S. 3850

One Hundred Ninth Congress

of the

United States of America

AT THE SECOND SESSION

Begun and held at the City of Washington on Tuesday,

the third day of January, two thousand and six

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.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

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

Act of 2006’’.

SEC. 2. 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-thecounter 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.
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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) APPLICABLE DEFINITIONS.—As used in this Act—
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(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. 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
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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 INSTITU- TIONAL 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 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).
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‘‘(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 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—
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‘‘(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—
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‘‘(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
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organization or any person associated with such nationally

recognized statistical rating organization. ‘‘(2) COMMISSION AUTHORITY.—The 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 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 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
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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 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
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‘‘(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 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) shall be issued by the Commission in final form,

not later than 270 days after the date of enactment of

this section; and ‘‘(B) shall become effective not later than 270 days

after the date of enactment of this section.

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

Speaker of the House of Representatives.

Vice President of the United States and

President of the Senate.