Archive for the ‘Securities and Exchange Commission’ Category

New Rules Regarding Loan-Backed Securities

September 3rd, 2014 By Virtual Paralegal Services

Recently, the Securities and Exchange Commission (“SEC”) unanimously adopted new rules concerning loan-backed securities linked to autos and mortgages. Loan-backed securities generally are created by bundling a large number of loans, which are then securitized and sold to investors. The new rules take effect in 60 days.

Why the Changes to Loan-Backed Securities?

Securities backed by loans had a major role in the 2008 financial crisis. For example, home mortgages were bundled and sold as securities, which resulted in billions of dollars of losses after the housing market crashed.

The new SEC rules will require firms that sell securities backed by loans to provide borrower credit and income information to investors in a standardized format. The SEC will then post the submitted information on its website. The idea is that investors will then be able to make more informed decisions regarding the risks involved with loan-backed securities. To protect consumer information, the SEC will not include borrower names or other identifying information in the data it collects on its website.

These changes are especially important given a recent report issued by the Federal Reserve that revealed that the number of auto loans issued is at an eight-year high. While the percentage of high-risk, or subprime, loans still make up a lower percentage of total auto loans in comparison to before 2008, the Federal Reserve report indicated the current high auto loan rates are due, in part, to increased lending to risky borrowers. The changes occur in the larger context of SEC efforts to increase transparency and oversight in securitized assets.

SEC chairwoman Mary Jo White said of the new rules, “These reforms will make a real difference to investors and to our financial markets.”

The new SEC rules will also:

  • allow investors more time to consider a securitization offering;
  • change the criteria for determining eligibility in expedited securitizations known as “shelf offerings”; and
  • revise the reporting requirements for loan-back securities.

New SEC Rules Also Impact Credit Rating Agencies

In addition to the other changes with loan-backed securities, the new SEC rules also require credit rating agencies to make reports to the SEC on how they are safeguarding their rating process to ensure that ratings are determined fairly. The new SEC rules prohibit credit rating agency’s salespeople from participating in the ratings process. This portion of the new rules passed by the SEC was not unanimous, but rather will be implemented after a 3-2 vote.

The SEC has taken an interest in credit rating agencies and potential conflicts of interests post-financial crisis. In the past, some credit rating agencies have been criticized for rating securities as low risk when in fact they were high risk. Consumer confidence in credit rating agencies has suffered post-recession.

Virtual Paralegal Services provides senior paralegal support to law firms and other businesses throughout the United States, and can provide more information to interested parties on this specific topic. Contact us to discuss your particular needs.

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Securities and Blue Sky

May 14th, 2014 By Virtual Paralegal Services

While the SEC directly, and through its oversight of the NASD and the various Exchanges, is the main enforcer of the nation`s securities laws, each individual state has its own securities laws and rules known as “Blue Sky Laws.” These regulate the offer and sale of securities and the registration and reporting requirements for broker-dealers, individual stockbrokers, and investment advisers doing business or offering services in the state. Blue Sky Laws are designed to stop fraudulent exploitations. Each state has a regulatory agency, which administers the law, typically known as the state Securities Commissioner. A list of state securities commissioners, and their addresses, is available in our Guide to State Securities Regulators.

Recently, federal legislation, designed to eliminate the duplicative nature of the federal and state securities laws, was enacted. This has limited the ability of the states to review, limit, or otherwise restrict the sale of most securities, particularly offerings that are offered on a national basis. There are notices and filing requirements in each state, however, which must be complied with and the legislation did not affect the ability of the state regulators to conduct investigations and respond to fraudulent actions.

Registration of Securities Transactions

With few exceptions, before a security is offered or sold in a state, there must be (unless exempt) a registration covering:
• the transaction
• the brokerage firm
• the stock broker
• issuers selling their own securities

Though most states securities laws are modeled after the Uniform Securities Act of 1956 (“USA”), Blue Sky statutes vary widely and there is very little uniformity among state securities laws. Even when using identical statutory language or regulations covering particular activities or conduct, interpretation may differ dramatically from state to state. However, state Securities Commission staff is available to assist in answering questions regarding particular statutory provisions or regulations.

Fortunately, many types of securities, and many transactions in securities, are exempt from state securities registration requirements. For example, many states provide for transactional exemptions for Regulation D private offerings, provided there is full compliance with SEC Rules 501-503. However, through certain types of offerings or transactions may not require registration, many states require filings or place additional conditions on exemptions available for many different offerings.


To complicate matters further, The National Securities Markets Improvement Act of 1996 (“NSMIA”) was enacted in October 1996 in response to the states’ failure to uniformly regulate certain types of national securities offerings. Among other changes, NSMIA created a class of securities – referred to as “covered securities” – the offer and sale of which (through licensed broker-dealers) are no longer subject to state securities law registration requirements. NSMIA only preempts state securities registration requirements, however, and preserves the right of the states to investigate and prosecute fraud. Therefore, although covered securities are no longer subject to substantive state review, blue-sky action with respect to offerings of covered securities is still necessary.

Brokers, Dealers and Agents

Blue Sky laws regarding broker-dealer and agent (stockbroker) registration are equally convoluted, with each state having different requirements. Though many states have permit the registration filings for broker-dealers and agents to be made through the National Association of Securities Dealer’s Central Registry Depository system (CRD), and utilize the examinations conducted by the NASD for testing purposes, they follow their own particular regulatory procedures for registering broker-dealer firms. Some states require certified or audited financials, (which are not required by the NASD) and nearly every state requires a stockbroker to take and pass the NASD Series 63 exam. In addition, some states have failed to comply fully with federal rulings. For example, NY has used The Martin Act to wage its war against Wall Street, refusing to regulate private offerings.


The myriad of state regulations continues to plague the securities industry, causing untold delays and inadvertent violations by even the most careful brokerage firm. For registered representatives, even a simple matter like changing brokerage firms can result in a loss of business, for the transfer of the registration from one broker-dealer to the next can take days or weeks.

Blue Sky laws are a complicated web of regulations, from 50 different jurisdictions. (in addition to the complex series of SEC rules and regulations, and regulations from the NASD and the various securities exchanges.) It is crucial then, to obtain legal review of a state’s statutes and regulations be reviewed before embarking upon any securities sales activities to determine what is permitted, or not permitted, in that particular state. Experienced Blue Sky counsel should be retained to review the applicable state blue-sky laws and take any action necessary to permit the offering.

Contact Virtual Paralegal Services for help navigating through the various rules and regulations.

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