Document ID: SEC-2008-0958-0001
Agency: sec
Document Type: Proposed Rule
Title: Security Ratings
Posted Date: 2008-07-11T04:00Z

[Federal Register: July 11, 2008 (Volume 73, Number 134)]
[Proposed Rules]               
[Page 40106-40124]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11jy08-17]                         

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 230, 239, and 240

[Release No. 33-8940; 34-58071; File No. S7-18-08]
RIN 3235-AK18

 
Security Ratings

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rule.

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SUMMARY: This is one of three releases that the Commission is 
publishing simultaneously relating to the use of security ratings by 
nationally recognized statistical rating organizations in its rules and 
forms. In this release, the Commission proposes to replace rule and 
form requirements under the Securities Act of 1933 and the Securities 
Exchange Act of 1934 that rely on security ratings (for example, Forms 
S-3 and F-3 eligibility criteria) with alternative requirements. In 
addition, the Commission requests comment on its rules relating to the 
disclosure of security ratings.

DATES: Comments should be received on or before September 5, 2008.

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

Electronic Comments

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

Paper Comments

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

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

FOR FURTHER INFORMATION CONTACT: Steven Hearne, Eduardo Aleman, or 
Katherine Hsu, Special Counsels in the Office of Rulemaking, Division 
of Corporation Finance, at (202) 551-3430, 100 F Street NE., 
Washington, DC 20549.

SUPPLEMENTARY INFORMATION: The Commission is proposing amendments to 
Regulation S-K,\1\ and rules and forms under the Securities Act of 1933 
(Securities Act),\2\ and the Securities Exchange Act of 1934 (Exchange 
Act).\3\ In Regulation S-K, the Commission is proposing to amend Items 
10,\4\ 1100,\5\ 1112,\6\ and 1114.\7\ Under the Securities Act, the 
Commission is proposing to amend Rules 134,\8\ 138,\9\ 139,\10\ 
168,\11\ 415,\12\ 436,\13\ Form S-3,\14\ Form S-4,\15\ Form F-1,\16\ 
Form F-3,\17\ Form F-4,\18\ and Form F-9.\19\ The Commission is also 
proposing to amend Schedule 14A \20\ under the Exchange Act.
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    \1\ 17 CFR 229.10 through 1123.
    \2\ 15 U.S.C. 77a et seq.
    \3\ 15 U.S.C. 78a et seq.
    \4\ 17 CFR 229.10.
    \5\ 17 CFR 229.1100.
    \6\ 17 CFR 229.1112.
    \7\ 17 CFR 229.1114.
    \8\ 17 CFR 230.134.
    \9\ 17 CFR 230.138.
    \10\ 17 CFR 230.139.
    \11\ 17 CFR 230.168.
    \12\ 17 CFR 230.415.
    \13\ 17 CFR 230.436.
    \14\ 17 CFR 239.13.
    \15\ 17 CFR 239.25.
    \16\ 17 CFR 239.31.
    \17\ 17 CFR 239.33.
    \18\ 17 CFR 239.34.
    \19\ 17 CFR 239.39.
    \20\ 17 CFR 240.14a-101.
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I. Background

    On June 16, 2008, in furtherance of the Credit Rating Agency Reform 
Act of 2006,\21\ the Commission published for notice and public comment 
two rulemaking initiatives.\22\ The first proposes additional 
requirements for nationally recognized statistical rating organizations 
(NRSROs) that were directed at reducing conflicts of interest in the 
credit rating process, fostering competition and comparability among 
credit rating agencies, and increasing transparency of the credit 
rating

[[Page 40107]]

process.\23\ The second is designed to improve investor understanding 
of the risk characteristics of structured finance products. These 
proposals address concerns about the integrity of the credit rating 
procedures and methodologies of NRSROs in light of the role they played 
in determining the security ratings for securities that were the 
subject of the recent turmoil in the credit markets.
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    \21\ Pub. L. No. 109-291, 120 Stat. 1327 (2006).
    \22\ Proposed Rules for Nationally Recognized Statistical Rating 
Organizations, Release No. 34-57967 (Jun. 16, 2008).
    \23\ See Press Release No. 2008-110 (Jun. 11, 2008). As 
described in more detail below, an NRSRO is an organization that 
issues ratings that assess the creditworthiness of an obligor itself 
or with regard to specific securities or money market instruments, 
has been in existence as a credit rating agency for at least three 
years, and meets certain other criteria. The term is defined in 
section 3(a)(62) of the Exchange Act (15 U.S.C. 78c(a)(62)). A 
credit rating agency must apply with the Commission to register as 
an NRSRO, and currently there are nine registered NRSROs.
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    Today's proposals comprise the third of these three rulemaking 
initiatives relating to security ratings by an NRSRO that the 
Commission is proposing. This release, together with two companion 
releases, sets forth the results of the Commission's review of the 
requirements in its rules and forms that rely on security ratings by an 
NRSRO. The proposals also address recent recommendations issued by the 
President's Working Group on Financial Markets, the Financial Stability 
Forum on Enhancing Market and Institutional Resilience, and the 
Technical Committee of the International Organization of Securities 
Commissions.\24\ Consistent with these recommendations, the Commission 
is considering whether the inclusion of requirements related to 
security ratings in its rules and forms has, in effect, placed an 
``official seal of approval'' on ratings that could adversely affect 
the quality of due diligence and investment analysis. The Commission 
believes that today's proposals could reduce undue reliance on ratings 
and result in improvements in the analysis that underlies investment 
decisions.
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    \24\ See President's Working Group on Financial Markets, Policy 
Statement on Financial Market Developments (March 2008), available 
at www.ustreas.gov; The Report of the Financial Stability Forum on 
Enhancing Market and Institutional Resilience (April 2008), 
available at www.fsforum.org; Technical Committee of the 
International Organization of Securities Commissions, Consultation 
Report: The Role of Credit Rating Agencies in Structured Finance 
Markets (March 2008), page 9, available at www.iosco.org.
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    In 1981, the Commission issued a statement of policy regarding its 
view of disclosure of security ratings in registration statements under 
the Securities Act.\25\ This statement marked a clear delineation 
between the Commission's historic practice of precluding the disclosure 
of security ratings in these filings and the Commission's then-
developing acknowledgement of the growing importance of ratings in the 
securities markets and in the regulation of those markets. Soon 
thereafter, the Commission adopted rules that not only set forth its 
new policy of permitting the voluntary disclosure of security ratings 
in registration statements but that also encouraged such disclosure by 
the issuer.\26\ The rules permitted the voluntary disclosure of 
security ratings in a communication deemed not to be a prospectus and 
provided that a security rating by an NRSRO is generally not part of a 
registration statement or report prepared or certified by a person 
within the meaning of Sections 7 \27\ and 11 \28\ of the Securities 
Act.
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    \25\ See Disclosure of Ratings in Registration Statements, 
Release No. 33-6336 (Aug. 6, 1981) [46 FR 42024]. The Commission 
first began using ratings by an NRSRO in 1975 for purposes of 
determining capital charges on different grades of debt securities 
under Rule 15c3-1 under the Exchange Act (Net Capital Rule). See 17 
CFR 240.15c-31(c)(2)(vi)(E) and Adoption of Amendments to Rule 15c3-
1 and Adoption of Alternative Net Capital Requirement for Certain 
Brokers and Dealers, Release No. 34-11497 (Jun. 26, 1975) [40 FR 
29795].
    \26\ See Adoption of Integrated Disclosure System, Release No. 
33-6383 (Mar. 3, 1982) [47 FR 11380] (``Integrated Disclosure 
Release'').
    \27\ 15 U.S.C. 77g.
    \28\ 15 U.S.C. 77k.
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    Concurrent with the adoption of these rules regarding security 
ratings, the Commission adopted Securities Act Form S-3, the short-form 
Securities Act registration statement for eligible domestic 
issuers.\29\ The Commission adopted a provision in Form S-3 that a 
primary offering of non-convertible debt securities may be eligible for 
registration on the form if rated investment grade.\30\ This provision 
provided debt securities issuers whose public float did not reach the 
required threshold, or that did not have a public float, with an 
alternate means of becoming eligible to register offerings on Form S-
3.\31\ In adopting this requirement, the Commission specifically noted 
that commenters believed that the component relating to investment 
grade ratings was appropriate because nonconvertible debt securities 
are generally purchased on the basis of interest rates and security 
ratings.\32\ Consistent with Form S-3, the Commission adopted a 
provision in Form F-3 providing for the eligibility of a primary 
offering of investment grade non-convertible debt securities by 
eligible foreign private issuers.\33\
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    \29\ 17 CFR 239.13 and the Integrated Disclosure Release.
    \30\ See General Instruction I.B.2 of Form S-3. A non-
convertible security is an ``investment grade security'' for 
purposes of form eligibility if at the time of sale, at least one 
NRSRO has rated the security in one of its generic rating categories 
which signifies investment grade, typically one of the four highest 
rating categories. See id.
    \31\ Pursuant to the recently adopted revisions to Form S-3 and 
Form F-3, issuers also may conduct primary securities offerings on 
these forms without regard to the size of their public float or the 
rating of debt securities being offered, so long as they satisfy the 
other eligibility conditions of the respective forms, have a class 
of common equity securities listed and registered on a national 
securities exchange, and the issuers do not sell more than the 
equivalent of one-third of their public float in primary offerings 
over any period of 12 calendar months. See Revisions to Eligibility 
Requirements for Primary Offerings on Forms S-3 and F-3, Release No. 
33-8878 (Dec. 19, 2007) [72 FR 73534].
    \32\ See Section III.A.1 of the Integrated Disclosure Release. 
Later, in 1992, the Commission expanded the eligibility requirement 
to delete references to debt or preferred securities and provide 
Form S-3 eligibility for other investment grade securities (such as 
foreign currency or other cash settled derivative securities). See 
Simplification of Registration Procedures for Primary Securities 
Offerings, Release No. 33-6964 (Oct. 22, 1992) [57 FR 48970].
    \33\ General Instruction I.B.2 of Form F-3. See Adoption of 
Foreign Issuer Integrated Disclosure System, Release No. 33-6437 
(Nov. 19, 1982) [47 FR 54764]. In 1994, the Commission expanded the 
eligibility requirement to delete references to debt or preferred 
securities and provide Form F-3 eligibility for other investment 
grade securities (such as foreign currency or other cash settled 
derivative securities). See Simplification of Registration of 
Reporting Requirements for Foreign Companies, Release No. 33-7053A 
(May 12, 1994) [59 FR 25810].
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    Since the adoption of those rules relating to security ratings and 
Form S-3 and Form F-3, other Commission forms and rules have included 
requirements that likewise rely on the ratings issued to a 
security.\34\ Among them are Form F-9,\35\ Forms S-4 and F-4,\36\ and 
Exchange Act Schedule 14A.\37\ Shelf registration requirements for 
asset-backed securities also depend on a security ratings 
component.\38\ In 1983, the Commission adopted Securities Act Rule 415 
which permits certain mortgage related securities, among others, to be 
offered on a delayed basis.\39\ A mortgage related security is defined 
in section 3(a)(41) of the Exchange Act,\40\ as, among other things, 
``a security that is rated in one of the two highest rating categories 
by at least one nationally recognized statistical

[[Page 40108]]

rating organization.'' \41\ In 1992, the Commission expanded the Form 
S-3 eligibility provisions to provide for the registration of 
investment grade asset-backed securities offerings, regardless of the 
issuer's reporting history or public float.\42\ In addition, if they 
are related to investment grade rated securities, certain registration 
statements and other requirements afford foreign private issuers with 
an option to comply with less extensive U.S. GAAP reconciliation 
requirements.\43\
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    \34\ This release addresses rules and forms filed by issuers 
under the Securities Act and Exchange Act. In separate releases, the 
Commission is proposing to address other rules and forms that rely 
on an investment grade ratings component.
    \35\ See General Instruction I. of Form F-9.
    \36\ See General Instruction B.1 of Form S-4 and General 
Instruction B.1(a) of Form F-4.
    \37\ See Note E and Item 13 of Schedule 14A.
    \38\ General Instruction I.B.5 of Form S-3.
    \39\ 17 CFR 230.415(a)(1)(vii). See Shelf Registration, Release 
No. 33-6499 (Nov. 17, 1983) [48 FR 5289].
    \40\ 15 U.S.C. 78c(a)(41).
    \41\ See discussion of mortgage related securities in Section 
II.A.2. below.
    \42\ See Simplification of Registration Procedures for Primary 
Securities Offerings, Release No. 33-6964 (Oct. 22, 1992) [57 FR 
32461].
    \43\ See Exchange Act Forms 20-F (17 CFR 249.220f) and 40-F (17 
CFR 249.240f), Securities Act Forms F-1 (17 CFR 239.31), F-3 (17 CFR 
239.33), and F-4 (17 CFR 239.34), and Form F-9 (17 CFR 239.39) and 
Rule 502(b)(2)(i)(C) of Regulation D (17 CFR 230.502(b)(2)(i)(C)).
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    At various times since the adoption of these form requirements and 
rules, however, the Commission has reviewed and reconsidered its 
permissive views toward the disclosure of ratings in filings and the 
reliance on ratings in the Commission's form requirements. For example, 
in 1994, the Commission published a proposing release that would have 
mandated disclosure in Securities Act prospectuses of a rating given by 
an NRSRO whenever a rating with respect to the securities being offered 
is ``obtained by or on behalf of an issuer.'' \44\ The proposals would 
have required disclosure of specified information with respect to 
security ratings, whether or not disclosed voluntarily or mandated by 
the proposed new rules. In addition, the 1994 Ratings Release sought 
comment on various areas relating to the disclosure of security 
ratings.
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    \44\ See Disclosure of Security Ratings, Release No. 33-7086 
(Aug. 31, 1994) [59 FR 46304] (the ``1994 Ratings Release''). A 
concept release on this subject was published in Disclosure of 
Security Ratings, Release No. 33-5882 (Nov. 3, 1977) [42 FR 58414].
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    The 1994 Ratings Release also proposed to require the disclosure on 
a Form 8-K current report of any material change in the security rating 
assigned to the registrant's securities by an NRSRO.\45\ Later, in 
2002, the Commission again proposed to require an issuer to file a Form 
8-K current report when it received a notice or other communication 
from any rating agency regarding, for example, a change or withdrawal 
of a particular rating.\46\ The Commission did not adopt this proposal, 
noting that it would continue to consider the appropriate regulatory 
approach for rating agencies.\47\
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    \45\ See the 1994 Ratings Release.
    \46\ See Additional Form 8-K Disclosure Requirements and 
Acceleration of Filing Date, Release No. 33-8106 (Jun. 17, 2002) [67 
FR 42914].
    \47\ See Additional Form 8-K Filing Requirements and 
Acceleration of Filing Date, Release No. 33-8400 (Mar. 16, 2004) [69 
FR 15594], amended by Release No. 33-8400A (Aug. 4, 2004) [69 FR 
48370].
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    In 2003, the Commission issued a concept release requesting comment 
on whether it should cease using the NRSRO designation and, as an 
alternative to the ratings criteria, provide for Form S-3 eligibility 
where investor sophistication or large size denomination criteria are 
met.\48\ The Commission also requested comment on alternatives to Form 
S-3 ratings reliance with regard to offerings of asset-backed 
securities. In the 2004 adopting release for Regulation AB,\49\ while 
retaining the eligibility provision for investment grade rated asset-
backed securities, the Commission noted that it was engaged in a broad 
review of the role of credit rating agencies in the securities markets, 
including whether security ratings should continue to be used for 
regulatory purposes under the securities laws.\50\ The release made 
note of the 2003 concept release and the comments received on possible 
alternatives to using the investment grade requirement for determining 
Form S-3 eligibility for asset-backed securities.
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    \48\ See Rating Agencies and the Use of Credit Ratings under the 
Federal Securities Laws, Release No. 33-8236 (Jun. 4, 2003) [68 FR 
35258]. Comments on the concept release are available at: http://
www.sec.gov/rules/concept/s71203.shtml. As discussed above, recent 
events have highlighted the need to revisit our reliance on NRSRO 
ratings in the context of these developments. See also the extensive 
discussion of market developments in Release No. 34-57967.
    \49\ 17 CFR 229.1100 through 1123.
    \50\ See Section III.A.3.c of Asset-Backed Securities, Release 
No. 33-8518 (Dec. 22, 2004) [70 FR 1506, 1524].
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    In 2005, the Commission adopted rules and form amendments to modify 
the framework for the registration, communications, and offerings 
processes, relaxing restrictions and requirements on the largest 
issuers.\51\ These large issuers, defined as well-known seasoned 
issuers, include issuers that have issued for cash more than an 
aggregate of $1 billion in non-convertible securities, other than 
common equity, through registered primary offerings over the prior 
three years.\52\ In adopting this definition, the Commission did not 
rely on investment grade ratings, noting in the adopting release that 
the securities included in the calculation for determining whether the 
$1 billion threshold has been met need not be investment grade 
securities.\53\
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    \51\ See Securities Offering Reform, Release No. 33-8591 (July 
19, 2005) [70 FR 44722].
    \52\ See definition of well-known seasoned issuer in Rule 405. 
17 CFR 230.405.
    \53\ See Section II.A.1.b of Release No. 33-8591.
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II. Proposed Amendments

A. Shelf Registration for Issuers of Asset-Backed Securities

1. Form S-3 Eligibility for Offerings of Asset-Backed Securities
    Under the existing requirements, an offering of asset-backed 
securities, or ABS, as defined in Item 1101 of Regulation AB,\54\ may 
be eligible for registration on Form S-3 and may therefore be offered 
on a delayed or continuous basis \55\ if they are rated investment 
grade by an NRSRO and meet certain other conditions.\56\ The Commission 
now proposes to amend this requirement in Form S-3 for ABS to replace 
the component that relies on investment grade ratings with an alternate 
provision.
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    \54\ 17 CFR 229.1101.
    \55\ General Instruction I.B.5 of Form S-3. The Commission 
expanded the use of Form S-3 to all types of asset-backed securities 
in 1992. See Simplification of Registration Procedures for Primary 
Securities Offerings, Release No. 33-6964 (Oct. 22, 1992) [57 FR 
48970].
    \56\ As discussed below, two additional conditions also apply in 
order for ABS offered for cash to be Form S-3 eligible: (1) 
delinquent assets do not constitute 20% or more, as measured by 
dollar volume, of the asset pool as of the measurement date; and (2) 
with respect to securities that are backed by leases other than 
motor vehicle leases, the portion of the securitized pool balance 
attributable to the residual value of the physical property 
underlying the leases, as determined in accordance with the 
transaction agreements for the securities, does not constitute 20% 
or more, as measured by dollar volume, of the securitized pool 
balance as of the measurement date. General Instruction I.B.5(a) of 
Form S-3.
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    In the 2004 proposing release for Regulation AB, the Commission 
requested comment on whether the investment grade reliance component of 
the Form S-3 eligibility requirements for ABS offerings was appropriate 
and whether alternative criteria such as investor sophistication, 
minimum denomination, or experience criteria were more appropriate.\57\ 
The Commission received four comment letters in response that provided 
suggestions on possible alternatives to the investment grade 
requirement for Form S-3 eligibility purposes for ABS offerings.\58\ 
One commenter

[[Page 40109]]

recommended that the Commission replace the investment grade ratings 
requirement with a sponsor \59\ experience requirement (e.g., Exchange 
Act reporting).\60\ Another commenter suggested that the Commission 
either (1) eliminate the use of the ratings as a bright line test for 
the Form S-3 eligibility criteria, thereby eliminating the incentive to 
shop for ratings simply to satisfy a regulatory requirement; or (2) 
reflective of developing market practice, require an investment grade 
rating which is the lower of two ratings.\61\
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    \57\ See Section III.A.3.c of Asset-Backed Securities, Release 
No. 33-8419 (May 3, 2004) [69 FR 16650]. In the 2003 concept release 
where the Commission requested comment on alternatives to the 
ratings reliance requirement in Form S-3 for corporate debt, the 
Commission requested comment on alternatives to ratings reliance 
with respect to ABS offerings. No comment letters submitted in 
response to the concept release provided specific suggestions on 
alternatives for ABS offerings. See Release No. 33-8236.
    \58\ See letters commenting on Release No. 33-8419 from the 
American Bar Association (ABA), Kutak Rock, LLP (Kutak), State 
Street Global Advisors (State Street), and Moody's Investor Service 
(Moody's). The public comments received are available for inspection 
in our Public Reference Room at 100 F Street, NE., Washington, DC 
20549 in File No. S7-21-04, or may be viewed at http://www.sec.gov/
rules/proposed/s72104.shtml.
    \59\ While ``sponsor'' is a commonly used term for the entity 
that initiates the asset-backed securities transaction, the terms 
``seller'' or ``originator'' also are often used in the market. In 
some instances the sponsor is not the originator of the financial 
assets but has purchased them in the secondary market. See footnote 
46 of Release No. 33-8518.
    \60\ See letter from State Street.
    \61\ See letter from Moody's.
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    Two commenters recommended that the Commission adopt a minimum 
denomination requirement (e.g., $100,000 or $250,000) that would 
determine form eligibility, limiting investment in the offering to 
investors who had such capital.\62\ One of these commenters recommended 
that the Commission make short-form registration available to otherwise 
eligible non-investment grade rated or unrated classes of asset-backed 
securities provided that sales are made in minimum denominations and 
initial sales of classes of securities are made only to qualified 
institutional buyers (as defined in Securities Act Rule 144A(a)(1)) 
\63\ and institutional accredited investors (as defined in Rule 501 
\64\ of Regulation D).\65\ The commenter reasoned that such 
restrictions should ensure that securities are sold and subsequently 
resold only to investors who are capable of undertaking their own 
analysis of the merits and risks of their investment.\66\
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    \62\ See letters from ABA and Kutak.
    \63\ 17 CFR 230.144A(a)(1).
    \64\ 17 CFR 230.501.
    \65\ See letter from ABA.
    \66\ Id.
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    In light of our effort to reduce regulatory reliance on security 
ratings, the Commission has revisited the comments in 2004 and now 
proposes to replace the investment grade component in the Form S-3 
eligibility requirement for ABS offerings with a minimum denomination 
requirement for initial and subsequent sales and a requirement that 
initial sales of classes of securities be made only to qualified 
institutional buyers. The eligibility requirement, as proposed to be 
revised, would retain the other provisions relating to delinquency 
concentration and residual value percentages for offerings of 
securities backed by leases other than motor vehicle leases.\67\ Thus, 
as proposed, asset-backed securities offered for cash may be Form S-3 
eligible provided:
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    \67\ See proposed General Instruction I.B.5(a)(iii) and (iv) of 
Form S-3.
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     Initial and subsequent resales are made in minimum 
denominations of $250,000;
     Initial sales are made only to qualified institutional 
buyers (as defined in Rule 144A(a)(1));
     Delinquent assets do not constitute 20% or more, as 
measured by dollar volume, of the asset pool as of the measurement 
date; and
     With respect to securities that are backed by leases other 
than motor vehicle leases, the portion of the securitized pool balance 
attributable to the residual value of the physical property underlying 
the leases, as determined in accordance with the transaction agreements 
for the securities, does not constitute 20% or more, as measured by 
dollar volume, of the securitized pool balance as of the measurement 
date.\68\
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    \68\ See proposed General Instruction I.B.5(a) of Form S-3.
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    This proposed amendment would limit use of a short-form shelf 
registration statement for asset-backed securities to offerings to 
large sophisticated and experienced investors without, we believe, 
causing undue detriment to the liquidity of the asset-backed securities 
market.\69\ In keeping with that purpose and given the unique nature 
and structure of asset-backed securities, we are proposing at this time 
only to include qualified institutional buyers rather than also 
including institutional accredited investors as suggested by the 
commenter in 2004.
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    \69\ We are aware of two types of asset-backed offerings that 
may not meet these new criteria, unit repackaging and securitization 
of insurance funding agreements but believe that they can be 
effectively registered using Form S-1 instead of Form S-3.
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2. Mortgage Related Securities and Securities Act Rule 415
    In addition to being shelf eligible by meeting the requirements of 
Form S-3, a particular subset of ABS may also be shelf eligible by 
meeting the requirements in Securities Act Rule 415,\70\ which 
enumerates the securities which are permitted to be offered on a 
continuous or delayed basis. Among those securities are ``mortgage 
related securities, including such securities as mortgage-backed debt 
and mortgage participation or pass through certificates.'' \71\ By 
specifically referring to mortgage related securities, Rule 415 has 
permitted such securities to be offered on a delayed basis, even if the 
offering cannot be registered on the Form S-3 short form registration 
statement because it does not meet the eligibility requirements of Form 
S-3.
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    \70\ 17 CFR 230.415.
    \71\ 17 CFR 230.415(a)(vii).
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    Currently, the term ``mortgage related securities'' is defined by 
Section 3(a)(41) of the Exchange Act \72\ as, among other things, ``a 
security that is rated in one of the two highest rating categories by 
at least one nationally recognized statistical rating organization.'' 
Given that the term mortgage related securities also depends on a 
ratings component, it would be a logical extension of our amendments 
here to amend the Rule 415 reference to a mortgage related security to 
add that the sale of such security must be in compliance with the 
additional requirements that initial sales are made to qualified 
institutional buyers and initial and subsequent sales are made in 
certain minimum denominations. Given that reliance on security ratings 
could just as easily impact an investor's investment decision in 
mortgage-backed securities as it could for other asset-backed 
securities,\73\ we believe it is appropriate that mortgage-backed 
securities be treated the same as all asset-backed securities.\74\
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    \72\ 15 U.S.C. 78c(a)(41). Section 3(a)(41) was added by the 
Secondary Mortgage Market Enhancement Act of 1984 (SMMEA) (Pub. L. 
98-440-98 Stat. 1690). In 1984, contemporaneous with the enactment 
of SMMEA, the Commission amended Rule 415, which is known as the 
shelf rule, to allow SMMEA-eligible mortgage related securities to 
use the shelf offering process. See Shelf Registration, Release No. 
33-6499 (Nov. 17, 1983) [48 FR 5289].
    \73\ The President's Working Group has noted that one of the 
principal underlying causes of the current global market turmoil 
relating to the mortgage-backed securities industry was the credit 
rating agencies' assessments of subprime residential mortgage-backed 
securities and other complex structured credit products that held 
residential mortgage-backed and other asset-backed securities. See 
Section I of the Policy Statement on Financial Market Developments. 
See n. 24 above.
    \74\ Indeed, mortgage-backed securities are merely a type of, or 
subset of, asset-backed securities. We believe that there have not 
been any recent offerings that have relied on Rule 415(a)(vii) for 
shelf eligibility rather than through meeting the requirements of 
Form S-3.
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    Therefore, under the proposed revision to Rule 415, mortgage-backed 
securities, having the same characteristics as mortgage related 
securities under the Section 3(a)(41) definition, regardless of the 
security

[[Page 40110]]

rating, could be offered on a delayed basis provided that:
     Initial sales and any resales of the securities are made 
in minimum denominations of $250,000; \75\ and
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    \75\ Denominations of any amounts above $250,000 would meet this 
requirement.
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     initial sales of the securities are made only to qualified 
institutional buyers (as defined in Rule 144A(a)(1)).
Request for Comment
     Is the proposed amendment to the Form S-3 eligibility 
requirement for asset-backed securities appropriate? Is there a better 
alternative to the investment grade ratings component? If so, what is 
that alternative and why is it better?
     Is the proposed amendment requiring that initial and 
subsequent sales be made in a minimum denomination appropriate? Should 
the denomination level be higher or lower (e.g., $400,000 or $100,000)?
     We understand that non-convertible securities may 
typically be held in book entry form with a depository. Are there any 
system issues or processes at the depository that may affect the 
ability to limit transferability based on a minimum denomination? If 
yes, what are those issues or processes and how should the rule 
provisions be revised to prohibit subsequent transfers below the 
minimum denominations?
     Should there be any restriction on permitting purchasers 
from allocating securities in denominations lower than $250,000 if the 
purchasers are acquiring the nonconvertible securities for more than 
one account? For example, if an investment advisor acquires the 
securities for more than one qualified institutional buyer, should it 
be allowed to allocate securities to the accounts of the qualified 
institutional buyers in denominations lower than $250,000?
     Should Form S-3 limit initial sales of eligible asset-
backed securities to qualified institutional buyers? Should the 
requirement include sales to an additional group of investors (e.g., 
institutional accredited investors)? If so, why? Should subsequent 
sales be limited as well? Would it be appropriate to eliminate the 
minimum denomination requirements after some period of time, such as 
after six months or one year from the date of issuance? Are there 
particular kinds of ABS offerings that are sold to investors other than 
qualified institutional buyers?
     What would be the impact on liquidity in the ABS secondary 
market if Form S-3 registration required that initial sales be limited 
to qualified institutional buyers, institutional accredited investors, 
or other groups of sophisticated investors? What would be the impact on 
liquidity in the secondary market if resales of securities that were 
originally offered and sold off of the Form S-3 were so limited? What 
would be the impact on the cost of capital for ABS sponsors if Form S-3 
registration required that initial sales or resales were limited to 
qualified institutional buyers or other groups of sophisticated 
investors?
     Would a better standard than qualified institutional buyer 
be any purchaser that owns and invests on a discretionary basis not 
less than $25,000,000? Would a threshold like this that does not limit 
the purchasers to institutions be appropriate, particularly in light of 
recent market events? Should there be other thresholds for particular 
investors, such as owning and investing on a discretionary basis not 
less than $50,000,000 for government or political subdivisions, 
agencies or instrumentalities of a government? Should we use Qualified 
Investor as defined in Exchange Act Section 3(a)(54) \76\ rather than 
qualified institutional buyer?
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    \76\ 15 U.S.C. 78c(a)(54).
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     We note that there are two types of ABS offerings that may 
not meet this new criteria, unit repackagings, and securitizations of 
insurance funding agreements. Can the offer and sale of these 
securities be effectively registered on Form S-1? We note that these 
securities are typically listed on a national securities exchange. 
Should we instead add an alternative eligibility requirement that would 
provide eligibility to use Form S-3 for securities listed on a national 
securities exchange?
     Should we instead assess Form S-3 and shelf eligibility in 
a manner similar to what we are proposing for corporate debt that is 
discussed in the next section? If so, what would be the appropriate 
amount of required issuance? Should the issuance amount be measured 
only for the same sponsor, same asset class, and same structure? Should 
it matter if the assets are purchased by the sponsor rather than 
originated by the sponsor or an affiliate?
     Is the proposed revision to Securities Act Rule 415 
appropriate? Is there any reason why mortgage related securities should 
be treated differently from other asset-backed securities for purposes 
of delayed offerings?
     Are there SMMEA eligible loans that could not be 
securitized in circumstances meeting the proposed threshold for S-3 
eligibility?
     Should Rule 415 be amended as proposed? In the 
alternative, should the reference to mortgage related securities in 
Rule 415 be deleted (i.e., so that mortgage-backed securities could 
only be offered on a delayed basis if eligible for registration on Form 
S-3)? Are there securities that are currently offered pursuant to Rule 
415(a)(1)(vii) that do not meet the current requirements of Form S-3 
and would not meet the requirements of the proposal?

B. Primary Offerings of Non-convertible Securities

1. Form S-3 and Form F-3
    Forms S-3 and F-3 are the ``short forms'' used by eligible issuers 
to register securities offerings under the Securities Act. These forms 
allow eligible issuers to rely on reports they have filed under the 
Exchange Act to satisfy many of the disclosure requirements under the 
Securities Act. Form S-3 eligibility for primary offerings also enables 
form eligible issuers to conduct primary offerings ``off the shelf'' 
under Securities Act Rule 415. Rule 415 provides considerable 
flexibility in accessing the public securities markets in response to 
changes in the market and other factors. Issuers that are eligible to 
register these primary ``shelf'' offerings under Rule 415 are permitted 
to register securities offerings prior to planning any specific 
offering and, once the registration statement is effective, offer 
securities in one or more tranches without waiting for further 
Commission action. To be eligible to use Form S-3 or F-3, an issuer 
must meet the form's eligibility requirements as to registrants, which 
generally pertain to reporting history under the Exchange Act,\77\ and 
at least one of the form's transaction requirements.\78\ One such 
transaction requirement permits registrants to register primary 
offerings of non-convertible securities if they are rated investment 
grade by at least one NRSRO.\79\ Instruction I.B.2 provides that a 
security is ``investment grade'' if, at the time of sale, at least one 
NRSRO has rated the security in one of its generic rating categories, 
typically the four highest, which signifies investment grade.
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    \77\ See General Instruction I.A to Forms S-3 and F-3.
    \78\ See General Instruction I.B to Forms S-3 and F-3.
    \79\ See General Instruction I.B.2 to Forms S-3 and F-3.
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    The Form S-3 investment grade requirement was originally proposed 
by

[[Page 40111]]

the Commission in a 1982 release.\80\ Prior to adopting Form S-3, the 
Commission had previously provided a short form registration statement 
on Form S-9, which permitted the registration of issuances of certain 
high quality debt securities.\81\ The criteria for use of Form S-9 
related primarily to the quality of the issuer.\82\ While these 
eligibility criteria delineated the type of issuer of high quality debt 
for which Form S-9 was intended, the Commission believed that certain 
of its requirements may have overly restricted the availability of the 
form.\83\ The Commission believed that security ratings were a more 
appropriate standard on which to base Form S-3 eligibility than 
specified quality of the issuer criteria, citing letters from 
commenters indicating that short form prospectuses are appropriate for 
investment grade debt because such securities are generally purchased 
on the basis of interest rates and security ratings.\84\
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    \80\ See Reproposal of Comprehensive Revision to System for 
Registration of Securities Offerings, Release No. 33-6331 (Aug. 6, 
1981) [46 FR 41902] (``the S-3 Proposing Release'').
    \81\ Form S-9 was rescinded on December 20, 1976, because it was 
being used by only a very small number of registrants. The 
Commission believed the lack of usage was due in part to interest 
rate increases which made it difficult for many registrants to meet 
the minimum fixed charges coverage standards required by the form. 
Adoption of Amendments to Registration Forms and Guide and 
Rescission of Registration Form, Release No. 33-5791 (Dec. 20, 1976) 
[41 FR 56301].
    \82\ The criteria included net income during each of the 
registrant's last five fiscal years, no defaults in the payment of 
principal, interest, or sinking funds on debt or of rental payments 
for leases, and various fixed charge coverages. The use of fixed 
charges coverage ratios, typically 1.5, was common in state statutes 
defining suitable debt investments for banks and other fiduciaries.
    \83\ See the S-3 Proposing Release.
    \84\ See the Integrated Disclosure Release.
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    Today we are proposing to revise the transaction eligibility 
criteria for registering primary offerings of non-convertible 
securities on Forms S-3 and F-3. As proposed, the instructions to these 
forms would no longer refer to security ratings by an NRSRO as a 
transaction requirement to permit issuers to register primary offerings 
of non-convertible securities for cash. Instead, these forms would be 
available to register primary offerings of non-convertible securities 
if the issuer has issued (as of a date within 60 days prior to the 
filing of the registration statement) for cash more than $1 billion in 
non-convertible securities, other than common equity, through 
registered primary offerings over the prior three years.\85\
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    \85\ See proposed General Instruction I.B.2 of Forms S-3 and F-
3. We are also proposing to delete Instruction 3 to the signature 
block of Forms S-3 and F-3.
---------------------------------------------------------------------------

    We are proposing to revise the form criteria using the same method 
and threshold by which the Commission defined an issuer of non-
convertible securities, other than common equity, that does not meet 
the public equity float test as a ``well-known seasoned issuer.'' \86\ 
Similar to our approach with well-known seasoned issuers, we believe 
that having issued $1 billion of registered non-convertible securities 
over the prior three years would lead to a wide following in the 
marketplace. These issuers generally have their Exchange Act filings 
broadly followed and scrutinized by investors and the markets.\87\ The 
Commission intends for the number of issuers eligible under the 
proposed criteria to register primary offerings of non-convertible 
securities on Forms S-3 and F-3 to not be significantly reduced, or to 
differ significantly from, the number of those eligible under the 
current form requirements.\88\ Using the $1 billion threshold, we 
preliminarily believe that for issuances that have occurred thus far 
this year, the proposed change would result in approximately six 
issuers filing on Form S-1 instead of on a short-form registration 
statement. This approach is designed to provide assurance that eligible 
issuers are followed by the markets such that it is appropriate to 
allow forward incorporation by reference and delayed offering. We 
realize that it is now possible that some offerings of non-investment 
grade securities, such as high-yield bonds (also known as ``junk 
bonds'') may be registered for sale on Form S-3.
---------------------------------------------------------------------------

    \86\ See Securities Offering Reform, Release No. 33-8591 (Jul. 
19, 2005) [70 FR 44722]. Rule 405 under the Securities Act defines a 
``well-known seasoned issuer'' as an issuer that meets the 
registrant requirements of Form S-3 or F-3, and either has a 
worldwide market value of its outstanding voting and non-voting 
common equity held by non-affiliates of $700 million or more, or has 
issued in the last three years, in registered offerings, at least $1 
billion aggregate principal amount of non-convertible securities in 
primary offerings for cash. 17 CFR 230.405.
    \87\ See Securities Offering Reform, Release No. 33-8501 (Nov. 
3, 2004) [69 FR 67392].
    \88\ We preliminarily anticipate that under the proposed 
threshold some additional high yield debt issuers would be eligible 
to use the Forms.
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    These issuers also would have to satisfy the other conditions of 
the form eligibility requirement. In determining compliance with this 
threshold:
     Issuers may aggregate the amount of non-convertible 
securities, other than common equity, issued in registered primary 
offerings during the prior three years;
     issuers may include only such non-convertible securities 
that were issued in registered primary offerings for cash--they may not 
include registered exchange offers; \89\ and
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    \89\ Issuers may not include the principal amount of securities 
that were offered in registered exchange offers by the issuer when 
determining compliance with the $1 billion non-convertible 
securities threshold. A substantial portion of these offerings 
involve registered exchange offers of substantially identical 
securities for securities that were sold in private offerings. In 
those cases, the original sale to investors in the private offering, 
relying upon, for example, the exemptions of Securities Act Section 
4(2) and Rule 144A, is not registered and is not carried out under 
the Securities Act's disclosure or liability standards. Moreover, in 
the subsequent registered exchange offers purchasers may not be 
able, in certain cases, to avail themselves effectively of the 
remedies otherwise available to purchasers in registered offerings 
for cash.
---------------------------------------------------------------------------

     parent company issuers only may include in their 
calculation the principal amount of their full and unconditional 
guarantees, within the meaning of Rule 3-10 of Regulation S-X,\90\ of 
non-convertible securities, other than common equity, of their 
majority-owned subsidiaries issued in registered primary offerings for 
cash during the three-year period.
---------------------------------------------------------------------------

    \90\ 17 CFR 210.3-10.
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The aggregate principal amount of non-convertible securities that may 
be counted toward the $1 billion issuance threshold may have been 
issued in any registered primary offering for cash, on any form (other 
than Form S-4 or Form F-4). Non-convertible securities need not be 
investment grade securities to be included in the calculation. In 
calculating the $1 billion amount, issuers generally may include the 
principal amount of any debt and the greater of liquidation preference 
or par value of any non-convertible preferred stock that were issued in 
primary registered offerings for cash.\91\
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    \91\ In determining the dollar amount of securities that have 
been registered during the preceding three years, issuers should use 
the same calculation that they use to determine the dollar amount of 
securities they are registering for purposes of determining fees 
under Rule 457. 17 CFR 230.457.
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Request for Comment
     The recent turmoil in the credit markets, particularly in 
the structured finance market, strongly suggests that there has been 
undue reliance on security ratings and that the ratings for many 
issuers did not reflect the risks of the investment. We are proposing 
thresholds on the amount of issuance in order to move away from 
reliance on security ratings in the Commission's rules. Does the 
proposed eligibility based on the amount of prior registered non-
convertible securities issued serve as an adequate replacement for the 
investment grade eligibility condition? Would the cumulative offering 
amount

[[Page 40112]]

for the most recent three-year period reflect market following? Since 
most of the problems in the market have occurred with respect to asset-
backed securities, should we retain the current eligibility requirement 
for investment grade non-convertible securities?
     Would the specific issuers eligible under the investment 
grade condition be different from the issuers eligible under the 
proposal? Would certain investors, such as pension funds, be impacted 
if investment grade securities could not be offered on Form S-3?
     If the Commission adopts a Form S-3 eligibility 
requirement designed to reflect the market following of a debt issuer, 
should the condition be sensitive to the number of debt holders? Is it 
reasonable to expect that analysts would be more likely to follow 
issuers with a larger number of debt holders insofar as such holders 
are potential customers of the analysts' products? If so, how should we 
determine the number of holders?
     Should there be an eligibility requirement based on a 
minimum number of holders of record of non-convertible securities 
offered for cash? If so, should this number be 300 or 500, by analogy 
to our registration and deregistration rules relating to equity 
securities? Would linking the eligibility requirement to the number of 
holders of record help to assure market following?
     Is the cumulative offering amount for the most recent 
three-year period the appropriate threshold at which to differentiate 
issuers? Should the threshold be higher (e.g., $1.25 billion) or lower 
(e.g., $800 million), and, if so, at what level should it be set? Are 
there any transactions that currently meet the requirements of current 
General Instruction I.B.2. that would not be eligible to use the form 
under the proposed revision? Are there any transactions that do not 
meet the current Form S-3 or Form F-3 eligibility requirements for 
investment grade securities but now would be eligible under the 
proposed revision that should not be eligible? If practicable, provide 
information on the frequency such offerings are made.
     Would the proposed threshold increase or decrease the 
number of issuers eligible to use Forms S-3 and F-3 under the current 
investment grade criteria? Is there a reason that this Form S-3 
eligibility requirement should not mirror the debt only well-known 
seasoned issuer definition?
     Should the measurement time period for $1 billion of 
issuance be longer than three years (e.g., four or five years)? If so, 
why? Would it be more appropriate for the threshold to include non-
convertible securities, other than common equity, outstanding rather 
than issued over the prior three years?
     Is there a better alternative by which Form S-3 
eligibility for non-convertible securities could be required? By what 
metrics could one measure the market following for debt issuers? Is 
there an alternative definition of ``investment grade debt securities'' 
that does not rely on NRSRO ratings and adequately meets the objective 
of relating short-form registration to the existence of widespread 
following in the marketplace?
     Should there be a different standard for foreign private 
issuers eligible to use Form F-3? If so, explain why and what would be 
a more appropriate criteria.
     Does the $1 billion threshold of offering in the prior 
three years present any issues that are unique to foreign private 
issuers, especially those that may undertake U.S. registered public 
offerings as only a portion of their overall plan of financing, and how 
might these problems be addressed? Would it be appropriate to provide a 
longer time period for measurement, or to include public offerings of 
securities for cash outside the United States?
2. U.S. GAAP Reconciliation Requirements
    The Commission's rules relating to U.S. GAAP reconciliation 
requirements for foreign filers also rely on ratings. Forms F-1, F-3, 
and F-4 under the Securities Act permit foreign private issuers 
registering offerings of investment grade securities to provide 
financial information in accordance with Item 17 of Exchange Act Form 
20-F. Item 17 requires foreign private issuers to reconcile their 
financial statements and schedules to U.S. GAAP if they are prepared in 
accordance with a basis of accounting other than U.S. GAAP or 
International Financial Reporting Standards as issued by the 
International Accounting Standards Board. This reconciliation need only 
include a narrative discussion of reconciling differences, a 
reconciliation of net income for each year and any interim periods 
presented, a reconciliation of major balance sheet captions for each 
year and any interim periods, and a reconciliation of cash flows for 
each year and any interim periods. Item 18 of Form 20-F, by contrast, 
requires that a foreign private issuer provide all of the information 
required by U.S. GAAP and Regulation S-X, in addition to the 
reconciling information for the line items specified in Item 17.\92\ 
Foreign private issuers of investment grade rated securities are 
permitted to provide the less-extensive U.S. GAAP reconciliation 
disclosure pursuant to Item 17 in registration statements and annual 
reports.
---------------------------------------------------------------------------

    \92\ See also Foreign Issuer Reporting Enhancements, Release No. 
33-8900 (Feb. 29, 2008) [73 FR 13404] at Section III.A.
---------------------------------------------------------------------------

    The definition of ``investment grade'' is the same as in the Form 
S-3 eligibility requirements. A security is ``investment grade'' if, at 
the time of sale, at least one NRSRO has rated it in one of its generic 
rating categories that signifies investment grade. Also, a foreign 
private issuer conducting a private placement of investment grade 
securities under Regulation D can provide Item 17 information to the 
extent the issuer is able to do so in a registration statement.\93\
---------------------------------------------------------------------------

    \93\ Rule 502 requires a foreign private issuer to provide the 
same kind of information the issuer would be required to include in 
a registration statement on a form the issuer would be eligible to 
use if any sales are made to investors who are not accredited 
investors. See 17 CFR 230.502(b)(2)(i)(C).
---------------------------------------------------------------------------

    The Commission recently proposed to require foreign private issuers 
offering investment grade securities, among others, to file financial 
statements that comply with the more complete Item 18 level of 
reconciliation, thus eliminating the option of providing Item 17 
financial disclosure.\94\ The Commission reasoned that ``a 
reconciliation that includes footnote disclosures required by U.S. GAAP 
and Regulation S-X \95\ can provide important additional information.'' 
\96\ The Commission specifically requested comment, however, on whether 
foreign private issuers should continue to be permitted to provide Item 
17 financial disclosure for offerings of, and periodic reporting 
relating to, investment grade securities.\97\ We now also propose to 
remove from these requirements the components relying on investment 
grade ratings and instead permit foreign private issuers to comply with 
the less extensive U.S. GAAP reconciliation requirements under Item 17 
in a registration statement or private offering document if the issuer 
would meet the proposed Form F-3 eligibility requirements (i.e., if the 
issuer has issued (as of a date within 60 days prior to the filing of 
the registration statement) for cash more than $1 billion in non-
convertible securities, other than common equity, through registered

[[Page 40113]]

primary offerings over the prior three years).
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    \94\ See Release No. 33-8900.
    \95\ 17 CFR 210.1-01 et seq.
    \96\ Release No. 33-8900 at Section III.A.
    \97\ See Request for Comment No. 23 of Release No. 33-8900.
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Request for Comment
     If the Commission does not adopt the proposal in Release 
No. 33-8900 that would eliminate the ability of a foreign private 
issuer to comply with the less extensive U.S. GAAP reconciliation 
requirements under Item 17 for filings with respect to investment grade 
securities, should the Commission revise the requirements as proposed 
to permit a foreign private issuer to comply with the less extensive 
U.S. GAAP reconciliation requirements under Item 17 if the issuer has 
met the proposed Form F-3 eligibility criteria for debt issuers? Are 
there different criteria that should be used?
3. Form F-9
    Form F-9 allows certain Canadian issuers to register investment 
grade debt or investment grade preferred securities that are offered 
for cash or in connection with an exchange offer, and which are either 
non-convertible or not convertible for a period of at least one year 
from the date of issuance.\98\ Under the Form's requirements, a 
security is rated ``investment grade'' if it has been rated investment 
grade by at least one NRSRO, or at least one Approved Rating 
Organization (as defined in National Policy Statement No. 45 of the 
Canadian Securities Administrator).\99\ This eligibility requirement 
was adopted as part of a 1993 revision to the multijurisdictional 
disclosure system originally adopted by the Commission in 1991 in 
coordination with the Canadian Securities Administrators.\100\ 
Consistent with the Commission's proposal to reduce reliance on 
security ratings in its rules and regulations the Commission is 
proposing to eliminate the eligibility requirement of Form F-9 that 
allows Canadian issuers to register certain debt and preferred 
securities if they are rated investment grade by at least one NRSRO. As 
with our proposals regarding Forms S-3 and F-3, this requirement would 
be replaced by a requirement that the issuer has issued in the three 
years immediately preceding the filing of the Form F-9 registration 
statement at least $1 billion of aggregate principal amount of debt or 
preferred securities for cash in primary offerings registered under the 
Securities Act.
---------------------------------------------------------------------------

    \98\ Securities convertible after a period of at least one year 
may only be convertible into a security of another class of the 
issuer.
    \99\ See General Instruction I.A to Form F-9.
    \100\ See Amendments to the Multijurisdictional Disclosure 
System for Canadian Issuers, Release No. 33-7025 (Nov. 3, 1993) [58 
FR 62028]. See also Multijurisdictional Disclosure and Modifications 
to the Current Registration and Reporting System for Canadian 
Issuers, Securities Act Release No. 33-6902 (Jun. 21, 1991) [56 FR 
30036].
---------------------------------------------------------------------------

    The proposed revision would not change a Canadian issuer's ability 
to use Form F-9 to register debt or preferred securities meeting the 
requirements of current General Instruction I.A if the securities are 
rated ``investment grade'' by at least one Approved Rating Organization 
(as defined in National Policy Statement No. 45 of the Canadian 
Securities Administrators). While the proposal would still permit 
Canadian issuers to register certain securities rated investment grade 
by an Approved Rating Organization, the Commission believes this 
approach is appropriate and consistent with the Commission's intent in 
adopting the multijurisdictional disclosure system to look to form 
eligibility requirements under Canadian rules.\101\ To the extent that 
the Canadian securities regulators revise similar requirements to 
remove references to investment grade ratings, we may revise Form F-9 
to mirror those revisions.
---------------------------------------------------------------------------

    \101\ See Release No. 33-6902, section II.
---------------------------------------------------------------------------

Request for Comment
     The Commission requests comment on whether the proposed 
threshold for issuances of debt or preferred securities in the three 
years immediately preceding the filing of the registration statement is 
appropriate. Should the Form F-9 eligibility requirements continue to 
permit the use of ratings by Approved Rating Organizations? Is a 
different threshold or measurement period more appropriate for Form F-
9?
4. NRSRO Ratings Reliance in Other Forms and Rules
a. Forms S-4 and F-4 and Schedule 14A
    Issuing investment grade securities confers benefits that extend to 
other forms and rules as well. Forms S-4 and F-4 allow registrants that 
meet the registrant eligibility requirements of Form S-3 or F-3 and are 
offering investment grade securities to incorporate by reference 
certain information.\102\ Similarly, Schedule 14A permits a registrant 
to incorporate by reference if the Form S-3 registrant requirements are 
met and the registrant is offering investment grade securities.\103\ 
Because the Commission proposes to change the eligibility requirements 
in Forms S-3 and F-3 to remove references to ratings by an NRSRO, the 
Commission believes the same standard should apply to the disclosure 
options in Forms S-4 and F-4 based on Form S-3 or F-3 eligibility. That 
is, a registrant will be eligible to use Forms S-4 and F-4 to register 
non-convertible debt or preferred securities if the issuer has issued 
(as of a date within 60 days prior to the filing of the registration 
statement) for cash more than $1 billion in non-convertible securities, 
other than common equity, through registered primary offerings over the 
prior three years. Similarly, we propose to amend Schedule 14A to refer 
simply to the requirements of General Instruction I.B.2. of Form S-3, 
rather than to ``investment grade securities.''
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    \102\ See General Instruction B.1 of Forms S-4 and Form F-4.
    \103\ See Note E and Item 13 of Schedule 14A.
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b. Securities Act Rules 138, 139 and 168
    The reliance on security ratings is also evident in other 
Securities Act rules. Rules 138, 139, and 168 under the Securities Act 
provide that certain communications are deemed not to be an offer for 
sale or offer to sell a security within the meaning of Sections 
2(a)(10) \104\ and 5(c) \105\ of the Securities Act when the 
communications relate to an offering of non-convertible investment 
grade securities. These communications include the following:
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    \104\ 15 U.S.C. 77b(a)10.
    \105\ 15 U.S.C. 77e(c).
---------------------------------------------------------------------------

     Under Securities Act Rule 138, a broker's or dealer's 
publication about securities of a foreign private issuer that meets F-3 
eligibility requirements (other than the reporting history 
requirements) and is issuing non-convertible investment grade 
securities;
     Under Securities Act Rule 139, a broker's or dealer's 
publication or distribution of a research report about an issuer or its 
securities where the issuer meets Form S-3 or F-3 registrant 
requirements and is or will be offering investment grade securities 
pursuant to General Instruction I.B.2 of Form S-3 or F-3, or where the 
issuer meets Form F-3 eligibility requirements (other than the 
reporting history requirements) and is issuing non-convertible 
investment grade securities; and
     Under Securities Act Rule 168, the regular release and 
dissemination by or on behalf of an issuer of communications containing 
factual business information or forward-looking information where the 
issuer meets Form F-3 eligibility requirements (other than the 
reporting history requirements) and is issuing non-convertible 
investment grade securities.
    The Commission proposes to revise Rules 138, 139, and 168 to be 
consistent with the proposed revisions to the eligibility requirements 
in Forms S-3 and F-3 since in order to rely on these rules the issuer 
must either satisfy the public float threshold of Form S-3 or F-

[[Page 40114]]

3, or issue non-convertible investment grade securities as defined in 
the instructions to Form S-3 or F-3 as proposed to be revised.
Request for Comment
     Should the Commission revise Rules 138, 139, and 168 as 
proposed?
c. Item 1100 of Regulation AB
    Under the existing Item 1100(c) of Regulation AB,\106\ if a 
significant obligor \107\ meets the registrant requirements for Form S-
3 or Form F-3 and the pool assets relating to the obligor are non-
convertible investment grade rated securities, then an ABS issuer's 
filings may include a reference to the financial information of the 
obligor rather than presenting the full financial information of the 
obligor. The Commission now proposes to amend this provision of Item 
1100(c) to remove the ratings reference and permit incorporation by 
reference of third party financial statements if the third party meets 
the registrant requirements of Form S-3 and the pool assets relating to 
such third party are non-convertible securities, other than common 
equity, that were issued in a primary offering for cash that was 
registered under the Securities Act. The Commission believes that, for 
the most part, non-convertible securities that were issued in a 
registered offering constitute higher quality securities than 
securities issued under an exemption under, for example, Securities Act 
Rule 144A, and then subsequently exchanged for registered securities 
because such securities are subject to the Securities Act.
---------------------------------------------------------------------------

    \106\ 17 CFR 229.1100(c).
    \107\ The term ``significant obligor'' is defined in Item 
1101(k) of Regulation AB [17 CFR 229.1101(k)].
---------------------------------------------------------------------------

Request for Comment
     Should the Commission revise Item 1100 of Regulation AB as 
proposed? If not, explain why?
d. Items 1112 and 1114 of Regulation AB
    Items 1112 and 1114 of Regulation AB require the disclosure of 
certain financial information regarding significant obligors of an 
asset pool and significant credit enhancement providers relating to a 
class of asset-backed securities. An instruction to Item 1112(b)\108\ 
provides that no financial information on a significant obligor, 
however, is required if the obligations of the significant obligor as 
they relate to the pool assets are backed by the full faith and credit 
of a foreign government and the pool assets are investment grade 
securities. Item 1114 of Regulation AB contains a similar instruction 
that relieves an issuer from providing financial information when the 
obligations of the credit enhancement provider are backed by a foreign 
government and the enhancement provider has an investment grade rating. 
Under both Items 1112 and 1114, to the extent that pool assets are not 
investment grade securities, information required by paragraph (5) of 
Schedule B of the Securities Act may be provided in lieu of the 
required financial information.\109\
---------------------------------------------------------------------------

    \108\ Instruction 2 to 17 CFR 229.1112(b).
    \109\ Paragraph 5 of Schedule B requires disclosure of three 
years of the issuer's receipts and expenditures classified by 
purpose in such detail and form as the Commission prescribes.
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    We are now proposing to revise these instructions so that these 
exceptions based on investment grade ratings to the requirements of 
Items 1112 and 1114 of Regulation AB would no longer apply and 
information required by paragraph (5) of Schedule B would be required 
in all situations when the obligations of a significant obligor are 
backed by the full faith and credit of a foreign government. We are not 
aware of any benchmark comparable to an investment grade rating here 
and the requirement would not impose substantial costs or burdens to an 
ABS issuer, as such information should be readily available.
Request for Comment
     Should the Commission revise the instructions that rely on 
investment grade ratings in Items 1112 and 1114, as proposed? In the 
alternative, should the Commission instead permit issuers to omit all 
information relating to the obligors and credit enhancement providers 
when the obligations are backed by the full faith and credit of the 
foreign government? Are there any risks in doing so? Should the 
Commission allow incorporation by reference of the information required 
by paragraph (5) of Schedule B of the Securities Act in lieu of 
providing the information to the extent such information is contained 
in a filing with the Commission?
     Are there any other provisions in Regulation AB or other 
rules applicable to asset-backed securities that should be revised?

C. The Commission's Policy on Security Ratings

    As noted above, in 1981 the Commission issued its policy on 
disclosure of security ratings, articulated in Item 10(c) of Regulation 
S-K,\110\ that permits, but does not require, issuers to disclose in 
Commission filings security ratings assigned by credit rating agencies 
to classes of debt securities, convertible debt securities, and 
preferred stock.\111\ In 1994, the Commission proposed to change from 
permissible to mandated disclosure of security ratings.\112\ While the 
Commission did not adopt mandatory disclosure at that time, it signaled 
concerns relating to adequate disclosure to the markets regarding new 
financial products and security ratings. In the proposal we noted the 
dramatic proliferation in the types of securities offered in the 
marketplace with the development of the market for mortgage- and asset-
backed securities and other highly structured or derivative financial 
obligations. In response to the growth of this market, we adopted new 
and amended rules and forms to address comprehensively the 
registration, disclosure, and reporting requirements for asset-backed 
securities.\113\ The adoption of Regulation AB in 2004 codified 
disclosure requirements and assisted in providing more disclosure with 
greater comparability for investors in the asset-backed securities 
markets. While the adoption of Regulation AB has enhanced the 
disclosure about asset-backed securities, it did not significantly 
address securities ratings disclosure.
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    \110\ 17 CFR 229.10(c).
    \111\ See the Integrated Disclosure Release. See also Release 
No. 33-6336. The release indicated that a debt rating was simply 
``an evaluation of the likelihood that an issuer will be able to 
make timely interest payments and will be able to repay principal.''
    \112\ See the 1994 Ratings Release.
    \113\ Release No. 33-8518.
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    Because mandating disclosure of, and about, securities ratings 
might unduly emphasize or over rely on ratings, the Commission is at 
this time retaining the current Item 10(c) policy on security ratings, 
with minor changes to accommodate our proposed changes to Rule 
436(g),\114\ which asks registrants to consider, but does not require, 
certain additional disclosure if a registration statement includes 
disclosure of a rating. While the Commission has not determined to 
propose mandatory disclosure, we are again requesting comment as to 
whether we should require disclosure by issuers regarding ratings in 
their Securities Act registration statements and their Exchange Act 
periodic reports. The goal of such disclosure requirements would be to 
enhance security rating disclosure so that investors are better able to 
understand the terms of a security rating and the limitations on the 
rating.
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    \114\ 17 CFR 230.436(g).
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    We are proposing to amend Rule 436(g) so that applicability would 
no longer be limited to just NRSROs.

[[Page 40115]]

Securities Act Rule 436(g)\115\ provides that a security rating 
assigned to a class of debt securities, a class of convertible debt 
securities, or a class of preferred stock is not a part of a 
registration statement prepared or certified by a person or a report or 
valuation prepared or certified by a person within the meaning of 
sections 7 and 11 of the Securities Act. We propose to amend the 
reference to ``nationally recognized statistical rating organization'' 
in Rule 436(g) to expand the relief to any ``credit rating agency'' as 
defined in 15 U.S.C. 78c(a)(61). By proposing to permit issuers to 
disclose security ratings provided by any credit rating agency without 
requiring consents, the Commission believes this relief may foster 
competition between credit rating agencies.\116\
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    \115\ 17 CFR 230.436(g).
    \116\ See also Section II.B.1 of the 1994 Ratings Release where 
the Commission requested comment on eliminating the consent 
requirement for credit rating agencies that are not NRSROs.
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Request for Comment
     Prior to 1981 the Commission precluded disclosure 
regarding security ratings in registration statements under the 
Securities Act. Should we revise our disclosure policy to prohibit 
disclosure of security ratings in an issuer's Securities Act 
registration statements or Exchange Act periodic reports? Should we 
simply delete Item 10(c) and provide no established disclosure policy 
regarding credit ratings?
     In 1994, the Commission noted ``the extensive use of, and 
reliance on, ratings, and the wide disparity in the meaning and 
significance of the rating'' as important factors in its decision to 
propose mandated disclosure.\117\ In light of the recent turmoil in the 
credit markets, some of the factors for the proposed disclosure may be 
no less of concern today than they were in 1994. Should the Commission 
require disclosure like the disclosure we currently recommend in Item 
10(c) of Regulation S-K in order to enhance issuers' security rating 
disclosure so that investors are better able to understand the terms of 
a security rating and the limitations on that rating? Would requiring 
disclosure of a security rating place the Commission's ``official seal 
of approval'' on security ratings such that it could adversely affect 
the quality of due diligence and investment analysis?
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    \117\ See Section II.A of the 1994 Proposing Release.
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     Item 10(c) of Regulation S-K currently refers to 
``security ratings'' while the 2006 Credit Rating Agency Reform Act 
added the definition of ``credit rating'' to the Exchange Act, which 
means an assessment of the creditworthiness of an obligor as an entity 
or with respect to specific securities or money market instruments. 
Should we revise the reference to ``security rating'' in Item 10(c) to 
refer to ``credit rating'' instead? Would such a revision increase or 
decrease the scope of ratings covered by 10(c)? Would such a change 
limit the types of ratings that could be disclosed in a registration 
statement? In particular, are there any types of ratings that are 
issued that would not be covered by the term ``credit rating,'' 
particularly for ABS or structured products that should be covered by 
Item 10(c)? Are there any other changes we should make to Item 10(c) to 
align it with the Credit Rating Agency Reform Act or otherwise 
modernize it? For instance, should we specifically delineate structured 
products and asset-backed securities in the list of securities covered 
by the item since it currently only lists debt securities, convertible 
debt securities and preferred stock?
     While Item 10(c) currently only recommends disclosure, 
commenters on the 1994 Ratings Release expressed that most issuers 
provide this disclosure in their Securities Act filings. Do issuers 
generally provide this disclosure today? Is disclosure about an 
issuer's securities rating appropriate disclosure for their Securities 
Act filings? Is it appropriate disclosure for their periodic Exchange 
Act filings? Is there any reason that this disclosure should only be 
recommended rather than required?
     In addition to the information Item 10(c) currently 
recommends disclosure regarding security ratings would it be valuable 
for investors to have additional disclosure of all material scope 
limitations of the rating and any related designation (or other 
published evaluation) of non-credit payment risks assigned by the 
rating agency with respect to the security assist investors in better 
understanding the credit rating and assessing the risks of an 
investment in the securities? What additional disclosure would be 
helpful to investors in making these assessments?
     If we were to mandate security rating disclosure, should 
disclosure be required for any published designation that reflects the 
results of any evaluation, other than a credit risk evaluation, done by 
a credit rating agency? Should disclosure be required for any 
evaluation by a credit rating agency that is communicated to the 
issuer, regardless of whether it is published?
     If the Commission were to require security rating 
disclosure, when should an issuer be required to provide that 
disclosure? In 1994, we proposed to require disclosure: if a registrant 
has obtained a security rating from an NRSRO with respect to a class of 
securities being registered under the Securities Act; if the rating is 
used in the offer or sale of the securities by any participant in an 
offering; or if the registrant voluntarily discloses a security rating. 
Should disclosure about the security rating be required under those 
circumstances? If not, under what circumstances, if any, should 
disclosure be required?
     Should we require disclosure of unsolicited ratings? It 
has been suggested that such ratings may not reflect the level of 
information on the security that is reflected in a solicited rating, at 
least in part because of a lack of access to the issuer by the 
unsolicited credit rating agency.\118\ Is there a difference between 
solicited and unsolicited ratings such that they should be treated 
disparately? Should it matter if the issuer uses the unsolicited rating 
in the offer and sale of the securities being rated? If we were to 
require disclosure of unsolicited ratings, should there be limitations 
on how many ratings or which credit rating agencies ratings should be 
required to be disclosed? At what point would this create too great a 
burden on the issuer?
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    \118\ However, in the corollary release amending rules for 
NRSROs, the Commission proposed various changes to Exchange Act Rule 
17g-5 [17 CFR 240.17g-5] that would provide the opportunity for 
other credit rating agencies to use the information to develop 
``unsolicited ratings'' for certain rated asset-backed securities. 
See proposed amendments to Rule 17g-5 in Release No. 34-57967 (Jun. 
16, 2008).
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     In Release 34-57967, we expressed our concerns about 
ratings shopping by issuers and the potential for credit rating 
agencies to use less conservative rating methodologies in order to gain 
business, presumably lessening the value of the ratings. If an issuer 
would be required to provide ratings disclosure where the issuer has 
obtained either a preliminary security rating or a final security 
rating from a rating agency, would such disclosure enhance investors' 
understanding of, and therefore the value of, the ratings? Would it 
help to address our concerns with ratings shopping? If you do not 
believe such disclosure would be helpful, how would you suggest that we 
address these concerns? Should we include a disclosure requirement for 
indications of a rating prior to a preliminary rating? Would disclosure 
of indication from a credit rating agency of a likely or possible 
rating be appropriate?

[[Page 40116]]

     If we were to interpret that a security rating is 
``obtained'' if: it is solicited by or on behalf of an issuer from a 
credit rating agency; or the issuer pays a credit rating agency for 
services related to a rating issued by that credit rating agency, would 
the standard capture sufficient disclosure about an issuer's security 
ratings and the credit rating agencies that have issued them? Could 
that lead to non-substantive or procedural modifications to the 
practice of assigning ratings so that issuers could avoid the 
disclosure requirement? Would that lead to disclosure of security 
ratings that would not be useful to investors? What standard would 
provide the most useful information for investors? Could this threshold 
lead to ratings being obtained in connection with an offering but not 
being disclosed?
     In the 1994 Ratings Release, we proposed to require 
issuers to disclose any material differences between the terms of the 
security as assumed in rating the security and (1) the terms of the 
security as specified in the governing instruments, and (2) the terms 
of the security as marketed to investors. The terms of the securities 
are required to be disclosed in the prospectus, a prospectus 
supplement, or a post-effective amendment, as applicable. Would this 
disclosure assist investors? Would requiring this disclosure in 
periodic filings assist investors in the secondary market in making 
their investment decisions?
     Having previously proposed requiring material changes in 
security ratings be reported on Form 8-K under the Exchange Act,\119\ 
we recognize that such security rating changes can be important 
information to an investor in making investment and voting decisions. 
We note, however, that issuer-paid rating agencies make their rating 
designations public. The current failures of security ratings, 
particularly in the asset-backed securities markets, have led us to re-
evaluate the required level of disclosure regarding security ratings. 
Would requiring detailed current and/or periodic reporting of an 
issuer's security ratings provide investors and the markets sufficient, 
timely information about an issuer's security ratings to assist them in 
making their investment decisions? Would a Form 8-K provide investors 
with material and timely information about an issuer's security ratings 
and changes in those ratings? Would periodic reports on Form 10-K, Form 
20-F, Form 10-Q and Form 10-D provide investors with material and 
timely information about an issuer's security ratings and changes in 
those ratings? Is the information that would be provided regarding a 
material change in a rating in a Form 8-K already provided by the 
credit rating agency? Would a Form 8-K be unduly burdensome? Should a 
Form 8-K requirement be limited to solicited ratings? If a credit 
rating agency does not publicly disclose the security rating of an 
issuer's securities, should we require disclosure of the rating in a 
Form 8-K or in the issuer's periodic reports? How would the existence 
of subscriber paid credit rating agencies affect your response?
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    \119\ See the 1994 Ratings Release and Release No. 33-8106.
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     We are only proposing to amend Item 10(c) to remove 
references to consents in conjunction with our proposed amendments to 
Rule 436(g) to no longer requiring consents from any credit rating 
agencies for inclusion of their ratings in an issuer's registration 
statement. Should there be a written consent requirement? Would a 
written consent requirement create any issues if the Commission were to 
require disclosure regarding those ratings? Would issuers find it 
problematic or costly to obtain consents?
     Should we require the consent of a credit rating agency 
for the use of its security rating by an issuer? What would be the 
additional costs of such a requirement? Would a consent requirement 
result in fewer ratings being obtained?
     Should we continue to limit the consent requirement to 
non-NRSROs as our rules currently do? Does our proposed regulatory 
oversight and additional disclosure regarding the ratings process and 
results of ratings justify allowing the use of NRSROs ratings without 
requiring consents? Would such a provision provide a ``seal of 
approval'' for NRSROs? Would there be any competitive effect on non-
NRSRO credit rating agencies?
     Are there any issues with periodic disclosure regarding 
security ratings that are particular to ABS issuers? For instance, how 
would the responsibility to monitor changes or development in security 
ratings impact ABS offerings?

D. Other Rules Referencing Security Ratings

    Other rules under the Securities Act also reference security 
ratings assigned by NRSROs. Rule 134(a)(17)\120\ permits the disclosure 
of security ratings in certain communications deemed not to be a 
prospectus or free writing prospectus. We are not proposing to 
eliminate this reference to security ratings in our rules. However, we 
are proposing to revise the rule to allow for disclosure of ratings 
assigned by any credit rating agency, not just NRSROs. In addition, 
disclosure must also note that the credit rating agency is not an 
NRSRO, if that is the case.
---------------------------------------------------------------------------

    \120\ 17 CFR 230.134(a)(17).
---------------------------------------------------------------------------

    Under Rule 100(b)(2) of Regulation FD, disclosures to an entity 
whose primary business is the issuance of security ratings are excluded 
from coverage provided the information is disclosed solely for the 
purpose of developing a credit rating and the entity's ratings are 
publicly available. We believe this exception for disclosures to credit 
rating agencies is appropriate given the purpose of Regulation FD and 
are therefore not proposing to revise that provision.
Request for Comment
     Should we continue to allow disclosure of security ratings 
in ``tombstones'' to be deemed not to be a prospectus or free writing 
prospectus? Is it appropriate to allow such disclosure of a security 
rating by any credit rating agency and not limit the allowance to 
NRSROs? If the credit rating agency is not an NRSRO, is it appropriate 
to require additional disclosure to that effect?
     Should we revise Rule 100(b)(2) of Regulation FD to 
eliminate the requirement that the entity's ratings be publicly 
available or to require public disclosure of information submitted to 
credit rating agencies by issuers? If so, please explain the basis for 
recommending the change and discuss how to implement such changes.
     How would requiring disclosure under Regulation FD affect 
security ratings?

III. General Request for Comments

    We request and encourage any interested person to submit comments 
regarding:
     The proposed amendments that are the subject of this 
release;
     Additional or different changes; or
     Other matters that may have an effect on the proposals 
contained in this release.
    We request comment from the point of view of companies, investors, 
and other market participants. With regard to any comments, we note 
that such comments are of great assistance to our rulemaking initiative 
if accompanied by supporting data and analysis of the issues addressed 
in those comments.
    In addition, we request comment on the following:
     Should the Commission include a phase-in for issuers 
beyond the effective date to accommodate pending offerings?

[[Page 40117]]

If so, should a phase-in apply only to particular rules, such as Form 
S-3 eligibility? As proposed, compliance with the new standards would 
begin on the effective date of the new rules. Will a significant number 
of issuers have their offerings limited by the proposed rules? If a 
phase-in is appropriate, should it be for a certain period of time or 
only for the term of a pending registration statement?
     What impact on competition should the Commission expect 
were it to adopt the proposed non-convertible debt eligibility 
requirements? Would any issuers that currently take advantage, or are 
eligible to take advantage of the investment grade condition and are 
planning to do so, be adversely affected? Is the ability to offer debt 
off the shelf a significant competitive advantage that the Commission 
should be concerned about limiting to only large debt issuers?

IV. Paperwork Reduction Act

A. Background

    Certain provisions of the proposed rule amendments contain a 
``collection of information'' within the meaning of the Paperwork 
Reduction Act of 1995 (PRA).\121\ The Commission is submitting these 
proposed amendments and proposed rules to the Office of Management and 
Budget (OMB) for review in accordance with the PRA. An agency may not 
conduct or sponsor, and a person is not required to comply with, a 
collection of information unless it displays a currently valid control 
number. The titles for the collections of information are: \122\
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    \121\ 44 U.S.C. 3501 et seq. ; 5 CFR 1320.11.
    \122\ The paperwork burden from Regulation S-K and S-B is 
imposed through the forms that are subject to the requirements in 
those regulations and is reflected in the analysis of those forms. 
To avoid a Paperwork Reduction Act inventory reflecting duplicative 
burdens and for administrative convenience, we assign a one-hour 
burden to Regulation S-K.
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    ``Regulation S-K'' (OMB Control No. 3235-0071);
    ``Regulation C'' (OMB Control No. 3235-0074);
    ``Form S-1'' (OMB Control No. 3235-0065) ;
    ``Form S-3'' (OMB Control No. 3235-0073);
    ``Form S-4'' (OMB Control No. 3235-0324);
    ``Form F-1'' (OMB Control No. 3235-0258);
    ``Form F-3'' (OMB Control No. 3235-0256); and
    ``Form F-4'' (OMB Control No. 3235-0325).
    We adopted all of the existing regulations and forms pursuant to 
the Securities Act or the Exchange Act. These regulations and forms set 
forth the disclosure requirements for periodic reports and registration 
statements that are prepared by issuers to provide investors with 
information to make investment decisions in registered offerings and in 
secondary market transactions. Our proposed amendments to existing 
forms and regulations are intended to replace rule and form 
requirements of the Securities Act and the Exchange Act that rely on 
security ratings with alternative requirements.
    The hours and costs associated with preparing disclosure, filing 
forms, and retaining records constitute reporting and cost burdens 
imposed by the collection of information. There is no mandatory 
retention period for the information disclosed, and the information 
disclosed would be made publicly available on the EDGAR filing system.

B. Summary of Collection of Information Requirements

    The threshold we are proposing for issuers of non-convertible 
securities who are otherwise ineligible to use Form S-3 or Form F-3 to 
conduct primary offerings because they do not meet the aggregate market 
value requirement is designed to capture those issuers with an active 
market following. The Commission expects that under the proposed 
threshold, approximately the same number of issuers who are currently 
eligible will be eligible to register on Form S-3 or Form F-3 for 
primary offerings of non-convertible securities for cash. In addition, 
because these proposed amendments relate to those forms' eligibility 
requirements, rather than the disclosure requirements, the Commission 
does not expect that the proposed revisions will impose any new 
material recordkeeping or information collection requirements. Issuers 
may be required to ascertain the aggregate principal amount of non-
convertible securities issued in registered primary offerings for cash, 
but the Commission believes that this information should be readily 
available and easily calculable.
    Our proposed amendments to Form S-3 and Rule 415 for ABS offerings 
is intended to limit the investors purchasing asset-backed securities 
in a delayed offering and off a short-form registration statement to 
sophisticated and experienced investors without creating an undue 
detriment to the liquidity of the asset-backed securities market. The 
Commission expects preliminarily that the proposed amendments for ABS 
offerings would not substantially change the number of ABS issuers 
registering their offerings on Form S-3.\123\
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    \123\ As noted above, we have identified two areas of exception: 
unit repackagings and securitizations of insurance funding 
agreements. We do not believe that changes in these areas would 
substantially change the number of issuers that would be eligible 
under the proposed Form S-3 eligibility requirement for ABS 
offerings.
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C. Paperwork Reduction Act Burden Estimates

    For purposes of the Paperwork Reduction Act, we estimate that there 
will be no annual incremental increase in the paperwork burden for 
issuers to comply with our proposed collection of information 
requirements.

D. Solicitation of Comments

    We request comments in order to evaluate: (1) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information would 
have practical utility; (2) the accuracy of our estimate of the burden 
of the proposed collection of information; (3) whether there are ways 
to enhance the quality, utility, and clarity of the information to be 
collected; and (4) whether there are ways to minimize the burden of the 
collection of information on those who are to respond, including 
through the use of automated collection techniques or other forms of 
information technology.\124\
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    \124\ We request comment pursuant to 44 U.S.C. 3506(c)(2)(B).
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    Any member of the public may direct to us any comments concerning 
the accuracy of these burden estimates and any suggestions for reducing 
these burdens. Persons submitting comments on the collection of 
information requirements should direct the comments to the Office of 
Management and Budget, Attention: Desk Officer for the Securities and 
Exchange Commission, Office of Information and Regulatory Affairs, 
Washington, DC 20503, and should send a copy to Secretary, Securities 
and Exchange Commission, 100 F Street, NE., Washington, DC 20549-1090, 
with reference to File No. S7-18-08. Requests for materials submitted 
to OMB by the Commission with regard to these collections of 
information should be in writing, refer to File No. S7-18-08, and be 
submitted to the Securities and Exchange Commission, Records 
Management, Office of Filings and Information Services, 100 F Street, 
NE., Washington, DC 20549. OMB is required to make a decision 
concerning the collection of information between 30 and 60 days after 
publication of this

[[Page 40118]]

release. Consequently, a comment to OMB is best assured of having its 
full effect if OMB receives it within 30 days of publication.

V. Cost-Benefit Analysis

A. Proposed Amendments

    The Commission is sensitive to the costs and benefits imposed by 
its rules. We have identified certain costs and benefits of the 
proposed amendments and request comment on all aspects of this cost-
benefit analysis, including identification and assessment of any costs 
and benefits not discussed in this analysis. We seek comment and data 
on the value of the benefits identified. We also welcome comments on 
the accuracy of the cost estimates in each section of this analysis, 
and request that commenters provide data that may be relevant to these 
cost estimates. In addition, we seek estimates and views regarding 
these costs and benefits for particular covered institutions, including 
small institutions, as well as any other costs or benefits that may 
result from the adoption of these proposed amendments.
    As discussed above, the proposed rule amendments are designed to 
address the risk that the reference to and use of NRSRO ratings in our 
rules is interpreted by investors as an endorsement of the quality of 
the credit ratings issued by NRSROs, and may encourage investors to 
place undue reliance on the NRSRO ratings. Today's proposals seek to 
replace rule and form requirements of the Securities Act and the 
Exchange Act that rely on security ratings by NRSROs with alternative 
requirements that do not rely on ratings.
    The Commission is proposing to revise the transaction eligibility 
requirements of Forms S-3, F-3, and F-9. Currently, these forms allow 
issuers who do not meet the forms' other transaction eligibility 
requirements to register primary offerings of non-convertible 
securities for cash if such securities are rated investment grade by an 
NRSRO.\125\ The proposed rules would replace the current eligibility 
requirement with a requirement that for primary offerings of non-
convertible securities for cash, an issuer must have issued in the 
three years (as of a date within 60 days prior to the filing of the 
registration statement) at least $1 billion aggregate principal amount 
of non-convertible securities, other than common equity, in registered 
primary offerings for cash. In addition, the Commission proposes to 
replace the Form S-3 eligibility requirement for ABS offerings to 
require that initial sales of eligible offerings be made only to 
qualified institutional buyers and that initial and subsequent resales 
of the securities in the eligible offerings be made only in 
denominations of at least $250,000. In conjunction with this proposal, 
the Commission proposes to amend Rule 415 to provide for delayed 
offerings of mortgage related securities, regardless of the security 
ratings, only if they meet the same criteria as proposed for ABS 
offerings on Form S-3.
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    \125\ The proposed revisions to Form F-9 would eliminate a 
Canadian issuer's ability to rely on security ratings by NRSROs, but 
would continue to rely on ratings issued by Approved Rating 
Organizations, as defined in National Policy Statement No. 45 of the 
Canadian Securities Administrator.
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    Currently, issuers are required to obtain consent from a rating 
agency that is not an NRSRO for disclosure of a security rating issued 
by that rating agency in a registration statement or report. The 
Commission is also proposing to amend Securities Act Rule 436(g) and 
related rules to expand the relief from the consent requirements for 
security ratings currently provided to NRSROs to other credit rating 
agencies that are not NRSROs. In addition, the proposed revision to 
Rule 134 of the Securities Act would permit an issuer to disclose the 
security rating of any credit rating agency, but would require an 
issuer to provide, if it elects to include a security rating in a 
communication under Rule 134, a statement as to whether the entity 
issuing the rating is an NRSRO.

B. Benefits

    The Commission anticipates that one of the primary benefits of the 
proposed amendments, if adopted, would be the benefit to investors of 
reducing their possible undue reliance on NRSRO ratings that could be 
caused by references to NRSROs in our rules. An over-reliance on 
ratings can inhibit independent analysis and could possibly lead to 
investment decisions that are based on incomplete information. The 
purpose of the proposed rule amendments is to encourage investors to 
examine more than a single source of information in making an 
investment decision. Eliminating reliance on ratings in the 
Commission's rules could also result in greater investor due diligence 
and investment analysis. In addition, the Commission believes that 
eliminating the reliance on ratings in its rules would remove any 
appearance that the Commission has placed its imprimatur on certain 
ratings.
    The Commission believes that the proposed amendments to the Form S-
3 eligibility requirements for ABS offerings and eligibility to rely on 
Rule 415(a)(vii) for mortgage-backed securities are designed to make 
shelf eligibility and short-form registration available to 
sophisticated and experienced investors. The proposed requirement to 
permit initial sales only to qualified institutional buyers is intended 
to limit the market to investors who understand the risks involved with 
an ABS offering. The proposed requirement that initial sales and 
subsequent resales of the securities are in minimum denominations of 
$250,000 is designed to limit offerings to investors with such capital, 
increasing the probability that these investors have the resources to 
analyze and comprehend the risks involved with an investment decision 
in the ABS offering. As with the other amendments to our rules and form 
requirements relying on investment grade ratings, the Commission 
believes that these proposals would reduce or eliminate undue reliance 
on ratings.
    The proposed revision to Rule 134 of the Securities Act would 
require an issuer to provide, if it elects to include a security rating 
in a communication under Rule 134, a statement as to whether the entity 
issuing the rating is an NRSRO. The Commission believes that disclosure 
of this information would be beneficial to investors in evaluating the 
value of the rating.
    Under our proposed amendment to Rule 436(g), an issuer would not be 
required to obtain consent from the rating agency even with respect to 
a rating disclosed in a registration statement or report that is issued 
by a credit rating agency that is not an NRSRO. We believe that our 
proposed change would foster competition between credit rating 
agencies.\126\
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    \126\ This would be consistent with our proposed amendments to 
the rules governing NRSROs in Release No. 34-57967. As discussed in 
that release, such competition could promote ease of comparability 
between ratings.
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C. Costs

    We are proposing to revise the transaction eligibility criteria for 
registering primary offerings of non-convertible securities on short-
form registration statements. Forms S-3 and F-3 would be available to 
register primary offerings of non-convertible securities if the issuer 
has issued (as of a date within 60 days prior to the filing of the 
registration statement) for cash more than $1 billion in non-
convertible securities, other than common equity, through registered 
primary offerings over the prior three years. The proposed eligibility 
thresholds may be more difficult to ascertain for some issuers than an 
NRSRO rating and impose some

[[Page 40119]]

burden on issuers to ascertain the information. In addition, while we 
do not anticipate that fewer issuers will be eligible, to the extent 
that the proposal results in fewer issuers eligible to use Forms S-3 
and F-3 to register primary offerings of non-convertible securities, 
this could result in increased costs of preparing and filing 
registration statements.\127\ Issuers who do not meet the proposed 
threshold and are not otherwise eligible to use Forms S-3 and F-3, 
would have to register offerings on Forms S-1 or F-1. This could result 
in additional time spent in the offering process, and issuers may incur 
costs associated with preparing and filing post-effective amendments to 
the registration statement.
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    \127\ The ability to conduct primary offerings on short form 
registration statements confers significant advantages on eligible 
companies in terms of cost savings and capital formation. The time 
required to prepare Form S-3 or F-3 is significantly lower than that 
required for Forms S-1 and F-1 primarily because registration 
statements on Forms S-3 and F-3 can be automatically updated. Forms 
S-3 and F-3 permit registrants to forward incorporate required 
information by reference to disclosure in their Exchange Act 
filings.
---------------------------------------------------------------------------

    The Commission does not expect the proposed changes to Forms F-1, 
F-3 and F-4 to impact substantially the number of registrants able to 
provide information required by Item 17 of Form 20-F in lieu of Item 18 
information. However, because the Commission is proposing changes to 
the provisions of the forms that provide the eligibility requirements 
for registrants to provide Item 17 information instead of Item 18, 
registrants who do not meet the proposed criteria could incur more 
costs as a result of being required to provide Item 18 information 
instead.
    For the most part, the Commission believes that there would be 
minimal costs involved with the adoption of the proposed ABS offering 
Form S-3 eligibility requirements and eligibility to rely on Rule 
415(a)(vii) for mortgage-backed securities.\128\ Some costs may be 
incurred on the part of issuers to ensure that sales of the securities 
in an offering on Form S-3 are made only to qualified institutional 
buyers and in the prescribed denominations; however, the Commission 
believes these costs are not significant. To the extent that some 
issuers would no longer be able to use Form S-3 to register their 
offerings, those issuers may face some additional costs, such as those 
arising from no longer being able to utilize certain rules permitting 
the use of offering materials.
---------------------------------------------------------------------------

    \128\ ABS issuers generally provide the same disclosure in Form 
S-1 and Form S-3 registration statements. As such, there may not be 
the same cost concerns for ABS issuers that no longer qualify for 
registration on Form S-3 as for other issuers.
---------------------------------------------------------------------------

    The proposed revision to Rule 134 could impose a disclosure burden 
of ascertaining whether the entity is an NRSRO, but the Commission 
believes this burden is slight given the limited number of NRSROs, the 
availability of this information from public filings, and the issuer's 
relationship with the credit rating agency.

D. Request for Comments

    We seek comments and empirical data on all aspects of this Cost-
Benefit Analysis. Specifically, we ask the following:
     Are there any costs involved with tracking whether the 
initial purchaser is a qualified institutional buyer? Are most ABS 
offerings on Form S-3 sold to such purchasers? What kind of asset-
backed securities are sold to retail investors?
     Are there any costs entailed with tracking the 
denominations of the sale for the purposes of meeting the proposed ABS 
offering Form S-3 eligibility requirements?
     Would there be any significant transition costs imposed on 
issuers as a result of the proposals, if adopted? Please be detailed 
and provide quantitative data or support, as practicable.

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

    Section 23(a) of the Exchange Act \129\ requires the Commission, 
when making rules and regulations under the Exchange Act, to consider 
the impact a new rule would have on competition. Section 23(a)(2) 
prohibits the Commission from adopting any rule which would impose a 
burden on competition not necessary or appropriate in furtherance of 
the purposes of the Exchange Act. Section 2(b) of the Securities Act 
\130\ and Section 3(f) of the Exchange Act \131\ require the 
Commission, when engaging in rulemaking, to consider whether an action 
is necessary or appropriate in the public interest, and in addition, to 
consider the protection of investors and whether the action would 
promote efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \129\ 15 U.S.C. 78w(a).
    \130\ 15 U.S.C. 77b(b).
    \131\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    The proposed amendments would eliminate reliance on ratings by an 
NRSRO in various rules and forms under the Securities Act and the 
Exchange Act. If adopted, the Commission believes that these amendments 
would reduce the potential for over-reliance on ratings, and thereby 
promote investor protection. The Commission anticipates that these 
proposed amendments would improve investors' ability to make informed 
investment decisions, which will therefore lead to increased efficiency 
and competitiveness of the U.S. capital markets. The Commission expects 
that this increased market efficiency and investor confidence also may 
encourage more efficient capital formation. Specifically, the proposed 
amendments would:
     Seek to limit the investors purchasing asset-backed 
securities off a short-form registration statement to sophisticated and 
experienced investors without creating an undue detriment to the 
liquidity of the asset-backed securities market; and
     Seek to limit the issuers eligible to register primary 
offerings of non-convertible securities on Forms S-3 and F-3 and 
incorporate by reference to issuers that are actively followed by the 
markets; and
     Enhance the ability of credit rating agencies to offer 
security ratings to issuers.
The Commission solicits comment on whether the proposed amendments 
would change the Forms S-3 and F-3 eligibility requirements for 
registering primary offerings of non-convertible securities, if 
adopted, would promote or burden efficiency, competition, and capital 
formation. The Commission also requests comment on whether the proposed 
amendments would have harmful effects on investors or on issuers who 
could use Form S-3 and Form F-3 for primary offerings of non-
convertible securities, and what options would best minimize those 
effects. The Commission requests comment on whether the proposed 
changes to the eligibility requirement on Form S-3 for offerings of 
asset-backed securities would promote or burden efficiency, 
competition, and capital formation. The Commission requests comment on 
whether the proposed eligibility criterion is less efficient than using 
the current NRSRO criterion? Additionally, the Commission solicits 
comment on whether the proposed expansion of the ability of credit 
rating agencies to proffer their security ratings without being 
required to provide a consent for an issuer to disclose those ratings 
would promote or burden efficiency, competition, and capital formation. 
Finally, the Commission requests comment on the anticipated effect of 
disclosure requirements on competition in the market for credit rating 
agencies.

[[Page 40120]]

The Commission requests commenters to provide empirical data and other 
factual support for their views, if possible.

VII. Regulatory Flexibility Act Certification

    The Commission hereby certifies, pursuant to 5 U.S.C. 605(b), that 
the amendments contained in this release, if adopted, would not have a 
significant economic impact on a substantial number of small entities. 
The proposed amendments would:
     Amend the Securities Act Form S-3 eligibility requirements 
for offerings of asset-backed securities by replacing the investment 
grade component with a minimum denomination requirement for initial and 
subsequent sales and require that initial sales of classes of 
securities only be made to qualified institutional buyers;
     Amend Rule 415 of the Securities Act that references 
mortgaged related securities by adding the requirement that an initial 
and subsequent sale of such a security must meet certain minimum 
denominations, and initial sales must be made to qualified 
institutional buyers;
     Amend the Securities Act Form S-3 and Form F-3 eligibility 
requirements for primary offerings of non-convertible securities if the 
issuer has issued (as of a date within 60 days prior to the filing of 
the registration statement) for cash more than $1 billion in non-
convertible securities, other than common stock, through registered 
primary offerings, within the prior three years;
     Amend Form F-9 which requires securities to be rated 
investment grade to instead require that the issuer have issued in the 
prior three years at least $1 billion of aggregate principle amount of 
debt or preferred securities for cash in registered primary offerings;
     Amend Forms S-4 and F-4 and Schedule 14A to conform with 
the proposed Form S-3/F-3 eligibility requirements;
     Amend Securities Act Rules 138, 139, and Rules 168 to be 
consistent with the proposed Form S-3/F-3 eligibility requirements;
     Amend Item 10(c) to conform to our proposed Rule 436(g) 
changes;
     Amend Rule 134(a)(17) to allow for disclosure of ratings 
assigned by any Credit Rating Agency--not just NRSROs; and
     Amend Rule 436(g) to replace the current reference to 
``nationally recognized statistical rating organization'' with a 
reference to ``credit rating agency.''

We are not aware of any issuers that currently rely on the rules that 
we propose to change or any issuers that would be eligible to register 
under the affected rules that is a small entity. In this regard, we 
note that credit rating agencies rarely, if ever, rate the securities 
of small entities. We further note most security ratings that will be 
disclosed are expected to be ratings obtained and used by the issuer. 
Issuers are required to pay for these security ratings and the cost of 
these ratings relative to the size of a debt or preferred securities 
offering by a small entity would generally be prohibitive. Finally, 
based on an analysis of the language and legislative history of the 
Regulatory Flexibility Act, we note that Congress did not intend that 
the Act apply to foreign issuers. Accordingly, some of the entities 
directly affected by the proposed rule and form amendments will fall 
outside the scope of the Act.
    For these reasons, the proposed amendments would not have a 
significant economic impact on a substantial number of small entities.

VIII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness 
Act of 1996,\132\ a rule is ``major'' if it has resulted, or is likely 
to result in:
---------------------------------------------------------------------------

    \132\ Pub. L. No. 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the U.S. economy of $100 million or 
more;
     A major increase in costs or prices for consumers or 
individual industries; or
     Significant adverse effects on competition, investment, or 
innovation. We request comment on whether our proposal would be a 
``major rule'' for purposes of the Small Business Regulatory 
Enforcement Fairness Act. We solicit comment and empirical data on:
     The potential effect on the U.S. economy on an annual 
basis;
     Any potential increase in costs or prices for consumers or 
individual industries; and
     Any potential effect on competition, investment, or 
innovation.

IX. Statutory Authority and Text of Proposed Rule and Form Amendments

    We are proposing the amendments contained in this document under 
the authority set forth in Sections 6, 7, 10, 19(a) of the Securities 
Act and Sections 12, 13, 14, 15(d) and 23(a) of the Exchange Act.

List of Subjects in 17 CFR Parts 229, 230, 239, and 240

    Reporting and recordkeeping requirements, Securities.

    For the reasons set out in the preamble, Title 17, Chapter II of 
the Code of Federal Regulations is proposed to be amended as follows:

PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES 
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND 
CONSERVATION ACT OF 1975--REGULATION S-K

    1. The authority citation for part 229 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 
77nnn, 77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 
78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 80a-
38(a), 80a-39, 80b-11, and 7201 et seq.; 18 U.S.C. 1350, unless 
otherwise noted.
* * * * *
    2. Amend Sec.  229.10, paragraph (c)(1)(i) by:
    a. Removing the second sentence;
    b. Revising ``NRSRO'' in the third sentence to read, ``credit 
rating agency (as defined in 15 U.S.C. 78c(a)(61))''; and
    c. Revising the phrase ``Instruction to paragraph (a)(2)'' in the 
fourth sentence to read, ``paragraph A.2.(B)''.
    3. Amend Sec.  229.1100 by revising paragraph (c)(2)(ii)(B) to read 
as follows:

Sec.  229.1100 (Item 1100)  General.

* * * * *
    (c) * * *
    (2) * * *
    (ii) * * *
    (B) The third party meets the requirements of General Instruction 
I.A. of Form S-3 or General Instructions 1.A.1, 2, 3, 4, and 6 of Form 
F-3 and the pool assets relating to such third party are non-
convertible securities, other than common equity, that were issued in a 
primary offering for cash that was registered under the Securities Act.
* * * * *
    4. Amend Sec.  229.1112 by:
    a. In paragraph (b) remove Instruction 2 to Item 1112(b);
    b. Redesignating Instructions 3 and 4 to Items 1112(b) as 
Instructions 2 and 3 to Item 1112(b).
    5. Amend Sec.  229.1114 by:
    a. In paragraph (b) revise the heading for ``Instructions to Item 
1114:'' to read ``Instructions to Item 1114(b):''.
    b. Removing Instruction 3 to Item 1114.
    c. Redesignating Instructions 4 and 5 to Item 1114 as Instructions 
3 and 4 to Item 1114.

[[Page 40121]]

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

    6. The authority citation for part 230 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77b, 77c, 77d, 77f, 77g, 77h, 77j, 77r, 
77s, 77z-3, 77sss, 78c, 78d, 78j, 78l, 78m, 78n, 78o, 78t, 78w, 
78ll(d), 78mm, 80a-8, 80a-24, 80a-28, 80a-29, 80a-30, and 80a-37, 
unless otherwise noted.
* * * * *
    7. Amend Sec.  230.134 by:
    a. Revising paragraph (a)(17)(i);
    b. Redesignating paragraph (a)(17)(ii) as paragraph (a)(17)(iii); 
and
    c. Adding new paragraph (a)(17)(ii).
    The revision and addition read as follows:

Sec.  230.134  Communications not deemed a prospectus.

* * * * *
    (a) * * *
    (17) * * *
    (i) Any security rating assigned, or reasonably expected to be 
assigned, by a credit rating agency, as that term is defined in 15 
U.S.C. 78c(a)(61), and the name or names of the credit rating agencies 
that assigned or is or are reasonably expected to assign the rating(s);
    (ii) If the credit rating agency or agencies that assigned or is or 
are reasonably expected to assign the rating(s) is not a nationally 
recognized security rating organization, as that term is defined in 15 
U.S.C. 78c(a)(62), include a statement to that effect; and
* * * * *
    8. Amend Sec.  230.138 by revising paragraph (a)(2)(ii)(B)(2) to 
read as follows:

Sec.  230.138  Publications or distributions of research reports by 
brokers or dealers about securities other than those they are 
distributing.

    (a) * * *
    (2) * * *
    (ii) * * *
    (B) * * *
    (2) Is issuing non-convertible securities and the registrant meets 
the provisions of General Instruction I.B.2 of Form F-3; and
* * * * *
    9. Amend Sec.  230.139 by revising paragraphs (a)(1)(i)(A)(1)(ii) 
and (a)(1)(i)(B)(2)(ii) to read as follows:

Sec.  230.139  Publications or distributions of research reports by 
brokers or dealers distributing securities.

    (a) * * *
    (1) * * *
    (i) * * *
    (A)(1) * * *
    (ii) At the date of reliance on this section, is, or if a 
registration statement has not been filed, will be, offering non-
convertible securities and meets the requirements for the General 
Instruction I.B.2 of Form S-3 or Form F-3; or
* * * * *
    (B) * * *
    (2) * * *
    (ii) Is issuing non-convertible securities and meets the provisions 
of General Instruction I.B.2. of Form F-3; and
* * * * *
    10. Amend Sec.  230.168 by revising paragraph (a)(2)(ii)(B) to read 
as follows:

Sec.  230.168  Exemption from sections 2(a)(10) and 5(c) of the Act for 
certain communications of regularly released factual business 
information and forward-looking information.

* * * * *
    (a) * * *
    (2) * * *
    (ii) * * *
    (B) Is issuing non-convertible securities and meets the provisions 
of General Instruction I.B.2 of Form F-3; and
* * * * *
    11. Amend Sec.  230.415 by revising paragraph (a)(1)(vii) to read 
as follows:

Sec.  230.415  Delayed or continuous offering and sale of securities.

    (a) * * *
    (1) * * *
    (vii) Mortgage backed securities, including such securities as 
mortgage backed debt and mortgage participation or pass through 
certificates, provided that:
    (A) Initial sale and any resales of the securities are made in 
minimum denominations of $250,000; and
    (B) Initial sales of the securities are made only to qualified 
institutional buyers (as defined in Sec.  230.144A(a)(1)); and
    (C) Either of the following is true:
    (1) Represents ownership of one or more promissory notes or 
certificates of interest or participation in such notes (including any 
rights designed to assure servicing of, or the receipt or timeliness of 
receipt by the holders of such notes, certificates, or participations 
of amounts payable under, such notes, certificates, or participations), 
which notes:
    (i) Are directly secured by a first lien on a single parcel of real 
estate, including stock allocated to a dwelling unit in a residential 
cooperative housing corporation, upon which is located a dwelling or 
mixed residential and commercial structure, on a residential 
manufactured home as defined in section 603(6) of the National 
Manufactured Housing Construction and Safety Standards Act of 1974, 
whether such manufactured home is considered real or personal property 
under the laws of the State in which it is to be located, or on one or 
more parcels of real estate upon which is located one or more 
commercial structures; and
    (ii) Were originated by a savings and loan association, savings 
bank, commercial bank, credit union, insurance company, or similar 
institution which is supervised and examined by a Federal or State 
authority, or by a mortgage approved by the Secretary of Housing and 
Urban Development pursuant to sections 203 and 211 of the National 
Housing Act, or, where such notes involve a lien on the manufactured 
home, by any such institution or by any financial institution approved 
for insurance by the Secretary of Housing and Urban Development 
pursuant to section 2 of the National Housing Act; or
    (2) Is secured by one or more promissory notes or certificates of 
interest or participations in such notes (with or without recourse to 
the issuer thereof) and, by its terms, provides for payments of 
principal in relation to payments, or reasonable projections of 
payments, on notes meeting the requirements of paragraphs 
(a)(1)(vii)(C)(1) (i) and (ii) of this section or certificates of 
interest or participations in promissory notes meeting such 
requirements.

    Note to paragraph (a)(1)(vii): For purposes of paragraph 
(a)(1)(vii) of the section, the term ``promissory note,'' when used 
in connection with a manufactured home, shall also include a loan, 
advance, or credit sale as evidence by a retail installment sales 
contract or other instrument.

* * * * *
    12. Amend Sec.  230.436 by revising paragraph (g) and removing the 
authority citations following the section to read as follows:

Sec.  230.436  Consents required in special cases.

* * * * *
    (g) Notwithstanding the provisions of paragraphs (a) and (b) of 
this section, the security rating assigned to a class of debt 
securities, a class of convertible debt securities, or a class of 
preferred stock by a credit rating agency as defined in 15 U.S.C. 
78c(a)(61), or with respect to registration statements on Form F-9 
(Sec.  239.39 of this chapter) by any other rating organization 
specified in the Instruction to paragraph A of General Instruction I of 
Form F-9, shall not be considered a part of the registration statement 
prepared or certified by a person within the meaning of sections 7 and 
11 of the Act.

[[Page 40122]]

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

    13. The authority citation for part 239 continues to read in part 
as follows:

    Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77z-3, 
77sss, 78c, 78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll, 78mm, 80a-
2(a), 80a-3, 80a-8, 80a-9, 80a-10, 80a-13, 80a-24, 80a-26, 80a-29, 
80a-30, and 80a-37, unless otherwise noted.
* * * * *
    14. Amend Form S-3 (referenced in Sec.  239.13) by:
    a. Revising General Instructions I.B.2 and I.B.5; and
    b. Removing Instruction 3 to the signature block.
    The revisions read as follows:

    Note: The text of Form S-3 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

FORM S-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

I. Eligibility Requirements for Use of Form S-3

* * * * *

B. Transaction Requirements* * *

    2. Primary Offerings of Non-convertible Securities. Non-convertible 
securities to be offered for cash by or on behalf of a registrant, 
provided the registrant, as of a date within 60 days prior to the 
filing of the registration statement on this Form, has issued in the 
last three years at least $1 billion aggregate principal amount of non-
convertible securities, other than common equity, in primary offerings 
for cash, not exchange, registered under the Act.
* * * * *
    5. Offerings of Asset-backed Securities.
    (a) Asset-backed securities (as defined in 17 CFR 229.1101) to be 
offered for cash, provided:
    (i) Initial sales and any resales of the securities are made in 
minimum denominations of $250,000;
    (ii) Initial sales of the securities are made only to qualified 
institutional buyers (as defined in 17 CFR 230.144A(a)(1));
    (iii) Delinquent assets do not constitute 20% or more, as measured 
by dollar volume, of the asset pool as of the measurement date; and
    (iv) With respect to securities that are backed by leases other 
than motor vehicle leases, the portion of the securitized pool balance 
attributable to the residual value of the physical property underlying 
the leases, as determined in accordance with the transaction agreements 
for the securities, does not constitute 20% or more, as measured by 
dollar volume, of the securitized pool balance as of the measurement 
date.
    Instruction. For purposes of making the determinations required by 
paragraphs (a)(iii) and (a)(iv) of this General Instruction I.B.5, 
refer to the Instructions to Item 1101(c) of Regulation AB (17 CFR 
229.1101(c)).
* * * * *
    15. Amend Form S-4 (referenced in Sec.  239.25) by revising General 
Instruction B.1.a.(ii)(B) to read as follows:

    Note: The text of Form S-4 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

FORM S-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

* * * * *

B. Information With Respect to the Registrant

    1. * * *
    a. * * *
    (ii) * * *
    (B) Non-convertible debt or preferred securities are to be offered 
pursuant to this registration statement and the requirements of General 
Instruction I.B.2. of Form S-3 have been met; or
* * * * *
    16. Amend Form F-1 (referenced in Sec.  239.31) by revising Item 
4.c, including the Instructions to read as follows:

    Note: The text of Form F-1 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

FORM F-1

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *
    Item 4. Information with Respect to the Registrant and the 
Offering.
* * * * *
    c. Information required by Item 17 of Form 20-F may be furnished in 
lieu of the information specified by Item 18 thereof if:
    1. The only securities being registered are non-convertible 
securities offered for cash and the registrant, as of a date within 60 
days prior to the filing of the registration statement on this Form, 
has issued in the last three years at least $1 billion aggregate 
principal amount of non-convertible securities, other than common 
equity, in primary offerings for cash registered under the Act; or
    2. The only securities to be registered are to be offered:
    i. Upon the exercise of outstanding rights granted by the issuer of 
the securities to be offered, if such rights are granted on a pro rata 
basis to all existing security holders of the class of securities to 
which the rights attach and there is no standby underwriting in the 
United States or similar arrangement; or
    ii. Pursuant to a dividend or interest reinvestment plan; or
    iii. Upon the conversion of outstanding convertible securities or 
upon the exercise of outstanding transferable warrants issued by the 
issuer of the securities to be offered, or by an affiliate of such 
issuer.
    Instruction: Attention is directed to section 10(a)(3) of the 
Securities Act.
* * * * *
    17. Amend Form F-3 (referenced in Sec.  239.33) by:
    a. Revising General Instruction I.B.2; and
    b. Deleting Instruction 3 to the signature block.
    The revision to General Instruction I.B.2 reads as follows:

    Note: The text of Form F-3 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

FORM F-3

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

I. Eligibility Requirements for Use of Form F-3

* * * * *

B. Transaction Requirements * * *

    2. Primary Offerings of Non-convertible Securities. Non-convertible 
securities to be offered for cash provided the issuer, as of a date 
within 60 days prior to the filing of the registration statement on 
this Form, has issued in the last three years at least $1 billion 
aggregate principal amount of non-convertible securities, other than 
common equity, in primary offerings for cash, not exchange, registered 
under the Act. In the case of securities registered pursuant to this 
paragraph, the financial statements included in this registration 
statement may comply with Item 17 or 18 of Form 20-F.
* * * * *
    18. Amend Form F-4 (referenced in Sec.  239.34) by:
    a. revising General Instruction B.1(a)(ii)(B); and

[[Page 40123]]

    b. revising the following in Part I.B: Instruction 1 to Item 11 
following paragraph (a)(3); the first sentence in paragraph (b)(2) to 
Item 12; Instruction 1 to Item 13 following paragraph (b); and 
paragraph (h) to Item 14.
    The revisions read as follows:

    Note: The text of Form F-4 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

FORM F-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

* * * * *

B. Information with Respect to the Registrant

    1. * * *
    a. * * *
    (ii) * * *
    (B) Non-convertible debt or preferred securities are to be offered 
pursuant to this registration statement and the requirements of General 
Instruction I.B.2. of Form F-3 have been met; or
* * * * *

PART I--INFORMATION REQUIRED IN THE PROSPECTUS

* * * * *

B. INFORMATION ABOUT THE REGISTRANT

* * * * *
    Item 11. Incorporation of Certain Information by Reference.
* * * * *
    (a) * * *
    (3) * * *
Instructions
    1. All annual reports or registration statements incorporated by 
reference pursuant to Item 11 of this Form shall contain financial 
statements that comply with Item 18 of Form 20-F except that financial 
statements of the registrants may comply with Item 17 of Form 20-F if 
the only securities being registered are non-convertible securities 
offered for cash and the requirements of General Instruction I.B.2 of 
Form F-3 have been satisfied.
* * * * *
    Item 12. Information With Respect to F-3 Registrants.
* * * * *
    (b) * * *
    (2) Include financial statements and information as required by 
Item 18 of Form 20-F, except that financial statements of the 
registrant may comply with Item 17 of Form 20-F if the requirements of 
General Instruction I.B.2 of Form F-3 have been satisfied. * * *
* * * * *
    Item 13. Incorporation of Certain Information by Reference.
* * * * *
    (b) * * *
    Instructions
    1. All annual reports incorporated by reference pursuant to Item 13 
of this Form shall contain financial statements that comply with Item 
18 of Form 20-F, except that financial statements of the registrants 
may comply with Item 17 of Form 20-F if the only securities being 
registered are non-convertible securities offered for cash and the 
requirements of General Instruction I.B.2 of Form F-3 have been 
satisfied.
* * * * *
    Item 14. Information With Respect to Foreign Registrants Other Than 
F-3 Registrants.
* * * * *
    (h) Financial statements required by Item 18 of Form 20-F, except 
that financial statements of the registrants may comply with Item 17 of 
Form 20-F if the only securities being registered are non-convertible 
securities offered for cash and the requirements of General Instruction 
I.B.2 of Form F-3 have been satisfied, as well as financial information 
required by Rule 3-05 and Article 11 of Regulation S-X with respect to 
transactions other than that pursuant to which the securities being 
registered are to be issued (Schedules required by Regulation S-X shall 
be filed as ``Financial Statement Schedules'' pursuant to Item 21 of 
this Form); and
* * * * *
    19. Amend Form F-9 (referenced in Sec.  239.39) by:
    a. Revising General Instruction I.A;
    b. Removing Instruction D to the signature block.
    The revision reads as follows:

    Note: The text of Form F-9 does not, and this amendment will 
not, appear in the Code of Federal Regulations.

FORM F-9

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

* * * * *

GENERAL INSTRUCTIONS

I. Eligibility Requirements for Use of Form F-9

    A. Form F-9 may be used for the registration under the Securities 
Act of 1933 (the ``Securities Act'') for an offering of debt or 
preferred securities if:
    (1) The debt or preferred securities to be offered are:
    (A) Offered for cash or in connection with an exchange offer; and
    (B) Either non-convertible or not convertible for a period of at 
least one year from the date of issuance and, except as noted in E. 
below, are thereafter only convertible into a security of another class 
of the issuer; and
    (2) Either of the following is true:
    (A) The registrant, as of a date within 60 days prior to the filing 
of the registration statement on this Form, has issued in the last 
three years at least $1 billion of aggregate principal amount of debt 
or preferred securities for cash in primary offerings registered under 
the Act; or
    (B) The securities are investment grade debt or investment grade 
preferred securities. Securities shall be ``investment grade'' for 
purposes of this requirement if, at the time of sale, at least one 
Approved Rating Organization (as defined in National Policy Statement 
No. 45 of the Canadian Securities Administrator, as the same may be 
amended from time to time) has rated the security in one of its generic 
rating categories that signifies investment grade; typically the four 
highest rating categories (within which there may be subcategories or 
gradations indicating relative standing) signify investment grade.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

    20. The authority citation for part 240 continues to read in part 
as follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise 
noted.
* * * * *
    21. Amend Sec.  240.14a-101 by revising Note E(2)(ii) to read as 
follows:

Sec.  240.14a-101  Schedule 14A. Information required in proxy 
statement.

* * * * *
Notes
* * * * *
    E. * * *
    (2) * * *
    (ii) Action is to be taken as described in Items 11, 12, and 14 of 
this schedule which concerns non-convertible debt or preferred 
securities issued by a registrant meeting the requirements of General 
Instruction I.B.2 of Form S-3; or
* * * * *

    By the Commission.

[[Page 40124]]

    Dated: July 1, 2008.
Florence E. Harmon,
Acting Secretary.
[FR Doc. E8-15281 Filed 7-10-08; 8:45 am]

BILLING CODE 8010-01-P