Letter to the SEC Regarding Proposed Rule: Asset Backed Securities
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REPORT
Via email: rule-comments@sec.gov
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609
Attention: Jonathan G. Katz, Secretary
Re: File No. S7-21-04
Release Nos. 33-8419 and 34-49644
Proposed Rule: Asset-Backed Securities
Ladies and Gentlemen:
This letter is submitted on behalf of both the Financial Reporting Committee and the Securities Regulation Committee of The Association of the Bar of the City of New York in response to Release Nos. 33-8419 and 34-49644, dated May 13, 2004 (the “Release”), in which the Securities and Exchange Commission (the “Commission”) published for comment the Proposed Rule: Asset-Backed Securities (the “Proposed Rule”). Our Committees are composed of lawyers with diverse perspectives on financial reporting and securities issues, including members of law firms, counsel to corporations, investment banks, investors and academics.
Our Committees’ members generally do not include practitioners with extensive expertise in the asset backed securities (“ABS”) market, so our comments tend to focus on selected sections of the Proposed Rule that we feel may be applicable to a more generalized securities practice, including possible future proposals the Commission may be considering, as well as ABS offerings. Given the length and complexity of the Proposed Rule and the short comment period, we would respectfully request that the Commission proceed slowly and cautiously, implementing selected provisions, modified as warranted by comments received, in the same manner that the Form 8-K proposals were adopted in sections, with opportunities and significant time periods for market participants to adjust to a section of significant changes before additional changes are required. We believe the Proposed Rule could easily be broken into sections for gradual implementation. We would also respectfully request that each such section, as modified to take into consideration comments received, be re-proposed for further comments before implementation. We believe the amount of time the Commission took to draft the Proposed Rule is indicative of its complexity and potentially significant impact on the ABS market, which is vital to the financial health of the US financial markets, US financial institutions, and US investors and consumers.
In addition, we respectfully request that existing transactions and all future takedowns from existing shelf registration statements that have been filed with the Commission be grandfathered under existing rules. A gradual incorporation of new regulations similar to the manner in which the plain English rules were implemented by the Commission could be helpful.
In response to the Commission’s invitation for comment, the Committees wish to encourage the Commission, in recognition of the substantial financial burden that the Proposed Rule will be imposing and the added complexity that the rule as finally adopted would entail on the ABS market, to monitor the implementation of the Proposed Rule and periodically evaluate whether rule revisions are necessary to avoid unintended outcomes with costs and complexity to the market that far exceed the anticipated benefits to investors.
