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[109th Congress Public Law 291]
[From the U.S. Government Printing Office]

[DOCID: f:publ291.109]

[[Page 120 STAT. 1327]]

Public Law 109-291
109th Congress

                                 An Act

 
 To improve ratings quality for the protection of investors and in the 
     public interest by fostering accountability, transparency, and 
  competition in the credit rating agency industry. <<NOTE: Sept. 29, 
                          2006 -  [S. 3850]>> 

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress <<NOTE: Credit Rating Agency Reform 
Act of 2006. 15 USC 78a note.>> assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Credit Rating Agency Reform Act of 
2006''.

SEC. 2. <<NOTE: 15 USC 78o-7 note.>> FINDINGS.

    Upon the basis of facts disclosed by the record and report of the 
Securities and Exchange Commission made pursuant to section 702 of the 
Sarbanes-Oxley Act of 2002 (116 Stat. 797), hearings before the 
Committee on Banking, Housing, and Urban Affairs of the Senate and the 
Committee on Financial Services of the House of Representatives during 
the 108th and 109th Congresses, comment letters to the concept releases 
and proposed rules of the Commission, and facts otherwise disclosed and 
ascertained, Congress finds that credit rating agencies are of national 
importance, in that, among other things--
            (1) their ratings, publications, writings, analyses, and 
        reports are furnished and distributed, and their contracts, 
        subscription agreements, and other arrangements with clients are 
        negotiated and performed, by the use of the mails and other 
        means and instrumentalities of interstate commerce;
            (2) their ratings, publications, writings, analyses, and 
        reports customarily relate to the purchase and sale of 
        securities traded on securities exchanges and in interstate 
        over-the-counter markets, securities issued by companies engaged 
        in business in interstate commerce, and securities issued by 
        national banks and member banks of the Federal Reserve System;
            (3) the foregoing transactions occur in such volume as 
        substantially to affect interstate commerce, the securities 
        markets, the national banking system, and the national economy;
            (4) the oversight of such credit rating agencies serves the 
        compelling interest of investor protection;
            (5) the 2 largest credit rating agencies serve the vast 
        majority of the market, and additional competition is in the 
        public interest; and
            (6) the Commission has indicated that it needs statutory 
        authority to oversee the credit rating industry.

[[Page 120 STAT. 1328]]

SEC. 3. DEFINITIONS.

    (a) Securities Exchange Act of 1934.--Section 3(a) of the Securities 
Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the end 
the following new paragraphs:
            ``(60) Credit rating.--The term `credit rating' means an 
        assessment of the creditworthiness of an obligor as an entity or 
        with respect to specific securities or money market instruments.
            ``(61) Credit rating agency.--The term `credit rating 
        agency' means any person--
                    ``(A) engaged in the business of issuing credit 
                ratings on the Internet or through another readily 
                accessible means, for free or for a reasonable fee, but 
                does not include a commercial credit reporting company;
                    ``(B) employing either a quantitative or qualitative 
                model, or both, to determine credit ratings; and
                    ``(C) receiving fees from either issuers, investors, 
                or other market participants, or a combination thereof.
            ``(62) Nationally recognized statistical rating 
        organization.--The term `nationally recognized statistical 
        rating organization' means a credit rating agency that--
                    ``(A) has been in business as a credit rating agency 
                for at least the 3 consecutive years immediately 
                preceding the date of its application for registration 
                under section 15E;
                    ``(B) issues credit ratings certified by qualified 
                institutional buyers, in accordance with section 
                15E(a)(1)(B)(ix), with respect to--
                          ``(i) financial institutions, brokers, or 
                      dealers;
                          ``(ii) insurance companies;
                          ``(iii) corporate issuers;
                          ``(iv) issuers of asset-backed securities (as 
                      that term is defined in section 1101(c) of part 
                      229 of title 17, Code of Federal Regulations, as 
                      in effect on the date of enactment of this 
                      paragraph);
                          ``(v) issuers of government securities, 
                      municipal securities, or securities issued by a 
                      foreign government; or
                          ``(vi) a combination of one or more categories 
                      of obligors described in any of clauses (i) 
                      through (v); and
                    ``(C) is registered under section 15E.
            ``(63) Person associated with a nationally recognized 
        statistical rating organization.--The term `person associated 
        with' a nationally recognized statistical rating organization 
        means any partner, officer, director, or branch manager of a 
        nationally recognized statistical rating organization (or any 
        person occupying a similar status or performing similar 
        functions), any person directly or indirectly controlling, 
        controlled by, or under common control with a nationally 
        recognized statistical rating organization, or any employee of a 
        nationally recognized statistical rating organization.
            ``(64) Qualified institutional buyer.--The term `qualified 
        institutional buyer' has the meaning given such term in section 
        230.144A(a) of title 17, Code of Federal Regulations, or any 
        successor thereto.''.

    (b) <<NOTE: 15 USC 78o-7 note.>> Applicable Definitions.--As used in 
this Act--

[[Page 120 STAT. 1329]]

            (1) the term ``Commission'' means the Securities and 
        Exchange Commission; and
            (2) the term ``nationally recognized statistical rating 
        organization'' has the same meaning as in section 3(a)(62) of 
        the Securities Exchange Act of 1934, as added by this Act.

SEC. 4. REGISTRATION OF NATIONALLY RECOGNIZED STATISTICAL RATING 
            ORGANIZATIONS.

    (a) Amendment.--The Securities Exchange Act of 1934 is amended by 
inserting after section 15D (15 U.S.C. 78o-6) the following new section:

``SEC. 15E. <<NOTE: 15 USC 78o-7.>> REGISTRATION OF NATIONALLY 
            RECOGNIZED STATISTICAL RATING ORGANIZATIONS.

    ``(a) Registration Procedures.--
            ``(1) Application for registration.--
                    ``(A) In general.--A credit rating agency that 
                elects to be treated as a nationally recognized 
                statistical rating organization for purposes of this 
                title (in this section referred to as the `applicant'), 
                shall furnish to the Commission an application for 
                registration, in such form as the Commission shall 
                require, by rule or regulation issued in accordance with 
                subsection (n), and containing the information described 
                in subparagraph (B).
                    ``(B) Required information.--An application for 
                registration under this section shall contain 
                information regarding--
                          ``(i) credit ratings performance measurement 
                      statistics over short-term, mid-term, and long-
                      term periods (as applicable) of the applicant;
                          ``(ii) the procedures and methodologies that 
                      the applicant uses in determining credit ratings;
                          ``(iii) policies or procedures adopted and 
                      implemented by the applicant to prevent the 
                      misuse, in violation of this title (or the rules 
                      and regulations hereunder), of material, nonpublic 
                      information;
                          ``(iv) the organizational structure of the 
                      applicant;
                          ``(v) whether or not the applicant has in 
                      effect a code of ethics, and if not, the reasons 
                      therefor;
                          ``(vi) any conflict of interest relating to 
                      the issuance of credit ratings by the applicant;
                          ``(vii) the categories described in any of 
                      clauses (i) through (v) of section 3(a)(62)(B) 
                      with respect to which the applicant intends to 
                      apply for registration under this section;
                          ``(viii) on a confidential basis, a list of 
                      the 20 largest issuers and subscribers that use 
                      the credit rating services of the applicant, by 
                      amount of net revenues received therefrom in the 
                      fiscal year immediately preceding the date of 
                      submission of the application;
                          ``(ix) on a confidential basis, as to each 
                      applicable category of obligor described in any of 
                      clauses (i) through (v) of section 3(a)(62)(B), 
                      written certifications described in subparagraph 
                      (C), except as provided in subparagraph (D); and
                          ``(x) any other information and documents 
                      concerning the applicant and any person associated 
                      with

[[Page 120 STAT. 1330]]

                      such applicant as the Commission, by rule, may 
                      prescribe as necessary or appropriate in the 
                      public interest or for the protection of 
                      investors.
                    ``(C) Written certifications.--Written 
                certifications required by subparagraph (B)(ix)--
                          ``(i) shall be provided from not fewer than 10 
                      qualified institutional buyers, none of which is 
                      affiliated with the applicant;
                          ``(ii) may address more than one category of 
                      obligors described in any of clauses (i) through 
                      (v) of section 3(a)(62)(B);
                          ``(iii) shall include not fewer than 2 
                      certifications for each such category of obligor; 
                      and
                          ``(iv) shall state that the qualified 
                      institutional buyer--
                                    ``(I) meets the definition of a 
                                qualified institutional buyer under 
                                section 3(a)(64); and
                                    ``(II) has used the credit ratings 
                                of the applicant for at least the 3 
                                years immediately preceding the date of 
                                the certification in the subject 
                                category or categories of obligors.
                    ``(D) Exemption from certification requirement.--A 
                written certification under subparagraph (B)(ix) is not 
                required with respect to any credit rating agency which 
                has received, or been the subject of, a no-action letter 
                from the staff of the Commission prior to August 2, 
                2006, stating that such staff would not recommend 
                enforcement action against any broker or dealer that 
                considers credit ratings issued by such credit rating 
                agency to be ratings from a nationally recognized 
                statistical rating organization.
                    ``(E) Limitation on liability of qualified 
                institutional buyers.--No qualified institutional buyer 
                shall be liable in any private right of action for any 
                opinion or statement expressed in a certification made 
                pursuant to subparagraph (B)(ix).
            ``(2) Review of application.--
                    ``(A) Initial determination.--
                Not <<NOTE: Deadline.>> later than 90 days after the 
                date on which the application for registration is 
                furnished to the Commission under paragraph (1) (or 
                within such longer period as to which the applicant 
                consents) the Commission shall--
                          ``(i) by order, grant such registration for 
                      ratings in the subject category or categories of 
                      obligors, as described in clauses (i) through (v) 
                      of section 3(a)(62)(B); or
                          ``(ii) institute proceedings to determine 
                      whether registration should be denied.
                    ``(B) Conduct of proceedings.--
                          ``(i) Content.--Proceedings referred to in 
                      subparagraph (A)(ii) shall--
                                    ``(I) include notice of the grounds 
                                for denial under consideration and an 
                                opportunity for hearing; and
                                    ``(II) be concluded not later than 
                                120 days after the date on which the 
                                application for registration is 
                                furnished to the Commission under 
                                paragraph (1).

[[Page 120 STAT. 1331]]

                          ``(ii) Determination.--At the conclusion of 
                      such proceedings, the Commission, by order, shall 
                      grant or deny such application for registration.
                          ``(iii) Extension authorized.--The Commission 
                      may extend the time for conclusion of such 
                      proceedings for not longer than 90 days, if it 
                      finds good cause for such extension and publishes 
                      its reasons for so finding, or for such longer 
                      period as to which the applicant consents.
                    ``(C) Grounds for decision.--The Commission shall 
                grant registration under this subsection--
                          ``(i) if the Commission finds that the 
                      requirements of this section are satisfied; and
                          ``(ii) unless the Commission finds (in which 
                      case the Commission shall deny such registration) 
                      that--
                                    ``(I) the applicant does not have 
                                adequate financial and managerial 
                                resources to consistently produce credit 
                                ratings with integrity and to materially 
                                comply with the procedures and 
                                methodologies disclosed under paragraph 
                                (1)(B) and with subsections (g), (h), 
                                (i), and (j); or
                                    ``(II) if the applicant were so 
                                registered, its registration would be 
                                subject to suspension or revocation 
                                under subsection (d).
            ``(3) Public availability of information.--Subject to 
        section 24, the Commission shall, by rule, require a nationally 
        recognized statistical rating organization, upon the granting of 
        registration under this section, to make the information and 
        documents submitted to the Commission in its completed 
        application for registration, or in any amendment submitted 
        under paragraph (1) or (2) of subsection (b), publicly available 
        on its website, or through another comparable, readily 
        accessible means, except as provided in clauses (viii) and (ix) 
        of paragraph (1)(B).

    ``(b) Update of Registration.--
            ``(1) Update.--Each nationally recognized statistical rating 
        organization shall promptly amend its application for 
        registration under this section if any information or document 
        provided therein becomes materially inaccurate, except that a 
        nationally recognized statistical rating organization is not 
        required to amend--
                    ``(A) the information required to be furnished under 
                subsection (a)(1)(B)(i) by furnishing information under 
                this paragraph, but shall amend such information in the 
                annual submission of the organization under paragraph 
                (2) of this subsection; or
                    ``(B) the certifications required to be provided 
                under subsection (a)(1)(B)(ix) by furnishing information 
                under this paragraph.
            ``(2) Certification.--Not <<NOTE: Deadline.>> later than 90 
        days after the end of each calendar year, each nationally 
        recognized statistical rating organization shall furnish to the 
        Commission an amendment to its registration, in such form as the 
        Commission, by rule, may prescribe as necessary or appropriate 
        in the public interest or for the protection of investors--

[[Page 120 STAT. 1332]]

                    ``(A) certifying that the information and documents 
                in the application for registration of such nationally 
                recognized statistical rating organization (other than 
                the certifications required under subsection 
                (a)(1)(B)(ix)) continue to be accurate; and
                    ``(B) listing any material change that occurred to 
                such information or documents during the previous 
                calendar year.

    ``(c) Accountability for Ratings Procedures.--
            ``(1) Authority.--The Commission shall have exclusive 
        authority to enforce the provisions of this section in 
        accordance with this title with respect to any nationally 
        recognized statistical rating organization, if such nationally 
        recognized statistical rating organization issues credit ratings 
        in material contravention of those procedures relating to such 
        nationally recognized statistical rating organization, including 
        procedures relating to the prevention of misuse of nonpublic 
        information and conflicts of interest, that such nationally 
        recognized statistical rating organization--
                    ``(A) includes in its application for registration 
                under subsection (a)(1)(B)(ii); or
                    ``(B) makes and disseminates in reports pursuant to 
                section 17(a) or the rules and regulations thereunder.
            ``(2) Limitation.--The rules and regulations that the 
        Commission may prescribe pursuant to this title, as they apply 
        to nationally recognized statistical rating organizations, shall 
        be narrowly tailored to meet the requirements of this title 
        applicable to nationally recognized statistical rating 
        organizations. Notwithstanding any other provision of law, 
        neither the Commission nor any State (or political subdivision 
        thereof) may regulate the substance of credit ratings or the 
        procedures and methodologies by which any nationally recognized 
        statistical rating organization determines credit ratings.

    ``(d) Censure, Denial, or Suspension of Registration; Notice and 
Hearing.--The Commission, by order, shall censure, place limitations on 
the activities, functions, or operations of, suspend for a period not 
exceeding 12 months, or revoke the registration of any nationally 
recognized statistical rating organization if the Commission finds, on 
the record after notice and opportunity for hearing, that such censure, 
placing of limitations, suspension, or revocation is necessary for the 
protection of investors and in the public interest and that such 
nationally recognized statistical rating organization, or any person 
associated with such an organization, whether prior to or subsequent to 
becoming so associated--
            ``(1) has committed or omitted any act, or is subject to an 
        order or finding, enumerated in subparagraph (A), (D), (E), (H), 
        or (G) of section 15(b)(4), has been convicted of any offense 
        specified in section 15(b)(4)(B), or is enjoined from any 
        action, conduct, or practice specified in subparagraph (C) of 
        section 15(b)(4), during the 10-year period preceding the date 
        of commencement of the proceedings under this subsection, or at 
        any time thereafter;
            ``(2) has been convicted during the 10-year period preceding 
        the date on which an application for registration is furnished 
        to the Commission under this section, or at any time thereafter, 
        of--

[[Page 120 STAT. 1333]]

                    ``(A) any crime that is punishable by imprisonment 
                for 1 or more years, and that is not described in 
                section 15(b)(4)(B); or
                    ``(B) a substantially equivalent crime by a foreign 
                court of competent jurisdiction;
            ``(3) is subject to any order of the Commission barring or 
        suspending the right of the person to be associated with a 
        nationally recognized statistical rating organization;
            ``(4) fails to furnish the certifications required under 
        subsection (b)(2); or
            ``(5) fails to maintain adequate financial and managerial 
        resources to consistently produce credit ratings with integrity.

    ``(e) Termination of Registration.--
            ``(1) Voluntary withdrawal.--A nationally recognized 
        statistical rating organization may, upon such terms and 
        conditions as the Commission may establish as necessary in the 
        public interest or for the protection of investors, withdraw 
        from registration by furnishing a written notice of withdrawal 
        to the Commission.
            ``(2) Commission authority.--In addition to any other 
        authority of the Commission under this title, if the Commission 
        finds that a nationally recognized statistical rating 
        organization is no longer in existence or has ceased to do 
        business as a credit rating agency, the Commission, by order, 
        shall cancel the registration under this section of such 
        nationally recognized statistical rating organization.

    ``(f) Representations.--
            ``(1) Ban on representations of sponsorship by united states 
        or agency thereof.--It shall be unlawful for any nationally 
        recognized statistical rating organization to represent or imply 
        in any manner whatsoever that such nationally recognized 
        statistical rating organization has been designated, sponsored, 
        recommended, or approved, or that the abilities or 
        qualifications thereof have in any respect been passed upon, by 
        the United States or any agency, officer, or employee thereof.
            ``(2) Ban on representation as nrsro of unregistered credit 
        rating agencies.--It shall be unlawful for any credit rating 
        agency that is not registered under this section as a nationally 
        recognized statistical rating organization to state that such 
        credit rating agency is a nationally recognized statistical 
        rating organization registered under this title.
            ``(3) Statement of registration under securities exchange 
        act of 1934 provisions.--No provision of paragraph (1) shall be 
        construed to prohibit a statement that a nationally recognized 
        statistical rating organization is a nationally recognized 
        statistical rating organization under this title, if such 
        statement is true in fact and if the effect of such registration 
        is not misrepresented.

    ``(g) Prevention of Misuse of Nonpublic Information.--
            ``(1) Organization policies and procedures.--Each nationally 
        recognized statistical rating organization shall establish, 
        maintain, and enforce written policies and procedures reasonably 
        designed, taking into consideration the nature of the business 
        of such nationally recognized statistical rating organization, 
        to prevent the misuse in violation of this title, or the rules 
        or regulations hereunder, of material, nonpublic information by 
        such nationally recognized statistical rating

[[Page 120 STAT. 1334]]

        organization or any person associated with such nationally 
        recognized statistical rating organization.
            ``(2) Commission authority.--
        The <<NOTE: Regulations.>> Commission shall issue final rules in 
        accordance with subsection (n) to require specific policies or 
        procedures that are reasonably designed to prevent misuse in 
        violation of this title (or the rules or regulations hereunder) 
        of material, nonpublic information.

    ``(h) Management of Conflicts of Interest.--
            ``(1) Organization policies and procedures.--Each nationally 
        recognized statistical rating organization shall establish, 
        maintain, and enforce written policies and procedures reasonably 
        designed, taking into consideration the nature of the business 
        of such nationally recognized statistical rating organization 
        and affiliated persons and affiliated companies thereof, to 
        address and manage any conflicts of interest that can arise from 
        such business.
            ``(2) Commission authority.--
        The <<NOTE: Regulations.>> Commission shall issue final rules in 
        accordance with subsection (n) to prohibit, or require the 
        management and disclosure of, any conflicts of interest relating 
        to the issuance of credit ratings by a nationally recognized 
        statistical rating organization, including, without limitation, 
        conflicts of interest relating to--
                    ``(A) the manner in which a nationally recognized 
                statistical rating organization is compensated by the 
                obligor, or any affiliate of the obligor, for issuing 
                credit ratings or providing related services;
                    ``(B) the provision of consulting, advisory, or 
                other services by a nationally recognized statistical 
                rating organization, or any person associated with such 
                nationally recognized statistical rating organization, 
                to the obligor, or any affiliate of the obligor;
                    ``(C) business relationships, ownership interests, 
                or any other financial or personal interests between a 
                nationally recognized statistical rating organization, 
                or any person associated with such nationally recognized 
                statistical rating organization, and the obligor, or any 
                affiliate of the obligor;
                    ``(D) any affiliation of a nationally recognized 
                statistical rating organization, or any person 
                associated with such nationally recognized statistical 
                rating organization, with any person that underwrites 
                the securities or money market instruments that are the 
                subject of a credit rating; and
                    ``(E) any other potential conflict of interest, as 
                the Commission deems necessary or appropriate in the 
                public interest or for the protection of investors.

    ``(i) Prohibited Conduct.--
            ``(1) Prohibited acts and practices.--
        The <<NOTE: Regulations.>> Commission shall issue final rules in 
        accordance with subsection (n) to prohibit any act or practice 
        relating to the issuance of credit ratings by a nationally 
        recognized statistical rating organization that the Commission 
        determines to be unfair, coercive, or abusive, including any act 
        or practice relating to--
                    ``(A) conditioning or threatening to condition the 
                issuance of a credit rating on the purchase by the 
                obligor or an affiliate thereof of other services or 
                products, including pre-credit rating assessment 
                products, of the nationally recognized statistical 
                rating organization or any

[[Page 120 STAT. 1335]]

                person associated with such nationally recognized 
                statistical rating organization;
                    ``(B) lowering or threatening to lower a credit 
                rating on, or refusing to rate, securities or money 
                market instruments issued by an asset pool or as part of 
                any asset-backed or mortgage-backed securities 
                transaction, unless a portion of the assets within such 
                pool or part of such transaction, as applicable, also is 
                rated by the nationally recognized statistical rating 
                organization; or
                    ``(C) modifying or threatening to modify a credit 
                rating or otherwise departing from its adopted 
                systematic procedures and methodologies in determining 
                credit ratings, based on whether the obligor, or an 
                affiliate of the obligor, purchases or will purchase the 
                credit rating or any other service or product of the 
                nationally recognized statistical rating organization or 
                any person associated with such organization.
            ``(2) Rule of construction.--Nothing in paragraph (1), or in 
        any rules or regulations adopted thereunder, may be construed to 
        modify, impair, or supersede the operation of any of the 
        antitrust laws (as defined in the first section of the Clayton 
        Act, except that such term includes section 5 of the Federal 
        Trade Commission Act, to the extent that such section 5 applies 
        to unfair methods of competition).

    ``(j) Designation of Compliance Officer.--Each nationally recognized 
statistical rating organization shall designate an individual 
responsible for administering the policies and procedures that are 
required to be established pursuant to subsections (g) and (h), and for 
ensuring compliance with the securities laws and the rules and 
regulations thereunder, including those promulgated by the Commission 
pursuant to this section.
    ``(k) Statements of Financial Condition.--Each <<NOTE: Confidential 
information.>> nationally recognized statistical rating organization 
shall, on a confidential basis, furnish to the Commission, at intervals 
determined by the Commission, such financial statements, certified (if 
required by the rules or regulations of the Commission) by an 
independent public accountant, and information concerning its financial 
condition, as the Commission, by rule, may prescribe as necessary or 
appropriate in the public interest or for the protection of investors.

    ``(l) Sole Method of Registration.--
            ``(1) In general.--On and after the effective date of this 
        section, a credit rating agency may only be registered as a 
        nationally recognized statistical rating organization for any 
        purpose in accordance with this section.
            ``(2) Prohibition on reliance on no-action relief.--On and 
        after the effective date of this section--
                    ``(A) an entity that, before that date, received 
                advice, approval, or a no-action letter from the 
                Commission or staff thereof to be treated as a 
                nationally recognized statistical rating organization 
                pursuant to the Commission rule at section 240.15c3-1 of 
                title 17, Code of Federal Regulations, may represent 
                itself or act as a nationally recognized statistical 
                rating organization only--
                          ``(i) during Commission consideration of the 
                      application, if such entity has furnished an 
                      application for registration under this section; 
                      and

[[Page 120 STAT. 1336]]

                          ``(ii) on and after the date of approval of 
                      its application for registration under this 
                      section; and
                    ``(B) the advice, approval, or no-action letter 
                described in subparagraph (A) shall be void.
            ``(3) Notice to other agencies.--
        Not <<NOTE: Deadline.>> later than 30 days after the date of 
        enactment of this section, the Commission shall give notice of 
        the actions undertaken pursuant to this section to each Federal 
        agency which employs in its rules and regulations the term 
        `nationally recognized statistical rating organization' (as that 
        term is used under Commission rule 15c3-1 (17 C.F.R. 240.15c3-
        1), as in effect on the date of enactment of this section).

    ``(m) Rules of Construction.--
            ``(1) No waiver of rights, privileges, or defenses.--
        Registration under and compliance with this section does not 
        constitute a waiver of, or otherwise diminish, any right, 
        privilege, or defense that a nationally recognized statistical 
        rating organization may otherwise have under any provision of 
        State or Federal law, including any rule, regulation, or order 
        thereunder.
            ``(2) No private right of action.--Nothing in this section 
        may be construed as creating any private right of action, and no 
        report furnished by a nationally recognized statistical rating 
        organization in accordance with this section or section 17 shall 
        create a private right of action under section 18 or any other 
        provision of law.

    ``(n) Regulations.--
            ``(1) New provisions.--Such rules and regulations as are 
        required by this section or are otherwise necessary to carry out 
        this section, including the application form required under 
        subsection (a)--
                    ``(A) <<NOTE: Deadline.>> shall be issued by the 
                Commission in final form, not later than 270 days after 
                the date of enactment of this section; and
                    ``(B) <<NOTE: Effective date.>> shall become 
                effective not later than 270 days after the date of 
                enactment of this section.
            ``(2) Review of existing regulations.--
        Not <<NOTE: Deadline.>> later than 270 days after the date of 
        enactment of this section, the Commission shall--
                    ``(A) review its existing rules and regulations 
                which employ the term `nationally recognized statistical 
                rating organization' or `NRSRO'; and
                    ``(B) amend or revise such rules and regulations in 
                accordance with the purposes of this section, as the 
                Commission may prescribe as necessary or appropriate in 
                the public interest or for the protection of investors.

    ``(o) NRSROs Subject to Commission Authority.--
            ``(1) In general.--No provision of the laws of any State or 
        political subdivision thereof requiring the registration, 
        licensing, or qualification as a credit rating agency or a 
        nationally recognized statistical rating organization shall 
        apply to any nationally recognized statistical rating 
        organization or person employed by or working under the control 
        of a nationally recognized statistical rating organization.
            ``(2) Limitation.--Nothing in this subsection prohibits the 
        securities commission (or any agency or office performing like 
        functions) of any State from investigating and bringing an

[[Page 120 STAT. 1337]]

        enforcement action with respect to fraud or deceit against any 
        nationally recognized statistical rating organization or person 
        associated with a nationally recognized statistical rating 
        organization.

    ``(p) Applicability.--This <<NOTE: Effective date.>> section, other 
than subsection (n), which shall apply on the date of enactment of this 
section, shall apply on the earlier of--
            ``(1) the date on which regulations are issued in final form 
        under subsection (n)(1); or
            ``(2) 270 days after the date of enactment of this 
        section.''.

    (b) Conforming Amendments.--
            (1) Securities exchange act of 1934.--The Securities 
        Exchange Act of 1934 (15 U.S.C. 78 et seq.) is amended--
                    (A) in section 15(b)(4) (15 U.S.C. 78o(b)(4))--
                          (i) in subparagraph (B)(ii), by inserting 
                      ``nationally recognized statistical rating 
                      organization,'' after ``transfer agent,''; and
                          (ii) in subparagraph (C), by inserting 
                      ``nationally recognized statistical rating 
                      organization,'' after ``transfer agent,''; and
                    (B) in section 21B(a) (15 U.S.C. 78u-2(a)), by 
                inserting ``15E,'' after ``15C,''.
            (2) Investment company act of 1940.--The Investment Company 
        Act of 1940 (15 U.S.C. 80a et seq.) is amended--
                    (A) in section 2(a) (15 U.S.C. 80a-2(a)), by adding 
                at the end the following new paragraph:
            ``(53) The term `credit rating agency' has the same meaning 
        as in section 3 of the Securities Exchange Act of 1934.''; and
                    (B) in section 9(a) (15 U.S.C. 80a-9(a))--
                          (i) in paragraph (1), by inserting ``credit 
                      rating agency,'' after ``transfer agent,''; and
                          (ii) in paragraph (2), by inserting ``credit 
                      rating agency,'' after ``transfer agent,''.
            (3) Investment advisers act of 1940.--The Investment 
        Advisers Act of 1940 (15 U.S.C. 80b et seq.) is amended--
                    (A) in section 202(a) (15 U.S.C. 80b-2(a)), by 
                adding at the end the following new paragraph:
            ``(28) The term `credit rating agency' has the same meaning 
        as in section 3 of the Securities Exchange Act of 1934.'';
                    (B) in section 202(a)(11) (15 U.S.C. 80b-2(a)(11)), 
                by striking ``or (F)'' and inserting the following: 
                ``(F) any nationally recognized statistical rating 
                organization, as that term is defined in section 
                3(a)(62) of the Securities Exchange Act of 1934, unless 
                such organization engages in issuing recommendations as 
                to purchasing, selling, or holding securities or in 
                managing assets, consisting in whole or in part of 
                securities, on behalf of others; or (G)''; and
                    (C) in section 203(e) (15 U.S.C. 80b-3(e))--
                          (i) in paragraph (2)(B), by inserting ``credit 
                      rating agency,'' after ``transfer agent,''; and
                          (ii) in paragraph (4), by inserting ``credit 
                      rating agency,'' after ``transfer agent,''.
            (4) Housing and community development act of 1992.--Section 
        1319 of the Housing and Community Development Act of 1992 (12 
        U.S.C. 4519) is amended by striking ``effectively'' and all that 
        follows through ``broker-dealers'' and inserting

[[Page 120 STAT. 1338]]

        ``that is a nationally recognized statistical rating 
        organization, as such term is defined in section 3(a) of the 
        Securities Exchange Act of 1934''.
            (5) Higher education act of 1965.--Section 439(r)(15)(A) of 
        the Higher Education Act of 1965 (20 U.S.C. 1087-2(r)(15)(A)) is 
        amended by striking ``means any entity recognized as such by the 
        Securities and Exchange Commission'' and inserting ``means any 
        nationally recognized statistical rating organization, as that 
        term is defined in section 3(a) of the Securities Exchange Act 
        of 1934''.
            (6) Title 23.--Section 181(11) of title 23, United States 
        Code, is amended by striking ``identified by the Securities and 
        Exchange Commission as a nationally recognized statistical 
        rating organization'' and inserting ``registered with the 
        Securities and Exchange Commission as a nationally recognized 
        statistical rating organization, as that term is defined in 
        section 3(a) of the Securities Exchange Act of 1934''.

SEC. 5. ANNUAL AND OTHER REPORTS.

    Section 17(a)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 
78q(a)(1)) is amended--
            (1) by inserting ``nationally recognized statistical rating 
        organization,'' after ``registered transfer agent,''; and
            (2) by adding at the end the following: ``Any report that a 
        nationally recognized statistical rating organization is 
        required by Commission rules under this paragraph to make and 
        disseminate to the Commission shall be deemed furnished to the 
        Commission.''.

SEC. 6. <<NOTE: 15 USC 78o-7 note.>> COMMISSION ANNUAL REPORT.

    The Commission shall submit an annual report to the Committee on 
Banking, Housing, and Urban Affairs of the Senate and the Committee on 
Financial Services of the House of Representatives that, with respect to 
the year to which the report relates--
            (1) identifies applicants for registration under section 15E 
        of the Securities Exchange Act of 1934, as added by this Act;
            (2) specifies the number of and actions taken on such 
        applications; and
            (3) specifies the views of the Commission on the state of 
        competition, transparency, and conflicts of interest among 
        nationally recognized statistical rating organizations.

SEC. 7. GAO STUDY AND REPORT REGARDING NATIONALLY RECOGNIZED STATISTICAL 
            RATING ORGANIZATIONS.

    (a) Study Required.--The Comptroller General of the United States 
shall conduct a study--
            (1) to determine the impact of this Act and the amendments 
        made by this Act on--
                    (A) the quality of credit ratings issued by 
                nationally recognized statistical ratings organizations;
                    (B) the financial markets;
                    (C) competition among credit rating agencies;
                    (D) the incidence of inappropriate conflicts of 
                interest and sales practices by nationally recognized 
                statistical rating organizations;
                    (E) the process for registering as a nationally 
                recognized statistical rating organization; and

[[Page 120 STAT. 1339]]

                    (F) such other matters relevant to the 
                implementation of this Act and the amendments made by 
                this Act, as the Comptroller General deems necessary to 
                bring to the attention of the Congress;
            (2) to identify problems, if any, that have resulted from 
        the implementation of this Act and the amendments made by this 
        Act; and
            (3) to recommend solutions, including any legislative or 
        regulatory solutions, to any problems identified under 
        paragraphs (1) and (2).

    (b) Report Required.--Not <<NOTE: Deadline.>> earlier than 3 years 
nor later than 4 years after the date of enactment of this Act, the 
Comptroller General shall submit a report on the results of the study 
required by this section to the Committee on Banking, Housing, and Urban 
Affairs of the Senate and the Committee on Financial Services of the 
House of Representatives.

    Approved September 29, 2006.

LEGISLATIVE HISTORY--S. 3850:
---------------------------------------------------------------------------

SENATE REPORTS: No. 109-326 (Comm. on Banking, Housing, and Urban 
Affairs).
CONGRESSIONAL RECORD, Vol. 152 (2006):
            Sept. 22, considered and passed Senate.
            Sept. 27, considered and passed House.

                                  <all>
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