Statement on Proposal to Remove References of Credit Ratings from Regulation M
March 24, 2022
Today, the Commission voted to propose removing references of credit ratings from Rules 101 and 102 of Regulation M (Reg M). I was pleased to support today’s proposal because, if adopted, it would fulfill a mandate issued by Congress in the wake of the 2008 financial crisis.
In Section 939A of the Dodd-Frank Act of 2010, Congress directed federal agencies, including the SEC, “to remove any reference to or requirement of reliance on credit ratings” from our rules and to substitute an appropriate standard for credit-worthiness.
The SEC has completed much of this work, and the only remaining references to credit ratings are in Rules 101 and 102 of Regulation M. Today’s proposal, if adopted, thus would fulfill Congress’s mandate to remove all such references to credit rating agencies from our rules.
Reg M, a 26-year-old rule, prohibits parties involved in the distribution of securities from buying or selling securities or inducing others to buy or sell the securities. Rules 101 and 102 restrict the ability of certain offering participants to jump into the market to support the offering before their participation in the distribution is deemed complete.
Rules 101 and 102 currently have an exception for investment-grade securities. Under today’s proposal, these exceptions would be modified or eliminated. For nonconvertible debt, nonconvertible preferred, and asset-backed securities in Rule 101, this standard in the exception would be substituted with appropriate alternative standards of creditworthiness. The exception in Rule 102, applicable to issuers, selling security holders, and their affiliated purchasers, would be eliminated.
I am pleased to support today’s release. I’d like to extend my gratitude to the members of the SEC staff who worked on this rule, including:
- Haoxiang Zhu, David Saltiel, John Guidroz, Samuel Litz, Josephine Tao, Laura Gold, Roni Bergoffen, Meredith MacVicar, and Jessica Kloss in the Division of Trading and Markets;
- Jessica Wachter, Nadia Winn, Juan Echeverri, Oliver Richard, Lauren Moore, and Charles Woodworth in the Division of Economic and Risk Analysis;
- Dan Berkovitz, Meridith Mitchell, Malou Huth, Robert Teply, Leila Bham, and Ronesha Butler in the Office of the General Counsel; and
- Lawrence Renbaum in the Division of Enforcement.
 See Section 939A(b) of the Dodd-Frank Act, available at https://www.govinfo.gov/content/pkg/PLAW-111publ203/pdf/PLAW-111publ203.pdf.