Jenner & Block

Client Advisory: SEC Proposes Rule Amendments to Remove Credit Rating References in Exchange Act Rules

On April 27, 2011 the Securities and Exchange Commission proposed the adoption of rule amendments to remove certain references to credit rating agencies in rules under the Securities Exchange Act of 1934 applicable to broker-dealer net capital rules, distributions of securities, and confirmations of transactions. This is one of several proposed rules that the SEC is considering relating to the use of credit ratings in SEC rules and forms to address the perceived complacency of regulators and investors in accepting credit ratings as a substitute for more thorough, situation-specific evaluations and the use of credit ratings as proxies for characteristics unrelated to creditworthiness. The proposed rule amendments are designed to implement Section 939A of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which requires the SEC to remove any references to credit ratings from its regulations and to substitute other standards of creditworthiness. The SEC is also requesting comment on potential standards of creditworthiness relating to the definition of “mortgage related security” and “small business related security” in Section 3(a) of the Exchange Act. This Jenner & Block client advisory discusses key changes reflected in the SEC’s proposals.