The Securities and Exchange Commission (SEC) issued a temporary order yesterday allowing foreign ABS issuers to sell ABS to foreign investors without complying with the SEC’s new rule 17g-5.
ASR earlier reported that foreign ABS players are left to grapple with this issue especially because the SEC did not give any sort of opinion as to the consistency of its legislative authority to regulate deals happening outside the U.S.
“The SEC’s order today is welcomed by securitization issuers around the globe, who, when seeking to sell only to foreign investors, would have had to comply with U.S. securities regulation, solely because they obtained a rating from a US regulated rating agency," said Tom Deutsch, executive director of the American Securitization Forum. "Although we support this 12-month extension of the SEC’s exemption, we look forward to further dialogue with the SEC to make this exemption permanent.”
Rule 17g-5 was adopted as part of the Credit Rating Agency Reform Act of 2006. It compels SEC-registered credit rating agencies or nationally recognized statistical rating organizations (NRSROs) to comply with certain limitations and procedures. These requirements were implemented to mitigate perceived conflicts of interest.
This particular ruling requires NRSROs paid to rate a structured finance product to get from the deal's arranger — in this case, the issuer, sponsor or underwriter-an agreement to post to a password-protected Web site all information provided in connection with the product's rating or any subsequent surveillance.
The data should be made accessible to the other NRSROs that were not hired to rate the security. The term "structured finance products" under this rule covers most ABS, MBS, CMBS, and ABCP, as well as other securities backed by pools of assets, whether or not these constitute ABS subject to the SEC's Regulation AB.