[Federal Register Volume 85, Number 99 (Thursday, May 21, 2020)]
[Notices]
[Pages 31019-31020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10929]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-88884/May 15, 2020]
Order Granting a Conditional Exemption From Exchange Act Section
11(d)(1) for Certain Asset Backed Securities and Other Collateral
The Securities and Exchange Commission (``Commission'' or ``SEC'')
is issuing an order granting an exemption from compliance with Section
11(d)(1) of the Securities Exchange Act of 1934 (``Exchange Act'')
pertaining to certain lending transactions in asset backed securities.
I. Introduction
By letter dated May 12, 2020 (the ``Letter''),\1\ the Federal
Reserve Bank of New York (``New York Fed''), has requested that the
Commission grant exemptive relief from Section 11(d)(1) of the
Securities Exchange Act of 1934 (``Exchange Act'') to permit all
brokers and dealers registered with the Commission and designated by
the New York Fed as ``TALF Agents'' (``TALF Agents'') to participate in
the Federal Reserve's 2020 Term Asset-Backed Securities Loan Facility
(``TALF 2020'') by facilitating extensions of non-recourse credit, on
behalf of a special purpose vehicle (the ``TALF SPV'') established by
the New York Fed, to purchasers of new issues of asset-backed
securities (``ABS'') that are or that may be designated as ``eligible
collateral'' in the distribution of which such TALF Agents may have
participated as member of a selling syndicate or group within the
meaning of Section 11(d)(l).
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\1\ Letter from Michael Held, General Counsel and Executive Vice
President, Federal Reserve Bank of New York to Vanessa Countryman,
Secretary, Securities and Exchange Commission, dated May 12, 2020.
Each defined term in this order has the same meaning as defined in
the Letter, unless otherwise noted.
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II. Discussion
Section 11(d)(1) of the Exchange Act generally prohibits a person
that is both a broker and a dealer from extending or maintaining
credit, or arranging for the extension or maintenance of credit, to or
for a customer on any security (other than an exempted security) that
was part of a distribution of a new issue of securities in which the
broker-dealer participated as a member of a selling syndicate or group
within thirty days prior to such transaction.
The TALF 2020 is intended to support the provision of credit to
consumers and businesses by enabling the issuance of ABS backed by
private student loans, auto loans and leases, consumer and corporate
credit card receivables, equipment loans and leases, floorplan loans,
insurance premium finance loans, certain small business loans
guaranteed by the Small Business Administration, and leveraged
loans.\2\ TALF Agents will act as agents of borrowers in, among other
things, making applications for TALF loans. TALF Agents will also (i)
assess the eligibility of prospective borrowers and collateral, (ii)
receive that portion of the interest and principal distributions on the
collateral that is for the account of the borrowers, and (iii) disburse
such interest and principal to the borrowers. TALF Agents will also
perform certain recordkeeping functions. In addition, all payments in
respect of interest and principal on the underlying collateral that are
to be paid to a borrower shall be paid by the custodian to such
borrower's TALF Agent, for further distribution to that borrower. The
function of the TALF Agents is necessary to the success of the TALF
2020 because the New York Fed and the TALF SPV lack the resources to
perform these functions themselves.
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\2\ Certain legacy commercial mortgage-backed securities are
also eligible ABS. The set of permissible underlying assets of
eligible ABS may be expanded later to other asset classes.
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The Commission understands, based on the New York Fed statements,
that the success of the TALF 2020 program depends on the effective
participation of TALF Agents in facilitating the availability of the
program to potential participants, and furthermore that the success of
the TALF 2020 program is important to the United States Government's
efforts to restore the availability of credit in the national economy.
The relief is consistent with investor protection because the TALF 2020
loans are non-recourse to the borrower, absent a breach of
representation or other enforcement event under the facility
documentation, and therefore neither the TALF SPV nor the New York Fed
may proceed against the borrower for collection of the loan balance,
irrespective of the market value or performance of the underlying
collateral. Furthermore, natural persons do not qualify as participants
under the TALF 2020 program. The Commission agrees that granting the
requested relief is consistent with its tripartite mission.
III. Conclusion
In light of the above, and in accordance with Section 36 of the
Exchange Act, the Commission finds that exempting brokers and dealers
that are designated by the New York Fed as TALF Agents and that
participate in TALF 2020 from the requirements of Section 11(d)(1) of
the Exchange Act with respect to ABS that are or that may be designated
as ``eligible collateral'' is necessary and appropriate in the public
interest, and consistent with the mission of the Commission, including
the protection of investors.\3\
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\3\ Exchange Act Section 36 [15 U.S.C. 78mm]. Section 36 of the
Exchange Act authorizes the Commission to conditionally or
unconditionally exempt, by rule, regulation, or order any person,
security, or transaction (or any class or classes of persons,
securities, or transactions) from any provision of the Exchange Act
or any rule or regulation thereunder, to the extent such exemption
is necessary or appropriate in the public interest, and is
consistent with the protection of investors.
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[[Page 31020]]
It is hereby ordered, pursuant to its authority under Section 36 of
the Exchange Act, based on the representations and facts presented in
the Letter, that any broker-dealer that is designated as a TALF Agent
and that participates in TALF 2020 by facilitating extensions of non-
recourse credit, on behalf of the TALF SPV, to a purchaser of new
issues of securities is exempt from the prohibition on arranging
certain credit contained in Section 11(d)(1) with respect to ABS
securities that are or that may be designated as designated as
``eligible collateral.''
This exemption from Section 11(d)(1) of the Exchange Act applies
solely to such TALF Agent's facilitation of extensions and maintenance
of credit by the New York Fed pursuant to the TALF 2020 with respect to
ABS that are or that may be designated as ``eligible collateral,'' and
not to any other extension or maintenance of credit, or any other
arranging for the extension or maintenance of credit, on new issues of
securities in the distribution of which such TALF Agent participated as
a member of a selling syndicate or group within the meaning of Section
11(d)(1) of the Exchange Act.
This order should not be considered a view with respect to any
other question that participation in TALF 2020 program may raise,
including, but not limited to the applicability of other federal or
state laws to such participation.
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\4\ 17 CFR 200.30-3(a)(62).
For the Commission, by the Division of Trading and Markets
pursuant to delegated authority.\4\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10929 Filed 5-20-20; 8:45 am]
BILLING CODE 8011-01-P