SEC Proposes Rule Amendments to Remove References to Credit Ratings in Exchange Act Rules
SEC Release No. 34-64352
April 27, 2011
Pursuant to a requirement under Dodd-Frank, the SEC published a proposal to amend a number of Exchange Act rules to remove references to credit ratings in those rules. The proposal principally would amend four rules:
- Rule 15c3-1 (Net Capital) would be amended to, among other things, require firms to take a 15% haircut on proprietary positions in convertible paper, nonconvertible debt, and preferred stock unless a firm has a process in place for assessing creditworthiness that satisfies the new rule. As currently required, however, a 100% haircut would still be required for non-"ready market" securities. This aspect of the rulemaking was the subject of strong criticism from SEC Commissioner Luis Aguilar in his remarks before the SEC open meeting.
- Rule 15c3-3 (Customer Protection) would be amended to remove a reference regarding the use of customer margin for transactions in security futures products as a debit in the broker-dealers reserve formula computation.
- Reg. M Rules 101-102 to amend the exceptions for "investment grade nonconvertible and asset-backed securities" to provide criteria for assessing the creditworthiness of the securities.
- Rule 10b-10 would be amended to delete a reference requiring notification to customers of unrated debt securities.
In addition, the SEC proposal requested comments on the standards of credit-worthiness the SEC is required to set (but has not proposed) to define the terms "mortgage related security" and "small business related security," as such terms are used in the Exchange Act.
Please contact any of the following Cadwalader attorneys if you have any questions about this item:
Steven Lofchie; [email protected] Jeffrey Robins; [email protected] Maurine Bartlett; [email protected] Glen Barrentine; [email protected]
Cross References
SEC Press Release No. 2011-100
Dodd-Frank § 939(e)
Exchange Act Rules 10b-10, 15c3-1, 15c3-3
Exchange Act § 3(a)(41), 3(a)(53)
Reg. M Rules 101-102
Speech by SEC Chairman Mary Schapiro - Ratings Removal