[Federal Register Volume 85, Number 99 (Thursday, May 21, 2020)]
[Notices]
[Pages 31019-31020]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10929]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-88884/May 15, 2020]


Order Granting a Conditional Exemption From Exchange Act Section 
11(d)(1) for Certain Asset Backed Securities and Other Collateral

    The Securities and Exchange Commission (``Commission'' or ``SEC'') 
is issuing an order granting an exemption from compliance with Section 
11(d)(1) of the Securities Exchange Act of 1934 (``Exchange Act'') 
pertaining to certain lending transactions in asset backed securities.

I. Introduction

    By letter dated May 12, 2020 (the ``Letter''),\1\ the Federal 
Reserve Bank of New York (``New York Fed''), has requested that the 
Commission grant exemptive relief from Section 11(d)(1) of the 
Securities Exchange Act of 1934 (``Exchange Act'') to permit all 
brokers and dealers registered with the Commission and designated by 
the New York Fed as ``TALF Agents'' (``TALF Agents'') to participate in 
the Federal Reserve's 2020 Term Asset-Backed Securities Loan Facility 
(``TALF 2020'') by facilitating extensions of non-recourse credit, on 
behalf of a special purpose vehicle (the ``TALF SPV'') established by 
the New York Fed, to purchasers of new issues of asset-backed 
securities (``ABS'') that are or that may be designated as ``eligible 
collateral'' in the distribution of which such TALF Agents may have 
participated as member of a selling syndicate or group within the 
meaning of Section 11(d)(l).
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    \1\ Letter from Michael Held, General Counsel and Executive Vice 
President, Federal Reserve Bank of New York to Vanessa Countryman, 
Secretary, Securities and Exchange Commission, dated May 12, 2020. 
Each defined term in this order has the same meaning as defined in 
the Letter, unless otherwise noted.
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II. Discussion

    Section 11(d)(1) of the Exchange Act generally prohibits a person 
that is both a broker and a dealer from extending or maintaining 
credit, or arranging for the extension or maintenance of credit, to or 
for a customer on any security (other than an exempted security) that 
was part of a distribution of a new issue of securities in which the 
broker-dealer participated as a member of a selling syndicate or group 
within thirty days prior to such transaction.
    The TALF 2020 is intended to support the provision of credit to 
consumers and businesses by enabling the issuance of ABS backed by 
private student loans, auto loans and leases, consumer and corporate 
credit card receivables, equipment loans and leases, floorplan loans, 
insurance premium finance loans, certain small business loans 
guaranteed by the Small Business Administration, and leveraged 
loans.\2\ TALF Agents will act as agents of borrowers in, among other 
things, making applications for TALF loans. TALF Agents will also (i) 
assess the eligibility of prospective borrowers and collateral, (ii) 
receive that portion of the interest and principal distributions on the 
collateral that is for the account of the borrowers, and (iii) disburse 
such interest and principal to the borrowers. TALF Agents will also 
perform certain recordkeeping functions. In addition, all payments in 
respect of interest and principal on the underlying collateral that are 
to be paid to a borrower shall be paid by the custodian to such 
borrower's TALF Agent, for further distribution to that borrower. The 
function of the TALF Agents is necessary to the success of the TALF 
2020 because the New York Fed and the TALF SPV lack the resources to 
perform these functions themselves.
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    \2\ Certain legacy commercial mortgage-backed securities are 
also eligible ABS. The set of permissible underlying assets of 
eligible ABS may be expanded later to other asset classes.
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    The Commission understands, based on the New York Fed statements, 
that the success of the TALF 2020 program depends on the effective 
participation of TALF Agents in facilitating the availability of the 
program to potential participants, and furthermore that the success of 
the TALF 2020 program is important to the United States Government's 
efforts to restore the availability of credit in the national economy. 
The relief is consistent with investor protection because the TALF 2020 
loans are non-recourse to the borrower, absent a breach of 
representation or other enforcement event under the facility 
documentation, and therefore neither the TALF SPV nor the New York Fed 
may proceed against the borrower for collection of the loan balance, 
irrespective of the market value or performance of the underlying 
collateral. Furthermore, natural persons do not qualify as participants 
under the TALF 2020 program. The Commission agrees that granting the 
requested relief is consistent with its tripartite mission.

III. Conclusion

    In light of the above, and in accordance with Section 36 of the 
Exchange Act, the Commission finds that exempting brokers and dealers 
that are designated by the New York Fed as TALF Agents and that 
participate in TALF 2020 from the requirements of Section 11(d)(1) of 
the Exchange Act with respect to ABS that are or that may be designated 
as ``eligible collateral'' is necessary and appropriate in the public 
interest, and consistent with the mission of the Commission, including 
the protection of investors.\3\
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    \3\ Exchange Act Section 36 [15 U.S.C. 78mm]. Section 36 of the 
Exchange Act authorizes the Commission to conditionally or 
unconditionally exempt, by rule, regulation, or order any person, 
security, or transaction (or any class or classes of persons, 
securities, or transactions) from any provision of the Exchange Act 
or any rule or regulation thereunder, to the extent such exemption 
is necessary or appropriate in the public interest, and is 
consistent with the protection of investors.

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[[Page 31020]]

    It is hereby ordered, pursuant to its authority under Section 36 of 
the Exchange Act, based on the representations and facts presented in 
the Letter, that any broker-dealer that is designated as a TALF Agent 
and that participates in TALF 2020 by facilitating extensions of non-
recourse credit, on behalf of the TALF SPV, to a purchaser of new 
issues of securities is exempt from the prohibition on arranging 
certain credit contained in Section 11(d)(1) with respect to ABS 
securities that are or that may be designated as designated as 
``eligible collateral.''
    This exemption from Section 11(d)(1) of the Exchange Act applies 
solely to such TALF Agent's facilitation of extensions and maintenance 
of credit by the New York Fed pursuant to the TALF 2020 with respect to 
ABS that are or that may be designated as ``eligible collateral,'' and 
not to any other extension or maintenance of credit, or any other 
arranging for the extension or maintenance of credit, on new issues of 
securities in the distribution of which such TALF Agent participated as 
a member of a selling syndicate or group within the meaning of Section 
11(d)(1) of the Exchange Act.
    This order should not be considered a view with respect to any 
other question that participation in TALF 2020 program may raise, 
including, but not limited to the applicability of other federal or 
state laws to such participation.
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    \4\ 17 CFR 200.30-3(a)(62).

    For the Commission, by the Division of Trading and Markets 
pursuant to delegated authority.\4\
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-10929 Filed 5-20-20; 8:45 am]
BILLING CODE 8011-01-P