The Securities and Exchange Commission's Division of Market Regulation has extended until December 15, 1999 its no-action position concerning Rule 15c2-8(b) under the Securities Exchange Act of 1934 as it affects offerings of asset-backed securities. In the absence of this no-action position, granted to The Bond Market Association, if an issuer is not required to file reports under Sections 13(a) or 15(d) of the 1934 Act, Rule 15c2-8(b) would require a broker-dealer participating in the distribution of the issuer's ABS to deliver a copy of the preliminary prospectus to customers at least 48 hours before sending a confirmation of sale. The no-action position permits a broker-dealer to send a confirmation to an ABS purchaser without regard to the 48-hour preliminary prospectus requirement, as long as a final prospectus is sent before or at the same time as the confirmation.
The Division originally took this no-action position in a letter dated December 15, 1995 to the Association. The no-action position, as extended once before, would have expired on December 15, 1998.
In its original request, the Association noted that the "48-hour rule" of Rule 15c2-8(b) was established as policy by the SEC in 1969 and was incorporated into Rule 15c2-8 in 1982. At that time, the SEC had expressed concern over perceived sales abuses in, and the highly speculative nature of, some initial public offerings of companies with no reporting history. The SEC intended the 48-hour rule to assure that prospective purchasers would be provided with a preliminary prospectus before settlement of their purchases.
The Association asserted that ABS offerings are different from offerings of more traditional types of securities, so that applying the 48-hour rule to ABS transactions would not advance the policy objectives behind the rule. The Association noted that ABS often are registered under the SEC's shelf registration rule and a preliminary prospectus often is not prepared. As a result, the Association said that it was difficult to assess what was required under Rule 15c2-8(b) in offerings of ABS where no preliminary prospectus is prepared. The Association added that the 48-hour rule predates the shelf registration rule, and that the ABS market has grown significantly since the enactment of the 48-hour rule.
The Association pointed out that the principal focus of investors investing in asset-backed securities is on the structure of the securities and the characteristics of the collateral rather than the financial prospects of the issuer. Consequently, the financial history of the issuer is not as relevant to a potential investor's decision-making process as it might be in a traditional securities offering. Further, the structure of the securities and characteristics of the collateral typically evolve during the offering process, often up until the time of pricing. As a result, the Association contended that a preliminary prospectus in an ABS transaction typically will not provide much of the critical information desired by investors.
In granting the latest extension, the Division noted that it, in conjunction with the Division of Corporation Finance, will be considering possible rulemaking to address the delivery of material information to investors in ABS.