The SEC’s Proposed Amendments To Regulation M: Potential Impact On Structured Notes

Introduction

Section 939A of the Dodd-Frank Act requires the SEC to review (i) any regulation that requires the use of an assessment of the creditworthiness of a security and (ii) any reference to or requirement in such regulations regarding credit ratings, and to modify them to remove those references and substitute standards of creditworthiness the SEC determines to be appropriate.¹ The SEC's proposed amendments to Regulation M, announced during the second quarter of 2011, would remove the references to credit ratings in Rules 101(c)(2) and 102(d)(2) of Regulation M, and replace them with new standards relating to the trading characteristics of covered securities.

In this article, we discuss the potential impact of these amendments on the structured notes market. In its proposing release,² the SEC stated that it intended generally to except from Regulation M the same types and amounts of securities that are currently excepted in Rules 101(c)(2) and