by Howard M. Goldwasser, Lloyd H. Johnson, and Drew A. Malakoff
On January 20, 2011, the
Securities and Exchange Commission (the "SEC") published a final rule
under the Securities Act of 1933 (the "Securities Act") to set
requirements for due diligence procedures and disclosure in asset-backed
securities offerings. This rule is designed to implement Section 943 of the
The new rule, Securities Act Rule 193 ("Rule 193"), requires issuers
of publicly offered asset-backed securities ("ABS") to "perform
a review of the pool assets underlying the asset-backed security." In
conjunction with Rule 193, the SEC has amended Item 1111 of Regulation AB
("Item 1111") to require that issuers also disclose the nature of the
review of the assets, the "findings and conclusions" of the review
and information regarding the amount and characteristics of assets that deviate
from the underwriting criteria.
The Final Rule is effective as of March 28, 2011, but only registered offerings
of ABS commencing with an initial bona fide offer after December 31, 2011 must
comply with the Final Rule.
Differences Between the Final Rule and the Proposed Rules
The Final Rule differs from the SEC's original proposal in three important
First, the SEC has implemented a minimum standard of review for an issuer's
ABS, which was discussed but not proposed in the Proposed Rules.
Second, a third party reviewer of an issuer's ABS pool assets may now avoid
expert liability if the issuer adopts the findings and conclusions of the third
party's review as its own. The SEC modified disclosure rules under Regulation
AB to require issuers to describe the criteria that are used to select assets,
the instances where non-complying assets are selected for the asset pool, and
the entity that made such selection.
Third, the SEC has postponed promulgation of a provision that would have
required issuers or underwriters of ABS to make publicly available the findings
and conclusions of third party due diligence reports.[footnotes omitted]
Access the full version of "EC Final Rule --
Securitizations under Section 943 of the Dodd-Frank Act" with your
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Howard M. Goldwasser is a partner in K&L Gates LLP''s New York office. He has
more than 18 years of experience advising major U.S. and European investment and
commercial banks, hedge funds and private equity funds, investment managers, and
investors.Lloyd H. Johnson and Drew A.
Malakoff are associates at K&L Gates LLP.