SEC Adopts Final Rules Removing References to Credit Ratings from Exchange Act and Investment Company Act Rules and Forms | Practical Law

SEC Adopts Final Rules Removing References to Credit Ratings from Exchange Act and Investment Company Act Rules and Forms | Practical Law

The SEC adopted two sets of final rules that remove references to credit ratings from certain Exchange Act and Investment Company Act rules and forms, as required by the Dodd-Frank Act.

SEC Adopts Final Rules Removing References to Credit Ratings from Exchange Act and Investment Company Act Rules and Forms

by Practical Law Corporate & Securities
Published on 30 Dec 2013 • USA (National/Federal)
The SEC adopted two sets of final rules that remove references to credit ratings from certain Exchange Act and Investment Company Act rules and forms, as required by the Dodd-Frank Act.
On December 27, 2013, the SEC adopted two sets of final rules that remove references to credit ratings from certain Exchange Act and Investment Company Act rules and forms. The final rules implement Section 939A of the Dodd-Frank Act, which requires federal agencies, including the SEC, to review how existing regulations rely on credit ratings and remove those references when appropriate.

Exchange Act Final Rules

The final rules remove references to credit ratings as a means for entities to evaluate creditworthiness and risk from certain Exchange Act rules relating to broker-dealer financial responsibility and confirmations of transactions, including:
  • Rule 15c3-1 (The Net Capital Rule), which requires broker-dealers to maintain minimum levels of liquid assets (net capital), and certain of its appendices.
  • Exhibit A to Rule 15c3-3 (The Customer Protection Rule), which includes a formula for calculating the amount of cash or qualified securities a carrying broker-dealer (a broker-dealer that maintains custody of customer cash and securities) must maintain in reserve.
  • Rule 10b-10 (The Customer Confirmation Rule), which requires broker-dealers effecting transactions for customers in certain securities to provide those customers with a written notification disclosing certain information about the terms of the transaction.
The final rules do not address the removal of credit ratings references from Regulation M. The SEC plans to issue separate final rule amendments on this topic at a later date. For information on the SEC's proposed amendments to Regulation M, see Legal Update, SEC Proposes Rule Changes Removing References to Credit Ratings from Exchange Act Rules and Forms.
The final rules take effect 180 days after publication in the Federal Register.

Investment Company Act Final Rules

The final rules remove requirements to use credit ratings in certain rules and forms under the Investment Company Act and Securities Act, including:
  • Rule 5b-3, which relates to funds' acquisition of certain repurchase agreements.
  • Forms N-1A, N-2 and N-3, which set out requirements for shareholder reports of mutual funds, closed-end funds and certain insurance company separate accounts that offer variable annuities.
The final rules take effect 30 days after publication in the Federal Register. However, compliance with the final rules is not required until 180 days after publication in the Federal Register.
For more information on provisions of the Dodd-Frank Act related to credit ratings and credit rating agencies, see Practice Note, Summary of the Dodd-Frank Act: Credit Rating Agencies.