FACT SHEET

Final Rules: 

Removing Credit- Rating References 

from Regulation M

U.S. SECURITIES AND EXCHANGE COMMISSION PAGE 1 OF 2

Why This Matters

Regulation M is a set of rules designed to preserve the pricing integrity of the securities 

trading markets by prohibiting issuers, selling security holders, distribution participants, and 

any of their affiliated purchasers from engaging in activities that could artificially influence 

the market for an offered security. Rule 101(c)(2) and Rule 102(d)(2) currently except 

nonconvertible debt securities, nonconvertible preferred securities, and asset-backed 

securities that are rated investment grade by at least one nationally recognized statistical 

rating organization.

Through these amendments to Rule 101(c)(2) and Rule 102(d)(2), the Commission is 

removing references to credit ratings from these regulations and substituting in their place 

alternative standards of creditworthiness, as required by Section 939A(b) of the Dodd-Frank 

Wall Street Reform and Consumer Protection Act.

How the Rules Apply

New Amendments to Regulation M:

The Commission adopted amendments to remove the requirement that nonconvertible debt 

securities, nonconvertible preferred securities, and asset-backed securities be rated 

investment grade by at least one nationally recognized statistical rating organization. 

The Securities and Exchange Commission adopted amendments to remove references to credit 

ratings included in existing exceptions to Regulation M. The adopted amendments:

• Remove existing rule exceptions that reference credit ratings for nonconvertible debt 

securities, nonconvertible preferred securities, and asset-backed securities included in 

Rule 101 and Rule 102 of Regulation M;

• Replace those rule exceptions with new standards that are based on alternative 

standards of creditworthiness; and

• Add an amendment to a recordkeeping rule applicable to broker-dealers in connection 

with their reliance on the new exceptions.
FACT SHEET | Final Rules: Removing Credit-Rating References from Regulation M

U.S. SECURITIES AND EXCHANGE COMMISSION Page 2 of 2

In place of that requirement, new Rule 101(c)(2)(i) and Rule 102(d)(2)(i) except 

nonconvertible debt securities and nonconvertible preferred securities of issuers having a 

probability of default of 0.055 percent or less, as estimated as of the sixth business day 

immediately preceding the determination of the offering price, over the horizon of 12 full 

calendar months from such day, as determined and documented in writing by the distribution 

participant acting as the lead manager, using a “structural credit risk model,” as newly 

defined in Rule 100 of Regulation M. In addition, new Rules 101(c)(2)(ii) and 102(d)(2)(ii) 

except asset-backed securities that are offered pursuant to an effective shelf registration 

statement filed on the Commission’s Form SF-3. 

Record Preservation Requirement:

To aid the Commission in its examination of broker-dealers who rely on the new exception 

in Rule 101 or Rule 102 for certain nonconvertible debt securities and nonconvertible 

preferred securities, new paragraph (b)(17) of Rule 17a-4 requires those broker-dealers to 

preserve the written probability of default determination supporting their reliance on the 

exception. Rule 17a-4(b)(17) requires broker-dealers relying on Rule 101’s or Rule 102’s 

exception for certain nonconvertible debt securities and nonconvertible preferred securities 

to preserve, for a period of not less than three years, the first two years in an easily 

accessible place, the written probability of default determination.

What’s Next

The final rules will become effective 60 days following the date of publication of the adopting 

release in the Federal Register.