II 

Calendar No. 590 

109TH CONGRESS 

2D SESSION S. 3850 

[Report No. 109–326] 

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. 

IN THE SENATE OF THE UNITED STATES 

SEPTEMBER 6, 2006 

Mr. SHELBY, from the Committee on Banking, Housing, and Urban Affairs, 

reported the following original bill; which was read twice and placed on 

the calendar 

A BILL 

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. 

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

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Credit Rating Agency 

5 Reform Act of 2006’’. 


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1 SEC. 2. FINDINGS. 

2 Upon the basis of facts disclosed by the record and 

3 report of the Securities and Exchange Commission made 

4 pursuant to section 702 of the Sarbanes-Oxley Act of 

5 2002 (116 Stat. 797), hearings before the Committee on 

6 Banking, Housing, and Urban Affairs of the Senate and 

7 the Committee on Financial Services of the House of Rep8 resentatives during the 108th and 109th Congresses, com9 ment letters to the concept releases and proposed rules 

10 of the Commission, and facts otherwise disclosed and 

11 ascertained, Congress finds that credit rating agencies are 

12 of national importance, in that, among other things— 

13 (1) their ratings, publications, writings, anal14 yses, and reports are furnished and distributed, and 

15 their contracts, subscription agreements, and other 

16 arrangements with clients are negotiated and per17 formed, by the use of the mails and other means and 

18 instrumentalities of interstate commerce; 

19 (2) their ratings, publications, writings, anal20 yses, and reports customarily relate to the purchase 

21 and sale of securities traded on securities exchanges 

22 and in interstate over-the-counter markets, securities 

23 issued by companies engaged in business in inter24 state commerce, and securities issued by national 

25 banks and member banks of the Federal Reserve 

26 System; 


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1 (3) the foregoing transactions occur in such vol2 ume as substantially to affect interstate commerce, 

3 the securities markets, the national banking system, 

4 and the national economy; 

5 (4) the oversight of such credit rating agencies 

6 serves the compelling interest of investor protection; 

7 (5) the 2 largest credit rating agencies serve 

8 the vast majority of the market, and additional com9 petition is in the public interest; and 

10 (6) the Commission has indicated that it needs 

11 statutory authority to oversee the credit rating in12 dustry. 

13 SEC. 3. DEFINITIONS. 

14 (a) SECURITIES EXCHANGE ACT OF 1934.—Section 

15 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 

16 78c(a)) is amended by adding at the end the following new 

17 paragraphs: 

18 ‘‘(60) CREDIT RATING.—The term ‘credit rat19 ing’ means an assessment of the creditworthiness of 

20 an obligor as an entity or with respect to specific se21 curities or money market instruments. 

22 ‘‘(61) CREDIT RATING AGENCY.—The term 

23 ‘credit rating agency’ means any person— 

24 ‘‘(A) engaged in the business of issuing 

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1 other readily accessible means, for free or for a 

2 reasonable fee, but does not include a commer3 cial credit reporting company; 

4 ‘‘(B) employing either a quantitative or 

5 qualitative model, or both, to determine credit 

6 ratings; and 

7 ‘‘(C) receiving fees from either issuers, in8 vestors, or other market participants, or a com9 bination thereof. 

10 ‘‘(62) NATIONALLY RECOGNIZED STATISTICAL

11 RATING ORGANIZATION.—The term ‘nationally rec12 ognized statistical rating organization’ means a cred13 it rating agency that— 

14 ‘‘(A) has been in business as a credit rat15 ing agency for at least the 3 consecutive years 

16 immediately preceding the date of its applica17 tion for registration under section 15E; 

18 ‘‘(B) issues credit ratings certified by 

19 qualified institutional buyers, in accordance 

20 with section 15E(a)(1)(B)(ix), with respect to— 

21 ‘‘(i) financial institutions, brokers, or 

22 dealers; 

23 ‘‘(ii) insurance companies; 

24 ‘‘(iii) corporate issuers; 


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1 ‘‘(iv) issuers of asset-backed securities 

2 (as that term is defined in section 1101(c) 

3 of part 229 of title 17, Code of Federal 

4 Regulations, as in effect on the date of en5 actment of this paragraph); 

6 ‘‘(v) issuers of government securities, 

7 municipal securities, or securities issued by 

8 a foreign government; or 

9 ‘‘(vi) a combination of one or more 

10 categories of obligors described in any of 

11 clauses (i) through (v); and 

12 ‘‘(C) is registered under section 15E. 

13 ‘‘(63) PERSON ASSOCIATED WITH A NATION14 ALLY RECOGNIZED STATISTICAL RATING ORGANIZA15 TION.—The term ‘person associated with’ a nation16 ally recognized statistical rating organization means 

17 any partner, officer, director, or branch manager of 

18 a nationally recognized statistical rating organiza19 tion (or any person occupying a similar status or 

20 performing similar functions), any person directly or 

21 indirectly controlling, controlled by, or under com22 mon control with a nationally recognized statistical 

23 rating organization, or any employee of a nationally 

24 recognized statistical rating organization. 


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1 ‘‘(64) QUALIFIED INSTITUTIONAL BUYER.—The 

2 term ‘qualified institutional buyer’ has the meaning 

3 given such term in section 230.144A(a) of title 17, 

4 Code of Federal Regulations, or any successor there5 to.’’. 

6 (b) APPLICABLE DEFINITIONS.—As used in this 

7 Act— 

8 (1) the term ‘‘Commission’’ means the Securi9 ties and Exchange Commission; and 

10 (2) the term ‘‘nationally recognized statistical 

11 rating organization’’ has the same meaning as in 

12 section 3(a)(62) of the Securities Exchange Act of 

13 1934, as added by this Act. 

14 SEC. 4. REGISTRATION OF NATIONALLY RECOGNIZED STA15 TISTICAL RATING ORGANIZATIONS. 

16 (a) AMENDMENT.—The Securities Exchange Act of 

17 1934 is amended by inserting after section 15D (15 

18 U.S.C. 78o–6) the following new section: 

19 ‘‘SEC. 15E. REGISTRATION OF NATIONALLY RECOGNIZED 

20 STATISTICAL RATING ORGANIZATIONS. 

21 ‘‘(a) REGISTRATION PROCEDURES.— 

22 ‘‘(1) APPLICATION FOR REGISTRATION.— 

23 ‘‘(A) IN GENERAL.—A credit rating agency 

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1 poses of this title (in this section referred to as 

2 the ‘applicant’), shall furnish to the Commis3 sion an application for registration, in such 

4 form as the Commission shall require, by rule 

5 or regulation issued in accordance with sub6 section (n), and containing the information de7 scribed in subparagraph (B). 

8 ‘‘(B) REQUIRED INFORMATION.—An appli9 cation for registration under this section shall 

10 contain information regarding— 

11 ‘‘(i) credit ratings performance meas12 urement statistics over short-term, mid13 term, and long-term periods (as applicable) 

14 of the applicant; 

15 ‘‘(ii) the procedures and methodolo16 gies that the applicant uses in determining 

17 credit ratings; 

18 ‘‘(iii) policies or procedures adopted 

19 and implemented by the applicant to pre20 vent the misuse, in violation of this title 

21 (or the rules and regulations hereunder), 

22 of material, nonpublic information; 

23 ‘‘(iv) the organizational structure of 

24 the applicant; 


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1 ‘‘(v) whether or not the applicant has 

2 in effect a code of ethics, and if not, the 

3 reasons therefor; 

4 ‘‘(vi) any conflict of interest relating 

5 to the issuance of credit ratings by the ap6 plicant; 

7 ‘‘(vii) the categories described in any 

8 of clauses (i) through (v) of section 

9 3(a)(62)(B) with respect to which the ap10 plicant intends to apply for registration 

11 under this section; 

12 ‘‘(viii) on a confidential basis, a list of 

13 the 20 largest issuers and subscribers that 

14 use the credit rating services of the appli15 cant, by amount of net revenues received 

16 therefrom in the fiscal year immediately 

17 preceding the date of submission of the ap18 plication; 

19 ‘‘(ix) on a confidential basis, as to 

20 each applicable category of obligor de21 scribed in any of clauses (i) through (v) of 

22 section 3(a)(62)(B), written certifications 

23 described in subparagraph (C); and 

24 ‘‘(x) any other information and docu25 ments concerning the applicant and any 


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1 person associated with such applicant as 

2 the Commission, by rule, may prescribe as 

3 necessary or appropriate in the public in4 terest or for the protection of investors. 

5 ‘‘(C) WRITTEN CERTIFICATIONS.—Written 

6 certifications required by subparagraph 

7 (B)(ix)— 

8 ‘‘(i) shall be provided from not fewer 

9 than 10 qualified institutional buyers, none 

10 of which is affiliated with the applicant; 

11 ‘‘(ii) may address more than one cat12 egory of obligors described in any of 

13 clauses (i) through (v) of section 

14 3(a)(62)(B); 

15 ‘‘(iii) shall include not fewer than 2 

16 certifications for each such category of ob17 ligor; and 

18 ‘‘(iv) shall state that the qualified in19 stitutional buyer— 

20 ‘‘(I) meets the definition of a 

21 qualified institutional buyer under 

22 section 3(a)(64); and 

23 ‘‘(II) has used the credit ratings 

24 of the applicant for at least the 3 

25 years immediately preceding the date 


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1 of the certification in the subject cat2 egory or categories of obligors. 

3 ‘‘(D) LIMITATION ON LIABILITY OF QUALI4 FIED INSTITUTIONAL BUYERS.—No qualified 

5 institutional buyer shall be liable in any private 

6 right of action for any opinion or statement ex7 pressed in a certification made pursuant to sub8 paragraph (B)(ix). 

9 ‘‘(2) REVIEW OF APPLICATION.— 

10 ‘‘(A) INITIAL DETERMINATION.—Not later 

11 than 90 days after the date on which the appli12 cation for registration is furnished to the Com13 mission under paragraph (1) (or within such 

14 longer period as to which the applicant con15 sents) the Commission shall— 

16 ‘‘(i) by order, grant such registration 

17 for ratings in the subject category or cat18 egories of obligors, as described in clauses 

19 (i) through (v) of section 3(a)(62)(B); or 

20 ‘‘(ii) institute proceedings to deter21 mine whether registration should be de22 nied. 

23 ‘‘(B) CONDUCT OF PROCEEDINGS.— 

24 ‘‘(i) CONTENT.—Proceedings referred 

25 to in subparagraph (A)(ii) shall— 


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1 ‘‘(I) include notice of the grounds 

2 for denial under consideration and an 

3 opportunity for hearing; and 

4 ‘‘(II) be concluded not later than 

5 120 days after the date on which the 

6 application for registration is fur7 nished to the Commission under para8 graph (1). 

9 ‘‘(ii) DETERMINATION.—At the con10 clusion of such proceedings, the Commis11 sion, by order, shall grant or deny such ap12 plication for registration. 

13 ‘‘(iii) EXTENSION AUTHORIZED.—The 

14 Commission may extend the time for con15 clusion of such proceedings for not longer 

16 than 90 days, if it finds good cause for 

17 such extension and publishes its reasons 

18 for so finding, or for such longer period as 

19 to which the applicant consents. 

20 ‘‘(C) GROUNDS FOR DECISION.—The Com21 mission shall grant registration under this sub22 section— 

23 ‘‘(i) if the Commission finds that the 

24 requirements of this section are satisfied; 

25 and 


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1 ‘‘(ii) unless the Commission finds (in 

2 which case the Commission shall deny such 

3 registration) that— 

4 ‘‘(I) the applicant does not have 

5 adequate financial and managerial re6 sources to consistently produce credit 

7 ratings with integrity and to materi8 ally comply with the procedures and 

9 methodologies disclosed under para10 graph (1)(B) and with subsections 

11 (g), (h), (i), and (j); or 

12 ‘‘(II) if the applicant were so reg13 istered, its registration would be sub14 ject to suspension or revocation under 

15 subsection (d). 

16 ‘‘(3) PUBLIC AVAILABILITY OF INFORMATION.— 

17 Subject to section 24, the Commission shall, by rule, 

18 require a nationally recognized statistical rating or19 ganization, upon the granting of registration under 

20 this section, to make the information and documents 

21 submitted to the Commission in its completed appli22 cation for registration, or in any amendment sub23 mitted under paragraph (1) or (2) of subsection (b), 

24 publicly available on its website, or through another 


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1 comparable, readily accessible means, except as pro2 vided in clauses (viii) and (ix) of paragraph (1)(B). 

3 ‘‘(b) UPDATE OF REGISTRATION.— 

4 ‘‘(1) UPDATE.—Each nationally recognized sta5 tistical rating organization shall promptly amend its 

6 application for registration under this section if any 

7 information or document provided therein becomes 

8 materially inaccurate, except that a nationally recog9 nized statistical rating organization is not required 

10 to amend— 

11 ‘‘(A) the information required to be fur12 nished under subsection (a)(1)(B)(i) by fur13 nishing information under this paragraph, but 

14 shall amend such information in the annual 

15 submission of the organization under paragraph 

16 (2) of this subsection; or 

17 ‘‘(B) the certifications required to be pro18 vided under subsection (a)(1)(B)(ix) by fur19 nishing information under this paragraph. 

20 ‘‘(2) CERTIFICATION.—Not later than 90 days 

21 after the end of each calendar year, each nationally 

22 recognized statistical rating organization shall fur23 nish to the Commission an amendment to its reg24 istration, in such form as the Commission, by rule, 


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1 may prescribe as necessary or appropriate in the 

2 public interest or for the protection of investors— 

3 ‘‘(A) certifying that the information and 

4 documents in the application for registration of 

5 such nationally recognized statistical rating or6 ganization (other than the certifications re7 quired under subsection (a)(1)(B)(ix)) continue 

8 to be accurate; and 

9 ‘‘(B) listing any material change that oc10 curred to such information or documents during 

11 the previous calendar year. 

12 ‘‘(c) ACCOUNTABILITY FOR RATINGS PROCE13 DURES.— 

14 ‘‘(1) AUTHORITY.—The Commission shall have 

15 the authority to enforce the provisions of this section 

16 in accordance with this title with respect to any na17 tionally recognized statistical rating organization, if 

18 such nationally recognized statistical rating organi19 zation issues credit ratings in material contravention 

20 of those procedures relating to such nationally recog21 nized statistical rating organization, including proce22 dures relating to the prevention of misuse of non23 public information and conflicts of interest, that 

24 such nationally recognized statistical rating organi25 zation— 


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1 ‘‘(A) includes in its application for reg2 istration under subsection (a)(1)(B)(ii); or 

3 ‘‘(B) makes and disseminates in reports 

4 pursuant to section 17(a) or the rules and regu5 lations thereunder. 

6 ‘‘(2) LIMITATION.—The rules and regulations 

7 that the Commission may prescribe pursuant to this 

8 title, as they apply to nationally recognized statis9 tical rating organizations, shall be narrowly tailored 

10 to meet the requirements of this title applicable to 

11 nationally recognized statistical rating organizations, 

12 and shall not purport to regulate the substance of 

13 credit ratings or the procedures and methodologies 

14 by which such nationally recognized statistical rating 

15 organizations determine credit ratings. 

16 ‘‘(d) CENSURE, DENIAL, OR SUSPENSION OF REG17 ISTRATION; NOTICE AND HEARING.—The Commission, by 

18 order, shall censure, place limitations on the activities, 

19 functions, or operations of, suspend for a period not ex20 ceeding 12 months, or revoke the registration of any na21 tionally recognized statistical rating organization if the 

22 Commission finds, on the record after notice and oppor23 tunity for hearing, that such censure, placing of limita24 tions, suspension, or revocation is necessary for the protec25 tion of investors and in the public interest and that such 


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1 nationally recognized statistical rating organization, or 

2 any person associated with such an organization, whether 

3 prior to or subsequent to becoming so associated— 

4 ‘‘(1) has committed or omitted any act, or is 

5 subject to an order or finding, enumerated in sub6 paragraph (A), (D), (E), (H), or (G) of section 

7 15(b)(4), has been convicted of any offense specified 

8 in section 15(b)(4)(B), or is enjoined from any ac9 tion, conduct, or practice specified in subparagraph 

10 (C) of section 15(b)(4), during the 10-year period 

11 preceding the date of commencement of the pro12 ceedings under this subsection, or at any time there13 after; 

14 ‘‘(2) has been convicted during the 10-year pe15 riod preceding the date on which an application for 

16 registration is furnished to the Commission under 

17 this section, or at any time thereafter, of— 

18 ‘‘(A) any crime that is punishable by im19 prisonment for 1 or more years, and that is not 

20 described in section 15(b)(4)(B); or 

21 ‘‘(B) a substantially equivalent crime by a 

22 foreign court of competent jurisdiction; 

23 ‘‘(3) is subject to any order of the Commission 

24 barring or suspending the right of the person to be 


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1 associated with a nationally recognized statistical 

2 rating organization; 

3 ‘‘(4) fails to furnish the certifications required 

4 under subsection (b)(2); or 

5 ‘‘(5) fails to maintain adequate financial and 

6 managerial resources to consistently produce credit 

7 ratings with integrity. 

8 ‘‘(e) TERMINATION OF REGISTRATION.— 

9 ‘‘(1) VOLUNTARY WITHDRAWAL.—A nationally 

10 recognized statistical rating organization may, upon 

11 such terms and conditions as the Commission may 

12 establish as necessary in the public interest or for 

13 the protection of investors, withdraw from registra14 tion by furnishing a written notice of withdrawal to 

15 the Commission. 

16 ‘‘(2) COMMISSION AUTHORITY.—In addition to 

17 any other authority of the Commission under this 

18 title, if the Commission finds that a nationally rec19 ognized statistical rating organization is no longer in 

20 existence or has ceased to do business as a credit 

21 rating agency, the Commission, by order, shall can22 cel the registration under this section of such na23 tionally recognized statistical rating organization. 

24 ‘‘(f) REPRESENTATIONS.— 


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1 ‘‘(1) BAN ON REPRESENTATIONS OF SPONSOR2 SHIP BY UNITED STATES OR AGENCY THEREOF.—It 

3 shall be unlawful for any nationally recognized sta4 tistical rating organization to represent or imply in 

5 any manner whatsoever that such nationally recog6 nized statistical rating organization has been des7 ignated, sponsored, recommended, or approved, or 

8 that the abilities or qualifications thereof have in 

9 any respect been passed upon, by the United States 

10 or any agency, officer, or employee thereof. 

11 ‘‘(2) BAN ON REPRESENTATION AS NRSRO OF

12 UNREGISTERED CREDIT RATING AGENCIES.—It shall 

13 be unlawful for any credit rating agency that is not 

14 registered under this section as a nationally recog15 nized statistical rating organization to state that 

16 such credit rating agency is a nationally recognized 

17 statistical rating organization registered under this 

18 title. 

19 ‘‘(3) STATEMENT OF REGISTRATION UNDER SE20 CURITIES EXCHANGE ACT OF 1934 PROVISIONS.—No 

21 provision of paragraph (1) shall be construed to pro22 hibit a statement that a nationally recognized statis23 tical rating organization is a nationally recognized 

24 statistical rating organization under this title, if 


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1 such statement is true in fact and if the effect of 

2 such registration is not misrepresented. 

3 ‘‘(g) PREVENTION OF MISUSE OF NONPUBLIC IN4 FORMATION.— 

5 ‘‘(1) ORGANIZATION POLICIES AND PROCE6 DURES.—Each nationally recognized statistical rat7 ing organization shall establish, maintain, and en8 force written policies and procedures reasonably de9 signed, taking into consideration the nature of the 

10 business of such nationally recognized statistical rat11 ing organization, to prevent the misuse in violation 

12 of this title, or the rules or regulations hereunder, 

13 of material, nonpublic information by such nationally 

14 recognized statistical rating organization or any per15 son associated with such nationally recognized statis16 tical rating organization. 

17 ‘‘(2) COMMISSION AUTHORITY.—The Commis18 sion shall issue final rules in accordance with sub19 section (n) to require specific policies or procedures 

20 that are reasonably designed to prevent misuse in 

21 violation of this title (or the rules or regulations 

22 hereunder) of material, nonpublic information. 

23 ‘‘(h) MANAGEMENT OF CONFLICTS OF INTEREST.— 

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1 ing organization shall establish, maintain, and en2 force written policies and procedures reasonably de3 signed, taking into consideration the nature of the 

4 business of such nationally recognized statistical rat5 ing organization and affiliated persons and affiliated 

6 companies thereof, to address and manage any con7 flicts of interest that can arise from such business. 

8 ‘‘(2) COMMISSION AUTHORITY.—The Commis9 sion shall issue final rules in accordance with sub10 section (n) to prohibit, or require the management 

11 and disclosure of, any conflicts of interest relating to 

12 the issuance of credit ratings by a nationally recog13 nized statistical rating organization, including, with14 out limitation, conflicts of interest relating to— 

15 ‘‘(A) the manner in which a nationally rec16 ognized statistical rating organization is com17 pensated by the obligor, or any affiliate of the 

18 obligor, for issuing credit ratings or providing 

19 related services; 

20 ‘‘(B) the provision of consulting, advisory, 

21 or other services by a nationally recognized sta22 tistical rating organization, or any person asso23 ciated with such nationally recognized statistical 

24 rating organization, to the obligor, or any affil25 iate of the obligor; 


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1 ‘‘(C) business relationships, ownership in2 terests, or any other financial or personal inter3 ests between a nationally recognized statistical 

4 rating organization, or any person associated 

5 with such nationally recognized statistical rat6 ing organization, and the obligor, or any affil7 iate of the obligor; 

8 ‘‘(D) any affiliation of a nationally recog9 nized statistical rating organization, or any per10 son associated with such nationally recognized 

11 statistical rating organization, with any person 

12 that underwrites the securities or money market 

13 instruments that are the subject of a credit rat14 ing; and 

15 ‘‘(E) any other potential conflict of inter16 est, as the Commission deems necessary or ap17 propriate in the public interest or for the pro18 tection of investors. 

19 ‘‘(i) PROHIBITED CONDUCT.— 

20 ‘‘(1) PROHIBITED ACTS AND PRACTICES.—The 

21 Commission shall issue final rules in accordance 

22 with subsection (n) to prohibit any act or practice 

23 relating to the issuance of credit ratings by a nation24 ally recognized statistical rating organization that 


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1 the Commission determines to be unfair, coercive, or 

2 abusive, including any act or practice relating to— 

3 ‘‘(A) conditioning or threatening to condi4 tion the issuance of a credit rating on the pur5 chase by the obligor or an affiliate thereof of 

6 other services or products, including pre-credit 

7 rating assessment products, of the nationally 

8 recognized statistical rating organization or any 

9 person associated with such nationally recog10 nized statistical rating organization; 

11 ‘‘(B) lowering or threatening to lower a 

12 credit rating on, or refusing to rate, securities 

13 or money market instruments issued by an 

14 asset pool or as part of any asset-backed or 

15 mortgage-backed securities transaction, unless a 

16 portion of the assets within such pool or part 

17 of such transaction, as applicable, also is rated 

18 by the nationally recognized statistical rating 

19 organization; or 

20 ‘‘(C) modifying or threatening to modify a 

21 credit rating or otherwise departing from its 

22 adopted systematic procedures and methodolo23 gies in determining credit ratings, based on 

24 whether the obligor, or an affiliate of the obli25 gor, purchases or will purchase the credit rating 


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1 or any other service or product of the nationally 

2 recognized statistical rating organization or any 

3 person associated with such organization. 

4 ‘‘(2) RULE OF CONSTRUCTION.—Nothing in 

5 paragraph (1), or in any rules or regulations adopt6 ed thereunder, may be construed to modify, impair, 

7 or supersede the operation of any of the antitrust 

8 laws (as defined in the first section of the Clayton 

9 Act, except that such term includes section 5 of the 

10 Federal Trade Commission Act, to the extent that 

11 such section 5 applies to unfair methods of competi12 tion). 

13 ‘‘(j) DESIGNATION OF COMPLIANCE OFFICER.—Each 

14 nationally recognized statistical rating organization shall 

15 designate an individual responsible for administering the 

16 policies and procedures that are required to be established 

17 pursuant to subsections (g) and (h), and for ensuring com18 pliance with the securities laws and the rules and regula19 tions thereunder, including those promulgated by the 

20 Commission pursuant to this section. 

21 ‘‘(k) STATEMENTS OF FINANCIAL CONDITION.— 

22 Each nationally recognized statistical rating organization 

23 shall, on a confidential basis, furnish to the Commission, 

24 at intervals determined by the Commission, such financial 

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1 tions of the Commission) by an independent public ac2 countant, and information concerning its financial condi3 tion, as the Commission, by rule, may prescribe as nec4 essary or appropriate in the public interest or for the pro5 tection of investors. 

6 ‘‘(l) SOLE METHOD OF REGISTRATION.— 

7 ‘‘(1) IN GENERAL.—On and after the effective 

8 date of this section, a credit rating agency may only 

9 be registered as a nationally recognized statistical 

10 rating organization for any purpose in accordance 

11 with this section. 

12 ‘‘(2) PROHIBITION ON RELIANCE ON NO-ACTION

13 RELIEF.—On and after the effective date of this sec14 tion— 

15 ‘‘(A) an entity that, before that date, re16 ceived advice, approval, or a no-action letter 

17 from the Commission or staff thereof to be 

18 treated as a nationally recognized statistical 

19 rating organization pursuant to the Commission 

20 rule at section 240.15c3–1 of title 17, Code of 

21 Federal Regulations, may represent itself or act 

22 as a nationally recognized statistical rating or23 ganization only— 

24 ‘‘(i) during Commission consideration 

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1 nished an application for registration 

2 under this section; and 

3 ‘‘(ii) on and after the date of approval 

4 of its application for registration under 

5 this section; and 

6 ‘‘(B) the advice, approval, or no-action let7 ter described in subparagraph (A) shall be void. 

8 ‘‘(3) NOTICE TO OTHER AGENCIES.—Not later 

9 than 30 days after the date of enactment of this sec10 tion, the Commission shall give notice of the actions 

11 undertaken pursuant to this section to each Federal 

12 agency which employs in its rules and regulations 

13 the term ‘nationally recognized statistical rating or14 ganization’ (as that term is used under Commission 

15 rule 15c3–1 (17 C.F.R. 240.15c3–1), as in effect on 

16 the date of enactment of this section). 

17 ‘‘(m) RULES OF CONSTRUCTION.— 

18 ‘‘(1) NO WAIVER OF RIGHTS, PRIVILEGES, OR

19 DEFENSES.—Registration under and compliance 

20 with this section does not constitute a waiver of, or 

21 otherwise diminish, any right, privilege, or defense 

22 that a nationally recognized statistical rating organi23 zation may otherwise have under any provision of 

24 State or Federal law, including any rule, regulation, 

25 or order thereunder. 


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1 ‘‘(2) NO PRIVATE RIGHT OF ACTION.—Nothing 

2 in this section may be construed as creating any pri3 vate right of action, and no report furnished by a 

4 nationally recognized statistical rating organization 

5 in accordance with this section or section 17 shall 

6 create a private right of action under section 18 or 

7 any other provision of law. 

8 ‘‘(n) REGULATIONS.— 

9 ‘‘(1) NEW PROVISIONS.—Such rules and regula10 tions as are required by this section or are otherwise 

11 necessary to carry out this section, including the ap12 plication form required under subsection (a)— 

13 ‘‘(A) shall be issued by the Commission in 

14 final form, not later than 270 days after the 

15 date of enactment of this section; and 

16 ‘‘(B) shall become effective not later than 

17 270 days after the date of enactment of this 

18 section. 

19 ‘‘(2) REVIEW OF EXISTING REGULATIONS.—Not 

20 later than 270 days after the date of enactment of 

21 this section, the Commission shall— 

22 ‘‘(A) review its existing rules and regula23 tions which employ the term ‘nationally recog24 nized statistical rating organization’ or 

25 ‘NRSRO’; and 


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1 ‘‘(B) amend or revise such rules and regu2 lations in accordance with the purposes of this 

3 section, as the Commission may prescribe as 

4 necessary or appropriate in the public interest 

5 or for the protection of investors. 

6 ‘‘(o) EFFECTIVE DATE.—This section shall become 

7 effective on the earlier of— 

8 ‘‘(1) the date on which regulations are issued in 

9 final form under subsection (n)(1); or 

10 ‘‘(2) 270 days after the date of enactment of 

11 this section.’’. 

12 (b) CONFORMING AMENDMENTS.— 

13 (1) SECURITIES EXCHANGE ACT OF 1934.—The 

14 Securities Exchange Act of 1934 (15 U.S.C. 78 et 

15 seq.) is amended— 

16 (A) in section 15(b)(4) (15 U.S.C. 

17 78o(b)(4))— 

18 (i) in subparagraph (B)(ii), by insert19 ing ‘‘nationally recognized statistical rating 

20 organization,’’ after ‘‘transfer agent,’’; and 

21 (ii) in subparagraph (C), by inserting 

22 ‘‘nationally recognized statistical rating or23 ganization,’’ after ‘‘transfer agent,’’; and 

24 (B) in section 21B(a) (15 U.S.C. 78u– 

25 2(a)), by inserting ‘‘15E,’’ after ‘‘15C,’’. 


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1 (2) INVESTMENT COMPANY ACT OF 1940.—The 

2 Investment Company Act of 1940 (15 U.S.C. 80a et 

3 seq.) is amended— 

4 (A) in section 2(a) (15 U.S.C. 80a–2(a)), 

5 by adding at the end the following new para6 graph: 

7 ‘‘(53) The term ‘credit rating agency’ has the 

8 same meaning as in section 3 of the Securities Ex9 change Act of 1934.’’; and 

10 (B) in section 9(a) (15 U.S.C. 80a–9(a))— 

11 (i) in paragraph (1), by inserting 

12 ‘‘credit rating agency,’’ after ‘‘transfer 

13 agent,’’; and 

14 (ii) in paragraph (2), by inserting 

15 ‘‘credit rating agency,’’ after ‘‘transfer 

16 agent,’’. 

17 (3) INVESTMENT ADVISERS ACT OF 1940.—The 

18 Investment Advisers Act of 1940 (15 U.S.C. 80b et 

19 seq.) is amended— 

20 (A) in section 202(a) (15 U.S.C. 80b– 

21 2(a)), by adding at the end the following new 

22 paragraph: 

23 ‘‘(28) The term ‘credit rating agency’ has the 

24 same meaning as in section 3 of the Securities Ex25 change Act of 1934.’’; and 


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1 (B) in section 203(e) (15 U.S.C. 80b– 

2 3(e))— 

3 (i) in paragraph (2)(B), by inserting 

4 ‘‘credit rating agency,’’ after ‘‘transfer 

5 agent,’’; and 

6 (ii) in paragraph (4), by inserting 

7 ‘‘credit rating agency,’’ after ‘‘transfer 

8 agent,’’. 

9 (4) HOUSING AND COMMUNITY DEVELOPMENT

10 ACT OF 1992.—Section 1319 of the Housing and 

11 Community Development Act of 1992 (12 U.S.C. 

12 4519) is amended by striking ‘‘effectively’’ and all 

13 that follows through ‘‘broker-dealers’’ and inserting 

14 ‘‘that is a nationally recognized statistical rating or15 ganization, as such term is defined in section 3(a) 

16 of the Securities Exchange Act of 1934’’. 

17 (5) HIGHER EDUCATION ACT OF 1965.—Section 

18 439(r)(15)(A) of the Higher Education Act of 1965 

19 (20 U.S.C. 1087–2(r)(15)(A)) is amended by strik20 ing ‘‘means any entity recognized as such by the Se21 curities and Exchange Commission’’ and inserting 

22 ‘‘means any nationally recognized statistical rating 

23 organization, as that term is defined in section 3(a) 

24 of the Securities Exchange Act of 1934’’. 


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1 (6) TITLE 23.—Section 181(11) of title 23, 

2 United States Code, is amended by striking ‘‘identi3 fied by the Securities and Exchange Commission as 

4 a nationally recognized statistical rating organiza5 tion’’ and inserting ‘‘registered with the Securities 

6 and Exchange Commission as a nationally recog7 nized statistical rating organization, as that term is 

8 defined in section 3(a) of the Securities Exchange 

9 Act of 1934’’. 

10 SEC. 5. ANNUAL AND OTHER REPORTS. 

11 Section 17(a)(1) of the Securities Exchange Act of 

12 1934 (15 U.S.C. 78q(a)(1)) is amended— 

13 (1) by inserting ‘‘nationally recognized statis14 tical rating organization,’’ after ‘‘registered transfer 

15 agent,’’; and 

16 (2) by adding at the end the following: ‘‘Any re17 port that a nationally recognized statistical rating 

18 organization is required by Commission rules under 

19 this paragraph to make and disseminate to the Com20 mission shall be deemed furnished to the Commis21 sion.’’. 

22 SEC. 6. COMMISSION ANNUAL REPORT. 

23 The Commission shall submit an annual report to the 

24 Committee on Banking, Housing, and Urban Affairs of 

25 the Senate and the Committee on Financial Services of 


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1 the House of Representatives that, with respect to the 

2 year to which the report relates— 

3 (1) identifies applicants for registration under 

4 section 15E of the Securities Exchange Act of 1934, 

5 as added by this Act; 

6 (2) specifies the number of and actions taken 

7 on such applications; and 

8 (3) specifies the views of the Commission on the 

9 state of competition, transparency, and conflicts of 

10 interest among nationally recognized statistical rat11 ing organizations. 

12 SEC. 7. GAO STUDY AND REPORT REGARDING NATIONALLY 

13 RECOGNIZED STATISTICAL RATING ORGANI14 ZATIONS. 

15 (a) STUDY REQUIRED.—The Comptroller General of 

16 the United States shall conduct a study— 

17 (1) to determine the impact of this Act and the 

18 amendments made by this Act on— 

19 (A) the quality of credit ratings issued by 

20 nationally recognized statistical ratings organi21 zations; 

22 (B) the financial markets; 

23 (C) competition among credit rating agen24 cies; 


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1 (D) the incidence of inappropriate conflicts 

2 of interest and sales practices by nationally rec3 ognized statistical rating organizations; 

4 (E) the process for registering as a nation5 ally recognized statistical rating organization; 

6 and 

7 (F) such other matters relevant to the im8 plementation of this Act and the amendments 

9 made by this Act, as the Comptroller General 

10 deems necessary to bring to the attention of the 

11 Congress; 

12 (2) to identify problems, if any, that have re13 sulted from the implementation of this Act and the 

14 amendments made by this Act; and 

15 (3) to recommend solutions, including any legis16 lative or regulatory solutions, to any problems iden17 tified under paragraphs (1) and (2). 

18 (b) REPORT REQUIRED.—Not earlier than 3 years 

19 nor later than 4 years after the date of enactment of this 

20 Act, the Comptroller General shall submit a report on the 

21 results of the study required by this section to the Com22 mittee on Banking, Housing, and Urban Affairs of the 

23 Senate and the Committee on Financial Services of the 

24 House of Representatives. 


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1 SEC. 8. EFFECTIVE DATE. 

2 This Act and the amendments made by this Act shall 

3 become effective on the date determined under section 

4 15E(o) of the Securities Exchange Act of 1934, as added 

5 by this Act. 


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Calendar No. 590 

109TH CONGRESS 

2D SESSION S. 3850 

[Report No. 109

–326] 

A BILL 

To improve ratings quality for the protection of inthe credit rating agency industry. countability, transparency, and competition in vestors and in the public interest by fostering acSEPTEMBER 6, 2006 

Read twice and placed on the calendar 


ccoleman on PROD1PC71 with BILLS