To direct the Securities and Exchange Commission to establish both a process by which asset-backed instruments can be deemed eligible for NRSRO ratings and an initial list of such eligible asset-backed instruments.

Summary: Amends the Securities Exchange Act of 1934 to direct the Securities and Exchange Commission (SEC) to revise regulations relating to "asset-backed securities" to define an "NRSRO asset-backed securities" subset, which shall: (1) be the only asset-backed securities for which a credit rating agency may register and issue ratings as a nationally recognized statistical rating organization (NRSRO); and (2) be restricted to securities representing interests in pools of assets whose performance can be evaluated based on a documented history of predictable performance of similar assets, and which are contained in structures which also have a documented history of predictable performance.

 Requires the revision of such regulations to include a list of the classes of securities approved as NRSRO asset-backed securities.

Prescribes an approval process for NRSRO asset-backed securities classes, including approval standards.

Requires an NRSRO to: (1) review annually all ratings issued and outstanding in obligor categories for which it has registered; (2) formally affirm, upgrade, downgrade, or remove ratings based on such review; and (3) provide the SEC with full access to models, documentation, assumptions and performance data upon request, answer all questions posed by the SEC, and cooperate with any SEC investigation.

Directs the SEC to determine whether ratings are issued with the expectation of meeting aggregate historical loss and default standards for given ratings levels across all categories for which a credit rating agency has registered.

SECTION 1. COMMISSION REGULATIONS RELATING TO ASSET-BACKED SECURITIES 
              FOR PURPOSES OF NRSRO RATINGS.

    (a) NRSRO Asset-Backed Securities.--Section 3(a)(62)(B)(iv) of the 
Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(62)(B)(iv)) is 
amended by striking ``as in effect on the date of enactment of this 
Act'' and inserting ``, including NRSRO asset-backed securities 
approved by the Commission and listed in such section''.
    (b) Revision of Regulations.--Not later than 180 days after the 
date of enactment of this Act, the Securities and Exchange Commission 
shall revise the regulations in section 1101(c) of part 229 of title 
17, Code of Federal Regulations, relating to the term ``asset-backed 
securities'' for purposes of section 3(a)(62)(B)(iv) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)(62)(B)(iv)). The revisions 
required under this subsection shall--
            (1) define a subset of asset-back securities to be referred 
        to as ``NRSRO asset-backed securities'', which shall be the 
        only asset-backed securities for which a credit rating agency 
        may register and issue ratings as a nationally recognized 
        statistical rating organization and, which shall be restricted 
        to securities representing interests in pools of assets whose 
        performance can be evaluated based on a documented history of 
        predictable performance of similar assets and which are 
        contained in structures which also have a documented history of 
        predictable performance; and
            (2) include a list of the classes of securities approved as 
        NRSRO asset-backed securities pursuant to subsection (c).
Nothing in this subsection shall be construed so as to limit any credit 
rating agency from rating asset-backed instruments which are not 
designated as ``NRSRO asset-backed securities'' so long as such credit 
rating agency makes it explicit that such instruments are not NRSRO 
asset-backed securities and the associated ratings are not issued 
pursuant to its status as a nationally recognized statistical rating 
organization.
    (c) Approval Process for NRSRO Asset-Backed Securities Classes.--
            (1) Initial fast-track approval.--Not later than 90 days 
        after the date of enactment of this Act, the Securities and 
        Exchange Commission shall establish an initial list of classes 
        of securities approved as NRSRO asset-backed securities.
            (2) Subsequent approval.--After the approval of the initial 
        list of classes of NRSRO asset-backed securities under 
        paragraph (1), the Commission shall approve additional classes 
        of asset-backed securities as NRSRO asset-backed securities on 
        an ongoing basis.
            (3) Procedure.--The Commission shall approve a securities 
        class as NRSRO asset-backed securities only--
                    (A) upon the application (in such form determined 
                by the Commission) of a nationally recognized 
                statistical rating organization concerning a specific 
                class of asset-backed securities;
                    (B) after receiving comment from Federal and State 
                regulators of institutions or entities reasonably 
                expected to seek funding from or invest in such class 
                of securities, including the Federal Reserve System, 
                the Office of the Comptroller of the Currency, the 
                Office of Thrift Supervision, the Federal Deposit 
                Insurance Corporation, the Pension Benefit Guaranty 
                Insurance Corporation, and State banking insurance 
                authorities; and
                    (C) after any other investigation and due diligence 
                the Commission determines to be necessary to evaluate 
                the proposed NRSRO asset-backed securities class's 
                compliance with the standards described in paragraph 
                (4) prior to granting their approval.
            (4) Standards for approval of nrsro asset-backed 
        securities.--Approval of a class of securities as an NRSRO 
        asset-backed securities class shall be limited to those 
        securities whose future performance meets the standard of 
        ``reasonably predictable''. At a minimum, a determination of a 
        reasonably predictable performance standard shall require--
                    (A) a sufficient history of performance data, from 
                a diverse base of sponsors spanning at least 1 complete 
                economic cycle for both the collateral assets or 
                reference assets and the structure so as to generate 
                reasonably accurate statistical estimates of future 
                performance;
                    (B) the ability to aggregate pools of the 
                collateral assets or reference assets of sufficient 
                size to generate reasonably accurate statistical 
                estimates;
                    (C) the existence of contracts for such collateral 
                asset product which are sufficiently standardized to 
                generate reasonably accurate statistical estimates; and
                    (D) sufficient standardization of service quality 
                and procedures for such collateral asset product to 
                generate reasonably accurate statistical estimates.
        Securities that fail to meet 1 or more of conditions set forth 
        in subparagraphs (A) through (D) shall not qualify for 
        eligibility as NRSRO asset-backed securities or ratings.

SEC. 2. QUALIFICATIONS FOR REGISTRATION.

    Section 15E of the Securities Exchange Act (15 U.S.C. 78o-7) is 
amended--
            (1) in subsection (c), by redesignating paragraph (2) as 
        paragraph (3) and inserting after paragraph (1) the following:
            ``(2) Review of ratings and cooperation with commission.--
        In order to maintain its registration and the integrity of the 
        NRSRO ratings system, a nationally recognized statistical 
        rating organization shall annually review all ratings issued 
        and outstanding in obligor categories for which it has 
        registered, with such review to result in a formal re-rating 
        affirmation, upgrade, downgrade, or ratings removal. Each 
        nationally recognized statistical rating organization shall 
        provide the Commission with full access to models, 
        documentation, assumptions, and performance data upon request, 
        shall answer all questions and queries posed by Commission on a 
        timely basis, and otherwise cooperate with any Commission 
        investigation.'';
            (2) in subsection (d), by striking ``The Commission'' and 
        inserting
            ``(1) In general.--The Commission'';
            (3) by redesignating paragraphs (1) through (5) as 
        subparagraphs (A) through (E), respectively; and
            (4) by adding a new subparagraph (F) as follows:
                    ``(F) has, in the course of an investigation into 
                the integrity of its NRSRO ratings caused the 
                Commission to believe that a suspension or revocation 
                of its NRSRO registration is in the public interest.''.
            (5) by adding at the end the following:
            ``(2) Determination and examination by commission.--In 
        assessing whether a nationally recognized statistical rating 
        organization is consistently producing credit ratings with 
        integrity for purposes of paragraph (5), the Commission shall 
        determine whether ratings are issued with the expectation of 
        meeting aggregate historical loss and default standards for 
        given ratings levels across all categories for which a credit 
        rating agency has registered under this section. In the case of 
        a nationally recognized statistical rating organization which 
        has registered for a category or categories for which its 
        ratings experience covers less than a full economic cycle, the 
        standards shall be consistent with industry norms for such 
        category or categories. Additionally, as part of the ongoing 
        qualification of NRSROs, adherence to the foregoing provisions 
        shall be evaluated through the Commission's regular 
        surveillance of NRSRO models, systems, assumptions, and 
        performance.''.