14580 Federal Register / Vol. 77, No. 48 / Monday, March 12, 2012 / Notices 

9 15 U.S.C. 78s(b)(3)(A). 

10 17 CFR 240.19b–4(f)(2). 11 17 CFR 200.30–3(a)(12). 

1Release No. 34–55857 (June 5, 2007), 72 FR 

33564, 33598 (June 18, 2007). 

employees’ absences without requiring 

the ATP Holders to pay the full fee 

every month for the ATPs used by such 

substitute persons, thereby contributing 

to the efficient use of ATP Holder 

personnel and resources, and fair and 

orderly markets. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

The Exchange does not believe that 

the proposed rule change will impose 

any burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

No written comments were solicited 

or received with respect to the proposed 

rule change. 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

The foregoing rule change is effective 

upon filing pursuant to Section 

19(b)(3)(A) 9 of the Act and 

subparagraph (f)(2) of Rule 19b–4 10

thereunder, because it establishes a due, 

fee, or other charge imposed by the 

NYSE Amex. 

At any time within 60 days of the 

filing of such proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change if 

it appears to the Commission that such 

action is necessary or appropriate in the 

public interest, for the protection of 

investors, or otherwise in furtherance of 

the purposes of the Act. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

NYSEAmex–2012–15 on the subject 

line. 

Paper Comments 

• Send paper comments in triplicate 

to Elizabeth M. Murphy, Secretary, 

Securities and Exchange Commission, 

100 F Street NE., Washington, DC 

20549–1090. 

All submissions should refer to File 

Number SR–NYSEAmex–2012–15. This 

file number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). Copies of the 

submission, all subsequent 

amendments, all written statements 

with respect to the proposed rule 

change that are filed with the 

Commission, and all written 

communications relating to the 

proposed rule change between the 

Commission and any person, other than 

those that may be withheld from the 

public in accordance with the 

provisions of 5 U.S.C. 552, will be 

available for Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NW., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of the 

Exchange. All comments received will 

be posted without change; the 

Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR– 

NYSEAmex–2012–15 and should be 

submitted on or before April 2, 2012. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.11

Kevin M. O’Neill, 

Deputy Secretary. 

[FR Doc. 2012–5853 Filed 3–9–12; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–66514] 

Order Granting Temporary Exemption 

of Morningstar Credit Ratings, LLC 

From the Conflict of Interest 

Prohibition in Rule 17g–5(c)(1) of the 

Securities Exchange Act of 1934 

March 5, 2012. 

I. Introduction 

Rule 17g–5(c)(1) of the Securities 

Exchange Act of 1934 (‘‘Exchange Act’’) 

prohibits a nationally recognized 

statistical rating organization 

(‘‘NRSRO’’) from issuing or maintaining 

a credit rating solicited by a person that, 

in the most recently ended fiscal year, 

provided the NRSRO with net revenue 

equaling or exceeding 10% of the total 

net revenue of the NRSRO for the fiscal 

year. In adopting this rule, the 

Commission stated that such a person 

would be in a position to exercise 

substantial influence on the NRSRO, 

which in turn would make it difficult 

for the NRSRO to remain impartial.1

II. Application and Exemption Request 

of Morningstar Credit Ratings, LLC 

Morningstar Credit Ratings, LLC 

(‘‘Morningstar’’), formerly known as 

Realpoint LLC (‘‘Realpoint’’), is a credit 

rating agency registered with the 

Commission as an NRSRO under 

Section 15E of the Exchange Act for the 

classes of credit ratings described in 

clauses (i) through (v) of Section 

3(a)(62)(B) of the Exchange Act. 

Morningstar traditionally has operated 

mainly under the ‘‘subscriber-paid’’ 

business model, in which the NRSRO 

derives its revenue from restricting 

access to its ratings to paid subscribers. 

After Morningstar acquired Realpoint in 

the spring of 2010, Morningstar began to 

expand the scope of its business and 

initiated an issuer-paid ratings service 

for initial ratings on commercial 

mortgage-backed securities. In 

connection with this expansion, 

Morningstar has requested a temporary 

and limited exemption from Rule 17g– 

5(c)(1) on the grounds that the 

restrictions imposed by Rule 17g–5(c)(1) 

would pose a substantial constraint on 

the firm’s ability to compete effectively 

with large rating agencies offering 

comparable ratings services. 

Specifically, Morningstar argues that 

because the fees typically associated 

with issuer-paid engagements tend to be 

relatively high when compared to the 

fees associated with its existing 

subscriber-based business, in the early 

stages of its expansion the fees 

associated with a single issuer-paid 

engagement have exceeded ten percent 

of its total net revenue for the fiscal 

year. Accordingly, Morningstar has 

requested that the Commission grant it 

an exemption from Rule 17g–5(c)(1) for 

any revenues derived from nonsubscription based business during 

calendar years 2012 and 2013, which 

are the end of Morningstar’s 2011 and 

2012 fiscal years, respectively. 


pmangrum on DSK3VPTVN1PROD with NOTICES
Federal Register / Vol. 77, No. 48 / Monday, March 12, 2012 / Notices 14581 

2Release No. 34–55857 (June 5, 2007), 72 FR 

33564, 33598 (June 18, 2007). 

3Release No. 34–58001 (June 23, 2008), 73 FR 

36362 (June 26, 2008). 

4See Report of the Senate Committee on Banking, 

Housing, and Urban Affairs to Accompany S. 3850, 

Credit Rating Agency Reform Act of 2006, S. Report 

No. 109–326, 109th Cong., 2d Sess. (Sept. 6, 2006). 

5Release No. 34–57301 (Feb. 11, 2008), 73 FR 

8720 (Feb. 14, 2008). 

6Release No. 34–65339 (Sept. 14, 2011), 76 FR 

58319 (Sept. 20, 2011). 

III. Discussion 

The Commission, when adopting Rule 

17g–5(c)(1), noted that it intended to 

monitor how the prohibition operates in 

practice, particularly with respect to 

asset-backed securities, and whether 

exemptions may be appropriate.2 The 

Commission has previously granted 

three temporary exemptions from Rule 

17g–5(c)(1), including one on June 28, 

2008 to Realpoint, as Morningstar was 

formerly known, in connection with its 

initial registration as an NRSRO 

(‘‘Realpoint Exemptive Order’’).3 The 

Commission noted several factors in 

granting that exemption, including the 

fact that the revenue in question was 

earned prior to the adoption of the rule, 

the likelihood of smaller firms such as 

Realpoint being more likely to be 

affected by the rule, Realpoint’s 

expectation that the percentage of total 

revenue provided by the relevant client 

would decrease, and the increased 

competition in the asset-backed 

securities class that could result from 

Realpoint’s registration. In granting the 

Realpoint Exemptive Order, the 

Commission also noted that an 

exemption would further the primary 

purpose of the Credit Rating Agency 

Reform Act of 2006 (‘‘Rating Agency 

Act’’) as set forth in the Report of the 

Senate Committee on Banking, Housing, 

and Urban Affairs accompanying the 

Rating Agency 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 

industry’’.4 Previously, on February 11, 

2008, the Commission, citing the same 

factors it later set forth in the Realpoint 

Exemptive Order, issued a similar order 

granting LACE LLC (‘‘LACE’’) a 

temporary exemption from the 

requirements of Rule 17g–5(c)(1) in 

connection with LACE’s registration as 

an NRSRO (‘‘LACE Exemptive Order’’).5

Most recently, the Commission issued 

an order granting Kroll Bond Rating 

Agency, Inc. (‘‘Kroll’’), formerly known 

as LACE, a temporary, limited and 

conditional exemption from Rule 17g– 

5(c)(1) allowing Kroll to enter the 

market for rating structured finance 

products (‘‘Kroll Exemptive Order’’).6 In 

this order, the Commission noted that 

an exemption is consistent with the 

Commission’s goal of improving ratings 

quality for the protection of investors 

and in the public interest by fostering 

accountability, transparency, and 

competition in the credit rating 

industry. 

The Commission believes that a 

temporary, limited and conditional 

exemption allowing Morningstar to 

expand in the market for rating 

structured finance products on an 

issuer-paid basis is consistent with the 

Commission’s goal of improving ratings 

quality for the protection of investors 

and in the public interest by fostering 

accountability, transparency, and 

competition in the credit rating 

industry. In order to maintain this 

exemption, Morningstar will be required 

to publicly disclose in Exhibit 6 to Form 

NRSRO, as applicable, that the firm 

received more than 10% of its net 

revenue in fiscal years 2011 and 2012 

from a client or clients that paid it to 

rate asset-backed securities. This 

disclosure is designed to alert users of 

credit ratings to the existence of this 

specific conflict and is consistent with 

exemptive relief the Commission has 

previously granted to Realpoint, LACE 

and Kroll. In addition to Morningstar’s 

existing obligations as an NRSRO to 

maintain policies, procedures, and 

internal controls, by the terms of this 

order, Morningstar will also be required 

to maintain policies, procedures, and 

internal controls specifically designed 

to address the conflict created by 

exceeding the 10% threshold. 

Furthermore, the exemption would also 

require that revenue from a single client 

does not exceed 25% of Morningstar’s 

total net revenue for either fiscal year 

2011 or 2012. 

Section 15E(p) of the Exchange Act, as 

added by Section 932(a)(8) of the DoddFrank Wall Street Reform and Consumer 

Protection Act, requires Commission 

staff to conduct an examination of each 

NRSRO at least annually. As part of this 

annual examination regimen for 

NRSROs, Commission staff will closely 

review Morningstar’s activities with 

respect to managing this conflict and 

meeting the conditions set forth below 

and will consider whether to 

recommend that the Commission take 

additional action, including 

administrative or other action. 

The Commission therefore finds that 

a temporary, limited and conditional 

exemption allowing Morningstar to 

expand in the market for rating 

structured finance products on an 

issuer-paid basis is consistent with the 

Commission’s goal, as established by the 

Rating Agency Act, of improving ratings 

quality by fostering accountability, 

transparency, and competition in the 

credit rating industry, and is necessary 

and appropriate in the public interest 

and is consistent with the protection of 

investors, subject to Morningstar’s 

making public disclosure of the conflict 

created by exceeding the 10% threshold; 

its maintenance of policies, procedures 

and internal controls to address that 

conflict; and that revenue from a single 

client does not exceed 25% of 

Morningstar’s total net revenue for 

either the fiscal year ending December 

31, 2011 or the fiscal year ending 

December 31, 2012. 

IV. Conclusion 

Accordingly, pursuant to Section 36 

of the Exchange Act, 

It is hereby ordered that Morningstar 

Credit Ratings, LLC, formerly known as 

Realpoint LLC, is exempt from the 

conflict of interest prohibition in 

Exchange Act Rule 17g–5(c)(1) until 

January 1, 2013, with respect to any 

revenue derived from issuer-paid 

ratings, provided that: (1) Morningstar 

Credit Ratings, LLC publicly discloses 

in Exhibit 6 to Form NRSRO, as 

applicable, that the firm received more 

than 10% of its total net revenue in 

fiscal year 2011 or 2012 from a client or 

clients; (2) in addition to fulfilling its 

existing obligations as an NRSRO to 

maintain policies, procedures, and 

internal controls, Morningstar Credit 

Ratings, LLC also maintains policies, 

procedures, and internal controls 

specifically designed to address the 

conflict created by exceeding the 10% 

threshold; and (3) revenue from a single 

client does not exceed 25% of 

Morningstar’s total net revenue for 

either the fiscal year ending December 

31, 2011 or the fiscal year ending 

December 31, 2012. 

By the Commission. 

Elizabeth M. Murphy, 

Secretary. 

[FR Doc. 2012–5830 Filed 3–9–12; 8:45 am] 

BILLING CODE 8011–01–P 

DEPARTMENT OF STATE 

[Public Notice 7767; Guatemala Docket No. 

DOS–2012–0011; Mali Docket No. DOS– 

2012–0012] 

Notice of Meeting of the Cultural 

Property Advisory Committee 

There will be a meeting of the 

Cultural Property Advisory Committee 

April 24–27, 2012, at the Department of 

State, Annex 5, 2200 C Street NW., 

Washington, DC. Portions of this 


pmangrum on DSK3VPTVN1PROD with NOTICES