[Federal Register Volume 72, Number 3 (Friday, January 5, 2007)]
[Notices]
[Pages 588-591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E6-22609]


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SECURITIES AND EXCHANGE COMMISSION

[Investment Company Act Release No. 27644; 812-13212]


Deutsche Bank Trust Company Americas; Notice of Application

December 28, 2006.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order pursuant to section 6(c) of 
the Investment Company Act of 1940 (the

[[Page 589]]

``Act'') granting an exemption to issuers of asset-backed securities 
from certain requirements of Rule 3a-7(a)(4)(i) under the Act to enable 
the Applicant to act as trustee to those issuers and the issuers to 
rely on Rule 3a-7.

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Summary of Application: Applicant requests an order that would permit 
an issuer of asset-backed securities that is not registered as an 
investment company under the Act in reliance on Rule 3a-7 under the Act 
(an ``Issuer'') to appoint Applicant to act as a trustee to the Issuer 
when Applicant is affiliated with an underwriter for the Issuer's 
securities.

Applicant: Deutsche Bank Trust Company Americas.

Filing Dates: The application was filed on July 7, 2005, and amended on 
December 21, 2006.

Hearing or Notification of Hearing: An order granting the requested 
relief will be issued unless the Commission orders a hearing. 
Interested persons may request a hearing by writing to the Commission's 
Secretary and serving Applicant with a copy of the request, personally 
or by mail. Hearing requests should be received by the Commission by 
5:30 p.m. on January 22, 2007, and should be accompanied by proof of 
service on Applicant, in the form of an affidavit or, for lawyers, a 
certificate of service. Hearing requests should state the nature of the 
writer's interest, the reason for the request, and the issues 
contested. Persons who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, Securities and Exchange Commission, 100 F Street, 
NE., Washington, DC 20549. Applicant: 60 Wall Street, New York, New 
York 10005.

FOR FURTHER INFORMATION CONTACT: Susan I. Gault-Brown, Senior Counsel, 
at (202) 551-6869, or David W. Grim, Branch Chief, at (202) 551-6867 
(Division of Investment Management, Office of Chief Counsel).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee at the 
Commission's Public Reference Branch, Room 1580, 100 F Street, NE., 
Washington, DC 20549 (tel. 202-551-5850).

Applicant's Representations

    1. Applicant is a subsidiary of Deutsche Bank AG.\1\ Deutsche Bank 
AG is a global financial services organization that engages in consumer 
finance, worldwide corporate banking, investment banking, corporate 
trust services, and asset management. Applicant is frequently selected 
to act as trustee to Issuers.
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    \1\ Applicant also requests that the order apply to an Issuer's 
appointment, now or in the future, of any other entity controlling, 
controlled by, or under common control (as defined in section 
2(a)(9) of the Act) with Applicant as a trustee for an Issuer. 
Applicant represents that any other entity relying on this relief 
now or in the future will comply with the terms and conditions of 
the application.
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    2. An asset-backed securities transaction typically involves the 
transfer of assets by a seller, usually by a ``sponsor,'' to a special 
purpose corporate or trust entity that is established for the sole 
purpose of acting as the Issuer and is structured to be bankruptcy 
remote and the subsequent issuance of asset-backed securities (``ABS'') 
to investors by the Issuer (an ``ABS Transaction'').
    3. The parties to an ABS transaction enter into several transaction 
agreements that provide for the holding of the assets by the Issuer and 
define the rights and responsibilities of the parties to the 
transaction (``Transaction Documents''). The operative Transaction 
Document governing the trustee is referred to herein as the 
``Agreement.''
    4. The sponsor of an ABS Transaction assembles the pool of assets 
by purchasing or funding them, describes them in the offering 
materials, and sells interests in the assets to investors. The sponsor 
determines the structure, drafts the documents, and prices the ABS 
Transaction. The sponsor selects the other parties to the ABS 
Transaction, including the underwriter, the servicer, and the trustee.
    5. The servicer, either directly or through subservicers, manages 
the assets held by the Issuer. The servicer pays the income from the 
assets held by the Issuer over to the trustee, and the trustee uses the 
income, as instructed by the servicer and provided by the Agreement, to 
pay interest and principal on the ABS, to fund reserve accounts and 
purchases of additional assets, and to make other payments including 
fees owed to the trustee and other parties to the ABS Transaction.
    6. The sponsor of an ABS Transaction selects the trustee. In 
selecting a trustee, the sponsor seeks to obtain customary trust 
administrative and related services for the Issuer at minimal cost. In 
some instances, other parties to an ABS Transaction may provide 
recommendations to a sponsor about potential trustees. Ratings agencies 
may influence the selection of a trustee. An underwriter for an ABS 
Transaction also may provide advice to the sponsor about trustee 
selection based on the underwriter's knowledge of the pricing and 
expertise offered by a particular trustee in light of the contemplated 
transaction.
    7. If an underwriter affiliated with the Applicant recommends a 
trustee to a sponsor, both the underwriter's recommendation and any 
selection of the Applicant by the sponsor will be based upon customary 
market considerations of pricing and expertise, and the selection will 
result from an arms-length negotiation between the sponsor and the 
Applicant. Applicant will not price its services as trustee in a manner 
designed to facilitate its affiliate being named underwriter.
    8. The trustee's role in an ABS Transaction is specifically defined 
by the Agreement, and under the Agreement the trustee is not expected 
or required to perform discretionary functions. The responsibilities of 
the trustee as set forth in the Agreement are narrowly circumscribed 
and limited to those expressly accepted by the trustee. The trustee 
negotiates the provisions applicable to it directly with the sponsor 
and is then appointed by and enters into the Agreement with the Issuer.
    9. The trustee usually becomes involved in an ABS Transaction after 
the substantive economic terms have been negotiated between the sponsor 
and the underwriters. The trustee does not monitor any service 
performed by, or obligation of, an underwriter, whether or not the 
underwriter is affiliated with the trustee. In the unlikely event that 
the Applicant, in acting as trustee to an Issuer for which an affiliate 
acts as underwriter, becomes obligated to enforce any of the affiliated 
underwriter's obligations to the Issuer, the Applicant will resign as 
trustee for the Issuer consistent with the requirements of Rule 3a-
7(a)(4)(i). In such an event, the Applicant will incur the costs 
associated with the Issuer's procurement of a successor trustee.
    10. The sponsor selects one or more underwriters to purchase the 
Issuer's securities and resell them or to privately place them with 
buyers obtained by the underwriter. The sponsor enters into an 
underwriting agreement with the underwriter that sets forth the 
responsibilities of the underwriter with respect to the distribution of 
the ABS and includes representations and warranties regarding, among 
other things, the underwriter and the quality of the Issuer's assets. 
The obligations of the underwriter under the underwriting agreement are 
enforceable against the underwriter only by the sponsor.

[[Page 590]]

    11. The underwriter may assist the sponsor in the organization of 
an Issuer by providing advice, based on its expertise in ABS 
Transactions, on the structuring and marketing of the ABS. This advice 
may relate to the risk tolerance of investors, the type of collateral, 
the predictability of the payment stream, the process by which payments 
are allocated and down-streamed to investors, the way that credit 
losses may affect the trust and the return to investors, whether the 
collateral represents a fixed set of specific assets or accounts, and 
the use of forms of credit enhancements to transform the risk-return 
profile of the underlying collateral. Any involvement of an underwriter 
in the organization of an Issuer that occurs is limited to helping 
determine the assets to be pooled, helping establish the terms of the 
ABS to be underwritten, and providing the sponsor with a warehouse line 
of credit with which to purchase the pool assets.
    12. As noted above, an underwriter may provide advice to a sponsor 
regarding the sponsor's selection of a trustee for the Issuer; however, 
an underwriter's role in structuring a transaction would not extend to 
determining the obligations of a trustee, and the underwriter is not a 
party to the Agreement.
    13. The underwriter is not a party to any of the Transaction 
Documents and, except for arrangements involving credit or credit 
enhancement for an Issuer or remarketing agent activities, typically 
has no role in the operation of the Issuer after its issuance of 
securities. The Applicant represents that although an underwriter 
typically may provide credit or credit enhancement for an Issuer or 
engage in remarketing agent activities, an underwriter affiliated with 
the Applicant will not so provide or so engage.

Applicant's Legal Analysis

    1. Applicant requests an order under Section 6(c) of the Act 
granting an exemption from certain requirements of Rule 3a-7 under the 
Act.
    2. Section 6(c) of the Act gives the Commission the authority to 
exempt any person or transaction or any class of persons or 
transactions from any provision of the Act, or from any rule 
thereunder, if and to the extent such exemption is necessary or 
appropriate in the public interest; is consistent with the protection 
of investors; and the purposes fairly intended by the policy and 
provisions of the Act.
    3. Rule 3a-7 provides Issuers that would otherwise fall within the 
definition of investment company under Section 3(a) of the Act with an 
exclusion from the definition of investment company. In adopting Rule 
3a-7, the Commission stated that it intended to ``remove an unnecessary 
barrier to the use and development of structured financings.'' \2\
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    \2\ Exclusion from the Definition of Investment Company for 
Structured Financings, Investment Company Act Release No. 19105, 52 
SEC Docket 2573 (November 19, 1992) (the ``Adopting Release'') at 
2573.
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    4. Under Rule 3a-7, an Issuer that meets certain conditions is 
deemed not to be an investment company under Section 3(a) of the Act. 
One of Rule 3a-7's conditions, set forth in paragraph (a)(4)(i), 
requires, among other things, that the Issuer appoint a trustee that is 
not affiliated with the Issuer or with any person involved in the 
organization or operation of the Issuer (the ``Independent Trustee 
Requirement''). Applicant states that the phrase ``person involved in 
the organization or operation of the Issuer'' includes an underwriter, 
and Rule 3a-7(a)(4)(i) therefore prohibits an Issuer from appointing a 
trustee that is affiliated with an underwriter.
    5. Applicant requests exemptive relief from Rule 3a-7(a)(4)(i) to 
the extent necessary to permit an Issuer to appoint the Applicant as a 
trustee to the Issuer when the Applicant is affiliated with an 
underwriter involved in the organization of the Issuer.
    6. Applicant submits that the requested exemptive relief from the 
Independent Trustee Requirement is necessary and appropriate in the 
public interest; is consistent with the protection of investors; and 
the purposes fairly intended by the policy and provisions of the Act 
for the following three reasons: (1) Due to changes in the banking 
industry; (2) due to the timing and nature of the roles of the trustee 
and the underwriter; and (3) because the requested relief is consistent 
with the policies and purposes underlying the Independent Trustee 
Requirement and Rule 3a-7.

Changes in the Banking Industry

    7. Applicant states that consolidation within the financial 
industry that occurred throughout the 1990's as a result of bank 
mergers and sales and related acquisitions of trustee servicing 
businesses by banks has resulted in a significant decrease in recent 
years in the number of bank trustees providing services to Issuers. 
Applicant states that economic and other business factors have also 
contributed to the trend toward fewer banks offering corporate trust 
services. Applicant states that bank consolidation has been accompanied 
by the expansion of banks into investment banking. Applicant states 
that banks and bank affiliates are now significant participants in 
securities underwriting, particularly for ABS Transactions.
    8. Applicant states that due to these banking industry changes, 
most trustees that provide services to Issuers, including the 
Applicant, have affiliations with underwriters to Issuers. Applicant 
states that, as a result, when, as is frequently the case, an affiliate 
of Applicant is selected to underwrite ABS in an ABS Transaction, Rule 
3a-7(a)(4)(i)'s Independent Trustee Requirement generally prevents 
Applicant from serving as trustee for the Issuer.
    9. Applicant states that the Independent Trustee Requirement 
therefore imposes an unnecessary regulatory limitation on trustee 
selection and causes market distortions by leading to the selection of 
trustees for reasons other than customary market considerations of 
pricing and expertise. Applicant states that this result is 
disadvantageous to the ABS market and to ABS investors and that 
exemptive relief therefore is necessary and appropriate in the public 
interest.

Timing and Nature of the Roles of the Trustee and the Underwriter

    10. Applicant submits that due to the nature and timing of the 
roles of the trustee and the underwriter, Applicant's affiliation with 
an underwriter would not result in a conflict of interest or 
possibility of overreaching that could harm investors.
    11. Applicant states that the trustee's role begins with the 
Issuer's issuance of its securities, and the trustee performs its role 
over the life of the Issuer. Applicant states that, in contrast, the 
underwriter is chosen early in the ABS Transaction process, may help to 
structure the ABS Transaction, distributes the Issuer's securities to 
investors, and generally has no further role subsequent to the 
distribution of the Issuer's securities. Applicant submits that, 
consequently, given the nature and timing of their respective roles in 
an ABS Transaction, an ABS trustee does not monitor the distribution of 
securities or any other activity performed by underwriters and there is 
no opportunity for a trustee and an affiliated underwriter to act in 
concert to benefit themselves at the expense of holders of the ABS 
either prior to or after the closing of the ABS Transaction.
    12. Applicant states that the trustee is neither expected nor 
required to exercise discretion or judgment. Applicant states that the 
trustee of the Issuer has virtually no discretion to

[[Page 591]]

pursue anyone in any regard other than preserving and realizing on the 
assets. Applicant states that trustees are not required to pursue 
securities law or fraud claims on behalf of debt holders and may often 
be foreclosed from such enforcement because debt holders may have 
different and conflicting rights.
    13. For all of these reasons, Applicant submits that exemptive 
relief is therefore appropriate and consistent with the protection of 
investors.

Consistent With Policies and Purposes Underlying the Independent 
Trustee Requirement and the Rule

    14. Applicant submits that the concerns underlying the Independent 
Trustee Requirement are not implicated if the trustee for an Issuer is 
independent of the sponsor, servicer, and credit enhancer for the 
Issuer, but is affiliated with an underwriter for the Issuer, because, 
in that situation, no single entity would act in all capacities in the 
issuance of the ABS and the operation of an Issuer. Applicant states 
that Applicant would continue to act as an independent party 
safeguarding the assets of an Issuer regardless of an affiliation with 
an underwriter of the ABS. Applicant submits that, in addition, the 
concern that affiliation could lead to a trustee monitoring the 
activities of an affiliate also is not implicated by a trustee's 
affiliation with an underwriter, because, in practice, a trustee for an 
Issuer does not monitor the distribution of securities or any other 
activity performed by underwriters.
    15. Applicant submits that exemptive relief permitting the 
participation of the Applicant and an affiliated underwriter in an ABS 
Transaction would be consistent with the broader purposes of Rule 3a-7, 
because in adopting Rule 3a-7, the Commission intended that, consistent 
with investor protection, the Rule not hamper the growth and 
development of the structured finance market. Applicant submits that 
the requested exemption would allow the selection of a trustee for an 
ABS Transaction based on the trustee's qualification, rather than 
technical regulatory restriction, and therefore would alleviate 
unnecessary market distortions that result from the current Independent 
Trustee Requirement.

Applicant's Conditions

    Applicant agrees that any order granting the requested relief will 
be subject to the following conditions:
    (1) Applicant will not be affiliated with any person involved in 
the organization or operation of the Issuer in an ABS Transaction other 
than the underwriter.
    (2) Applicant's relationship to an affiliated underwriter will be 
disclosed in writing to all parties involved in an ABS Transaction, 
including the rating agencies and the ABS securities holders.
    (3) An underwriter affiliated with Applicant will not be involved 
in the operation of an Issuer, and its involvement in the organization 
of an Issuer will extend only to determining the assets to be pooled, 
assisting in establishing the terms of the ABS to be underwritten, and 
providing the sponsor with a warehouse line of credit with which to 
purchase the pool assets.
    (4) An affiliated person of Applicant, including an affiliated 
underwriter, will not provide credit or credit enhancement to an Issuer 
if Applicant serves as trustee to the Issuer.
    (5) An underwriter affiliated with Applicant will not engage in any 
remarketing agent activities, including involvement in any auction 
process in which ABS interest rates, yields, or dividends are reset at 
designated intervals in any ABS Transaction for which Applicant serves 
as trustee to the Issuer.
    (6) All of an affiliated underwriter's contractual obligations 
pursuant to the underwriting agreement will be enforceable by the 
sponsor.
    (7) Consistent with the requirements of Rule 3a-7(a)(4)(i), 
Applicant will resign as trustee for the Issuer if Applicant becomes 
obligated to enforce any of an affiliated underwriter's obligations to 
the Issuer.
    (8) Applicant will not price its services as trustee in a manner 
designed to facilitate its affiliate being named underwriter.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E6-22609 Filed 1-4-07; 8:45 am]
BILLING CODE 8011-01-P