Thank you, Chairman Schapiro.
Section 939A of the Dodd-Frank Act contemplates the removal of references to credit ratings in rules and forms under the federal securities laws, including the Securities Exchange Act of 1934. The recommendation before us goes toward giving effect to this provision of Dodd-Frank.
I support the recommendation but do have concerns about its practical impacts, especially the consequences that could flow from the proposed amendments to the Net Capital Rule (Exchange Act Rule 15c3-1). Notwithstanding the benefits that could come from removing the ratings references, there are countervailing considerations that the rulemaking must account for. For example, to what extent might the proposed changes to Rule 15c3-1, if adopted, lead broker-dealers to hold different proprietary positions? What impact could this have on investors and issuers? How might the prospect of being second-guessed influence the haircuts broker-dealers take? If ratings references are removed, might broker-dealers come to rely too much on some other measure or indication of creditworthiness, such as the credit assessment of a third party that is not an NRSRO? In what ways might the proposal, if adopted, affect the activities and competitiveness of smaller broker-dealers?
All of this is to say that while removing a ratings reference, in and of itself, might seem relatively straightforward, determining what to substitute in its place is more complicated. To this point, the proposing release solicits comment on a range of topics and asks a number of thoughtful questions. As always, I look forward to considering the comments we will receive.
I want to join my colleagues in thanking the staff — especially those from the Division of Trading and Markets and the Division of Risk, Strategy, and Financial Innovation — for your efforts on this rulemaking.