SEC Guidance Regarding Definitions of Mortgage Related Security and Small Business Related Security (SEC Interpretation, Request for Comment)

The SEC is publishing interpretive guidance with respect tosections 3(a)(41) (the definition of “mortgage related security”) and 3(a)(53)(A) (the definition of “small business related security”) of the Exchange Act, in light of section 939(e) of the Dodd-Frank Act. Section 939(e) strikes provisions in sections 3(a)(41) and 3(a)(53)(A) of the Exchange Act that reference credit ratings issued by nationally recognized statistical rating organizations (“NRSROs”), and inserts new text that provides that in order to satisfy these definitions a security must meet “standards of credit-worthiness as established by the Commission.#8221; Because more time is needed to develop and establish standards of creditworthiness for purposes of these definitions, the SEC is providing a transitional interpretation that will be applicable on and after July 20, 2012, and until such time as final SEC rules establishing new standards of creditworthiness become effective. The SEC also is seeking comment on potential standards of creditworthiness that could be established to replace the use of NRSRO credit ratings in the definitions of the terms “mortgage related security” and “small business related security.#8221;

Effective Date: July 20, 2012

Comments Due: Comments should be received on or before [insert date 30 days after publication in the Federal Register].

Cross References: Dodd-Frank Section 939

For more information about this document, you may contact one of the following Cadwalader attorneys: Patrick T. Quinn; Michael S. Gambro; Y. Jeffrey Rotblat.

View release in full here (links externally to SEC website).