Statement on Final Rule to Implement Section 939A(b) of the Dodd-Frank Act

Almost thirteen years ago, Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act. Among the many tasks assigned to the Commission by the Act was the removal of references to credit ratings from the Commission’s rulebook. Although some commenters recommended different measures of creditworthiness for certain exceptions that the final rule amends, the approach the staff is recommending here appears to be, on the whole, a reasonable approach to implementing Congress’s mandate. Accordingly, I am happy to support this recommendation.

I do have a couple of questions about alternative suggested in the comment file.

• One commenter suggested that the Commission’s proposed use of a structural credit risk model for determining eligibility for the exception under Rule 101(c)(2)(i) was unnecessarily complex and suggested using a simpler alternative, such as whether the securities are offered pursuant to an effective registration statement filed on one of several specific forms. Another alternative this commenter suggested was to limit the exception to securities issued by well-known seasoned issuers. Why doesn’t the final rule take one of these approaches?
• How confident is the staff that we’ve gotten the threshold right for this exception?
• The International Institute of Law and Finance submitted a comment letter that asked the Commission to consider allowing market participants more flexibility in estimating probability of default. Among the alternatives IILF suggested would be appropriate were statistical models and market measures of credit risk, such as debt security prices and yields, credit spreads, and credit default swap spreads. Why doesn’t the final rule provide this extra flexibility?

Thank you. Thank you to the staff for their work on this release. I would like to thank in particular Laura Weber and Nadia Winn for walking my office through some of the concerns I had with the release.