require that the transaction documents provide that
investors, in their sole discretion, may elect whether to refer a
disputed repurchase request to arbitration or mediation? Would it be
more appropriate to require that the transaction documents provide for
a mandatory dispute resolution mechanism (specifying mediation or
arbitration) after 180 days, and disclose the mandatory dispute
resolution mechanism in the prospectus, without mandating the details
of those provisions?
    40. Should we specify who should pay the expenses for mediation or
arbitration of the repurchase request? For example, should we require
that expenses related to the mediation or arbitration of a repurchase
request be paid by the obligated party, the person(s) requesting
repurchase, or the issuing entity? Or should expenses be the
responsibility of the losing party, or should costs be shared? Is it
clear who the losing party would be in mediation? Or should costs be
determined by the mediator or arbitrator? Would specifying that the
obligated party is required to cover all costs associated with
mediation or arbitration of the repurchase request provide further
incentive for the obligated party to resolve the request within 180
days? If so, do the benefits of this additional incentive justify the
potential costs imposed on the obligated party? If a trustee is the
requesting party, and it is determined that the trustee is obligated to
pay expenses (by the terms of transaction agreement, the outcome of the
dispute resolution procedures, or otherwise) how would the trustee pay
for the expenses? Would the possible obligation to pay for the
expenses, be yet another disincentive for trustees so they would not
initiate a repurchase request?
    41. Should we require that if the obligated party fails to agree to
mediation or arbitration of any unresolved repurchase dispute within
such period, the obligated party would be required to honor the
repurchase request? \90\
---------------------------------------------------------------------------

    \90\ See letter from Prudential on the 2010 ABS Proposing
Release.
---------------------------------------------------------------------------

(c) Investor Communication

    As we discussed above, we are aware that investors have had
difficulty enforcing rights contained in transactions agreements, and
in particular, those relating to the repurchase of underlying assets
for breach of representations and warranties. Investors have raised
concerns regarding the inability to locate other investors in order to
enforce these rights.\91\ Frequently, these investor rights require a
minimum percentage of investors acting together. In response to the
2010 ABS Proposing Release, one commentator noted that because most ABS
are held by custodians or brokers in ``street name'' through the
Depository Trust Company, as a practical matter it is very difficult
for ABS investors to communicate with each other in order to jointly
exercise any of their substantive protections or rights provided in the
transaction documents.\92\ Another commentator expressed that given the
complexity of securitization structures and the underlying collateral
it is important for investors who have identified concerns with the
collateral or any structural issue to be able to effectively
communicate with other investors in the transaction and to either
prompt the trustee to take action or solicit further direction from
investors.\93\
---------------------------------------------------------------------------

    \91\ See Alex Ulam, ``Investors Try to Use Trustees as Wedge in
Mortgage Put-Back Fight,'' American Banker (Jun. 24, 2011) (noting
that many attempted put-backs have ``flamed out after investor
coalitions failed to get the 25% bondholder votes that pooling and
servicing agreements require for a trustee to be forced to take
action against a mortgage servicer''). See also Tom Hals and Al
Yoon, ``Mortgage Investors Zeroing in on Subprime Lender,'' Thomson
Reuters (May 9, 2011) (noting that gathering the requisite number of
investors needed to demand accountability for faulty loans pooled
into investments is a ``laborious'' task).
    \92\ See letter from Metlife on the 2010 ABS Proposing Release
(suggesting that the Commission mandate that one ABS transaction
party have real-time knowledge of the legal names and contact
information of the beneficial owners of each of the bonds in the
issuance so that bondholders could request that such transaction
party (likely the trustee) send communications to the other
bondholders notifying them of suspected breaches of representations
and warranties, thus protecting investor identity, but also
addressing the collective action problem). The Depository Trust
Company provides custody and book-entry transfer services of
securities transactions in the U.S. market involving equities,
corporate and municipal debt, money market instruments, American
depositary receipts, and exchange-traded funds. In accordance with
its rules, DTC accepts deposits of securities from its participants
(i.e., broker-dealers and banks), credits those securities to the
depositing participants' accounts, and effects book-entry movements
of those securities.
    \93\ See letter from Prudential on the 2010 ABS Proposing
Release (suggesting that a group of 10% investor interest should be
able to initiate communication with others through the trustee).
---------------------------------------------------------------------------

    In connection with these concerns, we are proposing, as a third
shelf eligibility requirement, that an underlying transaction agreement
include a provision to require the party responsible for making
periodic filings on Form 10-D to include in the Form 10-D any request
from an investor to communicate with other investors related to an
investor's rights under the terms of the ABS that was made during the
reporting period received by the party responsible for making the Form
10-D filings where the request is received on or before the end date of
a reporting period.\94\ By requiring the provision be included in an
underlying agreement, the party responsible for making Form 10-D
filings would be

contractually obligated to disclose an investor's desire to
communicate. We preliminarily believe this is an appropriate
requirement for shelf eligibility because facilitating communication
among investors enables them to exercise the rights included in the
underlying transaction agreements, which we believe would address a
specific concern about enforceability of representations and warranties
raised in ABS transactions and would help to distinguish higher quality
ABS from other ABS.
---------------------------------------------------------------------------

    \94\ Most ABS issuers report and distribute payments to
investors on a monthly basis. The Form 10-D is required to be filed
within fifteen days after a required distribution date, and a
distribution date is typically two weeks after the end of a
reporting period. For example, for the month of June, under our
proposal a request from an investor would have to be received prior
to the close of the reporting period on June 30, a distribution
would be due to investors by July 15, and the Form 10-D filing due
date would be July 30.
---------------------------------------------------------------------------

    We are also proposing to revise Regulation AB and Form 10-D to
include the disclosure requirements related to the investor
communication shelf eligibility condition. The disclosure requirements
would only apply if the transaction was a registered shelf offering. We
are proposing that the disclosure on Form 10-D be required to include
the name of the investor making the request; the date the request was
received; and a description of the method by which other investors may
contact the requesting investor.\95\ Under the proposal, we are
including an instruction to Item 1121(g) to define the type of
communications that may be facilitated as a result of the required
notices on Form 10-D. The Form 10-D would be required to include
disclosure of only those notices of an investor's desire to communicate
where the communication relates to investors exercising their rights
under the terms of the ABS. Thus, an ABS investor would not be
permitted to use this mechanism for other purposes, such as identifying
potential customers, marketing efforts, or the like.\96\
---------------------------------------------------------------------------

    \95\ See proposed Item 1121(f) and Item 1.B. of Form 10-D.
    \96\ To the extent an investor wishes to communicate with other
investors about other matters, the investor must consider the
potential applicability of other regulatory provisions under the
federal securities laws. For example, an investor proposing to
commence a tender offer for securities in the ABS class must
evaluate whether such a communication is subject to Exchange Act
Sections 14(d) and 14(e) and Regulations 14D and 14E thereunder.
---------------------------------------------------------------------------

    We understand that transaction parties might want to specify
procedures for verifying the identity of a beneficial owner in a
particular ABS prior to including the proposed notice in a Form 10-D.
While we are not proposing specific procedural requirements, we believe
the procedures should be simple for an investor to follow so that the
party responsible for making the disclosure could verify the interest
of an investor in the ABS. Therefore, we are proposing an instruction
to the shelf eligibility requirement to make clear that the
verification requirements that could be contained in the transaction
documents, may require no more than the following: (1) If the investor
is a record holder of the securities at the time of a request to
communicate, then the investor would not have to provide verification
of ownership because the person obligated to make the disclosure will
have access to a list of record holders and (2) if the investor is not
the record holder of the securities at the time of the request to
communicate, the person obligated to make the disclosure must receive a
written statement from the record holder verifying that, at the time
the request is submitted, the investor beneficially held the
securities.
Requests for Comment
    42. Is our proposal to require a provision in the transaction
agreements to require an investor's request to communicate with other
investors to be included on Form 10-D reports an appropriate condition
to shelf eligibility? Would investors find the provision valuable?
    43. Is the proposed disclosure requirement on Form 10-D
appropriate? Should it require different information? Should we
prescribe a pre-set list of objective categories that an investor could
choose from for the purpose of indicating why it is requesting
communication with other investors? If so, what should be the list of
defined categories? Would the following be an appropriate list of
present categories: Servicing, trustee, representations and warranties,
voting matters, pool assets, and other?
    44. Under the proposal, the Form 10-D would be required to include
requests received during the reporting period for the form. Are there
any timing concerns? Should the request to communicate instead be
required to be filed on Form 8-K?
    45. Is the proposed instruction clarifying the maximum type of
verification procedures that may be included in the underlying
transaction documents appropriate? Are they reasonable requirements to
demonstrate ownership? Is the limitation on requirements proving
ownership, assuming the holder is not the record holder, necessary or
appropriate? Are there other procedures that we should require, or
limitations we should impose? Would those be in addition to or in lieu
of those described in the proposed instruction? Are there procedures
that would be easier for investors to meet but would have the same
effect?
    46. We understand that investors are often able to obtain reports
related to an ABS they own by accessing a password protected Web site,
usually maintained by the trustee. Should the list of investors that
have access to the Web site be enough to verify the interest of an
investor?
    47. Relatedly, investors have advised us that they sometimes have
difficulty receiving notices for investor votes, and, therefore, have
not been able to participate in that process. Should we require a Form
8-K be filed to disclose that an investor vote has been noticed? Should
the Form 8-K include a copy of the notice? Should the Form 8-K be filed
within a specified minimum period of the notice, such as two days? Or
would a shorter or longer due date be more appropriate? What other
mechanisms would be appropriate to facilitate the ability of an
investor to exercise their right to vote and at the same time be
appropriate requirements for shelf eligibility?
    48. We understand that a number of privately placed CMBS
transactions have included more extensive means for investor
communication. The following requests for comment are based on our
understanding of those transactions. Are these types of arrangements
prevalent in CMBS deals? Are they used with other asset classes?
    49. Instead of allowing verification of an investor's interest at
the time a request to communicate is made, should we instead require as
a condition to shelf eligibility that an underlying transaction
agreement require the trustee, or some other transaction party, to
maintain a list of investors and require the request to be included in
the Form 10-D only if the investor is included on the list? If so, how
would the person responsible for maintaining the list of investors
obtain and maintain the information? Should a form of investor
verification be required to be specified in the underlying transaction
agreement in connection with this shelf eligibility condition? If so,
when should the investor be required to provide the completed form?
    50. Should we require, as a condition to shelf eligibility, that
the investor communication notice be distributed in any other way, in
addition to, or instead of the Form 10-D? For instance, should we
require that the notice be posted on a designated Web site? If so, when
should it be posted? Alternatively, should the notice be required to be
distributed to investors by the trustee or some other transaction
party? If so, should the notice be required to be distributed only to
those investors that voluntarily provide their contact information to
the trustee or a person responsible for maintaining an investor

list? Would there be any reason that an investor would not provide
their contact information? If all investors did not provide their
contact information, we expect there would be a possibility that the
list of investors would not be complete. Would that frustrate the
purposes of this approach?
2. Revised and Re-Proposed Registrant Requirements
    In the 2010 ABS Proposals, we proposed to add new registrant
requirements related to compliance with the four proposed transaction
requirements (i.e., risk retention, third party opinion provision in
transaction agreements, officer certification, and an undertaking to
file ongoing Exchange Act reports).\97\ We also proposed to retain the
existing registrant requirement in Form S-3 relating to delinquent
filings of the depositor or an affiliate of the depositor for purposes
of proposed Form SF-3. Similar to existing requirements, we proposed
that prior to filing a registration statement on proposed Form SF-3, to
the extent the depositor or any issuing entity previously established
by the depositor or an affiliate of the depositor are or were at any
time during the twelve month look-back period required to file Exchange
Act reports with respect to a class of asset-backed securities
involving the same asset class, such depositor and each such issuing
entity must have filed all material required to be filed during the
twelve months (or shorter period that the entity was required to have
filed such materials).\98\ Also, such material, other than certain
specified reports on Form 8-K, must have been filed in a timely
manner.\99\ This proposal remains unchanged and outstanding. In the
2010 ABS Proposal, we also proposed to repeal the existing exception
from the filing timeliness requirement for Item 6.05 Form 8-K reports.
Item 6.05 Form 8-K reports are required to be filed if there is a
change in the asset pool characteristics from the description of the
asset pool provided in the final prospectus and, thereby, provide
important information regarding the composition of the assets.\100\ The
proposal to require the timely filings of Item 6.05 Form 8-K reports
remains unchanged and outstanding. The revised and re-proposed
registrant requirements for shelf eligibility are described below.
---------------------------------------------------------------------------

    \97\ See proposed General Instructions I.A.1. to I.A.4. of
proposed Form SF-3 in the 2010 ABS Proposing Release.
    \98\ For Form S-3, an issuer is not eligible for registration on
the form if the depositor or an affiliate of the depositor, with
respect to a class of asset-backed securities involving the same
asset class, has not filed the Exchange Act reports required to be
filed or has not filed such reports in a timely manner for a period
of twelve months prior to the filing of the registration statement.
See General Instruction I.A.4 of Form S-3.
    \99\ See proposed General Instruction I.A.3 to Form SF-3.
    \100\ In the 2010 ABS Proposing Release, we also proposed to
lower the threshold amount of change that would trigger a filing
requirement for Item 6.05 Form 8-K reports from five percent of any
material pool characteristic to one percent. That proposal remains
outstanding. See the 2010 ABS Proposing Release at 23392.
---------------------------------------------------------------------------

    In light of the changes to the proposed amendments to the
transaction requirements described in Section II.B.1. above, we are
revising and re-proposing the other registrant requirements to make
conforming changes. Specifically, we are proposing to require that to
the extent the depositor or any issuing entity previously established
by the depositor or an affiliate of the depositor is or was at any time
during the twelve month look-back period required to comply with the
proposed transaction requirements of Form SF-3, with respect to a
previous offering of asset-backed securities involving the same asset
class, the following requirements would apply:
     Such depositor and each such issuing entity must have
timely filed all the required certifications of the depositor's chief
executive officer or the depositor's executive officer in charge of
securitization;
     Such depositor and each such issuing entity must have
timely filed all the transaction agreements that contain the required
provisions relating to the credit risk manager and repurchase request
disputes; and
     Such depositor and each such issuing entity must have
timely filed all the transaction agreements that contain the required
provision relating to investor communication.
    In addition, in the 2010 ABS Proposing Release, we proposed to
include as a separate registrant requirement that there be disclosure
in the registration statement stating that the proposed registrant
requirements have been complied with. We continue to believe disclosure
of compliance with the registrant requirements would provide a means
for market participants (as well as the Commission and its staff) to
better oversee compliance with the proposed shelf eligibility
conditions of Form SF-3. We believe that the requirement is more
appropriately located in the instructions to the requirements rather
than as a registrant requirement and, therefore, are proposing to
include this requirement as an instruction.
Request for Comment
    51. Are our re-proposed registrant requirements appropriate?
    52. Is the twelve-month look-back period appropriate for compliance
with the certification, credit risk manager and repurchase dispute
resolution transaction requirements, and the investor communication
provision? Should it be longer or shorter?
    53. Is our proposed instruction to require disclosure in a
registration statement of compliance with the registrant requirements
appropriate? Should we specify a location in the registration statement
for such disclosure?

54. Should we require that registrants provide a ``yes'' or ``no''
answer to whether it has complied with all the registrant requirements?
If so, should the data be tagged in XML so that it could be an
electronically searchable piece of data? \101\
---------------------------------------------------------------------------

    \101\ We briefly discuss XML tagging below in Section III.B.
---------------------------------------------------------------------------

3. Annual Evaluation of Form SF-3 Eligibility in Lieu of Section
10(a)(3) Update

(a) Annual Compliance Check Related to Timely Exchange Act Reporting

    In the 2010 ABS Proposing Release, we proposed to require annual
and quarterly evaluations of compliance with the registrant
requirements for ABS shelf eligibility. For the evaluation of
compliance with the Exchange Act reporting registrant requirement, we
proposed to require an annual evaluation of whether the Exchange Act
reporting registrant requirement has been satisfied in lieu of a
Securities Act Section 10(a)(3) update.\102\ Under the 2010 ABS
Proposal, an ABS issuer wishing to conduct a takedown off an effective
shelf registration statement would be required to evaluate whether the
depositor and any affiliated issuing entity of the depositor that were
required to report under Sections 13(a) or 15(d) of the Exchange Act
during the previous twelve months, have filed such reports on a timely
basis, as of ninety days after the end of the depositor's

fiscal year end.\103\ This proposal remains unchanged and outstanding.
---------------------------------------------------------------------------

    \102\ As noted in the 2010 ABS Proposing Release, Form S-3
eligibility under the current rules is determined at the time of
filing the registration statement and at the time of updating that
registration statement under Securities Act Section 10(a)(3) [15
U.S.C. 77j(a)(3)] by filing audited financial statements. Because
ABS registration statements do not contain financial statements of
the issuer, a periodic determination of whether the issuer can
continue to use the shelf would need to be specified by rule. See
Securities Act Rule 401(b) [17 CFR 230.401(b)].
    \103\ As noted in the 2010 ABS Proposing Release, under this
proposal the related registration statement could not be utilized
for subsequent offerings for at least one year from the date the
depositor or the affiliated issuing entity that had failed to file
Exchange Act reports then became current in its Exchange Act reports
(and the other requirements had been met).
---------------------------------------------------------------------------

(b) Annual Compliance Check Related to the Fulfillment of the
Transaction Requirements in Previous ABS Offerings

    In the 2010 ABS Proposing Release, we also proposed to require that
in order to conduct a takedown off an effective shelf registration
statement, an ABS issuer would be required to conduct an evaluation at
the end of the fiscal quarter prior to the takedown of whether the ABS
issuer was in compliance with the previously proposed registrant
requirements relating to risk retention, third party opinions, the
depositor's chief executive officer certification, and the undertaking
to file ongoing reports.\104\ In response to our proposal, we received
four comment letters that did not support the quarterly
requirement.\105\ One commentator urged us to consider whether penalty
options less severe than the loss of shelf eligibility for a year would
be appropriate for a single violation but did not suggest specific
alternatives.\106\ Another commentator suggested that shelf eligibility
should be suspended only if the staff determines it is appropriate, and
only a full year in egregious cases.\107\
---------------------------------------------------------------------------

    \104\ In the 2010 ABS Proposing Release, we had proposed that in
order to conduct a takedown off an effective shelf registration
statement, an ABS issuer would be required to evaluate at the end of
the fiscal quarter prior to the takedown whether, during the
previous twelve months, the depositor and its affiliates had filed
on a timely basis all of the certifications and transaction
agreements required by the shelf eligibility transaction
requirements of a previous offering. If they had not, then the
depositor could not utilize the registration statement or file a new
registration statement on Form SF-3 until one year after the
required filings were filed. See 2010 ABS Proposing Release at
23348.
    \105\ See letters from ASF, BOA, MBA and SIFMA on the 2010 ABS
Proposing Release.
    \106\ See letter from MBA on the 2010 ABS Proposing Release.
    \107\ See letter from SIFMA on the 2010 ABS Proposing Release.
---------------------------------------------------------------------------

    In light of the changes we are proposing to the transaction
requirements to shelf eligibility described above, and taking into
consideration the comments we received, we are revising and re-
proposing the registrant requirement to require an annual evaluation of
compliance with the transaction requirements of shelf registration.
Under the re-proposal, notwithstanding that the registration statement
may have been previously declared effective, in order to conduct a