I 

111TH CONGRESS 

1ST SESSION H. R. 1181 

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. 

IN THE HOUSE OF REPRESENTATIVES 

FEBRUARY 25, 2009 

Mr. ACKERMAN (for himself and Mr. CASTLE) introduced the following bill; 

which was referred to the Committee on Financial Services 

A BILL 

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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. COMMISSION REGULATIONS RELATING TO 

4 ASSET-BACKED SECURITIES FOR PURPOSES 

5 OF NRSRO RATINGS. 

6 (a) NRSRO ASSET-BACKED SECURITIES.—Section 

7 3(a)(62)(B)(iv) of the Securities Exchange Act of 1934 

8 (15 U.S.C. 78c(a)(62)(B)(iv)) is amended by striking ‘‘as 


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1 in effect on the date of enactment of this Act’’ and insert2 ing ‘‘, including NRSRO asset-backed securities approved 

3 by the Commission and listed in such section’’. 

4 (b) REVISION OF REGULATIONS.—Not later than 180 

5 days after the date of enactment of this Act, the Securities 

6 and Exchange Commission shall revise the regulations in 

7 section 1101(c) of part 229 of title 17, Code of Federal 

8 Regulations, relating to the term ‘‘asset-backed securities’’ 

9 for purposes of section 3(a)(62)(B)(iv) of the Securities 

10 Exchange Act of 1934 (15 U.S.C. 78c(a)(62)(B)(iv)). The 

11 revisions required under this subsection shall— 

12 (1) define a subset of asset-back securities to be 

13 referred to as ‘‘NRSRO asset-backed securities’’, 

14 which shall be the only asset-backed securities for 

15 which a credit rating agency may register and issue 

16 ratings as a nationally recognized statistical rating 

17 organization and, which shall be restricted to securi18 ties representing interests in pools of assets whose 

19 performance can be evaluated based on a docu20 mented history of predictable performance of similar 

21 assets and which are contained in structures which 

22 also have a documented history of predictable per23 formance; and 


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1 (2) include a list of the classes of securities ap2 proved as NRSRO asset-backed securities pursuant 

3 to subsection (c). 

4 Nothing in this subsection shall be construed so as to limit 

5 any credit rating agency from rating asset-backed instru6 ments which are not designated as ‘‘NRSRO asset-backed 

7 securities’’ so long as such credit rating agency makes it 

8 explicit that such instruments are not NRSRO asset9 backed securities and the associated ratings are not issued 

10 pursuant to its status as a nationally recognized statistical 

11 rating organization. 

12 (c) APPROVAL PROCESS FOR NRSRO ASSET13 BACKED SECURITIES CLASSES.— 

14 (1) INITIAL FAST-TRACK APPROVAL.—Not later 

15 than 90 days after the date of enactment of this 

16 Act, the Securities and Exchange Commission shall 

17 establish an initial list of classes of securities ap18 proved as NRSRO asset-backed securities. 

19 (2) SUBSEQUENT APPROVAL.—After the ap20 proval of the initial list of classes of NRSRO asset21 backed securities under paragraph (1), the Commis22 sion shall approve additional classes of asset-backed 

23 securities as NRSRO asset-backed securities on an 

24 ongoing basis. 


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1 (3) PROCEDURE.—The Commission shall ap2 prove a securities class as NRSRO asset-backed se3 curities only— 

4 (A) upon the application (in such form de5 termined by the Commission) of a nationally 

6 recognized statistical rating organization con7 cerning a specific class of asset-backed securi8 ties; 

9 (B) after receiving comment from Federal 

10 and State regulators of institutions or entities 

11 reasonably expected to seek funding from or in12 vest in such class of securities, including the 

13 Federal Reserve System, the Office of the 

14 Comptroller of the Currency, the Office of 

15 Thrift Supervision, the Federal Deposit Insur16 ance Corporation, the Pension Benefit Guar17 anty Insurance Corporation, and State banking 

18 insurance authorities; and 

19 (C) after any other investigation and due 

20 diligence the Commission determines to be nec21 essary to evaluate the proposed NRSRO asset22 backed securities class’s compliance with the 

23 standards described in paragraph (4) prior to 

24 granting their approval. 


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1 (4) STANDARDS FOR APPROVAL OF NRSRO

2 ASSET-BACKED SECURITIES.—Approval of a class of 

3 securities as an NRSRO asset-backed securities 

4 class shall be limited to those securities whose future 

5 performance meets the standard of ‘‘reasonably pre6 dictable’’. At a minimum, a determination of a rea7 sonably predictable performance standard shall re8 quire— 

9 (A) a sufficient history of performance 

10 data, from a diverse base of sponsors spanning 

11 at least 1 complete economic cycle for both the 

12 collateral assets or reference assets and the 

13 structure so as to generate reasonably accurate 

14 statistical estimates of future performance; 

15 (B) the ability to aggregate pools of the 

16 collateral assets or reference assets of sufficient 

17 size to generate reasonably accurate statistical 

18 estimates; 

19 (C) the existence of contracts for such col20 lateral asset product which are sufficiently 

21 standardized to generate reasonably accurate 

22 statistical estimates; and 

23 (D) sufficient standardization of service 

24 quality and procedures for such collateral asset 


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1 product to generate reasonably accurate statis2 tical estimates. 

3 Securities that fail to meet 1 or more of conditions 

4 set forth in subparagraphs (A) through (D) shall not 

5 qualify for eligibility as NRSRO asset-backed securi6 ties or ratings. 

7 SEC. 2. QUALIFICATIONS FOR REGISTRATION. 

8 Section 15E of the Securities Exchange Act (15 

9 U.S.C. 78o–7) is amended— 

10 (1) in subsection (c), by redesignating para11 graph (2) as paragraph (3) and inserting after para12 graph (1) the following: 

13 ‘‘(2) REVIEW OF RATINGS AND COOPERATION

14 WITH COMMISSION.—In order to maintain its reg15 istration and the integrity of the NRSRO ratings 

16 system, a nationally recognized statistical rating or17 ganization shall annually review all ratings issued 

18 and outstanding in obligor categories for which it 

19 has registered, with such review to result in a formal 

20 re-rating affirmation, upgrade, downgrade, or rat21 ings removal. Each nationally recognized statistical 

22 rating organization shall provide the Commission 

23 with full access to models, documentation, assump24 tions, and performance data upon request, shall an25 swer all questions and queries posed by Commission 


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1 on a timely basis, and otherwise cooperate with any 

2 Commission investigation.’’; 

3 (2) in subsection (d), by striking ‘‘The Commis4 sion’’ and inserting 

5 ‘‘(1) IN GENERAL.—The Commission’’; 

6 (3) by redesignating paragraphs (1) through 

7 (5) as subparagraphs (A) through (E), respectively; 

8 and 

9 (4) by adding a new subparagraph (F) as fol10 lows: 

11 ‘‘(F) has, in the course of an investigation 

12 into the integrity of its NRSRO ratings caused 

13 the Commission to believe that a suspension or 

14 revocation of its NRSRO registration is in the 

15 public interest.’’. 

16 (5) by adding at the end the following: 

17 ‘‘(2) DETERMINATION AND EXAMINATION BY

18 COMMISSION.—In assessing whether a nationally rec19 ognized statistical rating organization is consistently 

20 producing credit ratings with integrity for purposes 

21 of paragraph (5), the Commission shall determine 

22 whether ratings are issued with the expectation of 

23 meeting aggregate historical loss and default stand24 ards for given ratings levels across all categories for 

25 which a credit rating agency has registered under 


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1 this section. In the case of a nationally recognized 

2 statistical rating organization which has registered 

3 for a category or categories for which its ratings ex4 perience covers less than a full economic cycle, the 

5 standards shall be consistent with industry norms 

6 for such category or categories. Additionally, as part 

7 of the ongoing qualification of NRSROs, adherence 

8 to the foregoing provisions shall be evaluated 

9 through the Commission’s regular surveillance of 

10 NRSRO models, systems, assumptions, and perform11 ance.’’. 

Æ 


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