SEC Requests Comments on Derivatives, Asset-Backed Securities, and Mortgage Pools
- On August 31, 2011, the Securities and Exchange Commission (the "SEC") held an open meeting (the "Meeting") where the Commissioners unanimously approved (1) a Concept Release related to the use of derivatives by investment companies (the "Derivatives Concept Release"), (2) an Advance Notice of Proposed Rulemaking (the "ANPR") to amend Rule 3a-7 under the Investment Company Act of 1940 ("1940 Act"), and (3) a Concept Release related to companies that acquire mortgages and mortgage related instruments (the "Mortgage Concept Release"). Comments on each release will be due 60 days after publication in the Federal Register.
Below is an overview of what transpired at the Meeting.
Derivatives Concept Release
In opening remarks, Chairman Schapiro noted that the SEC has embarked on a holistic review of the regulatory framework for derivatives. She indicated that the 1940 Act was conceived of at a time when derivatives, as we know them today, did not exist and that, for example, provisions under the 1940 Act pertaining to leverage were drafted with an eye toward stocks and bonds.
The Derivatives Concept Release discusses and seeks comment from industry participants and investors on the following areas of the 1940 Act, as they relate to derivative use by investment companies:
* Senior securities
* Securities-related issuers
The Commissioners in attendance had no questions for the SEC staff who provided an overview of the Derivatives Concept Release. The Derivatives Concept Release is available at
The SEC is seeking comment on possible amendments to Rule 3a-7 under the 1940 Act with respect to the issuers of asset-backed securities. For example, among other things, the ANPR would remove credit ratings references under Rule 3a-7, and in the process, supersede a similar SEC proposal from 2008. The ANPR is also seeking comment on the impositions of conditions under Rule 3a-7 related to self-dealing, valuation, and safekeeping of assets. Finally, under the ANPR, the SEC is also seeking comment on interpretative issues related to the reliance of asset-backed securities issuers on Section 3(c)(5) under the 1940 Act.
The Commissioners in attendance had no substantive questions for the SEC staff who provided an overview of the ANPR. The ANPR is available at
Mortgage Concept Release
The SEC is seeking comment on the reliance of companies in the business of acquiring mortgages and mortgage related instruments on the exclusion under Section 3(c)(5)(c) (the "Exclusion") of the 1940 Act. Because the mortgage industry has evolved in recent years, the SEC is considering interpretative guidance on the use of the Exclusion by these companies. In developing an approach to this issue, the SEC has four goals in mind, including (1) ensuring the Exclusion is consistent with Congressional intent, (2) making certain the Exclusion is consistent with the purposes of the 1940 Act and the public interest, (3) providing greater certainty and clarity with respect to the Exclusion, and (4) promoting capital formation.
The Commissioners in attendance had no questions for the SEC staff who provided an overview of the Mortgage Concept Release. The Mortgage Concept Release is available at
Aaron T. Gilbride, Esquire
Stradley Ronon Stevens & Young, LLP
p: 202.419.8423 | f: 202.822.0140
1250 Connecticut Avenue, N.W., Suite 500
Washington, DC 20036-2652