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  • What Makes The SEC Rules Protective Over Supporting The Banking Sector In ("ABS") Practices? 0 comments
    Dec 28, 2010 6:23 PM | about stocks: BAC, BAC.B, BAC.PJ, BAC.PL, BAC.PS, BAC.PU, BACHF, BACHY, GS, WFC, C, JPM, XLF, IYG, FAS, FAZ, IWM, GLD, TLT, URE

    The lawsuits being raised by the QIBs have forgot the original SEC and current Dodd Frank Wall Street Reform and Consumer Protection Act (the ‘‘Act’’) related to asset-backed securities (‘‘ABS’’).  

    These proposed rules (Laws) to implement Section 943 of the Act, which requires the Commission to prescribe regulations on the use of representations and warranties in the market for asset backed securities--are the vary nature of acts providing the final protective curtain over the ("ABS") issues. Many of these issues most likely to see the judges pushing for settlements outside the court if the QIBs wish to come away with any recoveries.

    These investors (QIBs) filling suits will become handcuff by the vary nature of past and new present laws protecting the banks in allowing the time for these many issues to resolve. The fact of the bank are still holding the upper hand has said volumes to why this sector is starting to show recovery "Cup with Handles" on the charts on many of these issues.

    Signals revealing the banks having full control as seen by the marks left by the Countrywide's Sub-prime mess and the Bank of Americas (NYSE:BAC) bad paper an ability to settle for much smaller amounts if Rule 144A Section 5 have any role to play. 

    The why comes in the answer of going back to the laws and SEC rules that were in place during these sub-prime CDOs and ABSs. Many QIBs investments are held to a much higher standard to adapt to high risk offerings.

    The definition of a worthy investors comes Rule 144A is a safe harbor exemption from the registration requirements of Section 5 of the Securities Act for certain offers and sales of qualifying securities by certain persons other than the issuer of the securities.

    The exemption applies to resale's of securities to qualified institutional buyers, who are commonly referred to as “QIBs.” QIBs must be institutions, and cannot be individuals—no matter how wealthy or sophisticated.

    What types of transactions are conducted under Rule 144A?

    The following types of transactions often are conducted under Rule 144A:

    •offerings of debt or preferred securities by public companies;
    •offerings by foreign issuers that do not want to become subject to U.S. reporting requirements; and
    •offerings of common securities by non-reporting issuers (i.e., “backdoor IPOs”).

    What are the holding periods applicable to the sale of Rule 144A and other restricted securities?
    In December 2007, the SEC amended Rule 144, effective February 2008, to, among other things, shorten the holding periods for restricted securities (subject to certain public information requirements). For non-affiliate holders of restricted securities, Rule 144 provides a safe harbor for the resale of such securities without limitation after six months in the case of issuers that are reporting companies that comply with the current information requirements of Rule 144(c), and after one year in the case of non-reporting issuers. (Prior to the December 2007 amendments, the holding period was one year.) In each case, after a one year holding period, resales of these securities by nonaffiliates will no longer be subject to any other conditions under Rule 144.
    For a reporting issuer, compliance with the adequate current public information condition requires the issuer to have filed all required reports under Section 13 or Section 15(d) of the Exchange Act. For a non-reporting issuer, compliance with the adequate current public information condition requires the public availability of basic information about the issuer, including certain financial statements.
    For affiliate holders of restricted securities, Rule 144 provides a safe harbor permitting resales of restricted securities, subject to the same six-month and one-year holding periods for non-affiliates and to other resale conditions of amended Rule 144. These other resale conditions include, to the extent applicable: (a) adequate current public information about the issuer, (b) volume limitations, (c) manner of sale requirements for equity securities, and (d) notice filings on Form 144.
    Due to the shortened holding periods, it has become easier for Rule 144A securities to be acquired by non-QIBs once the restricted period has expired. Accordingly, the December 2007 amendments will decrease the incremental value that registration rights previously provided. See “Why do Rule 144A purchasers typically insist that the issuer register the securities issued in the Rule 144A transaction?” below. Source: Preliminary Note No. 2 of Rule 144.
    An issuer that intends to engage in multiple offerings may have a “Rule 144A program.” Rule 144A programs are programs established for offering securities (usually debt securities) on an ongoing or continuous basis to potential offerees. They are similar to “medium-term note programs,” but they are unregistered, and the securities are offered only to QIBs. These programs often are used by financial institution and insurance company issuers to offer securities, through one or more broker-dealers, to institutional investors in continuous offerings. Among the advantages of using Rule 144A programs are (1) no public disclosure of innovative structures or sensitive information; (2) limited FINRA filing requirements; and (3) reduced potential for liability under the Securities Act.
    What are the conditions that a reseller of restricted securities must satisfy to rely on Rule 144A?
    There are four conditions to reliance on Rule 144A: The reoffer or resale is made only to QIBs (see “What is a ‘QIB’?” below) or to an offeree or purchaser that the reseller (and any person acting on its behalf) reasonably believes is a QIB (see “How does a reseller establish a reasonable belief that a person is a QIB?” below); The reseller (or any person acting on its behalf) must take reasonable steps to ensure that the buyer is aware that the reseller may rely on Rule 144A in connection with the resale (see “Reseller’s Reasonable Steps So Buyer is Aware of Rule 144A Reliance” below); The securities reoffered or resold (a) when issued were not of the same class as securities listed on a U.S. national securities exchange or quoted on a U.S. automated inter-dealer quotation system (see “What is the definition of a U.S. national securities exchange or automated inter-dealer quotation system for purposes of Rule 144A?” below); and (b) are not securities of an open-end investment company, unit investment trust, or face-amount certificate company that is, or is required to be, registered under the Investment Company Act of 1940; and In the case of securities of an issuer that is neither an Exchange Act reporting company, or a foreign issuer exempt from reporting pursuant to Rule 12g3-2(b) of the Exchange Act, or a foreign government, the holder and a prospective buyer designated by the holder must have the right to obtain from the issuer and must receive, upon request, certain “reasonably current” information about the issuer. See “Informational Requirements” below. Source: Rule 144A(d).

    The final summary of this article concludes too hedge ones bet on the banks. Hedging them in leading the markets higher in the next several months. They have all the tools in place to continue business as usual. 

    I have taken a longer view point on many of the issues at hand. The continuation of the Unemployment benefits and the ability to allow for Programs in the Home modification area to adapt solutions to keeping many within their homes in the near-term and eventually will allow the servicers to steady in a recovery on keeping the housing collapse and commercial collapses from imploding the economy increasing the vary nature of the FED to be raising rates to equal the recovery efforts. 

    Remember what its all about; the final view when it comes to your life and investing. 


    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: ***DISCLAIMER*** Stock and options trading involves substantial risk. The valuation of stock and options may fluctuate, and as a result, in some cases, clients could lose more than their original investment. In no event should the content of this correspondence be construed as an express or an implied promise, guarantee or implication by or from James Gornick and/or Seeking Alpha and or their affiliates that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Information provided in this correspondence is intended solely for informative purposes and is obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.
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