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###### Securities and Exchange Commission

          - [Release No. 34-73649; File No. S7-04-09]

## I. Introduction

                    On May 19, 2010, the Securities and Exchange Commission (“Commission”) conditionally exempted, with respect to certain credit ratings and until December 2, 2010, nationally recognized statistical rating organizations (“NRSROs”) from certain requirements in Rule 17g-5(a)(3) [1]                                          under the Securities Exchange Act of 1934 (“Exchange Act”), which had a compliance date of June 2, 2010.[2]                                          Pursuant to the Order, an NRSRO is not required to comply with Rule 17g-5(a)(3) until December 2, 2010 with respect to credit ratings where: (1) The issuer of the structured finance product is a non-U.S. person; and (2) the NRSRO has a reasonable basis to conclude that the structured finance product will be offered and sold upon issuance, and that any arranger linked to the structured finance product will effect transactions of the structured finance product after issuance, only in transactions that occur outside the U.S. (“covered transactions”).[3]                                          On November 23, 2010, the Commission extended the conditional temporary exemption until December 2, 2011.[4]                                          On November 16, 2011, the Commission extended the conditional temporary exemption until December 2, 2012.[5]                                          On November 26, 2012, the Commission extended the conditional temporary exemption until December 2, 2013.[6]                                          On November 22, 2013, the Commission extended the conditional temporary exemption until December 2, 2014.[7]                                          The Commission is extending the temporary conditional exemption exempting NRSROs from complying with Rule 17g-5(a)(3) with respect to rating covered transactions until December 2, 2015.                

## II. Background

                    Rule 17g-5 identifies, in paragraphs (b) and (c) of the rule, a series of conflicts of interest arising from the business of determining credit ratings.[8]                                          Paragraph (a) of Rule 17g-5 [9]                                          prohibits an NRSRO from issuing or maintaining a credit rating if it is subject to the conflicts of interest identified in paragraph (b) of Rule 17g-5 unless the NRSRO has taken the steps prescribed in paragraph (a)(1) (                    *i.e.,*                     disclosed the type of conflict of interest in Exhibit 6 to Form NRSRO in accordance with Section 15E(a)(1)(B)(vi) of the Exchange Act [10]                                          and Rule 17g-1) [11]                                          and paragraph (a)(2) (                    *i.e.,*                     established and is maintaining and enforcing written policies and procedures to address and manage conflicts of interest in accordance with Section 15E(h) of the Exchange Act).[12]                                          Paragraph (c) of Rule 17g-5 specifically prohibits seven types of conflicts of interest. Consequently, an NRSRO is prohibited from issuing or maintaining a credit rating when it is subject to these conflicts regardless of whether it had disclosed them and established procedures reasonably designed to address them.                

                    In December 2009, the Commission adopted subparagraph (a)(3) to Rule 17g-5. This provision requires an NRSRO that is hired by an arranger to determine an initial credit rating for a structured finance product to take certain steps designed to allow an NRSRO that is not hired by the arranger to nonetheless determine an initial credit rating—and subsequently monitor that credit rating—for the structured finance product.[13]                                          In particular, under Rule 17g-5(a)(3), an NRSRO is prohibited from issuing or maintaining a credit rating when it is subject to the conflict of interest identified in paragraph (b)(9) of Rule 17g-5 (                    *i.e.,*                     being hired by an arranger to determine a credit rating for a structured finance product) [14]                                          unless it has taken the steps                           ( print page 70262)                        prescribed in paragraphs (a)(1) and (2) of Rule 17g-5 (discussed above) and the steps prescribed in new paragraph (a)(3) of Rule 17g-5.[15]                                          Rule 17g-5(a)(3), among other things, requires that the NRSRO must:                
    - Maintain on a password-protected Internet Web site a list of each structured finance product for which it currently is in the process of determining an initial credit rating in chronological order and identifying the type of structured finance product, the name of the issuer, the date the rating process was initiated, and the Internet Web site address where the arranger represents the information provided to the hired NRSRO can be accessed by other NRSROs;
    - Provide free and unlimited access to such password-protected Internet Web site during the applicable calendar year to any NRSRO that provides it with a copy of the certification described in paragraph (e) of Rule 17g-5 that covers that calendar year;  [16]                                           and                
    - Obtain from the arranger a written representation that can reasonably be relied upon that the arranger will, among other things, disclose on a password-protected Internet Web site the information it provides to the hired NRSRO to determine the initial credit rating (and monitor that credit rating) and provide access to the Web site to an NRSRO that provides it with a copy of the certification described in paragraph (e) of Rule 17g-5. [17]  

                    The Commission stated in the Adopting Release that subparagraph Rule 17g-5(a)(3) is designed to address conflicts of interest and improve the quality of credit ratings for structured finance products by making it possible for more NRSROs to rate structured finance products.[18]                                          For example, the Commission noted that when an NRSRO is hired to rate a structured finance product, some of the information it relies on to determine the rating is generally not made public.[19]                                          As a result, structured finance products frequently are issued with ratings from only the one or two NRSROs that have been hired by the arranger, with the attendant conflict of interest that creates.[20]                                          The Commission stated that subparagraph Rule 17g-5(a)(3) was designed to increase the number of credit ratings extant for a given structured finance product and, in particular, to promote the issuance of credit ratings by NRSROs that are not hired by arrangers.[21]                                          The Commission's goal in adopting the rule was to provide users of credit ratings with more views on the creditworthiness of structured finance products.[22]                                          In addition, the Commission stated that Rule 17g-5(a)(3) was designed to reduce the ability of arrangers to obtain better than warranted ratings by exerting influence over NRSROs hired to determine credit ratings for structured finance products.[23]                                          Specifically, by opening up the rating process to more NRSROs, the Commission intended to make it easier for the hired NRSRO to resist such pressure by increasing the likelihood that any steps taken to inappropriately favor the arranger could be exposed to the market through the credit ratings issued by other NRSROs.[24] 

Rule 17g-5(a)(3) became effective on February 2, 2010, and the compliance date for Rule 17g-5(a)(3) was June 2, 2010.

## III. Extension of Conditional Temporary Extension

                    In the Order, the Commission requested comment generally, but also on a number of specific issues.[25]                                          The Commission received six comment letters in response to this solicitation of comment.[26]                                          The commenters expressed concern that the extraterritorial application of Rule 17g-5(a)(3) could, in the commenter's view, among other things, disrupt local securitization markets,[27]                                          inhibit the ability of local firms to raise capital,[28]                                          and conflict with local laws.[29]                                          Several commenters also                           ( print page 70263)                        requested that the conditional temporary exemption be extended or made permanent.[30]                                          The First Extension Order again solicited public comment on issues raised in connection with the extra-territorial application of Rule 17g-5(a)(3).[31]                                          One commenter requested that the Order be made permanent, citing many of the same reasons set forth in prior comment letters.[32]                                          The Second Extension Order again solicited public comment on issues raised in connection with the extra-territorial application of Rule 17g-5(a)(3).[33]                                          Commenters supported the exemption regarding the extra-territorial application of the Rule,[34]                                          with one of those commenters again requesting that the Order be made permanent.[35]                                          The Third Extension Order again solicited public comment on issues raised in connection with the extra-territorial application of Rule 17g-5(a)(3). No comments were received. The Fourth Extension Order again solicited public comment on issues raised in connection with the extra-territorial application of Rule 17g-5(a)(3). One comment was received and the commenter supported the exemption regarding the extra-territorial application of the Rule.[36] 

Given the continued concerns about potential disruptions of local securitization markets, and because the Commission's consideration of the issues raised will benefit from additional time to engage in further dialogue with interested parties and to monitor market and regulatory developments, the Commission believes extending the conditional temporary exemption until December 2, 2015 is necessary or appropriate in the public interest, and is consistent with the protection of investors.

## IV. Request for Comment

The Commission believes that it would be useful to continue to provide interested parties opportunity to comment. Comments may be submitted by any of the following methods:

### Electronic Comments

    - Use the Commission's Internet comment form ( http://www.sec.gov/​rules/​exorders.shtml ); or                
    - Send an email to rule-comments@sec.gov.                      Please include File Number S7-04-09 on the subject line; or                
    - Use the Federal eRulemaking Portal ( http://www.regulations.gov ). Follow the instructions for submitting comments.                

### Paper Comments

    - Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F St. NE., Washington, DC 20549-1090.

                    All submissions should refer to File Number S7-04-09. This file number should be included on the subject line if email is used. To help us 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/​exorders.shtml*). Comments are also available for Web site viewing and printing in the Commission's Public Reference Room, 100 F St. NE., Washington, DC 20549 on official business days between the hours of 10 a.m. and 3 p.m. 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.                

## V. Conclusion

For the foregoing reasons, the Commission believes it would be necessary or appropriate in the public interest and consistent with the protection of investors to extend the conditional temporary exemption exempting NRSROs from complying with Rule 17g-5(a)(3) with respect to rating covered transactions until December 2, 2015.

Accordingly,

*It is hereby ordered,*                     pursuant to Section 36 of the Exchange Act, that a nationally recognized statistical rating organization is exempt until December 2, 2015 from the requirements in Rule 17g-5(a)(3) (17 CFR 240.17g-5(a)(3)) for credit ratings where:                

(1) The issuer of the security or money market instrument is not a U.S. person (as defined under Securities Act Rule 902(k)); and

(2) The nationally recognized statistical rating organization has a reasonable basis to conclude that the structured finance product will be offered and sold upon issuance, and that any arranger linked to the structured finance product will effect transactions of the structured finance product after issuance, only in transactions that occur outside the U.S.

By the Commission.

Brent J. Fields,

Secretary.

# Footnotes

1.                                                     *See*17 CFR 240.17g-5(a)(3).                    
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2.                                                     *See*                         Exchange Act Release No. 62120 (May 19, 2010), 75 FR 28825 (May 24, 2010) (“Order”).                    
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3.                                                     *See id.*                         at 28827-28 (setting forth conditions of relief).                    
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4.                                                     *See*                         Exchange Act Release No. 63363 (Nov. 23, 2010), 75 FR 73137 (Nov. 29, 2010) (“First Extension Order”).                    
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5.                                                     *See*                         Exchange Act Release No. 65765 (Nov. 16, 2011), 76 FR 72227 (Nov. 22, 2011) (“Second Extension Order”).                    
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6.                                                     *See*                         Exchange Act Release No. 34-68286 (Nov. 26, 2012), 77 FR 71201 (Nov. 29, 2012) (“Third Extension Order”).                    
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7.                                                     *See*                         Exchange Act Release No. 34-70919 (Nov. 22, 2013), 78 FR 70984 (Nov. 27, 2013) (“Fourth Extension Order”).                    
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8.                             17 CFR 240.17g-5(b) and (c).                    
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9.                             17 CFR 240.17g-5(a).                    
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10.                             15 U.S.C. 78o-7(a)(1)(B)(vi).                    
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11.                             17 CFR 240.17g-1.                    
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12.                             15 U.S.C. 78o-7(h).                    
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13.                                                     *See*17 CFR 240.17g-5(a)(3);                         *see also*                         Exchange Act Release No. 61050 (Nov. 23, 2009), 74 FR 63832 (Dec. 4, 2009) (“Adopting Release”) at 63844-45.                    
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14.                             Paragraph (b)(9) of Rule 17g-5 identifies the following conflict of interest: issuing or maintaining a credit rating for a security or money market instrument issued by an asset pool or as part of any asset-backed or mortgage-backed securities                                                 transaction that was paid for by the issuer, sponsor, or underwriter of the security or money market instrument. 17 CFR 240.17g-5(b)(9).                    
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15.                             17 CFR 240.17g-5(a)(3).                    
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16.                             Paragraph (e) of Rule 17g-5 requires that an NRSRO seeking to access the hired NRSRO's Internet Web site during the applicable calendar year must furnish the Commission with the following certification:                     

The undersigned hereby certifies that it will access the Internet Web sites described in 17 CFR 240.17g-5(a)(3) solely for the purpose of determining or monitoring credit ratings. Further, the undersigned certifies that it will keep the information it accesses pursuant to 17 CFR 240.17g-5(a)(3) confidential and treat it as material nonpublic information subject to its written policies and procedures established, maintained, and enforced pursuant to section 15E(g)(1) of the Act (15 U.S.C. 78o-7(g)(1)) and 17 CFR 240.17g-4. Further, the undersigned certifies that it will determine and maintain credit ratings for at least 10% of the issued securities and money market instruments for which it accesses information pursuant to 17 CFR 240.17g-5(a)(3)(iii), if it accesses such information for 10 or more issued securities or money market instruments in the calendar year covered by the certification. Further, the undersigned certifies one of the following as applicable: (1) In the most recent calendar year during which it accessed information pursuant to § 17 CFR 240.17g-5(a)(3), the undersigned accessed information for [Insert Number] issued securities and money market instruments through Internet Web sites described in 17 CFR 240.17g-5(a)(3) and determined and maintained credit ratings for [Insert Number] of such securities and money market instruments; or (2) The undersigned previously has not accessed information pursuant to 17 CFR 240.17g-5(a)(3) 10 or more times during the most recently ended calendar year.
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17.                             In particular, under paragraph (a)(3)(iii) of Rule 17g-5, the arranger must represent to the hired NRSRO that it will: (1) Maintain the information described in paragraphs (a)(3)(iii)(C) and (a)(3)(iii)(D) of Rule 17g-5 available at an identified password-protected Internet Web site that presents the information in a manner indicating which information currently should be relied on to determine or monitor the credit rating; (2) Provide access to such password-protected Internet Web site during the applicable calendar year to any NRSRO that provides it with a copy of the certification described in paragraph (e) of Rule 17g-5 that covers that calendar year, provided that such certification indicates that the nationally recognized statistical rating organization providing the certification either: (i) determined and maintained credit ratings for at least 10% of the issued securities and money market instruments for which it accessed information pursuant to paragraph (a)(3)(iii) of Rule 17g-5 in the calendar year prior to the year covered by the certification, if it accessed such information for 10 or more issued securities or money market instruments; or (ii) has not accessed information pursuant to paragraph (a)(3) of Rule 17g-5 10 or more times during the most recently ended calendar year; (3) Post on such password-protected Internet Web site all information the arranger provides to the NRSRO, or contracts with a third party to provide to the NRSRO, for the purpose of determining the initial credit rating for the security or money market instrument, including information about the characteristics of the assets underlying or referenced by the security or money market instrument, and the legal structure of the security or money market instrument, at the same time such information is provided to the NRSRO; and (4) Post on such password-protected Internet Web site all information the arranger provides to the NRSRO, or contracts with a third party to provide to the NRSRO, for the purpose of undertaking credit rating surveillance on the security or money market instrument, including information about the characteristics and performance of the assets underlying or referenced by the security or money market instrument at the same time such information is provided to the NRSRO.                    
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18.                             Adopting Release at 63844.                    
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19.                                                     *Id.*
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20.                                                     *Id.*
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21.                                                     *Id.*
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22.                                                     *Id.*
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23.                                                     *Id.*
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24.                                                     *Id.*
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25.                                                     *See*                         Order at 28828.                    
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26.                             Letter from Masamichi Kono, Vice Commissioner for International Affairs, Financial Services Agency, Japan, dated Nov. 12, 2010 (“Japan FSA Letter”); Letter from Masaru Ono, Executive Director, Securitization Forum of Japan, dated Nov. 12, 2010 (“SFJ Letter”); Letter from Rick Watson, Managing Director, Association for Financial Markets in Europe/European Securitisation Forum, dated Nov. 11, 2010 (“AFME Letter”); Letter from Jack Rando, Director, Capital Markets, Investment Industry Association of Canada, dated Sep. 22, 2010 (“IIAC Letter”); Letter from Christopher Dalton, Chief Executive Officer, Australian Securitisation Forum, dated Jun. 27, 2010 (“AuSF Letter”); Letter from Takefumi Emori, Managing Director, Japan Credit Rating Agency, Ltd. (“JCR”), dated Jun. 25, 2010 (“JCR Letter”).                    
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27.                                                     *See*                         Japan FSA Letter; SFJ Letter; AFME Letter; JCR Letter; AuSF Letter.                    
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28.                                                     *See*                         AFME Letter; JCR Letter; AuSF Letter.                    
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29.                                                     *See*                         Japan FSA Letter; AFME Letter; JCR Letter; AuSF Letter; IIAC Letter. With respect to local laws, we note that the European Commission in recent months has issued a relevant proposal for amendments to the European Union Regulation on Credit Ratings.                         *See*                         “Regulation of the European                                                 Parliament and of the Counsel on amending Regulation (EC) No 1060/2009 on credit rating agencies” (available at                         *http://ec.europa.eu/​internal_​market/​securities/​docs/​agencies/​100602_​proposal_​en.pdf*).                    
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30.                                                     *See*                         Japan FSA Letter; SFJ Letter; AFME Letter; JCR Letter.                    
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31.                                                     *See*                         Letter from Tom Deutsch, Executive Director, American Securitization Forum, and Chris Dalton, Chief Executive Officer, Australian Securitization Forum, dated Aug. 9, 2011 (“ASF/AuSF Letter 1”); Letter from Jack Rando, Director, Capital Markets, Investment Industry Association of Canada, dated Nov. 2, 2011 (“IIAC Letter 2”).                    
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32.                                                     *See*                         ASF/AuSF Letter 1.                    
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33.                             Letter from Chris Barnard to the Commission, dated Nov. 23, 2011 (“Barnard Letter”); Letter from Tom Deutsch, Executive Director, American Securitization Forum and Chris Dalton, Chief Executive Officer, Australian Securitisation Forum, dated Aug. 28, 2012 (“ASF/AuSF Letter 2”).                    
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34.                                                     *See*                         Barnard Letter; ASF/AuSF Letter 2.                    
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35.                                                     *See*                         ASF/AuSF Letter 2.                    
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36.                                                     *See*                         Letter from Chris Barnard to the Commission, dated Nov. 26, 2013.                    
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[FR Doc. 2014-27846 Filed 11-24-14; 8:45 am]

BILLING CODE 8011-01-P