User: 
---
           
return answer between these tag <answer> write answer here</answer>
**Prompt**:
You have a deep understanding of the language of financial markets and its regulations. Please analyze the stakeholder comments in response to the US Security and Exchange Commission’s proposed rules regulating financial market participants. Examine the approval scores of the proposed rule (score ranging from -1 to 1, where -1 is strong disapproval and 1 is strong approval). Do you agree with the 2) output the number of positive terms indicating approval, neutral terms and negative terms indicating disapproval. 3) number of suggestions provided in the comment
Output in this format: Approval Score, # Positive Terms, # Neutral Terms, # Negative Terms, #Suggestions.
**Example Output**:
{
    "approvalScore": 0,
    "positiveTermsCount": 0,
    "neutralTermsCount": 0,
    "negativeTermsCount": 0,
    "suggestionsCount": 0,
}

Assistant: Understood. I will strictly follow these instructions in this conversation.
User: 
You are required to think through the problem carefully before answer and present your thinking in response.
Your thinking should not stop until you are confident.

First, break the task into parts and evaluate step by step whether your predicted answer is correct.

On each step, evaluate your thinking also.

The problem is as follows:

You have a deep understanding of the language of financial markets and its regulations. Please analyze the stakeholder comments in response to the US Security and Exchange Commission’s proposed rules regulating financial market participants. Examine the approval scores of the proposed rule (score ranging from -1 to 1, where -1 is strong disapproval and 1 is strong approval). Do you agree with the 2) output the number of positive terms indicating approval, neutral terms, and negative terms indicating disapproval. 3) number of suggestions provided in the comment. Output in json form Approval Score, # Positive Terms, # Neutral Terms, # Negative Terms, #Suggestions.

The comment is below:

N a n c y   M .   M o r r i s ,   S e c r e t a r y   
 U n i t e d   S t a t e s   S e c u r i t i e s   a n d   E x c h a n g e   C o m m i s s i o n   
 1 0 0   F   S t r e e t ,   N E   
 W a s h i n g t o n ,   D C     2 0 5 4 9 - 1 0 9 0   
 
 A p r i l   6 ,   2 0 0 7   
 
 D e a r   M s .   M o r r i s :   
 
 I   a m   w r i t i n g   t o   c o m m e n t   a b o u t   S E C   p r o p o s e d   r u l e s   o n   t h e   r e g u l a t i o n   o f   c r e d i t   r a t i n g   
 
 a g e n c i e s   ( N S R O s ) .     W h i l e   I   a m   a   m e m b e r   o f   S t a n d a r d   a n d   P o o r ’ s   A c a d e m i c   C o u n c i l ,   t h e   v i e w s   
 e x p r e s s e d   b e l o w   a r e   m y   o w n .   
 
 T h e   C r e d i t   R a t i n g   R e f o r m   A c t   o f   2 0 0 7   w a s   p a s s e d ,   a c c o r d i n g   t o   t h e   S E C ,   f o r   t w o   
 r e a s o n s :   ( 1 )   t o   i n c r e a s e   t h e   t r a n s p a r e n c y   o f   h o w   N S R O s   a c h i e v e   s u c h   s t a t u s   f r o m   t h e   S E C   ( a n d   
 p o t e n t i a l l y   r e d u c e   b a r r i e r s   t o   e n t r y   i n   t h e   b u s i n e s s ) ;   a n d   ( 2 )   N S R O s ’   p r e s e n c e   i n   t h e   m a r k e t s   i s   
 s o   g r e a t   t h a t   t h e y   d e s e r v e   t o   b e   r e g u l a t e d .   I   b e l i e v e   t h e   i m p o r t a n c e   o f   t h e   f i r s t   r e a s o n   i s   g r e a t l y   
 o v e r s t a t e d ,   a s   i t   r e l i e s   m u c h   t o o   h e a v i l y   o n   t h e   n o t i o n   t h a t   N S R O s   a r e   m o n o p o l i e s .     I   c o m p l e t e l y   
 d i s a g r e e   w i t h   t h e   l o g i c   o f   t h e   s e c o n d   r e a s o n .   
 
 T h e   N S R O s   a r e   b u s i n e s s e s   t h a t   e x i s t   t o   m a k e   a   p r o f i t   o n   t h e   p r o d u c t   t h e y   s e l l ,   m u c h   a s   
 
 B u s i n e s s w e e k   o n l y   p r o v i d e s   r a n k i n g s   o f   M B A   p r o g r a m s   f o r   t h e   p u r p o s e   o f   i n c r e a s i n g   i t s   p r o f i t s   
 a n d   S i s k e l   a n d   E b e r t   p r o v i d e d   o p i n i o n s   o n   m o v i e s   f o r   t h e   p u r p o s e   o f   i n c r e a s i n g   t h e i r   i n c o m e s .     
 O n e   c o u l d   a s   e a s i l y   a r g u e   t h a t   B u s i n e s s w e e k   h a s   s u c h   a   s t r o n g   i m p a c t   o n   M B A   p r o g r a m s   t h a t   i t   
 s h o u l d   b e   r e g u l a t e d   o r   t h a t   S i s k e l   a n d   E b e r t   s h o u l d   h a v e   p r o v i d e d   e v i d e n c e   t h a t   t h e i r   
 b a c k g r o u n d s   w e r e   s u i t a b l e   a s   m o v i e   r e v i e w e r s   b e f o r e   t h e y   e v e r   w e n t   o n   t h e   a i r .       N S R O s   d i f f e r   
 f r o m   o t h e r   b u s i n e s s e s   t h a t   s e l l   t h e i r   o p i n i o n s   b e c a u s e   t h e r e   a r e   m a n y   f e d e r a l   a n d   s t a t e   
 r e g u l a t i o n s   t h a t   r e l y   o n   r a t i n g s   t o   d i f f e r e n t i a t e   b e t w e e n   v a r i o u s   c l a s s e s   o f   c r e d i t   r i s k y   
 i n s t r u m e n t s   a n d   t h i s   i s   a t   t h e   h e a r t   o f   t h e   c o n c e r n   a b o u t   r e a s o n   ( 1 ) .     I f   g o v e r n m e n t   a g e n c i e s   h a d   
 t h e   a b i l i t y   t o   e v a l u a t e   t h i s   r i s k   a s   r e a d i l y   a n d   e f f e c t i v e l y   a s   t h e   N S R O s ,   t h e r e   w o u l d   b e   n o   n e e d   
 t o   c o n f e r   t h e   N S R O   s t a t u s   o n   a n y   b u s i n e s s .     T h e   g o v e r n m e n t   r e c o g n i z e s   t h a t   N S R O s   a r e   g o o d   a t   
 c r e d i t   r i s k   e v a l u a t i o n   a n d   a d o p t s   t h e i r   o p i n i o n s   b e c a u s e   t h e s e   c o m p a n i e s   t h a t   h a v e   b u i l t   
 r e p u t a t i o n s   a s   p r o v i d e r s   o f   i n f o r m a t i o n .       
 
 Y e t   t h e   A c t   a n d   t h e   p r o p o s e d   r u l e   i m p l i c i t l y   p o r t r a y   t h e   N S R O s   a s   b u s i n e s s e s   w h o s e   
 
 p r o f i t s   m a i n l y   e x i s t   b e c a u s e   r e g u l a t i o n s   s o   f r e q u e n t l y   r e l y   o n   t h e i r   p r o d u c t s   a n d   w h o   m a y   
 e n d a n g e r   t h e   s y s t e m   w h e n   t h e y   p r o v i d e   i n a c c u r a t e   r a t i n g s .     T h i s   v i e w   p e r v a d e s   t h e   S E C   r u l e ,   a s   
 i t   s o   f r e q u e n t l y   r a i s e s   t h e   i s s u e   o f   w h e t h e r   N S R O s   a b u s e   t h e i r   p o s i t i o n   a n d   a r e   c o e r c i v e ,   a s   i f   
 t h e s e   f i r m s   w o u l d   n o t   e x i s t   i f   t h e y   w e r e   n o   l o n g e r   a b l e   t o   f o r c e   i s s u e r s   t o   b u y   t h e i r   p r o d u c t   w i t h   
 t h e   h e l p   o f   t h e   g o v e r n m e n t .     I f   t h i s   i s   a   m o n o p o l i s t i c   i n d u s t r y   w i t h   i n e f f i c i e n t   o u t p u t ,   t h e n   
 f o c u s i n g   o n   b a r r i e r s   t o   e n t r y   i s   r e a s o n a b l e .     B u t   i f   i t   i s   n o t ,   t h e   S E C   r u l e   m a y   i n s t e a d   r e d u c e   t h e   
 i n d u s t r y ’ s   u s e f u l n e s s .     T h e   p r o p o s e d   r u l e   i s   l i k e l y   t o   l o w e r   t h e   i n f o r m a t i o n   c o n t e n t   o f   r a t i n g s   a s   
 r e g u l a t i o n s   m a k e   i t   h a r d e r   f o r   N S R O s   t o   p r o v i d e   i n d e p e n d e n t   o p i n i o n s .   A   m a j o r   c o n c e r n   s h o u l d   
 b e   w h e t h e r   t h e s e   n e w   r e g u l a t i o n s   w i l l   d e s t r o y   a n   i m p o r t a n t   t o o l   t h a t   t h e   g o v e r n m e n t   u s e s   t o   
 d i f f e r e n t i a t e   c r e d i t   r i s k   i n   i t s   r e g u l a t i o n .     I f   r a t i n g s   b e c o m e   u n i n f o r m a t i v e ,   t h e   r e g u l a t i o n   o f   
 f i n a n c i a l   i n s t i t u t i o n s   t h a t   r e l y   s o   h e a v i l y   o n   t h e s e   r a t i n g s   l o s e s   i t s   e f f e c t i v e n e s s .     W e   k n o w   f r o m   
 p a s t   e x p e r i e n c e   t h a t   f i n a n c i a l   i n s t i t u t i o n s   t h a t   h a v e   l a x   o r   i n e f f e c t u a l   r e g u l a t i o n   a r e   n o t   o n l y   
 m o r e   l i k e l y   t o   f a i l   b u t   c a n   l e a d   t o   s y s t e m i c   f i n a n c i a l   c r i s e s .       
 
 A r e   t h e   b a r r i e r s   t o   e n t r y   s o   h i g h ?       I t   i s   t r u e   t h a t   t h e   n u m b e r   o f   N S R O s   i s   s m a l l   a n d   t h e y   
 
 a r e   f a i r l y   p r o f i t a b l e .     A n d   i t   i s   t r u e   t h a t   n e a r l y   a l l   b o n d s   i s s u e d   i n   t h e   U S   h a v e   a   r a t i n g   f r o m   a t   
 l e a s t   o n e   N S R O .     H o w e v e r ,   t h e   b u s i n e s s   o f   e v a l u a t i n g   c r e d i t   r i s k   i s   n o t   c o n d u c t e d   s o l e l y   b y   t h e   
 
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
   
  r a t i n g   a g e n c i e s .     C o n s i d e r   K M V ,   w h i c h   w a s   a   s e r i o u s   c o n t e n d e r   f o r   t h e   p r o f i t s   o f   t h e   m a j o r   
 r a t i n g   a g e n c i e s ,   d e s p i t e   t h e   s u p p o s e d   d i f f i c u l t y   o f   o b t a i n i n g   N S R O   s t a t u s .     K M V   w a s   s t a r t e d   b y   
 K e a l h o f e r ,   V a s i c e k ,   a n d   M c Q u o w n ,   n o n e   o f   w h o m   s e p a r a t e l y   o r   a s   a   g r o u p   c o u l d   b e   d e s c r i b e d   
 a s   h a v i n g   s u p e r i o r   r e s o u r c e s   f o r   o v e r c o m i n g   s t e e p   b a r r i e r s   t o   e n t r y .     Y e t   w i t h i n   a   r e l a t i v e l y   s h o r t   
 p e r i o d   o f   t i m e ,   K M V ’ s   E D F   p r o d u c t   w a s   c o n s i d e r e d   t h e   m o s t   s u c c e s s f u l   a n d   r e l i a b l e   p r e d i c t o r   o f   
 t h e   p r o b a b i l i t y   o f   d e f a u l t ,   s u p e r i o r   t o   a n y   b o n d   r a t i n g .     A n o t h e r   n e w   c o m p e t i t o r   i s   C r e d i t S i g h t s ,   
 w h o s e   a n a l y s t s   r e p o r t   o n   t h e   c r e d i t   r i s k   o f   c o r p o r a t e   b o n d s   m u c h   i n   t h e   s a m e   w a y   M o o d y ’ s   a n d   
 S & P   d o .     N e w   e n t r a n t s   a r e   a b l e   t o   c o m p e t e   f o r   i n v e s t o r s ’   c a s h   b y   p r o v i d i n g   o p i n i o n s   o n   c r e d i t   
 r i s k ,   s u g g e s t i n g   N S R O s ’   p o w e r   i s   n o t   t h a t   g r e a t .       
 
 T h e   S E C ’ s   r u l e s   p r e s u m e   t h a t   t h e   r a t i n g   a g e n c i e s   a r e   m o r e   l i k e l y   t o   a b u s e   t h e i r   s o - c a l l e d   
 m o n o p o l y   p o w e r   t h a n   i s s u e r s   a r e   t o   a b u s e   t h e i r   o p t i o n   t o   s h o p   f o r   r a t i n g s .     “ R a t i n g s   s h o p p i n g ”   i s   
 t h e   p r a c t i c e   o f   s e e k i n g   o u t   r a t i n g s   f r o m   s e v e r a l   N S R O s   a n d   o n l y   p a y i n g   f o r   t h e   m o r e   f a v o r a b l e   
 o n e ,   o r   o n l y   a s k i n g   f o r   a   r a t i n g   f r o m   o n e   N S R O   b e c a u s e   t h a t   o n e   w i l l   l i k e l y   g i v e   a   f a v o r a b l e   
 r a t i n g .     A   b o n d   w i t h   o n l y   o n e   r a t i n g   i s   f a r   m o r e   l i k e l y   t o   b e   t h e   r e s u l t   o f   r a t i n g s   s h o p p i n g   t h a n   
 a b u s e   o f   p o w e r   b y   t h e   N S R O s .       S h o p p i n g   f o r   r a t i n g s   i s   a k i n   t o   r e t a k i n g   t h e   S A T   s e v e r a l   t i m e s   
 a n d   o n l y   r e p o r t i n g   t h e   h i g h e s t   s c o r e   t o   t h e   c o l l e g e s .     A   c o l l e g e   w o u l d   l i k e   t o   k n o w   a l l   t h e   s c o r e s   
 i t s   a p p l i c a n t s   r e c e i v e   o n   t h e   t e s t s ,   j u s t   a s   a   b o n d   i n v e s t o r   w o u l d   l i k e   t o   k n o w   w h a t   a l l   f i r m s   t h i n k   
 o f   t h e   b o n d   h e   i s   a b o u t   t o   b u y .     T h e   h i g h   s c h o o l   s t u d e n t   w o u l d   r a t h e r   o n l y   h a v e   t h e   h i g h e s t   s c o r e   
 r e v e a l e d .     T h e   S E C ’ s   p r o p o s a l   o n   n o t c h i n g   i s   e q u i v a l e n t   t o   u n d o i n g   r a t i n g s   s h o p p i n g   n o t   b y   
 r e q u i r i n g   a l l   t h e   s c o r e s   t o   b e   r e p o r t e d   b u t   b y   r e q u i r i n g   t h a t   t h e   o t h e r   t e s t   s c o r e s   b e   r e r e c o r d e d   a s   
 i f   t h e y   a l s o   e q u a l e d   t h e   h i g h e s t   s c o r e .     T h i s   w i l l   s u r e l y   l o w e r   t h e   v a l u e   o f   r a t i n g s   t o   r e g u l a t o r s   o f   
 f i n a n c i a l   i n s t i t u t i o n s   t h a t   i n v e s t   i n   c r e d i t   r i s k y   i n s t r u m e n t s .   
 
 T h e   s e c o n d   a r g u m e n t   f o r   r e g u l a t i n g   r a t i n g   a g e n c i e s ,   t h a t   t h e i r   l a r g e   r o l e   i n   t h e   m a r k e t s   
 w a r r a n t s   o v e r s i g h t ,   i s   i n   s t a r k   c o n t r a s t   t o   t h e   r e s t   o f   t h e   S E C ’ s   r u l e s .     T h e   N S R O s   a r e   l a r g e l y   i n   
 t h e   b u s i n e s s   o f   p r o v i d i n g   i n f o r m a t i o n   a b o u t   c r e d i t   r i s k   t o   i n s t i t u t i o n a l   i n v e s t o r s ,   w h o   a r e   t h e   
 m a j o r   i n v e s t o r s   i n   c o r p o r a t e   b o n d s   a n d   s t r u c t u r e d   f i n a n c e   p r o d u c t s .     M o s t   o t h e r   S E C   r u l e s   a r e   
 w r i t t e n   f r o m   t h e   p o i n t   o f   v i e w   t h a t   i n s t i t u t i o n a l   i n v e s t o r s   a r e   s o p h i s t i c a t e d ,   w e l l - i n f o r m e d   
 i n v e s t o r s   w h o   d o   n o t   r e q u i r e   s u b s t a n t i a l   h e l p   f r o m   t h e   S E C .     T h i s   v i e w   i s   w h y   t h e   S E C   c r e a t e d   
 t h e   d e f i n i t i o n   o f   a   “ q u a l i f i e d   i n s t i t u t i o n a l   b u y e r ”   ( Q I B )   a s   w e l l   a s   t h e   r a t i o n a l e   f o r   d e f i n i n g   t h e   
 “ a c c r e d i t e d   i n v e s t o r . ”   T h e   Q I B   i s   t h e   b a s i s   f o r   R u l e   1 4 4 a ,   u n d e r   w h i c h   n e a r l y   a l l   s p e c u l a t i v e - 
 g r a d e   b o n d s   a r e   c u r r e n t l y   i s s u e d .     I t   i s   a l s o   t h e   r e a s o n   w h y   t h e   S E C   d e c l i n e s   t o   r e g u l a t e   h e d g e   
 f u n d s :   T h e y   a r e   o n l y   b o u g h t   b y   a c c r e d i t e d   i n v e s t o r s   w h o   d o   n o t   n e e d   t h e   h e l p   o f   t h e   S E C   i n   
 e v a l u a t i n g   t h e i r   r i s k   o r   e x p e c t e d   r e t u r n .     S u r e l y   t h e   l a r g e   r o l e   o f   h e d g e   f u n d s   d o m i n a t e s   t h a t   o f   
 t h e   N S R O s   i n   f i n a n c i a l   m a r k e t s ,   y e t   t h a t   i s   n o t   s u f f i c i e n t   r e a s o n   f o r   r e g u l a t i n g   t h e m .     I f   t h e   g o a l   
 o f   t h e   A c t   i s   t o   p r e v e n t   a n o t h e r   m e l t d o w n   l i k e   t h a t   o f   E n r o n   o r   W o r l d c o m ,   a s   t h e   p r o p o s e d   r u l e s   
 i m p l y ,   t h e   S E C ’ s   v e r y   s c a r c e   r e s o u r c e s   w o u l d   b e   m u c h   b e t t e r   s p e n t   o n   e n s u r i n g   t h a t   c u r r e n t   
 r e p o r t i n g   r u l e s   a r e   e n f o r c e d   r a t h e r   t h a n   e n s u r i n g   t h a t   Q I B s   a r e   n o t   a b u s e d   b y   N S R O s .   
 
 S i n c e r e l y ,   
 
 J e a n   H e l w e g e   
 A s s o c i a t e   P r o f e s s o r   o f   F i n a n c e   
 P e n n   S t a t e   U n i v e r s i t y   
 
   
   
     
   
   
   
   
   
   
   
   
   
   
   
   
   
   
 

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