[Federal Register Volume 79, Number 185 (Wednesday, September 24, 2014)]
[Rules and Regulations]
[Pages 57183-57346]
[FR Doc No: 2014-21375]

Vol. 79

Wednesday,

No. 185

September 24, 2014

Part II

 Securities and Exchange Commission

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17 CFR Parts 229, 230, 232, et al.

 Asset-Backed Securities Disclosure and Registration; Final Rule

Federal Register / Vol. 79 , No. 185 / Wednesday, September 24, 2014
/ Rules and Regulations

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 230, 232, 239, 240, 243, and 249

[Release Nos. 33-9638; 34-72982; File No. S7-08-10]
RIN 3235-AK37

Asset-Backed Securities Disclosure and Registration

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

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SUMMARY: We are adopting significant revisions to Regulation AB and
other rules governing the offering process, disclosure, and reporting
for asset-backed securities (``ABS''). The final rules require that,
with some exceptions, prospectuses for public offerings under the
Securities Act of 1933 (``Securities Act'') and ongoing reports under
the Securities Exchange Act of 1934 (``Exchange Act'') of asset-backed
securities backed by real estate related assets, auto related assets,
or backed by debt securities, including resecuritizations, contain
specified asset-level information about each of the assets in the pool.
The asset-level information is required to be provided according to
specified standards and in a tagged data format using eXtensible Markup
Language (``XML''). We also are adopting rules to revise filing
deadlines for ABS offerings to provide investors with more time to
consider transaction-specific information, including information about
the pool assets. We are also adopting new registration forms tailored
to ABS offerings. The final rules also repeal the credit ratings
references in shelf eligibility criteria for ABS issuers and establish
new shelf eligibility criteria.

DATES: Effective Date: November 24, 2014.
    Compliance Dates:
    Offerings on Forms SF-1 and SF-3: Registrants must comply with new
rules, forms, and disclosures no later than November 23, 2015.
    Asset level Disclosures: Offerings of asset-backed securities
backed by residential mortgages, commercial mortgages, auto loans, auto
leases, and debt securities (including resecuritizations) must comply
with asset-level disclosure requirements no later than November 23,
2016.
    Forms 10-D and 10-K: Any Form 10-D or Form 10-K that is filed after
November 23, 2015 must comply with new rules and disclosures, except
asset-level disclosures.

FOR FURTHER INFORMATION CONTACT: Rolaine S. Bancroft, Senior Special
Counsel, Michelle M. Stasny, Special Counsel, M. Hughes Bates,
Attorney-Advisor, or Kayla Florio, Attorney-Advisor, 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 adopting amendments to Items 512 \1\
and 601 \2\ of Regulation S-K; \3\ Items 1100, 1101, 1102, 1103, 1104,
1105, 1108, 1109, 1110, 1111, 1112, 1113, 1114, 1119, 1121, and 1122
\4\ of Regulation AB \5\ (a subpart of Regulation S-K); Rules 139a,
167, 190, 193, 401, 405, 415, 424, 430B, 430C, 433, 456, and 457,\6\
and Forms S-1 and S-3 \7\ under the Securities Act of 1933 (Securities
Act); \8\ Rules 11, 101, 201, 202, and 305 \9\ of Regulation S-T; \10\
and Rules 3a68-1a, 3a68-1b, 15c2-8, 15d-22, 15Ga-1, and 17g-7 \11\ and
Forms 8-K, 10-K, and 10-D \12\ under the Securities Exchange Act of
1934; \13\ and Rule 103 \14\ of Regulation FD.\15\ We also are adding
new Items 1124 and 1125 \16\ to Regulation AB, and Rule 430D,\17\ Form
SF-1,\18\ Form SF-3,\19\ and Form ABS-EE \20\ under the Securities Act.
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    \1\ 17 CFR 229.512.
    \2\ 17 CFR 229.601.
    \3\ 17 CFR 229.10 et al.
    \4\ 17 CFR 229.1100, 17 CFR 229.1101, 17 CFR 229.1102, 17 CFR
229.1103, 17 CFR 229.1104, 17 CFR 229.1105, 17 CFR 229.1108, 17 CFR
229.1109, 17 CFR 229.1110, 17 CFR 229.1111, 17 CFR 229.1112, 17 CFR
229.1113, 17 CFR 229.1114, 17 CFR 229.1119, 117 CFR 229.1121, and 17
CFR 229.1122.
    \5\ 17 CFR 229.1100 through 17 CFR 229.1124.
    \6\ 17 CFR 230.139a, 17 CFR 230.167, 17 CFR 230.190, 17 CFR
230.193, 17 CFR 230.401, 17 CFR 230.405, 17 CFR 230.415, 17 CFR
230.424, 17 CFR 230.430B, 17 CFR 230.430C, 17 CFR 230.433, 17 CFR
230.456, and 17 CFR 230.457.
    \7\ 17 CFR 239.11 and 17 CFR 239.13.
    \8\ 15 U.S.C. 77a et seq.
    \9\ 17 CFR 232.11, 17 CFR 232.101, 17 CFR 232.201, 17 CFR
232.202, and 17 CFR 232.305.
    \10\ 17 CFR 232.10 et seq.
    \11\ 17 CFR 240.3a68-1a, 17 CFR 240.3a68-1b, 17 CFR 240.15c2-8,
17 CFR 240.15d-22, 17 CFR 240.15Ga-1, and 17 CFR 240.17g-7.
    \12\ 17 CFR 249.308, 17 CFR 249.310, and 17 CFR 249.312.
    \13\ 15 U.S.C. 78a et seq.
    \14\ 17 CFR 243.103.
    \15\ 17 CFR 243.100 et seq.
    \16\ 17 CFR 229.1124 and 17 CFR 229.1125.
    \17\ 17 CFR 230.430D.
    \18\ 17 CFR 239.44.
    \19\ 17 CFR 239.45.
    \20\ 17 CFR 249.1500.
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Table of Contents

I. Executive Summary
    A. Background
    B. Problems in the ABS Markets
    C. Summary of Final Rules
    1. Asset-Level Disclosure
    2. Other Disclosure Requirements
    3. Securities Act Registration
    (a) Certification
    (b) Asset Review Provision
    (c) Dispute Resolution
    (d) Investor Communication
    (e) Other Shelf Offering Provisions
    4. Other Changes to ABS Rules
    5. Proposed Rules Not Being Adopted at This Time
II. Economic Overview
    A. Market Overview and Economic Baseline
    B. Economic Motivations
    C. Potential Effects on the ABS Market
    D. Potential Market Participants' Responses
III. Asset-Level Disclosure
    A. Asset-Level Disclosure Requirement
    1. Background and Economic Baseline for the Asset-Level
Disclosure Requirement
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    2. Specific Asset-Level Data Points in Schedule AL
    (a) Disclosure Requirements for All Asset Classes and Economic
Analysis of These Requirements
    (b) Asset Specific Disclosure Requirements and Economic Analysis
of These Requirements
    (1) Residential Mortgage-Backed Securities
    (2) Commercial Mortgage-Backed Securities
    (3) Automobile Loan or Lease ABS
    (4) Debt Security ABS
    (5) Resecuritizations
    3. Asset-Level Data and Individual Privacy Concerns
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    4. Requirements Under Section 7(c) of the Securities Act
    (a) Section 7(c)(2)(B)--Data Necessary for Investor Due
Diligence
    (b) Section 7(c)(2)(B)(i)--Unique Identifiers Relating to Loan
Brokers and Originators
    (c) Section 7(c)(2)(B)(ii)--Broker Compensations and Section
7(c)(2)(B)(iii)--Risk Retention by Originator and the Securitizer of
the Assets
    B. Asset-Level Filing Requirements
    1. The Timing of the Asset-Level Disclosure Requirements
    (a) Timing of Offering Disclosures
    (1) Proposed Rule
    (2) Comments on Proposed Rule
    (3) Final Rule and Economic Analysis of the Final Rule
    (b) Timing of Periodic Disclosures
    (1) Proposed Rule
    (2) Comments on Proposed Rule
    (3) Final Rule and Economic Analysis of the Final Rule
    2. The Scope of New Schedule AL
    (a) Proposed Rule
    (1) Offering Disclosures
    (2) Periodic Disclosures
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    3. XML and the Asset Data File

    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    4. Asset Related Documents
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    5. New Form ABS-EE
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    6. Temporary Hardship Exemption
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    C. Foreign ABS
IV. Other Prospectus Disclosure
    A. Transaction Parties
    1. Identification of the Originator
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule
    2. Financial Information Regarding a Party Obligated To
Repurchase Assets
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule
    3. Economic Interest in the Transaction
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule
    4. Economic Analysis Related to the Rules Regarding Transaction
Parties
    B. Prospectus Summary
    1. Proposed Rule
    2. Comments on Proposed Rule
    3. Final Rule and Economic Analysis of the Final Rule
    C. Modification of Underlying Assets
    1. Proposed Rule and Comments on Proposed Rule
    2. Final Rule and Economic Analysis of the Final Rule
    D. Disclosure of Fraud Representations
    E. Static Pool Disclosure
    1. Disclosure Required
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    2. Amortizing Asset Pools
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    3. Filing Static Pool Data
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and the Economic Analysis of the Final Rule
    F. Other Disclosure Requirements That Rely on Credit Ratings
V. Securities Act Registration
    A. Background and Economic Discussion
    B. New Registration Procedures and Forms for ABS
    1. New Shelf Registration Procedures
    (a) Rule 424(h) and Rule 430D
    (1) Proposed Rule
    (2) Comments on Proposed Rule
    (3) Final Rule and Economic Analysis of the Final Rule
    (a) Rule 424(h) Filing
    (b) New Rule 430D
    2. Forms SF-1 and SF-3
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    3. Shelf Eligibility for ABS Offerings
    (a) Shelf Eligibility--Transaction Requirements
    (1) Certification
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Shelf Certification
Requirement
    (i) Paragraph One
    (ii) Paragraph Two
    (iii) Paragraph Three
    (iv) Paragraph Four
    (v) Paragraph Five
    (vi) Signature Requirement
    (vii) Date of the Certification
    (viii) Opinion by an Independent Evaluator Alternative
    (2) Asset Review Provision
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Asset Review
Provision
    (i) Triggers for Review
    (a) Delinquency Prong
    (b) Investor Vote Prong
    (ii) Scope of the Review
    (iii) Report of the Findings and Conclusions
    (iv) Selection of the Reviewer
    (3) Dispute Resolution Provision
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Dispute Resolution
Shelf Requirement
    (4) Investor Communication
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Investor
Communication Shelf Requirement
    (b) Shelf Eligibility--Registrant Requirements
    (c) Annual Evaluation of Form SF-3 Eligibility in Lieu of
Section 10(a)(3) Update
    (1) Annual Compliance Check Related to Timely Exchange Act
Reporting
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    (2) Annual Compliance Check Related to the Fulfillment of the
Transaction Requirements in Previous ABS Offerings
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    4. Continuous Offerings
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    5. Mortgage Related Securities
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    C. Exchange Act Rule 15c2-8(b)
    1. Proposed Rule
    2. Comments on Proposed Rule
    3. Final Rule and Economic Analysis of the Final Rule
    D. Including Information in the Form of Prospectus in the
Registration Statement
    1. Presentation of Disclosure in Prospectuses
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    2. Adding New Structural Features or Credit Enhancements
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    E. Pay-as-You-Go Registration Fees
    1. Proposed Rule
    2. Comments on Proposed Rule
    3. Final Rule and Economic Analysis of the Final Rule
    F. Codification of Staff Interpretations Relating to Securities
Act Registration
    1. Fee Requirements for Collateral Certificates or Special Units
of Beneficial Interest
    2. Incorporating by Reference Subsequently Filed Exchange Act
Reports
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
VI. Filing Requirements for Transaction Documents
    A. Proposed Rule
    B. Comments Received on Proposed Rule
    C. Final Rule and Economic Analysis of the Final Rule
VII. Definition of Asset-Backed Security
    A. Proposed Rule
    B. Comments on Proposed Rule
    1. The Master Trust Exception
    2. The Revolving Period Exception
    3. The Prefunding Exception
    C. Final Rule and Economic Analysis of the Final Rule
VIII. Exchange Act Reporting
    A. Distribution Reports on Form 10-D
    1. Delinquency Presentation
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    2. Identifying Information and Cross-References to Previously
Reported Information
    3. Changes in Sponsor's Interest in the Securities
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    B. Annual Report on Form 10-K
    1. Servicer's Assessment of Compliance With Servicing Criteria
    (a) Proposed Rule
    (b) Comments on Proposed Rule
    (c) Final Rule and Economic Analysis of the Final Rule
    2. Codification of Prior Staff Interpretations Relating to the
Servicer's Assessment of Compliance With Servicing Criteria
    C. Central Index Key Numbers for Depositor, Sponsor and Issuing
Entity

IX. Transition Period
    A. General Transition Period
    B. Transition Period for Asset-Level Disclosure Requirements
    C. Compliance Dates
X. Paperwork Reduction Act
    A. Background
    B. Summary of Comment Letters on the PRA Analysis
    C. Revisions to Proposals
    D. PRA Reporting and Cost Burden Estimates
    1. Form ABS-EE
    2. Form S-3 and Form SF-3
    3. Form S-1 and Form SF-1
    4. Form 10-K
    5. Form 10-D
    6. Form 8-K
    7. Regulation S-K and Regulation S-T
    E. Summary of Changes to Annual Burden of Compliance in
Collection of Information
XI. Regulatory Flexibility Act Certification
XII. Statutory Authority and Text of Rule and Form Amendments

I. Executive Summary

A. Background

    The Commission addressed the registration, disclosure, and
reporting requirements for asset-backed securities in 2004 when it
adopted new rules and amendments under the Securities Act and the
Exchange Act.\21\ Among other changes, the 2004 rules updated and
clarified the Securities Act registration requirements for asset-backed
securities offerings and allowed modified Exchange Act reporting
tailored to asset-backed securities offerings. In April 2010, we
proposed revisions to the registration, disclosure, and reporting
requirements for ABS offerings in an effort to improve investor
protection and promote more efficient asset-backed markets.\22\
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    \21\ See Asset-Backed Securities, Release No. 33-8518 (Jan. 7,
2005) [70 FR 1506] (the ``2004 ABS Adopting Release'').
    \22\ See Asset-Backed Securities, Release No. 33-9117 (Apr. 7,
2010) [75 FR 23328] (the ``2010 ABS Proposing Release'' or the
``2010 ABS Proposal'').
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    In the 2010 ABS Proposing Release we noted that the financial
crisis highlighted that investors and other participants in the
securitization market did not have the necessary information and time
to be able to fully assess the risks underlying asset-backed securities
and did not value asset-backed securities properly or accurately. This
lack of understanding and the extent to which it impacted the U.S. and
global economy prompted us to revisit several aspects of our regulation
of asset-backed securities.\23\ To address these issues, we 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. Further, we proposed a rule that
asset-backed issuers provide investors with more time to consider
transaction-specific information about the pool assets. We also
proposed to require asset-backed issuers to file a computer program
modeling the flow of funds, or waterfall, provisions of the transaction
to help investors analyze the offering and monitor ongoing performance.
For offerings of asset-backed securities that qualify for shelf
registration, we proposed investor protection-focused shelf eligibility
and offering requirements that would indicate which types of offerings
qualify for delayed shelf eligibility and also proposed to remove the
investment-grade ratings requirement.\24\ Finally, we proposed to
require disclosure provisions in unregistered ABS transaction
agreements as a condition to certain safe harbors for exempt offerings
and resales of ABS.
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    \23\ See the 2010 ABS Proposing Release at 23329.
    \24\ In this Release, we also refer to such offerings as shelf
offerings.
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    In July 2010, subsequent to the 2010 ABS Proposing Release,
Congress passed the Dodd-Frank Wall Street Reform and Consumer
Protection Act (the ``Dodd-Frank Act''),\25\ which directed the
Commission to prescribe several ABS related rules, some of which were
included in the 2010 ABS Proposals and others of which were not. Two of
the proposed shelf eligibility requirements--risk retention and
continued Exchange Act reporting--were addressed by provisions of the
Dodd-Frank Act. After taking the Dodd-Frank requirements into account,
and considering comments received in connection with the 2010 ABS
Proposing Release, in 2011 we re-proposed some of the 2010 ABS
Proposals, including the shelf eligibility requirements. In that same
release, we also sought additional comment on asset-level disclosure,
including comment on how best to implement Section 7(c) of the
Securities Act, as added by Section 942(b) of the Dodd-Frank Act, which
directed the Commission to adopt regulations to require asset-level
information.\26\
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    \25\ Public Law 111-203, 124 Stat. 1376 (July 21, 2010).
    \26\ See Re-Proposal of Shelf Eligibility Conditions for Asset-
Backed Securities, Release No. 33-9244 (July 26, 2011) [76 FR 47948]
(the ``2011 ABS Re-Proposing Release'' or the ``2011 ABS Re-
Proposal'').
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    In February 2014, the Commission re-opened the comment period \27\
on the 2010 ABS Proposals and the 2011 ABS Re-Proposals to permit
interested persons to comment on an approach for the dissemination of
asset-level data, which is described in a staff memorandum, dated
February 25, 2014, that was posted to the public comment file.\28\
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    \27\ See Re-Opening of Comment Period for Asset-Backed
Securities, Release No. 33-9552 (Feb. 25, 2014), [79 FR 11361]
(``the 2014 Re-Opening Release'').
    \28\ See Memorandum from the Commission's Division of
Corporation Finance (Feb. 25, 2014), available at http://www.sec.gov/comments/s7-08-10/s70810.shtml (the ``2014 Staff
Memorandum'').
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B. Problems in the ABS Markets

    The financial crisis highlighted a number of concerns about the
operation of our rules in the securitization market.\29\ The failures
of credit ratings to accurately measure and account for the risks
associated with certain asset-backed securities have been well
documented by lawmakers, market observers, and academics.\30\ The
collapse of these ``investment-grade'' rated securities was a major
contributor to the financial crisis, and demonstrated the risks to
investors of unduly relying on these securities' credit ratings without
engaging in independent due diligence.\31\ Although academic

research suggests that some investors might have been able to price ABS
credit risk beyond what the ratings implied, there is also evidence
that investors in triple-A rated tranches were less informed than
investors in lower tranches.\32\
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    \29\ For a more detailed discussion of the issues mentioned in
this section and other economic problems that affected the ABS
market, see Section II.B Economic Motivations below.
    \30\ See, e.g., H.R. Rep. No. 4173 (2010) (Conf. Rep.) (Dodd-
Frank Wall Street Reform and Consumer Protection Act--Conference
Report) (noting that the performance of credit rating agencies,
particularly their ratings of asset-backed securities, contributed
significantly to the financial crisis); John Griffin & Dragon Tang,
Did Subjectivity Play a Role in CDO Credit Ratings?, 67 J. Fin.
1293-1328 (2012) (discussing discretionary out-of-model adjustments
to collateralized debt obligation (``CDO'') ratings made by one
nationally recognized statistical rating organization); Adam
Ashcraft, Paul Goldsmith-Pinkham & James Vickery, MBS Ratings and
the Mortgage Credit Boom (2010 Working Paper Federal Reserve Bank of
New York) (arguing, among other things, that MBS ratings did not
fully reflect publicly available data).
    \31\ See the 2011 ABS Re-Proposal. See also Federal Reserve,
Report to Congress on Risk Retention 49-66 (2010) (documenting the
extent of the collapse of the investment-grade ABS market); Efraim
Benmelech & Jennifer Dlugosz, The Credit Rating Crisis, in 24 NBER
Macroeconomics Ann. 161-207 (Daron Acemoglu, Kenneth Rogoff &
Michael Woodford, eds., Univ. of Chicago Press, Apr. 2010) (2009)
(arguing that credit rating agency models did not adequately
anticipate how poorly the assets underlying many structured finance
products performed during economic downturns, that the ratings
models failed to account for the correlation among underlying assets
(e.g., residential home prices) at the national level, and that
``ratings shopping'' by issuers exacerbated the severity of the poor
performance of structured finance products during the economic
downturn); Patrick Bolton, Xavier Freixas & Joel Shapiro, The Credit
Ratings Game, 67(1) J. Fin. 85-111 (2012) (arguing that credit
rating agency competition can reduce the efficiency of credit
ratings, as it facilitates ``ratings shopping,'' and that ratings
are more likely to be inflated during economic booms and when
investors are more trusting).
    \32\ See Manuel Adelino, How Much Do Investors Rely on Ratings?
The Case of Mortgage-Backed Securities, (2009 Working Paper
Dartmouth College) (suggesting that investors in certain RMBS
triple-A rated tranches relied more on ratings because they were
less informed about the quality of the underlying assets than
investors in lower tranches based on a comparison between yield
spreads at securitization and actual defaults). But see Jie Jack He,
Jun QJ Qian & Philip E. Strahan, Are All Ratings Created Equal? The
Impact of Issuer Size on the Pricing of Mortgage-Backed Securities,
67 J. Fin. 2097-2137 (2012) (suggesting that investors did not over
rely on ratings by arguing that investors were able to price the
risk of large RMBS issuers receiving more inflated ratings by
comparing yields on RMBS sold by large issuers against the yields on
RMBS sold by small issuers).
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    In addition, investors have expressed concern about a lack of time
to analyze securitization transactions and make informed investment
decisions.\33\ Time to analyze an offering is necessary if investors
are being encouraged to perform their own diligence and to not over
rely on credit ratings. While the Commission has not generally built
waiting periods into its shelf offering registration process,\34\ and
instead has believed investors can take the time they believe is
adequate to analyze securities (and refuse to invest if not provided
sufficient time), investors have indicated that this is not generally
possible in the ABS market, particularly in a heated market.\35\
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    \33\ See discussion in Section V.B.1.a) Rule 424(h) and Rule
430D below.
    \34\ See, e.g., Section IV.A. of Securities Offering Reform,
Release No. 33-8591 (July 19, 2005) [70 FR 44722] (the ``Securities
Offering Reform Release'') (adopting significant revisions to
registration, communications and offering process under the
Securities Act and stating that Rule 159 would not result in a speed
bump or otherwise slow down the offering process).
    \35\ See discussion in Section V.B.1.(a) Rule 424(h) and Rule
430D below.
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    Investors and others have also expressed concerns about other
aspects of the securitization market, including concern about a lack of
effective oversight by the principal officers of the ABS issuer.\36\ In
particular, investors have been concerned that these officers have not
conducted sufficient due diligence when reviewing the pool assets and
designing the securitization structure. Additionally, investors have
noted that the mechanisms for enforcing the representations and
warranties contained in the securitization transaction documents are
weak, and thus they are not confident that even strong representations
and warranties provide them with adequate protection.\37\ They have
also noted that difficulties in locating fellow ABS investors have
prevented them from exercising rights under the transaction agreement,
including requirements that an originator or sponsor repurchase an
asset if it does not comply with the representations and
warranties.\38\
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    \36\ See, e.g., letters from Better Markets dated Oct. 4, 2011
submitted in response to the 2011 ABS Re-Proposing Release (``Better
Markets''), CFA Institute dated Nov. 9, 2011 submitted in response
to the 2011 ABS Re-Proposing Release (``CFA II''), Securities
Industry and Financial Markets Association dated Aug. 2, 2010
submitted in response to the 2010 ABS Proposing Release (``SIFMA
I'') (expressed views of investors only), and Vanguard dated Aug.
27, 2010 submitted in response to the 2010 ABS Proposing Release
(``Vanguard'').
    \37\ See letters from Metropolitan Life Insurance Company dated
Oct. 4, 2011 submitted in response to the 2011 ABS Re-Proposing
Release (``Metlife II''), Prudential Investment Management, Inc.
dated Oct. 4, 2011 submitted in response to the 2011 ABS Re-
Proposing Release (``Prudential II''), and Securities Industry and
Financial Markets Association, Asset Management Group dated Oct. 4,
2011 submitted in response to the 2011 ABS Re-Proposing Release
(``SIFMA II-investors'') (stating that they do not believe the ABS
market will recover without a mechanism to enforce breaches of
representations and warranties). See also Section V.B.3.a)(2) Asset
Review Provision below.
    \38\ See letters from CFA II and Investment Company Institute
dated Oct. 4, 2011 submitted in response to the 2011 ABS Re-
Proposing Release (``ICI II'').
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    Market participants have also expressed a desire for expanded
disclosure about the assets underlying securitizations in order to
conduct an analysis of the offering.\39\ The financial crisis
underscored that the information available to investors about ABS may
not have provided them with all the information necessary to fully
understand and correctly gauge the risks underlying the securities. As
a result, investors may not have been able to accurately value those
securities.\40\
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    \39\ See discussion in Section III.A.1 Background and Economic
Baseline for the Asset-Level Disclosure Requirement below.
    \40\ See Sheila Bair, Bull by The Horns: Fighting to Save Main
Street From Wall Street and Wall Street From Itself 52 (2012)
(noting that, based on data analysis conducted by the FDIC, ABS
investors did not look at the quality of the individual loans in the
asset pools and lacked detailed loan-level information and adequate
time to analyze the information before making an investment
decision). See also footnote 882 and discussions in Section III.A.1
Background and Economic Baseline for the Asset-Level Disclosure
Requirement and Section V.B.1.a) Rule 424(h) and Rule 430D below.
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C. Summary of Final Rules

    We are adopting significant revisions to the rules governing
disclosure, reporting, registration, and the offering process for
asset-backed securities. The revised rules are designed to address the
problems discussed above and to enhance investor protection in the ABS
market.\41\ In adopting these changes, we have taken into consideration
the comments and recommendations made by commenters in connection with
the 2010 ABS Proposing Release, the 2011 ABS Re-Proposing Release and
the 2014 Re-Opening Release, which are reflected in the changes made in
the final rules.\42\ We received a total of 240 comment letters in
connection with the 2010 ABS Proposals, 2011 ABS Re-Proposal and the
2014 Re-Opening Release.
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    \41\ The rules do not affect the applicability of the Investment
Company Act (15 U.S.C. 80a-1 et seq.) to ABS issuers, including the
availability of exclusions from such Act. See, e.g., Section 3(c)(1)
or Section 3(c)(7) (15 U.S.C. 80a-3(c)(1) and 80a-3(c)(7)) (for
unregistered transactions); Rule 3a-7 [17 CFR 270.3a-7] (for
registered and unregistered transactions).
    \42\ The 2014 Re-Opening Release provided for a thirty-day
comment period. In response to commenters' requests, on March 28,
2014, we extended the comment period until April 28, 2014.
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    The final rules are intended to provide investors with timely and
sufficient information, reduce the likelihood of undue reliance on
credit ratings, and provide mechanisms to help to enforce the
representations and warranties made about the underlying assets. These
revisions are comprehensive and although they will impose new burdens
on issuers, we believe they will protect investors and promote
efficient capital formation. The rules cover the following areas:
     Securities Act and Exchange Act disclosures, including new
requirements for certain asset classes to disclose standardized asset-
level information;
     Revisions to the shelf offering process, eligibility
criteria, and prospectus delivery requirements; and
     Several changes to the Asset-Backed Issuer Distribution
Report on Form 10-D, the Annual Report on Form 10-K, and the Current
Report on Form 8-K.\43\
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    \43\ See Section I.C.5 Proposed Rules Not Being Adopted At This
Time for a list of proposed rules that we are not adopting at this
time.
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    In addition, we are adopting clarifying, technical, and other
changes to the current rules. Some of the rules we are adopting are
designed to address and improve areas that we believe have the
potential to raise issues similar to those highlighted in the financial
crisis. Furthermore, some of the rules we are adopting respond to
Sections 939A and 942(b) of the Dodd-Frank Act.
1. Asset-Level Disclosure
    Investors, other market participants, academics, and policy makers
have increasingly noted that asset-level information is essential to
evaluating an asset-backed security.\44\ We believe that

all investors and market participants should have access to the
information they need to assess the credit quality of the assets
underlying a securitization at inception and over the life of a
security. In 2010, we proposed to require standardized asset-level
information in prospectuses and on an ongoing basis in periodic
reports. The 2010 ABS Proposals called for ABS issuers to disclose
standardized asset-level information for most asset classes.
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    \44\ See, e.g., The Private Mortgage Market Investment Act, Part
I, Hearing on H.R. 3644 Before the Subcomm. on Capital Mkts. & Gov't
Sponsored Enters. of the H. Comm. on Fin. Servs., 112th Cong. 3
(2011) (statement of Rep. Scott Garrett, Chairman, Subcomm. on
Capital Mkts. & Gov't Sponsored Enters.) (stating ``in regards to
transparency and disclosure, investors should be empowered, if you
will, and enabled to do their own analysis of the assets underlying
the securities that they are investing in. So by disclosing more
detailed loan level data, while at the same time protecting the
privacy of the borrowers, and by allowing more time for the
investors to study that additional information, investors will be
able to conduct more due diligence and lessen their reliance on
rating agencies''); Securitization of Assets: Problems & Solutions
Hearing Before the Subcomm. on Secs., Ins., & Inv. of S. Comm. on
Banking, Housing & Urban Affairs, 111th Cong. 39 (2009) (statement
of Patricia McCoy, law professor at the University of Connecticut
School of Law) (recommending that ``[t]he SEC should require
securitizers to provide investors with all of the loan-level data
they need to assess the risks involved'' and ``should require
securitizers and servicers to provide loan-level information on a
monthly basis on the performance of each loan and the incidence of
loan modifications and recourse''). See also letters from Moody's
Investors Service dated Aug. 31, 2010 submitted in response to the
2010 ABS Proposing Release (``Moody's I'') (suggesting increased ABS
data information will restore confidence in the structured finance
market), Prudential Investment Management, Inc. dated Aug. 2, 2010
submitted in response to the 2010 ABS Proposing Release
(``Prudential I'') (supporting the SEC's proposal for investors to
have access to asset-level data in order to provide investors with a
better understanding of risk), and SIFMA I (suggesting that asset-
level data is important to an investor's investment decision and is
needed to restore investor confidence).
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    We are adopting standardized asset-level disclosure requirements
because we believe this information will allow an investor to better
conduct his or her own evaluation of the ongoing credit quality of a
particular asset, risk layering of assets, and overall risks in the
pool underlying the ABS. In our discussion below, we refer to each
individual asset-level disclosure requirement as an asset-level data
point. The asset-level data will be provided at the time of the
offering and on an ongoing basis. The disclosures are required to be
provided in a standardized XML format, so that they are more useful to
investors and markets. We have revised the required data points to
address commenters' concerns about a variety of topics that we discuss
further below, such as the availability of data, market practice, need
for increased transparency and privacy concerns. While we are adopting
asset-level disclosure requirements for ABS where the underlying assets
consist of residential mortgages, commercial mortgages, auto loans,
auto leases and resecuritizations of ABS that include these asset
types, or of debt securities,\45\ we are continuing to consider the
best approach for requiring more information about underlying assets
for the remaining asset classes covered by the 2010 ABS Proposal.\46\
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    \45\ Under the proposal, this asset class was titled ``corporate
debt.'' However, we are using the term ``debt security ABS'' to
provide clarification because, as we discuss below, the same set of
requirements will also apply to resecuritizations.
    \46\ While the 2010 ABS Proposal applied across asset classes,
we had also proposed specific requirements for equipment loans and
leases, student loans, floorplan financings, and credit card
receivables. As discussed below, Section 7(c) of the Securities Act
[15 U.S.C. 77g(c)] also requires, in relevant part, that the
Commission adopt regulations requiring an issuer of an asset-backed
security to disclose, for each tranche or class of security,
information about the assets backing that security, including asset-
level or loan-level data, if such data is necessary for investors to
independently perform due diligence.
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    We have modified some of the proposed data points in response to
comments. The new disclosure requirements include the following
standardized data points:
     Data points about the payment stream related to a
particular asset, such as the contractual terms, scheduled payment
amounts, basis for interest rate calculations and whether and how
payment terms change over time;
     Data points that allow for an analysis of the collateral
related to the asset, such as the geographic location of the property,
property valuation data and loan-to-value (``LTV'') ratio;
     Data points about the performance of each asset over time,
for example, data about whether an obligor is making payments as
scheduled; and
     Data points about the loss mitigation efforts by the
servicer to collect amounts past due and the losses that may pass on to
the investors.

Other key data points we are adopting will provide data about the
extent to which income and employment status have been verified,
mortgage insurance coverage, and lien position.
    We have also made modifications from the 2010 ABS Proposal in light
of privacy concerns. As we discuss below, many commenters were
concerned with the privacy implications of asset-level disclosure,
particularly the risk that the information could be combined with other
publicly available information to discover, or ``re-identify,'' the
identities of the obligors in ABS pools, thereby revealing potentially
sensitive personal and financial information about an obligor. In light
of these concerns, we are omitting or modifying certain asset-level
disclosures for RMBS and securities backed by auto loans and leases
(collectively, ``Auto ABS'') to reduce the potential risk that the
obligors could be re-identified. We refer to this risk throughout the
release as ``re-identification risk''. Additionally, in response to
commenters' suggestions, we have sought and obtained guidance from the
Consumer Financial Protection Bureau (``CFPB'') on the application of
the Fair Credit Reporting Act (``FCRA'') \47\ to the required
disclosures. We believe these steps implement the statutory mandate of
Section 7(c) and will provide investors with the asset-level
information they need while reducing concerns about the potential re-
identification risk associated with disclosing consumers' personal and
financial information.\48\
---------------------------------------------------------------------------

    \47\ 15 U.S.C. 1681 et seq. FCRA generally regulates the use of
``consumer reports'' furnished by a ``consumer reporting agency,''
as those terms are defined in the statute. The CFPB has authority to
interpret FCRA.
    \48\ 15 U.S.C. 77g(c).
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2. Other Disclosure Requirements
    We are also adopting other amendments to the prospectus disclosure
requirements, which will require:
     A summary of statistical information about the pool of
underlying assets in the prospectus summary;
     A description of the provisions in the transaction
agreements about modification of the terms of the underlying assets;
     More explanatory language about the static pool
disclosures and standardized delinquency presentation and, for static
pool filings on Form 8-K, a new separate Form 8-K item and exhibit
number;
     Expanded disclosure about transaction parties; and
     Filing of the transaction documents, by the date of the
final prospectus, which is a clarification of the current rules.
3. Securities Act Registration
    ABS issuers have emphasized their desire to access the capital
markets quickly through shelf registration. ABS shelf registration
offers significant flexibility and timing benefits to issuers, but
these interests must be balanced against investors' need for adequate
information and time to make informed investment decisions. Investors
have expressed concerns about not having adequate time to review the
prospectus in order to make a well-informed investment decision,
especially in an

active market.\49\ This lack of time to adequately review the
transaction contributed to investors placing undue reliance on the
investment-grade ratings of these securities.\50\ Consequently, we are
adopting a requirement that ABS issuers using a shelf registration
statement on new Form SF-3 file a preliminary prospectus under new Rule
424(h) containing transaction-specific information at least three
business days in advance of the first sale of securities in the
offering.\51\ The preliminary prospectus will give investors additional
time to analyze the specific structure, assets, and contractual rights
regarding each transaction. We had originally proposed that any
material change to the preliminary prospectus, other than offering
price, would require the filing of a new preliminary prospectus and re-
starting the waiting period. In response to commenters' concerns, we
are requiring, instead, that issuers file material changes in a
prospectus supplement that provides a clear description of how the
information has changed at least 48 hours before the first sale.
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    \49\ See the 2010 ABS Proposing Release at 23334, including
footnote 80, and the 2011 ABS Re-Proposal at 47950, including
footnote 19. See also the discussion in Section V.B.1.a)(1), below
(discussing investors' concerns about the lack of adequate time).
    \50\ See, e.g., Securitization of Assets: Problems & Solutions
Hearing Before the Subcomm. on Sec., Ins., & Inv. of the S. Comm. on
Banking, Housing & Urban Affairs, 111th Cong. 71 (2009) (statement
of William W. Irving, Portfolio Manager at Fidelity Investments)
(noting ``high demand [for ABS] put investors in the position of
competing with each other, making it difficult for any of them to
demand better underwriting, more disclosure, simpler product
structures, or other favorable terms'').
    \51\ We use the term ``preliminary prospectus'' to mean the Rule
424(h) preliminary prospectus; similarly we use the term ``final
prospectus'' to mean the Rule 424(b)(2) or (5) prospectus.
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    As noted above, while we recognize that ABS issuers have expressed
the desire to use shelf registration in order to access the capital
markets quickly, we believe that the shelf eligibility requirements
should be designed to help ensure a certain quality and character for
asset-backed securities eligible for delayed shelf registrations given
the speed of these offerings. Prior to today, one of the shelf
eligibility requirements for offerings of asset-backed securities was
that the securities were investment-grade securities--meaning that at
least one of the nationally recognized statistical rating organizations
(``NRSRO'') rated them in one of its generic rating categories that
signifies investment grade and is typically one of the four highest
categories. As noted above, the financial crisis revealed that credit
rating agencies had generally not appropriately evaluated the credit
risk of the securities and that some investors may have placed too much
reliance on these ratings without conducting their own analysis.\52\ We
proposed to replace the investment-grade ratings requirement with
alternative shelf eligibility criteria. These proposals were part of a
broad ongoing effort to remove references to NRSRO credit ratings from
our rules in order to reduce the risk of undue reliance on ratings and
also to eliminate the appearance of an imprimatur that such references
may create.\53\ Additionally, Section 939A of the Dodd-Frank Act
requires us to review and eliminate the use of credit ratings as an
assessment of creditworthiness in our rules.\54\ Consequently, we are
adopting four transaction requirements for ABS shelf eligibility to
indicate which types of offerings qualify for shelf registration, and
we are removing the prior investment-grade ratings requirement. The
four new transaction requirements are:
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    \52\ See footnote 31. See also, e.g., Joshua D. Coval, Jakub W.
Jurek & Erik Stafford, Economic Catastrophe Bonds, 99(3) Am. Econ.
Rev. 628-66 (2009) (arguing that senior CDO tranches have
significantly different risk exposures than their credit rating-
matched single-name counterparts, and thus should command different
risk premia, and that the information provided by the credit ratings
agencies to their customers is inadequate for purposes of accurately
pricing these risks); John Griffin & Dragon Tang, Did Subjectivity
Play a Role in CDO Credit Ratings?, 67(4) J. Fin. 1293-1328 (2012)
(analyzing 916 CDOs and finding that credit rating agencies
frequently made favorable pro-issuer adjustments beyond what their
own risk models suggested, thereby subjectively increasing the size
of triple-A tranches in the CDOs, and, subsequently, the CDOs with
larger subjective adjustments experienced more severe downgrades
during the economic crisis).
    \53\ See, e.g., Security Ratings, Release No. 33-9245 (July 27,
2011) [76 FR 46606] (the ``Security Ratings Release'') (amending
rules and forms under the Securities Act and the Securities Exchange
Act); Removal of Certain References to Credit Ratings Under the
Securities Exchange Act of 1934, Release No. 34-64352 (Apr. 27,
2011) [76 FR 26550] (proposing amendments to rules and one form
under the Securities Exchange Act).
    \54\ Section 939A of the Dodd-Frank Act requires that the
Commission review any regulation issued by the Commission 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. We
completed this review and issued a report on July 21, 2011 (see
Report on Review of Reliance on Credit Ratings, available at http://www.sec.gov/news/studies/2011/939astudy.pdf). We have removed
references from a significant number of rules and forms both as a
result of our broad ongoing effort to remove credit rating
references from our rules as well as in light of the requirements in
Section 939A of the Dodd-Frank Act. See, e.g., Rules 15c3-1 [17 CFR
240.15c3-1], 15c3-3 [17 CFR 240.15c3-3], 10b-10 [17 CFR 240.10b-10]
and 17i-8(a)(4) [17 CFR 240.17i-8(a)(4)] under the Exchange Act,
Form X-17A-5, Part IIB [17 CFR 249.617] under the Exchange Act,
Schedule 14A [17 CFR 240.14a-101] under the Exchange Act, Rule
100(b)(2) of Regulation FD [17 CFR 243.100(b)(2)], Rule 5b-3 [17 CFR
270.5b-3] under the Investment Company Act, Forms N-1A [17 CFR
274.11A], N-2 [17 CFR 274.11a-1] and N-3 [17 CFR 274.11b] under the
Investment Company Act, Rules 134 [17 CFR 230.134], 138 [17 CFR
230.138], 139 [17 CFR 230.139] and 168 [17 CFR 230.168] under the
Securities Act and Forms S-3 (non-ABS) [17 CFR 239.13], S-4 [17 CFR
239.25], F-3 [17 CFR 239.33], F-4 [17 CFR 239.34] and F-9
(rescinded) under the Securities Act.
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     A certification by the chief executive officer;
     An asset review provision requiring review of the assets
for compliance with the representations and warranties upon the
occurrence of certain trigger events;
     A dispute resolution provision; and
     Disclosure of investors' requests to communicate.
    We believe that these new shelf eligibility and offering
requirements will reduce undue reliance on credit ratings and also help
to ensure that ABS issued in shelf offerings are designed and prepared
with more oversight and care that make them appropriate to be issued
off a shelf, which we define as being ``shelf appropriate'' securities.
(a) Certification
    In the aftermath of the financial crisis, investors have expressed
concern that ABS issuers were creating securitization transactions that
could not support the scheduled payments due to investors.\55\ We are
concerned, in particular, that issuers were not adequately reviewing
the disclosure provided in the prospectus, examining the assets
included in the pool, and assessing the security structure and the
expected pool-asset cash flows. To address this concern, we are
adopting, as a shelf eligibility requirement, a certification by the
chief executive officer of the depositor at the time of each takedown
about the disclosures contained in the prospectus and the structure of
the securitization. We believe that a certification should cause the
chief executive officer to participate more extensively in the
oversight of the transaction. The certification will also provide
explicit evidence of the certifier's belief about the securitization at
the time of the takedown.
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    \55\ See, e.g., letters from Better Markets and Prudential I
(highlighting the problem with the ``originate-to-distribute'' model
where the focus is on whether the asset can be sold into a
securitization rather than on its likely long-term performance).
---------------------------------------------------------------------------

    We have made revisions to the certification in order to address
commenters' concerns about the certification constituting a guarantee
about future performance and possibly increased liability for
certifiers. To address commenters' concerns about certifier liability,
we have added a

paragraph to clarify that the certifier has any and all defenses
available under the securities laws.
(b) Asset Review Provision
    We have noted investors' concerns about the effectiveness of
contractual provisions related to the representations and warranties
about the pool assets and the lack of responsiveness by sponsors and
other parties to the transaction about potential breaches.\56\
Commenters shared this concern \57\ and, to address it, we are
requiring, as proposed that the relevant transaction agreements include
provisions providing for a review of the underlying assets for
compliance with the representations and warranties upon the occurrence
of certain post-securitization trigger events. The rule is designed to
address comments received related to the triggers and potential costs,
while at the same time balance the need for stronger mechanisms to
enforce underlying contract terms. Under the final rule, the agreements
must require a review, at a minimum, upon the occurrence of a two-
pronged trigger. The first prong of the trigger is the occurrence of a
specified percentage of delinquencies in the pool. If the delinquency
trigger is met, the second prong of the trigger is the direction of
investors by vote. The report of the reviewer's findings and
conclusions for all assets reviewed will be required to be provided to
the trustee in order for the trustee to determine whether a repurchase
request would be appropriate under the terms of the transaction
agreements, and a summary of the report must be included on the Form
10-D. We believe that this shelf requirement will address investors'
concerns about the enforceability of the representations and warranties
and also will incentivize the obligated parties to better consider the
disclosure, characteristics, and quality of the assets in the pool.
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    \56\ See Disclosure for Asset-Backed Securities Required by
Section 943 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Release No. 33-9175 (Jan. 20, 2011) [76 FR 4489,
4490] (the ``Section 943 Adopting Release''). We also note, for
example, that transaction agreements typically have not included
specific mechanisms to identify possible breaches of representations
and warranties or to resolve a question of whether a breach of the
representations and warranties has occurred.
    \57\ See footnotes 1050 and 1051.
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(c) Dispute Resolution
    As demonstrated by events surrounding the financial crisis,
investors have not only lacked an effective mechanism to identify
potential breaches of the representations and warranties, they have
also lacked a mechanism to require sponsors to address their repurchase
requests in a timely manner.\58\ We are requiring that the underlying
transaction agreements include a provision providing that, if an asset
subject to a repurchase request is not repurchased by the end of a 180-
day period beginning when notice is received, then the party submitting
such repurchase request would have the right to refer the matter, at
its discretion, to either mediation or third-party arbitration. Under
the final rule, the dispute resolution provision is a separate and
distinct shelf eligibility requirement; investors will be able to take
advantage of the dispute resolution provision regardless of whether
they had utilized the asset review process.
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    \58\ See Alex Ulam, Investors Try to Use Trustees as Wedge in
Mortgage Put-Back Fight, Am. Banker, June 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 & 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).
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(d) Investor Communication
    The aftermath of the financial crisis has demonstrated that
investors have also encountered difficulty in locating other investors
in order to enforce rights collectively under the terms of the ABS
transaction, especially those related to repurchase demands due to
breaches of the representations and warranties.\59\ Without an
effective means for investors to communicate with each other, investors
have told us that they are unable to utilize the contractual rights
provided in the underlying transaction agreements. To address this
concern, we are requiring as proposed that the underlying transaction
agreements must include a provision to require that a request by an
investor to communicate with other investors be included in ongoing
distribution reports filed on Form 10-D.
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    \59\ See Katy Burne, Banker's Latest Bet: Teamwork on Bonds,
Wall St. J., Jan. 22, 2013 (illustrating the difficulty that
investors encounter in attempting to communicate with one another
and noting one investor's efforts to locate other RMBS investors by
publishing advertisements in national newspapers).
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(e) Other Shelf Offering Provisions
    We are also adopting various other changes to the procedures and
forms related to shelf offerings substantially as proposed, with some
changes in response to comments, including:
     Limiting registration of continuous ABS shelf offerings to
``all or none offerings.''
     Eliminating Rule 415(a)(1)(vii) that provided shelf
eligibility to certain investment-grade mortgage related securities
regardless of the registration statement form.
     Permitting a pay-as-you-go registration fee alternative,
allowing ABS issuers to pay registration fees at the time of filing the
preliminary prospectus, as opposed to paying all registration fees
upfront at the time of filing the registration statement.
     Creating new Forms SF-1 and SF-3 for ABS issuers that will
replace the usage of current Forms S-1 and S-3 in order to delineate
between ABS filers and corporate filers and to tailor requirements for
ABS offerings.
     Eliminating the ABS investment-grade exemptive provision
in Rule 15c2-8(b) so that a broker or dealer will be required to
deliver a preliminary prospectus at least 48 hours before sending a
confirmation of sale.
     Revising the current practice of providing a base
prospectus and prospectus supplement for ABS issuers and instead
requiring that a single prospectus be filed for each takedown (except
that it would be permissible to highlight material changes from the
preliminary prospectus in a separate supplement to the preliminary
prospectus).
4. Other Changes to ABS Rules
    In addition to the prospectus disclosure changes and shelf
requirements, we are also adopting other changes related to ABS. For
example, we are adopting a revision to the prefunding exception
provided in the definition of ABS, which will decrease the prefunding
limit from 50% to 25% of the offering proceeds. Additionally, we are
adopting several changes to Forms 10-D, 10-K and 8-K.
5. Proposed Rules Not Being Adopted At This Time
    We are not adopting at this time, however, several rules that we
proposed in the 2010 ABS Proposing Release or the 2011 ABS Re-Proposing
Release. These proposals remain outstanding. They include:
     Requiring issuers to provide the same disclosure for Rule
144A offering as required for registered offerings;
     Making the general asset-level requirements applicable to
all asset classes and asset-class specific requirements for equipment
loans and leases, student loans, and floorplan financings;
     Requiring grouped-account disclosure for credit and charge
card ABS;

     Filing of a waterfall computer program of the contractual
cash flow provisions of the securities;
     Requiring the transaction documents, in substantially
final form, be filed by the date the preliminary prospectus is required
to be filed;
     Exempting ABS issuers from current requirements that the
depositor's principal accounting officer or controller sign the
registration statement and in lieu requiring an executive officer in
charge of securitization sign the registration statement; and
     Revising when pool disclosure must be updated on Form 8-K.

II. Economic Overview

    We are mindful of the economic consequences and effects, including
costs and benefits, of our rules, and we discuss them throughout this
release when we explain the new rules that we are adopting. Further,
Section 2(b) of the Securities Act \60\ and Section 3(f) of the
Exchange Act \61\ require the Commission, when engaging in rulemaking
that requires it to consider whether an action is necessary or
appropriate in the public interest, to consider, in addition to the
protection of investors, whether the action would promote efficiency,
competition, and capital formation. In addition, Section 23(a) of the
Exchange Act requires the Commission, when making rules and regulations
under the Exchange Act, to consider the impact a new rule would have on
competition.\62\ Section 23(a)(2) also prohibits the Commission from
adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act.\63\
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    \60\ 15 U.S.C. 77b(b).
    \61\ 15 U.S.C. 78c(f).
    \62\ 15 U.S.C. 78w(a).
    \63\ 15 U.S.C. 78w(a)(2).
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    To assess these economic consequences, we are using as our baseline
the ABS market as it exists at the end of 2013, including applicable
rules adopted by the Commission but excluding the rules adopted herein.
Because activity in the ABS market has changed due to the financial
crisis, we will refer to market statistics that encompass the pre-
crisis period, the crisis period, and the current period as appropriate
in order to provide a more comprehensive picture of the ABS market. To
the extent that certain amendments are mandated by statute, the
economic analysis considers the consequences and effects that stem from
statutory mandates, as well as those that are affected by the
discretion we exercise in implementing the mandates. We provide a
qualitative, and whenever possible quantitative, discussion of the
costs, benefits, and the effects on efficiency, competition, and
capital formation of individual rule provisions in the corresponding
sections of the release. We anticipate, however, that the elements of
the rules will interact with each other and also with other regulations
to generate combined economic effects. Thus, it is appropriate to
expand the analysis to include disparate elements of the rule. While we
make every reasonable attempt to quantify the economic impact of the
rules that we are adopting, we are unable to do so for several
components of the new rules due to the lack of available data.\64\ We
also recognize that several components of the new rules are designed to
change existing market practices and as a result, existing data may not
provide a basis to fully assess the rules' economic impact.
Specifically, the rules' effects will depend on how issuers, their
investors, and other parties to the transactions (e.g., trustees,
underwriters, and other parties that facilitate transactions between
issuers and investors) will adjust on a long-term basis to these new
rules and the resulting evolving conditions. The ways in which these
groups could adjust, and the associated effects, are complex and
interrelated and thus we are unable to predict them with specificity
nor are we able to quantify them at this time.
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    \64\ We note the lack of quantitative analysis provided by
commenters about the impact of the proposals on the market. Some
commenters did, however, provide us with some limited qualitative
descriptions of potential impacts, which we took into consideration
in adopting the final rules.
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    The new rules are designed to improve investor protections and
promote a more efficient asset-backed market. The new transaction
requirements for shelf eligibility should encourage ABS issuers to
design and prepare ABS offerings with greater oversight and care and
should incentivize issuers to provide investors with accurate and
complete information at the time of the offering. It is these
transactions that are appropriate to be offered to the public off a
shelf without prior staff review. The new requirements for more asset-
level information and more time for investors to review this
information will provide more disclosure and greater transparency about
the underlying assets. The effect of the increased disclosure on
competition, efficiency, and capital formation will depend, in part, on
the level of granularity and standardization of information currently
available and disclosed. The remaining changes to Regulation AB that we
are adopting are refinements to existing Regulation AB. We recognize
that these new and amended rules that we are adopting may impose costs
on asset-backed issuers, investors, servicers, and other transaction
participants and may affect competition, efficiency, and capital
formation. The effect of the refinements to existing Regulation AB will
depend, in part, on issuers' current methods to comply with the
existing rules. While we cannot predict or quantify precisely all
effects the new rules will have on competition, efficiency, and capital
formation, we believe that the rules we are adopting will improve the
asset-backed securities market.

A. Market Overview and Economic Baseline

    For many asset classes, the ABS market before the 2007-2009
financial crisis differed significantly from the one immediately after
the crisis, and even from our baseline, the market that exists today,
as illustrated in Figure 1. Private-label (non-U.S. agency) ABS issuers
held $2.6 trillion in assets in 2004, which grew to $4.5 trillion in
2007, and declined to $1.63 trillion in 2013.\65\ This distinction is
most stark in the case of private-label residential mortgage-backed
securities (``RMBS''), including home equity lines of credit. In 2004,
prior to the crisis, new issuances of registered private-label RMBS
totaled $746 billion.\66\ The overwhelming majority of private-label
RMBS deals issued before the crisis were registered offerings. In 2008,
registered private-label RMBS issuance drastically dropped to $12
billion. Today, the private-label RMBS market remains exceptionally
weak overall and consists

almost exclusively of unregistered RMBS offerings.\67\ For 2013, new
issuances of registered private-label RMBS totaled $4 billion, which
represents 0.54% of the issuance level in 2004. Similarly, a drop in
issuance level was evident with registered commercial mortgage-backed
securities (``CMBS''), which totaled $74 billion in 2004, declined to
$11 billion in 2008, and totaled $53 billion in 2013. The consumer
finance ABS market, including credit card and auto securitizations,
also declined drastically both in terms of number of deals and issuance
volume after the financial crisis. For example, $85 billion of Auto ABS
were issued in 2005, but after the crisis, in 2008, issuance plummeted
to $32 billion. Unlike RMBS, consumer finance ABS, especially Auto ABS,
has since 2008 steadily increased to $42 billion of issuance in 2011
and to $62 billion in 2013. Almost all ABS markets experienced historic
downturns following the crisis, and the recovery of these markets has
not been uniform.
BILLING CODE 8011-01-C
---------------------------------------------------------------------------

    \65\ See Federal Reserve Board, Financial Accounts of the United
States: Flow of Funds, Balance Sheets, and Integrated Macroeconomic
Accounts (published quarterly), available at http://www.federalreserve.gov/releases/z1/. Each report contains data for
the previous five years; data for earlier years can be accessed
through the Federal Reserve's Data Download Program, available at
http://www.federalreserve.gov/datadownload/Choose.aspx?rel=Z.1. We
use aggregate data for private mortgage pools, consumer credit,
business loans, student loans, consumer leases, and trade credit
securitization.
    \66\ The figure and statistics in this section are based on the
issuance data from AB Alert and CM Alert databases. The deals are
categorized by offering year, underlying asset type, and offering
type (SEC registered, Rule 144A, or traditional private offerings).
Private-label RMBS include residential, Alt-A, and subprime RMBS,
and ABS backed by home equity loans and lines of credit. Only
private-label (non-GSE) RMBS deals sold in the United States and
sponsors of such deals are counted. Auto loan ABS include ABS backed
by auto loans, both prime and subprime, motorcycle loans, truck
loans, and RV loans.
    \67\ As of December 2013, roughly 99% of new residential
mortgage-related securitizations were government sponsored (market
statistics from the Securities Industry and Financial Markets
Association (SIFMA)). See also Tracy Alloway, ``Private-Label
Mortgage Securities Take Root,'' Fin. Times (Feb. 22, 2013) (noting
a recent spurt in private-label RMBS issuances but also indicating
that the volume of private-label RMBS is likely to remain suppressed
for some time). The outstanding private-label RMBS market fell to
$1.1 trillion in the last quarter of 2013, down from $1.4 trillion
in 2011 and $2.3 trillion in 2007. See also Diana Olick, ``Why
Private Investors Are Staying Away From Mortgages,'' CNBC (Aug. 6,
2012) (citing lack of investor confidence in the quality and ratings
of RMBS).
[GRAPHIC] [TIFF OMITTED] TR24SE14.000

    The number of sponsors in the registered ABS markets has undergone
changes similar to the issuance activity described above. In 2004 there
were 131 sponsors of registered ABS, while currently there are 61
sponsors of registered ABS.\68\ The decline in the number of sponsors
is most dramatic in the RMBS segment where only a single sponsor of
private-label RMBS was issuing registered securities as of the end of
2013--down from 52 sponsors in 2004. In the RMBS market, private-label
RMBS issuers encounter competitive pressure from government-sponsored
enterprises, whose mortgage-backed securities are guaranteed and exempt
from registration and reporting requirements. As private-label issuance
has declined, issuance of agency RMBS has increased. Issuances of
Federal National Mortgage Association (``Fannie Mae''), Federal Home
Loan Mortgage Corporation (``Freddie Mac''), and Government National
Mortgage Association (``Ginnie Mae'') mortgage-related securities were
$1.4 trillion in 2004, and grew to $1.9 trillion in 2013.\69\
---------------------------------------------------------------------------

    \68\ For a description of the data, see footnote 66. The 2004
numbers in this release have been revised from those provided in the
2010 ABS Proposal to include CMBS sponsors from the CM Alert
database.
    \69\ See SIFMA, U.S. Mortgage-Related Issuance, available at
http://www.sifma.org/research/statistics.aspx.
---------------------------------------------------------------------------

    Many factors contributed to the financial crisis, including some
that involved mortgage-backed securities.\70\ The low interest rate
environment prior to the crisis drove investor demand for high-yield,
high-credit rated products, including mortgage-backed securities.\71\

Among the many factors relating to mortgage-backed securities that
contributed to the financial crisis, mortgage originators largely
exhausted the supply of traditional quality mortgages, and to keep up
with investor demand for mortgage-backed securities, subprime lending
became increasingly popular.\72\ During the crisis, as the default rate
for subprime mortgages soared, such securities, including those with
high credit ratings, lost value (up to 95% for triple-B rated and 70%
for triple-A rated subprime RMBS issued in 2006), making investors
reluctant to purchase these securities.\73\ Some of the decline in the
value began to reverse in 2010 as housing prices started to stabilize
and investors gained a better understanding of the mortgage
modification process. This reversal has been concentrated in the
subprime RMBS tranches that were highly rated. As indicated above,
activity in some parts of the ABS market continues to remain weak.
---------------------------------------------------------------------------

    \70\ A report by the U.S. Government Accountability Office
(``GAO'') noted that subprime and near-prime mortgages increased
dramatically in popularity during the 2000's, accounting for nearly
40% of mortgage originations by 2006. The high foreclosure and
default rates of these mortgages contributed precipitously to the
financial crisis. See U.S. Government Accountability Office,
Mortgage Reform: Potential Impacts of Provisions in the Dodd-Frank
Act on Homebuyers and the Mortgage Market (July 2011) at 11.
    \71\ See, e.g., Eamonn K. Moran, Wall Street Meets Main Street:
Understanding the Financial Crisis, N.C. Banking Inst. 7, 14 & 35
(2009) (``Low interest rates set by the Federal Reserve, as a
result, led to low returns on traditionally safe U.S. Treasury
bonds. Therefore, securitized investments, which yielded a premium
but many of which carried AAA-ratings even if the underlying
mortgages were dubious, were quite attractive to domestic and
foreign investors.'').
    \72\ See id. at 35 (noting ``voracious demand exhausted the
supply of prime mortgage loan securitizations and investment bankers
began seeking subprime mortgage loans to continue to generate
mortgage-backed securities'').
    \73\ See, e.g., Board of Governors of the Federal Reserve
System, Report to the Congress on Risk Retention, (Oct. 2010) at 50-
51 (discussing the dramatic drop in the triple-A and triple-B ABX.HE
2006-2 index).
---------------------------------------------------------------------------

B. Economic Motivations

    As described at the end of the previous section, during the
financial crisis, many securitizations performed exceptionally poorly
as investments. This has been attributed to the dual problems of moral
hazard and asymmetric information.\74\ In particular, many believe that
originators and securitizers have more information about the credit
quality and other relevant characteristics of the borrower than the
ultimate investors; for example, they may have been aware that the
underlying assets were of poor quality and, thus, presented greater
risks. This leads to a potential moral hazard problem--the situation
where one party (e.g., the loan originator or ABS sponsor) may have a
tendency to incur risks because another party (e.g., investors) will
bear the costs or burdens of these risks. Hence, when there are
inadequate processes in place to encourage (or require) sufficient
transparency to overcome concerns about informational differences, the
securitization process could lead certain participants to maximize
their own welfare and interests at the expense of other participants.
Before and during the crisis, information regarding the quality of the
underlying assets was not generally known by investors, and certain
originators and sponsors were frequently able to transfer the financial
consequences of poor origination decisions by packaging the assets in
complex and often opaque securitization structures.\75\ The incentives
to maintain opacity were particularly acute for those securitizations
where the originator and securitizer received full compensation for
their services before investors could become informed about the loan
quality of the underlying pool.\76\
---------------------------------------------------------------------------

    \74\ See, Adam B. Ashcraft & Til Schuermann, Understanding the
Securitization of Subprime Mortgage Credit (Staff Report, Fed.
Reserve Bank of N.Y., Working Paper No. 318, 2008) (identifying at
least seven different frictions in the residential mortgage
securitization chain that can cause agency and adverse selection
problems in a securitization transaction and explaining that given
that there are many different parties in a securitization, each with
differing economic interests and incentives, the overarching
friction that creates all other problems at every step in the
securitization process is asymmetric information).
    \75\ See, e.g., Chris Downing, Dwight Jaffee & Nancy Wallace, Is
the Market for Mortgage-Backed Securities a Market for Lemons?,
22(7) Rev. Fin. Stud. 2457-94 (2009) (stating that the quality of
the assets sold to investors through securitizations is lower than
the quality of similar assets that are not sold to investors);
Amiyatosh Purnanandam, Originate-to-Distribute Model and the
Subprime Mortgage Crisis, 24(6) Rev. Fin. Stud. 1881-1915 (2011)
(stating that banks with high involvement in the originate-to-
distribute market originated excessively poor-quality mortgages and
noting that this evidence is consistent with the view that the
originating banks did not expend resources to adequately screen the
quality of their borrowers).
    \76\ See also Section C.2.b. Broad Economic Considerations of
the Credit Risk Retention, Release No. 34-70277 (Aug. 28, 2013) [78
FR 57928] (the ``2013 Risk Retention Re-Proposing Release'').
---------------------------------------------------------------------------

    At that time, many investors unduly relied upon the major credit
rating agencies for credit analysis of these structures rather than
conducting their own due diligence, and these agencies often failed to
accurately evaluate and rate the securitization structures.\77\ Many
observers believe that inflated and inaccurate credit ratings
contributed to the financial crisis in a significant way.\78\
Investment in securitizations has diminished substantially since the
financial crisis, in part, because investors have significantly less
trust that incentives are properly aligned among originators,
securitizers, independent evaluators (rating agencies), and
investors.\79\
---------------------------------------------------------------------------

    \77\ See footnotes 30, 31 and 52.
    \78\ Observers identified several weaknesses in the credit
rating process, which in many instances contributed to inaccurate
ratings and were made apparent in the aftermath of the financial
crisis. One of the weaknesses is the availability of ratings
shopping, whereby issuers can request and privately observe multiple
ratings and then choose to disclose publicly only the most
favorable. Complex assets that are difficult to rate and that are
likely to generate differences in ratings can create incentives for
issuers to shop for ratings and disclose only those ratings that are
high. Competition among credit rating agencies can exacerbate the
problem, by providing rating agencies with incentive to compete for
business through favorable ratings and providing issuers with
options to choose among the rating agencies--commonly referred to as
a race to the bottom. As a result of these weaknesses in the credit
rating process, overreliance on credit ratings of complex or
potentially opaque assets, such as in the case with asset-backed
securities, can lead to excess investment with poor risk/return
characteristics. See, e.g., Nat'l Comm'n on the Causes of the Fin.
and Econ. Crisis in the U.S., The Financial Crisis Inquiry Report
xxv, 43-44 (2011) (``Participants in the securitization industry
realized that they needed to secure favorable credit ratings in
order to sell structured products to investors. Investment banks
therefore paid handsome fees to the ratings agencies to obtain the
desired ratings.''); Vasiliki Skreta & Laura Veldkamp, Ratings
Shopping and Asset Complexity: A Theory of Ratings Inflation, 56 J.
Monetary Econ. 678-95 (2009); Bo Becker & Todd Milbourn, How Did
Increased Competition Affect Credit Ratings?, 101 J. Fin. Econ. 493-
514 (2011); John Griffin & Dragon Tang, Did Subjectivity Play a Role
in CDO Credit Ratings?, 67(4) J. Fin. 1293-1328 (2012).
    \79\ Adam B. Ashcraft & Til Schuermann, Understanding the
Securitization of Subprime Mortgage Credit (Staff Report, Fed.
Reserve Bank of N.Y., Working Paper No. 318, 2008) (discussing the
ways that market participants work to minimize informational
frictions that arise among and between the different participants in
the securitization process and providing thoughts and evidence on
how this process broke down during the financial crisis); Joshua
Coval, Jakub Jurek & Erik Stafford, The Economics of Structured
Finance, 23(1) J. Econ. Persp. 3-25 (2009) (providing a detailed
assessment of the relative importance of rating agency errors,
investor credulity, and perverse incentives and suspect behavior on
the part of issuers, rating agencies, and borrowers).
---------------------------------------------------------------------------

    The rules we are adopting apply to private-label RMBS
securitizations, and do not apply to Government Sponsored Entities
(GSEs) such as Fannie Mae and Freddie Mac, whose principal and interest
on issued securities is currently guaranteed, while the GSEs remain in
conservatorship,\80\ and otherwise may be perceived by market
participants to carry an implicit guarantee.\81\ Private-label RMBS
securitizations are not guaranteed by the federal government and had a
much higher serious delinquency rate than GSE-purchased

loans, even after accounting for different underlying loan
characteristics.\82\ This historical performance-based evidence
suggests that GSE underwriting standards offset the incentive to incur
excess risk because of their capital support, at least in relation to
the private-label securitizers that did not have such capital support.
In particular, GSE purchased loans were six times less likely to
default than private-label loans with similar characteristics.\83\ The
focus of the final rules is on private-label securitizations, which is
the segment of the market where investors are more likely to experience
losses.
---------------------------------------------------------------------------

    \80\ In September 2008, Fannie Mae and Freddie Mac agreed to be
placed under direct government control, through conservatorship.
    \81\ N. Eric Weiss, Cong. Research Serv., R40800, GSEs and the
Government's Role in Housing Finance: Issues for the 113th Congress
(2013). For the estimates of the value of the implicit government
guarantee, see Wayne Passmore, The GSE Implicit Subsidy and the
Value of Government Ambiguity, 33(3) Real Est. Econ. 465-86 (2005)
(finding that GSE shareholders benefit substantially from the
ambiguous government relationship, largely due to the fact that
purchasers of the GSEs' debt securities believe the debt is
implicitly backed by the U.S. government (despite the lack of a
legal basis for such a belief)); Deborah Lucas & Robert McDonald,
Valuing Government Guarantees: Fannie and Freddie Revisited, in
Measuring and Managing Federal Financial Risk 131-154 (Deborah
Lucas, ed., Univ. of Chicago Press, Feb. 2010) (2010) (estimating
the value of the implicit guarantee on GSEs' debt issues to be
approximately $28 billion).
    \82\ See Joshua White & Scott Bauguess, Qualified Residential
Mortgage: Background Data Analysis on Credit Risk Retention,
Division of Economic and Risk Analysis, U.S. Securities and Exchange
Commission (Aug. 2013) (the ``White-Bauguess Study''), available at
http://www.sec.gov/divisions/riskfin/whitepapers/qrm-analysis-08-2013.pdf.
    \83\ Id.
---------------------------------------------------------------------------

    We note that the rules are intended to increase transparency about
the potential risks in the ABS market through greater loan-level
disclosure and to provide additional recourse for investors when issues
arise, thus providing better tools for investors to evaluate their
capital allocation decisions. These measures should lessen the risk of
overreliance on credit ratings as investors will now be able to conduct
their own due diligence using more transparent and fuller disclosures
regarding the assets underlying a securitization. Disclosure of higher
quality and more complete data regarding the loan characteristics of
the underlying collateral should result in better capital allocation
decisions, improved capital formation and, ultimately, lower capital
costs by making the markets more informationally-efficient.
    One key objective of the final rules is to eliminate the reliance
on credit ratings in the determination of shelf eligibility of asset-
backed securities. Replacing the investment-grade rating requirement
for the purposes of shelf eligibility may result in securitizers
finding it uneconomic or unnecessary to obtain credit ratings for their
securitizations, thus lowering the demand for the services of third-
party evaluators. The rules do not, however, preclude investors from
utilizing credit ratings in their investment analysis and decision-
making, and asset-backed securities issuers are not prohibited from
having their offerings rated. Thus, if there is sufficient demand for
ratings due to a perception of value in the ratings, then securitizers
may continue to obtain ratings and credit rating agencies would suffer
a relatively small decrease in the demand for their ratings services.
    The rules we are adopting are designed to work with other
regulations to provide additional disclosures, further align incentives
in the securitization market, and restore confidence in the ABS market.
Specifically, Section 941(b) of the Dodd-Frank Act requires regulations
that mandate that certain securitizers have ``skin in the game''
through the retention of a meaningful risk exposure in securitizations
(at least a 5% economic loss exposure).\84\ The requirement that
securitizers hold risk exposure is likely to affect their decisions
regarding the quality of assets to include in such structures. While we
expect that the risk retention rules required by the Dodd-Frank Act,
when adopted, will result in better underwriting practices, we believe
that further regulation is necessary to align incentives and facilitate
credit evaluation in the securitization market.\85\
---------------------------------------------------------------------------

    \84\ See 15 U.S.C. 78o-11(b), (c)(1)(A) and (c)(1)(B)(ii). See
also Credit Risk Retention, Release No. 34-64148 (Mar. 30, 2011) [76
FR 24090] (the ``2011 Risk Retention Proposing Release'') and the
2013 Risk Retention Re-Proposing Release (both proposed to implement
the Dodd-Frank requirement).
    \85\ We also continue to separately consider the comments
received in connection with the proposal to implement the
prohibition under Section 621 of the Dodd-Frank Act on material
conflicts of interest in connection with certain securitizations.
See Prohibition Against Conflicts of Interest in Certain
Securitizations, Release No. 65355 (Sept. 19, 2011) [76 FR 60320]
(the ``ABS Conflicts Proposal'').
---------------------------------------------------------------------------

    In summary, the amendments to our regulations and forms for asset-
backed securities are designed to enhance investor protection by
reducing the likelihood of overreliance on ratings and increasing
transparency to market participants.

C. Potential Effects on the ABS Market

    We believe that these amendments will work together to also improve
investors' willingness to invest in asset-backed securities and to help
the recovery in the ABS market with attendant positive effects on
informational and allocative efficiency, competition, and the level of
capital formation. Enhanced ABS disclosures and the potential for
improved pricing accuracy of the ABS market should ultimately benefit
issuers in the form of a lower cost of capital and increased investor
participation. We expect that increased transparency in the market and
more certainty about the quality of underlying assets should result in
lower required yields, and a larger number of investors should be
willing to participate in the market because of reduced uncertainty and
risk. This, in turn, would allow originators to conserve costly capital
and to diversify credit risks among many investors. Further, we believe
that credit risk transfer will result in greater efficiency in the
lending decisions of originators, the lowering of credit costs, and
ultimately greater capital availability through higher loan levels.\86\
---------------------------------------------------------------------------

    \86\ See, e.g., Darrell Duffie, Innovations in Credit Risk
Transfer: Implications for Financial Stability (Bank for Int'l
Settlements Working Paper No. 255, 2008), available at http://www.bis.org/publ/work255.pdf (stating that innovation in credit risk
transfer through security design (such as ABS) increase the
liquidity of credit markets, lowers credit risk premia, allows for
the efficient distribution of risk among investors, and offers
investors an improved menu and supply of assets and hedging
opportunities); A. Sinan Cebenoyan & Philip E. Strahan, Risk
Management, Capital Structure and Lending at Banks, 28(1) J. Banking
& Fin. 19-43 (2004) (finding that increasingly sophisticated risk
management practices (through activities such as loan sales) in
banking are likely to improve the availability of bank credit, but
are unlikely to reduce bank risk); Benedikt Goderis, Ian W. Marsh,
Judit Vall Castello & Wolf Wagner, Bank Behavior with Access to
Credit Risk Transfer Markets (Oct. 2006) (unpublished manuscript)
(finding that banks that adopt advanced credit risk management
techniques (measured in their study by the issuance of at least one
collateralized loan obligation) experience a permanent increase in
their target loan levels of around 50%, and interpreting their
findings as a confirmation of the general efficiency enhancing
implications of new risk management techniques).
---------------------------------------------------------------------------

    Asset-level disclosure requirements will provide information about
underlying asset quality that was not consistently available to
investors prior to these rules. The new rules also standardize the
reporting of asset-level information, thus lowering the cost of
acquiring information and search costs for investors. The disclosure
and the reduction in search costs should directly increase the
transparency of the market and, thus, the informational efficiency in
pricing ABS, both in the primary and secondary markets. This should
lead to increased investor participation and more efficient allocation
of capital.
    There are important benefits to issuers from heightened disclosures
of a structured finance asset base. In the absence of adequate
information about the quality of assets in the ABS structure, as was
the case in the RMBS market leading up to the start of the financial
crisis, the market for structured products may break down.\87\ The
continuing problems in the CMBS

and RMBS markets may be an extended manifestation of this problem.\88\
Investors that previously (and erroneously) relied on credit rating
agencies to mitigate the informational asymmetry problem about asset
quality can avail themselves of improved disclosures that allow them to
conduct their own due diligence on an issuer's structured product. This
will benefit issuers of high quality ABS because if investors are
better able to independently verify the quality of and value underlying
assets, they will be better able to distinguish high quality ABS
issuers from other issuers, where otherwise the distinction between
different types of issuers' disclosures would be obfuscated because the
quality of the underlying ABS assets could not be verified. This
differentiation between good and bad quality issuers would also lead to
more efficient allocation of capital.
---------------------------------------------------------------------------

    \87\ This is commonly referred to as the ``lemons problem.''
See, e.g., George A. Akerlof, The Market for ``Lemons'': Quality
Uncertainty and the Market Mechanism, 84 Q. J. Econ. 488-500 (1970)
(discussing the difficulty of distinguishing good quality from bad
quality in the business world and suggesting that many economic
phenomena may be explained and understood as a response to the
demand for the need to distinguish).
    \88\ See Figure 1 in Section II.A Market Overview and Economic
Baseline and accompanying discussion (noting that the RMBS and CMBS
markets have not recovered since the crisis, whereas the issuance of
consumer finance ABS, especially Auto ABS, has steadily increased in
the recent years and almost reached the pre-crisis levels).
---------------------------------------------------------------------------

    Another consequence of the final rules is the increase in
availability of capital through the potential expansion of the set of
ABS eligible for shelf registration. A larger set of ABS will be
eligible for shelf registration if they meet the new shelf eligibility
requirements, namely, non-investment grade ABS tranches that were not
eligible before. This may result in greater credit availability to
issuers of non-investment grade ABS that would have otherwise been
difficult or more costly to obtain.

D. Potential Market Participants' Responses

    We recognize that the final rules may have direct and indirect
economic impacts on various market participants. Importantly, as noted
above, the market practices of participants are likely to evolve in
response to the final rules. While we lack the ability to predict those
effects with certainty, we qualitatively consider some of the potential
effects of these rules by discussing the trade-offs various market
participants may face when complying with these rules.
    Most of the direct costs of these rules fall onto the sponsors of
ABS, since they will initially bear any increased costs of compliance
and implementation of the new requirements; however, there is some
uncertainty surrounding who will ultimately bear these direct
compliance costs. Depending on market conditions, the degree of
competition at different levels of the securitization chain, and the
availability of other forms of credit, the sponsors may attempt to pass
some or all of these costs on to other market participants.
    One way in which the sponsors may elect to pass costs to market
participants is through lower returns paid to investors in
securitizations. Promised returns to investors will typically depend on
the costs of creating and maintaining the securitized credit structure,
including new costs associated with compliance. If investors are
willing to absorb some or all of these costs and yet still expect to
receive an acceptable risk-adjusted return on their investment, then
investor returns could be lower on these investments than in the past.
How much of the higher costs sponsors can realistically pass through to
investors will depend on the risk and return opportunities available
from other similar investments in the market.
    We also recognize that some of the new asset-level disclosure and
shelf registration costs may be passed down the chain of securitization
and ultimately to borrowers. In particular, and in the short term when
new reporting and data handling systems have to be developed, borrowers
may ultimately bear higher credit costs to compensate sponsors for
these increased compliance costs. The ability to pass costs on to
borrowers will be constrained by competition from lenders that do not
securitize in the registered market. If the costs of compliance are
significant, the competitive position of firms that are subject to the
requirements of the final rules and that rely on securitization in the
public market for funding, in particular through shelf registrations,
could weaken relative to other financial firms that are not subject to
these requirements, or that have other sources of funding.
    If asset-backed issuers are unable to pass along their shelf
registration costs as described above, and thus bear all or most of
these new costs, then they might choose to avoid the shelf registration
process by registering their ABS on Form SF-1 or they might choose to
bypass registration altogether and issue through unregistered offerings
instead to avoid the new shelf registration costs. Similarly, if asset-
backed issuers are unable to pass along the costs incurred to provide
asset-level disclosure (for those asset classes subject to it), then
they may issue through unregistered offerings. Such actions could have
the effect of reducing efficiency and could impede capital formation;
however, there are reasons to believe that some investors may support
the market for registered ABS despite additional costs. First, because
the prospectus disclosure requirements are the same for both types of
registered offerings, a shift from shelf-registration to non-shelf-
registration may occur only due to the new shelf registration costs,
and the shift would be constrained by the speed and convenience of
shelf takedowns. Moreover, the reallocation of newly issued registered
ABS between shelf- and non-shelf registration should not have a
substantial effect on capital formation as long as new and existing
issuers of registered ABS choose to or continue to choose to issue
registered ABS (and accordingly provide the same disclosures). Second,
not all investors satisfy the criteria of qualified institutional
buyers (``QIBs'') under Rule 144A,\89\ and, although such investors
might be interested in investing in Rule 144A ABS, they would not be
able to do so due to inability to qualify to participate in that
market. To the extent that this segment of the investor base is
sufficiently large, ABS issuers might experience substantial demand for
their securities from investors that are not qualified to invest in
unregistered offerings. Such demand would reduce the cost of capital
for public ABS issuers, creating incentives to issue through registered
rather than unregistered offerings. Third, since the final rule applies
to registered offerings of ABS, to the extent that there are investors
willing to pay (in the form of a reduced yield) for the resolution of
uncertainty regarding the asset pool quality and reduced risk of
investments, there again may be a substantial enough demand to fund ABS
in the registered market. Thus, we believe that the shift from the
registered ABS segment to other market segments should not be
substantial. The potential expansion of the registered ABS market and
wider investor participation discussed previously in this section
should allow ABS sponsors to recoup some of the costs introduced by
these rules and, thus, should increase the attractiveness of issuing
ABS through registered offerings as opposed to through unregistered
offerings.
---------------------------------------------------------------------------

    \89\ The term ``qualified institutional buyer'' is defined in
Rule 144A(a)(1) [17 CFR 230.144A(a)(1)] and includes specified
institutions that, in the aggregate, own and invest on a
discretionary basis at least $100 million in securities of issuers
that are not affiliated with such institutions. Banks and other
specified financial institutions must also have a net worth of at
least $25 million. A registered broker-dealer qualifies as a QIB if
it, in the aggregate, owns and invests on a discretionary basis at
least $10 million in securities of issuers that are not affiliated
with the broker-dealer.

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

    The enhancement of registered transactions could potentially reduce
the degree to which credit is intermediated by banks.\90\ In
particular, greater availability of credit for borrowers through
securitizations may result in less reliance on traditional bank loans
and greater reliance on other financial intermediation mechanisms. This
is especially likely to happen if and when the new capital and
liquidity requirements (Basel III) result in an increase in the
regulatory capital costs for financial institutions subject to
regulatory capital and liquidity requirements.
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    \90\ See Darrell Duffie, Innovations in Credit Risk Transfer:
Implications for Financial Stability (Bank for Int'l Settlements
Working Paper No. 255, 2008), available at http://www.bis.org/publ/work255.pdf (observing that financial innovations, such as ABS,
designed for more efficient credit risk transfer, have facilitated a
reduction in the degree to which credit is intermediated by banks).
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    One potential source of competition for private-label securitizers
impacted by these rules is the GSEs in the mortgage market. As
previously mentioned, the principal and interest on GSE-issued
securities is currently guaranteed, while the GSEs are in
conservatorship. Even upon resolution of their current status, their
congressional charter and past government intervention will likely
perpetuate a widely held view of an implicit federal guarantee of their
securities.\91\ This explicit or future implicit government support
provides a competitive advantage over private-label securitizers
through lower funding costs. In addition to this cost of capital
advantage, GSEs will not be subject to these new rules and the costs
associated with the enhanced disclosure rules,\92\ which as we
previously discussed are less relevant to investors of GSE securities
because of the government support in the event of credit problems.
Thus, to the extent that the adopted rules impose additional costs on
securitizers, their offerings will either not be as competitive as
those of the GSEs or potentially be crowded out of the market
altogether.
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    \91\ See footnote 81.
    \92\ MBS issued by these GSE's and Ginnie Mae have been and
continue to be exempt from registration under the Securities Act and
most provisions of the federal securities laws. For example, Ginnie
Mae guarantees are exempt securities under Section 3(a)(2) of the
Securities Act (15 U.S.C. 77c(a)(2)) and Section 3(a)(12) of the
Exchange Act (15 U.S.C. 78c(a)(12)). The chartering legislation for
Fannie Mae and Freddie Mac contain exemptions with respect to those
entities. See 12 U.S.C. 1723c and 12 U.S.C. 1455g.
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    The current federal guarantee of mortgage-backed securities issued
by GSEs (and/or the market perception of an implicit guarantee) may
explain why, among all the securitized asset categories impacted by the
financial crisis, the private-label RMBS and CMBS have been the slowest
to regain volume.\93\ Thus, while the rules we are adopting are
intended to create transparency in the market for private-label
securitizations, the additional costs imposed on securitizers may be
sufficiently large that, at least as long as the GSEs remain in federal
government conservatorship, the cost differences between GSE and
private-label securitizations may remain large enough to discourage
substantial investment through the latter channel.\94\ Longer-term, the
competitiveness of private-label securitizations may depend as much on
the ultimate fate of the GSEs as on the effectiveness of the rules we
adopt.
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    \93\ See Figure 1 in Section II.A Market Overview and Economic
Baseline and accompanying discussion.
    \94\ Even though the GSEs currently collect and disseminate
asset-level information to the public (as discussed in Section
III.A.1 Background and Economic Baseline for the Asset-Level
Disclosure Requirement), the disclosure regime for GSEs would not
change as a result of adopting these rules. Accordingly, the costs
that GSEs incur due to their current asset-level disclosures will
not change, and the GSEs will likely benefit from the cost advantage
over private-label ABS issuers introduced by the rules being
adopted.
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III. Asset-Level Disclosure

    We are adopting a requirement for standardized asset-level
disclosures for ABS where the underlying assets consist of residential
mortgages, commercial mortgages, auto loans, auto leases, and
resecuritizations of ABS that include these asset types or of debt
securities. The disclosure is required to be provided in a standardized
tagged XML format. We are also adopting many of the proposed
refinements to other disclosure requirements. At this time, we are not
adopting our proposal for other asset classes.

A. Asset-Level Disclosure Requirement

1. Background and Economic Baseline for the Asset-Level Disclosure
Requirement
    Prior to these amendments, the Commission had not historically
required the disclosure of asset-level data. Instead, issuers were only
required to provide information about the composition and
characteristics of the asset pool, tailored to the asset type and asset
pool involved for the particular offering.\95\ In the past, some
transaction agreements for securitizations required issuers to provide
investors with asset-level information, or information on each asset in
the pool backing the securities, but generally there was no mandatory
regulatory requirement that asset-level data be provided.\96\
Furthermore, such information was generally not standardized or
required to be standardized.
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    \95\ See Item 1111 of Regulation AB [17 CFR 229.1111].
    \96\ Under Item 1111(b)(9) of Regulation AB [17 CFR
229.1111(b)(9)] as it existed prior to this adoption, if the asset
pool included commercial mortgages, certain non-standardized asset-
level information about the properties underlying the mortgage was
required for all commercial mortgages to the extent material.
Further, for each commercial mortgage that represented, by dollar
value, 10% or more of the asset pool, as measured as of the cut-off
date, additional non-standardized asset-level information about the
properties was required.
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    Many investors and other participants in the securitization market
did not previously have sufficient time and information to be able to
understand the risks underlying the ABS and were not able to value the
ABS accordingly.\97\ This lack of understanding and the extent to which
it impacted the U.S. and global economies prompted us to revisit
several aspects of our regulation of ABS, including the information
available to investors. This review led us to determine that investors
need access to more robust and standardized information about the
assets underlying a particular ABS in order to allow them to make
informed investment decisions. To accomplish this, we proposed in the
2010 ABS Proposing Release several changes to the disclosure
requirements in Regulation AB including, subject to certain exceptions,
a new requirement that issuers provide asset-level information about
each asset in the pool backing the ABS. The asset-level data
requirements were proposed to apply to all asset types, except ABS
backed by credit cards, charge cards and stranded costs. For ABS backed
by credit or charge card receivables, we proposed that issuers provide
standardized grouped-account disclosures about the underlying asset
pool instead of asset-level disclosures. Taken together, we believed
these disclosures would provide robust data about each ABS, which would
allow investors to analyze for each securitization transaction, at the
time of inception and over the life of a security, the characteristics
of each asset, including the collateral supporting each asset and the
cash flows derived from each asset in the transaction.
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    \97\ See footnotes 40 and 44.
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    Subsequent to the 2010 ABS Proposing Release, Congress passed the
Dodd-Frank Act. Section 942(b) of the Dodd-Frank Act added Section 7(c)
to the Securities Act, which requires, in relevant part, that the
Commission adopt regulations requiring an issuer of

an asset-backed security to disclose, for each tranche or class of
security, information regarding the assets backing that security,
including asset-level or loan-level data, if such data is necessary for
investors to independently perform due diligence.\98\ In July 2011, we
re-proposed some of the rules proposed in the 2010 ABS Proposing
Release in light of the provisions added by the Dodd-Frank Act and
comments received on our 2010 ABS Proposals. In the 2011 ABS Re-
Proposing Release, we requested comment on whether the asset-level
disclosure requirements proposed in the 2010 ABS Proposals implemented
Section 7(c) effectively and whether there were any changes or
additions that would better implement Section 7(c). The Commission also
requested comment on whether certain asset-level disclosures enumerated
in Section 7(c) are necessary for investor due diligence.\99\
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    \98\ See Section 7(c) of the Securities Act [15 U.S.C. 77g(c)].
Section 7(c) also requires, among other things, that we set
standards for the format of the data provided by issuers of an
asset-backed security, which shall, to the extent feasible
facilitate the comparison of such data across securities in similar
types of asset classes.
    \99\ In particular, the 2011 ABS Re-Proposing Release requested
comment on whether asset-level disclosures of unique identifiers for
loan brokers and originators, broker and originator compensation and
the risk retention held by the originator and the sponsor are
necessary for investor due diligence. As noted below, in general,
most commenters did not believe those particular asset-level
disclosures were necessary for investor due diligence.
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    We received comments on the potential privacy implications of the
proposed asset-level data requirements, including comments suggesting
that the required asset-level information be provided by means other
than public dissemination on the Commission's Electronic Data
Gathering, Analysis, and Retrieval system (``EDGAR'').\100\ In light of
the privacy concerns about the proposed asset-level requirements, we
re-opened the comment period on the 2010 ABS Proposals and the 2011 ABS
Re-Proposals in February 2014 to permit interested persons to comment
on an approach for the dissemination of asset-level data, which was
described in the 2014 Staff Memorandum. The 2014 Staff Memorandum
summarized the comments that had been received related to potential
privacy concerns and outlined an approach that would require issuers to
make asset-level information available to investors and potential
investors through an issuer-sponsored Web site rather than having
issuers file and make all of the information publicly available on
EDGAR (the ``Web site approach''). The Web site approach noted various
ways in which issuers could address potential privacy concerns
associated with the disclosure of asset-level information, including
through restricting Web site access to such information.
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    \100\ See letters from Ally Financial Inc., et al dated Aug. 2,
2010 submitted in response to the 2010 ABS Proposing Release
(``VABSS I''), Ally Financial Inc. et al dated Oct. 13, 2011
submitted in response to the 2011 ABS Re-Proposing Release (``VABSS
III''), and Ally Financial Inc. et al dated Aug. 3, 2012 submitted
in response to the 2011 ABS Re-Proposing Release (``VABSS IV'')
(urging the Commission ``to consider whether loan-level data (or
even grouped data) needs to be made publicly available or could be
made available to investors and other legitimate users in a more
limited manner, such as through a limited access Web site''). See
also letters from Consumer Data Industry Association dated Aug. 2,
2010 submitted in response to the 2010 ABS Proposing Release
(``CDIA'') (suggesting that the Commission require parties that want
to access the data on EDGAR register to use the data, acknowledge
the sensitive nature of the data and agree to maintain its
confidentiality) and Epicurus Institute dated Aug. 1, 2010 submitted
in response to the 2010 ABS Proposing Release (``Epicurus'')
(stating that they believe ``that the prospectus should contain a
hypertext link (with instructions for accessing a Web site to obtain
the data) . . . [and only] prospective investors should have
traceable access to the data, and that they never have the
opportunity to download . . . raw data in any format'').
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    To assess the economic consequences of these asset-level disclosure
requirements, we are using as our baseline the ABS market as it existed
at the end of 2013. Today, we note that for some types of ABS, issuers
have begun or have continued to provide asset-level data. For instance,
some registered RMBS issuers before the financial crisis provided
asset-level disclosures, although the disclosures were not
standardized. Since then, there have been a limited number of
registered RMBS transactions. Those transactions have provided asset-
level disclosures pursuant to recently developed industry
standards.\101\ Further, sellers of mortgage loans to Fannie Mae and
Freddie Mac are required to deliver certain asset-level data in a
standardized electronic form.\102\ In turn, Fannie Mae and Freddie Mac
provide investors loan-level disclosures about the assets underlying
their securitizations.\103\ For CMBS, we note that issuers commonly
provide investors with asset-level disclosures at the time of
securitization and on an ongoing basis pursuant to industry developed
standards.\104\ For other asset classes, we remain unaware of any
publicly available data standards or instances where issuers have
provided asset-level data.
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    \101\ Since 2010, only one sponsor has been publicly issuing
private-label RMBS. This issuer has disclosed at the time of
securitization asset-level data about the assets underlying the RMBS
in a format developed by the American Securitization Forum (ASF).
The ASF Project on Residential Securitization Transparency and
Reporting (``Project RESTART'') published a disclosure and reporting
package for residential mortgage-backed securities. See American
Securitization Forum RMBS Disclosure and Reporting Package Final
Release (July 15, 2009), available at http://www.americansecuritization.com/. ASF is a securitization trade
association that represents issuers, investors, financial
intermediaries, rating agencies, legal and accounting firms,
trustees, servicers, guarantors, and other market participants.
    \102\ See Fannie Mae Uniform Loan Delivery Dataset available at
https://www.fanniemae.com/singlefamily/uniform-loan-delivery-dataset-uldd. See also Freddie Mac Uniform Loan Delivery Dataset
available at http://www.freddiemac.com/singlefamily/sell/
uniformdelivery.html.
    \103\ See Section III.A.2.b)(1) Residential Mortgage-Backed
Securities for a discussion of loan-level disclosures provided by
Fannie Mae and Freddie Mac.
    \104\ The CRE Finance Council's Investor Reporting Package
includes data points on loan, property and bond-level information
for CMBS at issuance and while the securities are outstanding.
Materials related to the CRE Finance Council Investor Reporting
Package are available at http://www.crefc.org/. The CRE Finance
Council is a trade organization for the commercial real estate
finance industry.
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    We also note that prudential regulators in other jurisdictions
require asset-level data about certain ABS in certain instances. For
instance, the European Central Bank requires asset-level information
for ABS accepted as collateral in the Eurosystem credit
operations.\105\ Additionally, the Bank of England requires that asset-
level information be provided for certain ABS submitted as collateral
against transactions with the Bank of England.\106\ Some asset-level
data is available today through third-party data providers who collect
asset-level information about agency and non-agency mortgage loans and
provide, for a fee, access to the data.\107\ In addition, many third-
party data providers have

developed products to analyze and model asset-level data.\108\
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    \105\ See details about the European Central Bank's loan-level
for ABS accepted as collateral in Eurosystem credit operations
available at http://www.ecb.europa.eu/paym/coll/loanlevel/html/index.en.html.
    \106\ See the market notices from the Bank of England discussing
its eligibility requirements for RMBS and covered bonds backed by
residential mortgages, CMBS, small-medium enterprise loan backed
securities and asset-backed commercial paper, and asset-backed
securities backed by consumer loans, auto loans, and leases that are
delivered as collateral against transactions in the Bank's
operations at: http://www.bankofengland.co.uk/markets/Documents/marketnotice121002abs.pdf, http://www.bankofengland.co.uk/markets/Documents/marketnotice111220.pdf, and http://www.bankofengland.co.uk/markets/Documents/marketnotice121217.pdf.
    \107\ See, e.g., Blackbox Logic (providing RMBS loan-level data
aggregation and processing services allowing clients to analyze both
current and historical RMBS trends), http://www.bbxlogic.com/, Core
Logic (providing data and analytic services), http://www.corelogic.com/, LPS McDash Online (providing access to loan-
level data), http://www.lpsvcs.com/Products/CapitalMarkets/LoanData/Products/Pages/McDashOnline.aspx and Lewtan (providing data and
analytic services), http://www.lewtan.com/.
    \108\ See, e.g., Experian Credit Horizons (providing products to
analyze consumer mortgage and non-mortgage assets), https://www.experian.com/capital-markets/credithorizons-product.html and
Kroll Factual Data (providing data on credit, income collateral,
employment, etc.), http://www.krollfactualdata.com/Industry/Lending/Mortgage.
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    After considering the comments received, the ABS market and the
availability and use of asset-level data regarding ABS as they exist
today, we are adopting, with modifications, the proposed asset-level
disclosure requirements for ABS where the underlying assets consist of
residential mortgages, commercial mortgages, auto loans or auto leases,
resecuritizations of ABS that include these asset types, or of debt
securities.\109\ We provide detail on the final rules below.
---------------------------------------------------------------------------

    \109\ In the 2010 ABS Proposing Release, the debt security asset
class was categorized as ``Corporate Debt.''
---------------------------------------------------------------------------

    As noted above, the proposed asset-level data requirements were to
apply to all asset types, except ABS backed by credit cards, charge
cards and stranded costs. For ABS backed by credit or charge card
receivables, we proposed that issuers provide standardized grouped-
account disclosures about the underlying asset pool instead of asset-
level disclosures.
    Asset-level information should provide investors with information
that allows them to independently perform due diligence and make
informed investment decisions; however, each asset class presents its
own unique considerations. The response to our proposal was mixed, with
some commenters supporting asset-level disclosure across asset classes
and some commenters suggesting that alternative forms of disclosure
were more appropriate for certain asset classes. We believe that the
mix of information needed for analysis varies from asset class to asset
class, and as we discuss in greater detail below, we have tailored the
requirements for each asset class. While we are adopting requirements
for only certain asset classes, we continue to consider the appropriate
disclosure requirements for other asset classes and those proposals
remain unchanged and outstanding.\110\
---------------------------------------------------------------------------

    \110\ See footnote 46 and accompanying text and Section I.C.5
Proposed Rules Not Being Adopted At This Time.
---------------------------------------------------------------------------

(a) Proposed Rule
    To augment our current principles-based, pool-level disclosure
requirements, we proposed to require that issuers disclose standardized
asset-level information about the assets underlying the ABS at the time
of offering and on an ongoing basis in Exchange Act reports.\111\
Proposed Item 1111(h) and Schedule L of Regulation AB enumerated all of
the data points that were to be provided for each asset in the asset
pool at the time of offering. Proposed Item 1121(d) and Schedule L-D
enumerated all of the data points that were to be provided in periodic
reports required under Sections 13 and 15(d) of the Exchange Act. These
requirements contained data points requiring general information or
item requirements applicable to all asset types underlying an ABS
transaction and specialized item requirements applicable to only
certain asset types. For instance, the proposal included specialized
data points for ABS backed by the following: residential mortgages,
commercial mortgages, auto loans, auto leases, equipment loans,
equipment leases, student loans, floorplan financings, and debt
securities and also for resecuritizations. Each proposed data point
contained a title, definition, and a standardized response. The
standardized response could be a date, number, text, or coded
response.\112\ Finally, in order to facilitate investors' use of the
asset-level data, we proposed that the data be filed with the
Commission on EDGAR in a standardized tagged data format using XML.
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    \111\ See Section III of the 2010 ABS Proposing Release.
    \112\ If a data point required a ``coded response,'' we proposed
a set of predefined responses that were coded with a number that an
issuer could select in providing the information.
---------------------------------------------------------------------------

(b) Comments on Proposed Rule
    Support for requiring asset-level disclosures varied across asset
types, and in some cases, between issuers and investors. Some
commenters, mainly investors, generally indicated broad support for
asset-level disclosure across asset types.\113\ In general, these
commenters suggested that asset-level disclosures would lead to better
informed investment decisions,\114\ better evaluation of the risk
profile of the securities,\115\ better pricing,\116\ more transparency
with respect to loan servicing operations,\117\ and a broader range of
opinions and analysis available with respect to ABS.\118\ Certain
commenters noted that the disclosure of

asset-level data is an existing market practice,\119\ and some
commenters noted that asset-level disclosure requirements already exist
in other jurisdictions.\120\ Some commenters requested that the
Commission require additional asset-level data fields,\121\ and one
commenter noted that asset-level data is necessary for implementation
of the Commission's proposed waterfall computer program.\122\ While
most investors supported requiring asset-level disclosure across asset
types,\123\ some commenters, mainly issuers or entities representing
issuers, generally limited their support for asset-level disclosures to
RMBS and CMBS.\124\ Some commenters expressed concern about whether the
materiality of the information that was proposed to be required has
been considered or shown to affect the performance of the securities or
the pricing of securities.\125\ Some commenters suggested that we
address this concern by either adopting industry standards \126\ or
adopting a ``provide-or-explain'' type regime.\127\
---------------------------------------------------------------------------

    \113\ See, e.g., letters from Appraisal Institute dated Aug. 2,
2010 submitted in response to the 2010 ABS Proposing Release
(``AI''), Association of Mortgage Investors dated July 31, 2010
submitted in response to the 2010 ABS Proposing Release (``AMI''),
American Securitization Forum, Auto Issuer Subforum and Auto
Investor Subcommittee dated Aug. 31, 2010 submitted in response to
the 2010 ABS Proposing Release (``ASF II'') (expressed views of
loan-level investors only), California Public Employees' Retirement
System dated Aug. 2, 2010 submitted in response to the 2010 ABS
Proposing Release (``CalPERS''), The Beached Consultancy dated July
8, 2010 submitted in response to the 2010 ABS Proposing Release
(``Beached Consultancy''), Martha Coakley, Massachusetts Attorney
General dated Aug. 2, 2010 submitted in response to the 2010 ABS
Proposing Release (``Mass. Atty. Gen.''), Metropolitan Life
Insurance Company dated Aug. 2, 2010 submitted in response to the