Regulatory Alerts2022-03-23
Removal of References to Credit Ratings From Regulation M
The Securities and Exchange Commission proposes amendments to Regulation M that eliminate reliance on credit ratings from Rules 101 and 102, fulfilling a mandate under Section 939A of the Dodd-Frank Act. The rule replaces the existing investment-grade exception for distribution participants with alternative credit-worthiness standards based on probability of default for nonconvertible securities and Form SF-3 shelf registration for asset-backed securities, while completely removing the exception for issuers and selling security holders. Broker-dealers must additionally maintain written probability of default determinations to comply with the new recordkeeping requirements, thereby reducing undue reliance on nationally recognized statistical rating organizations while preserving anti-manipulation safeguards.