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SEC Adopts Amendments to Remove References to Credit Ratings From Regulation M

SEC Adopts Rules to Prevent Fraud in Connection with Security-Based Swaps Transactions and Prevent Undue Influence over CCOs

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Washington D.C., June 7, 2023 —

The Securities and Exchange Commission today adopted rule changes to remove and replace references to credit ratings from existing exceptions provided in Rule 101 and Rule 102 of Regulation M, a set of rules that prohibits activities that could artificially influence the market for an offered security.

“This adoption fulfills Congress’s wishes in the wake of the 2008 financial crisis, ensuring we don’t embed in our ruleset a reliance on credit ratings – and instead have appropriate alternative measures of creditworthiness,” said SEC Chair Gary Gensler. “This adoption will be the sixth and final of the SEC’s rulemakings to implement this mandate.”

The amendments, when effective, will remove certain existing rule exceptions in Rule 101 and Rule 102 of Regulation M that reference credit ratings for nonconvertible debt securities, nonconvertible preferred securities, and asset-backed securities and substitute in their place new exceptions that are based on alternative standards of creditworthiness. These substitutes include exceptions for nonconvertible debt securities and nonconvertible preferred securities of issuers who meet a specified probability of default threshold and exceptions for asset-backed securities that are offered pursuant to an effective shelf registration statement filed on the Commission’s Form SF-3.

The Commission also adopted a record preservation requirement under Rule 17a-4(b)(17) for broker-dealers who rely on Rule 101’s or Rule 102’s new exception for nonconvertible debt securities and nonconvertible preferred securities.

The adopting release will be published in the Federal Register. The final rules will become effective 60 days after publication in the Federal Register.

SEC Adopts Rules to Prevent Fraud in Connection with Security-Based Swaps Transactions and Prevent Undue Influence over CCOs

Washington D.C., June 7, 2023 —

The Securities and Exchange Commission today adopted rules to prevent fraud, manipulation, and deception in connection with security-based swap transactions and to prevent undue influence over the chief compliance officer (CCO) of security-based swap dealers and major security-based swap participants (SBS Entities).

“Any misconduct in the security-based swaps market not only harms direct counterparties but also can affect reference entities and investors in those reference entities,” said SEC Chair Gary Gensler. “Given these markets’ size, scale, and importance, it is critical that the Commission protect investors and market integrity through helping prevent fraud, manipulation, and deception relating to security-based swaps. Today’s set of rules will do just that.”

The antifraud and anti-manipulation rule adopted today is designed to prevent misconduct in connection with effecting any transaction in, or attempting to effect any transaction in, or purchasing or selling, or inducing or attempting to induce the purchase or sale of, any security-based swap. The rule takes into account the features fundamental to a security-based swap and will aid the Commission in its pursuit of actions that directly target misconduct that reaches security-based swaps.

The Commission also adopted a rule to protect the independence and objectivity of the CCO of a security-based swap dealer or major security-based swap participant.

The adopting release will be published in the Federal Register. The final rules will become effective 60 days after the date of publication of the adopting release in the Federal Register.

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