Document ID: SEC-2009-1707-0001
Agency: sec
Document Type: Rule
Title: Amendments to Rules for Nationally Recognized Statistical Rating Organizations
Posted Date: 2009-12-04T05:00Z

[Federal Register: December 4, 2009 (Volume 74, Number 232)]
[Rules and Regulations]               
[Page 63831-63865]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr04de09-28]                         

[[Page 63831]]

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Part II

Securities and Exchange Commission

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17 CFR Parts 240, 243, and 249b

Amendments to Rules for Nationally Recognized Statistical Rating 
Organizations; Proposed Rules for Nationally Recognized Statistical 
Rating Organizations; Final Rule and Proposed Rule

[[Page 63832]]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 243

[Release No. 34-61050; File No. S7-04-09]
RIN 3235-AK14

 
Amendments to Rules for Nationally Recognized Statistical Rating 
Organizations

AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Final rules.

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SUMMARY: The Commission is adopting rule amendments that impose 
additional disclosure and conflict of interest requirements on 
nationally recognized statistical rating organizations (``NRSROs'') in 
order to address concerns about the integrity of the credit rating 
procedures and methodologies at NRSROs.

DATES: Effective Date: February 1, 2010.
    Compliance Date: June 2, 2010.

FOR FURTHER INFORMATION CONTACT: Michael A. Macchiaroli, Associate 
Director, at (202) 551-5525; Thomas K. McGowan, Deputy Associate 
Director, at (202) 551-5521; Randall W. Roy, Assistant Director, at 
(202) 551-5522; Joseph I. Levinson, Special Counsel, at (202) 551-5598; 
Rebekah E. Goshorn, Attorney, at (202) 551-5514; Division of Trading 
and Markets, Securities and Exchange Commission; 100 F Street, NE., 
Washington, DC 20549-7010 or, with respect to questions involving the 
amendments to Regulation FD, Eduardo Aleman, Special Counsel, at (202) 
551-3646; Division of Corporation Finance, Securities and Exchange 
Commission, 100 F Street, NE., Washington, DC 20549-3628.

SUPPLEMENTARY INFORMATION:

I. Background

A. Prior Commission Actions

    On June 16, 2008, the Commission, in the first of three related 
actions, proposed a series of amendments to its existing rules 
governing the conduct of NRSROs under the Securities Exchange Act of 
1934 (``Exchange Act'') as well as a new rule mandating additional 
requirements for NRSROs.\1\ The proposed amendments in the June 2008 
Proposing Release were designed to further the purposes of the Credit 
Rating Agency Reform Act of 2006 (``Rating Agency Act'') to improve 
ratings quality for the protection of investors and in the public 
interest by fostering accountability, transparency, and competition in 
the credit rating industry.\2\ More particularly, they were designed to 
enhance the transparency and objectivity of the NRSRO credit rating 
process generally and in particular with respect to rating structured 
finance products,\3\ to increase competition among NRSROs, and to make 
it easier for market participants to assess the credit ratings 
performance of NRSROs. For example, the amendments, as proposed, would 
have required NRSROs to make additional public disclosures about their 
methodologies for determining structured finance ratings, publicly 
disclose the histories of their ratings, and make additional internal 
records and furnish additional information to the Commission in order 
to assist staff examinations of NRSROs. The proposals also would have 
prohibited NRSROs and their analysts from engaging in certain 
activities that could impair their objectivity, such as recommending 
how to obtain a desired rating and then rating the resulting security.
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    \1\ See Proposed Rules for Nationally Recognized Statistical 
Rating Organizations, Exchange Act Release No. 57967 (June 16, 
2008), 73 FR 36212 (June 25, 2008) (``June 2008 Proposing 
Release''). The Commission adopted the initial set of NRSRO rules in 
June 2007. See Oversight of Credit Rating Agencies Registered as 
Nationally Recognized Statistical Rating Organizations, Exchange Act 
Release No. 55857 (June 5, 2007), 72 FR 33564 (June 18, 2007) 
(``June 2007 Adopting Release''). The second action taken by the 
Commission (also on June 16, 2008) was to propose a new rule that 
would require NRSROs to distinguish their ratings for structured 
finance products from other classes of credit ratings by publishing 
a report with the rating or using a different rating symbol. See 
June 2008 Proposing Release. The third action taken by the 
Commission was to propose a series of amendments to rules under the 
Exchange Act, the Securities Act of 1933 (``Securities Act''), the 
Investment Company Act of 1940 (``Investment Company Act''), and the 
Investment Advisers Act of 1940 that would eliminate references to 
NRSRO credit ratings in certain rules. See References to Ratings of 
Nationally Recognized Statistical Rating Organizations, Exchange Act 
Release No. 58070 (July 1, 2008), 73 FR 40088 (July 11, 2008); 
Securities Ratings, Securities Act Release No. 8940 (July 1, 2008), 
73 FR 40106 (July 11, 2008); References to Ratings of Nationally 
Recognized Statistical Rating Organizations, Investment Company Act 
Release No. 28327 (July 1, 2008), 73 FR 40124 (July 11, 2008).
    \2\ See Credit Rating Agency Reform Act of 2006, Pub. L. No. 
109-291; Report of the Senate Committee on Banking, Housing, and 
Urban Affairs to Accompany S. 3850, Credit Rating Agency Reform Act 
of 2006, S. Report No. 109-326, 109th Cong., 2d Sess. (Sept. 6, 
2006) (``Senate Report''), p. 2.
    \3\ The term ``structured finance product'' as used throughout 
this release refers broadly to any security or money market 
instrument issued by an asset pool or as part of any asset-backed or 
mortgage-backed securities transaction. This broad category of 
financial instrument includes, but is not limited to, asset-backed 
securities such as residential mortgage-backed securities (``RMBS'') 
and to other types of structured debt instruments such as 
collateralized debt obligations (``CDOs''), including synthetic and 
hybrid CDOs, or collateralized loan obligations (``CLOs'').
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    On February 2, 2009, the Commission adopted, with revisions, a 
majority of the rule amendments proposed in the June 2008 Proposing 
Release.\4\ Concurrently with the adoption of those final rule 
amendments, the Commission proposed additional amendments to paragraph 
(d) of Rule 17g-2 with respect to the disclosure of ratings histories. 
The Commission also re-proposed with substantial modifications 
amendments to paragraphs (a) and (b) of Rule 17g-5, a new paragraph (e) 
to Rule 17g-5, and a conforming amendment to Regulation FD.\5\
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    \4\ See Amendments to Rules for Nationally Recognized 
Statistical Rating Organizations, Exchange Act Release No. 59342 
(February 2, 2009), 74 FR 6456 (February 9, 2009) (``February 2009 
Adopting Release'').
    \5\ See Re-proposed Rules for Nationally Recognized Statistical 
Rating Organizations, Exchange Act Release No. 59343 (February 2, 
2009), 74 FR 6485 (February 9, 2009) (``February 2009 Proposing 
Release'').
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    Today, the Commission is adopting, with revisions, the rule 
amendments proposed in the February 2009 Proposing Release.

B. Summary of the Comments and Final Rules

    In enacting the Rating Agency Act, which provides the Commission 
with the authority to establish a registration and oversight program 
for NRSROs, Congress cited as its purpose ``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.'' \6\ The Commission seeks to further the purposes of 
Congress in enacting the Rating Agency Act. The rule amendments being 
adopted today are designed 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 June 2008 Proposing Release, the Commission 
cited concerns about the integrity of NRSROs' credit rating procedures 
and methodologies in light of the role they played in the credit market 
turmoil.\7\ As discussed throughout this release, the amendments being 
adopted today continue the Commission's process of addressing concerns 
about the integrity of the credit rating procedures and methodologies 
at NRSROs. The amendments incorporate most aspects

[[Page 63833]]

of the proposed and re-proposed amendments but include several 
revisions based on the comments received.
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    \6\ See Senate Report p. 2; Rating Agency Act Sec.  2 (Finding 
5).
    \7\ See June 2008 Proposing Release, 73 FR at 36213-36218.
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    The Commission received letters from 31 commenters \8\ on the 
proposed and re-proposed amendments set forth in the February 2009 
Proposing Release.\9\ Several commenters expressed general support for 
the proposed measures and the goals they were designed to achieve.\10\ 
Commenters expressed support, for example, for the Commission's efforts 
to increase transparency \11\ and foster competition within the credit 
ratings industry.\12\ Other commenters, however, expressed concerns 
about the potential negative effects of the proposed and re-proposed 
rule amendments.\13\ Those comments included concerns that action more 
vigorous than that proposed by the Commission was needed to improve the 
quality of credit ratings \14\ and to facilitate investors' independent 
analysis of the products underlying such ratings,\15\ as well as the 
concern that increased competition would not necessarily increase the 
quality of credit ratings.\16\
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    \8\ On April 15, 2009, the Commission held a Roundtable to 
Examine Oversight of Credit Rating Agencies (``Roundtable''). A 
number of the letters and statements submitted in connection with 
the Roundtable commented on the proposed rule amendments contained 
in the February 2009 Proposing Release and are discussed herein. All 
comments submitted in connection with the Roundtable are available 
on the Commission's Internet Web site, located at: http://
www.sec.gov/comments/s7-04-09/s70409.shtml and in the Commission's 
Public Reference Room in its Washington, DC headquarters.
    \9\ Letter dated February 26, 2009 from Mike Marchywka 
(``Marchywka Letter''); letter dated March 5, 2009 from Shawn S. 
Fahrer, Student, CUNY (``Fahrer Letter''); letter dated March 8, 
2009 from Russell D. Sears (``Sears Letter''); letter dated March 
18, 2009 from Takefumi Emori, Managing Director, Japan Credit Rating 
Agency, Ltd. (``JCR Letter''); letter dated March 25, 2009 from 
Laurel N. Leitner, Analyst, Council of Institutional Investors 
(``Council Letter''); letter dated March 25, 2009 from Mary Keogh, 
Managing Director, Regulatory Affairs and Daniel Curry, President, 
DBRS, Inc. (``DBRS Letter''); letter dated March 25, 2009 from 
Richard Whiting, Executive Director and General Counsel, Financial 
Services Roundtable (``FSR Letter''); letter dated March 25, 2009 
from Charles D. Brown, General Counsel, Fitch Ratings (``Fitch 
Letter''); letter dated March 26, 2009 from Gregory W. Smith, 
General Counsel, Colorado Public Employees' Retirement Association 
(``Colorado PERA Letter''); letter dated March 26, 2009 from Douglas 
Adamson, Executive Vice President, American Bankers Association 
(``ABA Letter''); letter dated March 26, 2009 from George Miller, 
Executive Director and Sean C. Davy, Managing Director, American 
Securitization Forum and Securities Industry and Financial Markets 
Association (``ASF/SIFMA Letter''); letter dated March 26, 2009 from 
Karrie McMillan, General Counsel, Investment Company Institute 
(``ICI Letter''); Letter dated March 26, 2009 from John P. Hunt, 
Acting Professor of Law, University of California, Davis (``Hunt 
Letter''); letter dated March 26, 2009 from Cate Long, Multiple-
Markets (``Multiple-Markets Letter''); letter dated March 26, 2009 
from Hidetaka Tanaka, Senior Executive Managing Director, Rating and 
Investment Information, Inc. (``R&I Letter''); letter dated March 
27, 2009 from Vickie A. Tillman, Executive Vice President, Standard 
and Poor's Investment Ratings Services (``S&P Letter''); letter 
dated March 28, 2009 from Michel Madelain, Chief Operating Officer, 
Moody's Investor Service, Moody's (``Moody's Letter''); letter dated 
March 31, 2009 from Robert G. Dobilas, CEO and President, Realpoint, 
LLC. (``Realpoint Letter''); letter dated April 2, 2009 from Keith 
F. Higgins, Chair, Committee on Federal Regulation of Securities, 
American Bar Association Section of Business Law (``ABA Committee 
Letter'') (representing views of the Committee, not the American Bar 
Association); letter dated April 3, 2009 from Dottie Cunningham, 
CEO, Commercial Mortgage Securities Association (``CMSA Letter''); 
letter dated May 19, 2009 from Lawrence A. Pingree, 
SiliconValleyForex.com (``Pingree Letter''); statement by Gregory W. 
Smith, General Counsel, Colorado Public Employees' Corporation, 
submitted for U.S. Securities and Exchange Commission Roundtable to 
Examine Oversight of Credit Rating Agencies (April 15, 2009) 
(``Colorado PERA Statement''); statement by Deborah A. Cunningham, 
Executive Vice President, Chief Investment Officer, Federated 
Investors, Inc., submitted for U.S. Securities and Exchange 
Commission Roundtable to Examine Oversight of Credit Rating Agencies 
(April 15, 2009) (``Federated Statement''); statement by Glenn 
Reynolds, CEO, CreditSights, Inc., submitted for U.S. Securities and 
Exchange Commission Roundtable to Examine Oversight of Credit Rating 
Agencies (April 15, 2009) (``CreditSights Statement''); statement by 
Alex J. Pollock, Resident Fellow, American Enterprise Institute, 
submitted for U.S. Securities and Exchange Commission Roundtable to 
Examine Oversight of Credit Rating Agencies (April 15, 2009) (``AEI 
Statement''); statement by Raymond W. McDaniel, CEO and President, 
Moody's Investor Service submitted for U.S. Securities and Exchange 
Commission Roundtable to Examine Oversight of Credit Rating Agencies 
(April 15, 2009) (``Moody's Statement''); statement by Robert G. 
Dobilas, President and CEO, Realpoint, Inc., submitted for U.S. 
Securities and Exchange Commission Roundtable to Examine Oversight 
of Credit Rating Agencies (April 15, 2009) (``Realpoint 
Statement''); statement by Ethan Berman, RiskMetrics Group, 
submitted for U.S. Securities and Exchange Commission Roundtable to 
Examine Oversight of Credit Rating Agencies (April 15, 2009) 
(``RiskMetrics Statement''); statement by Daniel Curry, President, 
DBRS Inc., submitted for U.S. Securities and Exchange Commission 
Roundtable to Examine Oversight of Credit Rating Agencies (April 15, 
2009) (``DBRS Inc. Statement''); statement by Paul Schott Stevens, 
President and CEO, Investment Company Institute, submitted for U.S. 
Securities and Exchange Commission Roundtable to Examine Oversight 
of Credit Rating Agencies (April 15, 2009) (``ICI Statement''); 
statement by Sean Egan, Co-Founder and Managing Director, Egan-Jones 
Rating Co., submitted for U.S. Securities and Exchange Commission 
Roundtable to Examine Oversight of Credit Rating Agencies (April 15, 
2009) (``Egan-Jones Statement''); statement by James A. Kaitz, 
President and CEO, Association for Financial Professionals, 
submitted for U.S. Securities and Exchange Commission Roundtable to 
Examine Oversight of Credit Rating Agencies (April 15, 2009) (``AFP 
Statement''); statement by George P. Miller, Executive Director, 
American Securitization Forum, submitted for U.S. Securities and 
Exchange Commission Roundtable to Examine Oversight of Credit Rating 
Agencies (April 15, 2009) (``ASF Statement''); statement by James H. 
Gellert, President and CEO, and Dr. Patrick James Caragata, Founder 
and Executive Vice Chairman, Rapid Ratings International, Inc., 
submitted for U.S. Securities and Exchange Commission Roundtable to 
Examine Oversight of Credit Rating Agencies (April 15, 2009) 
(``Rapid Ratings Statement''); statement by Richard H. Baker, 
Managed Funds Associates, submitted for U.S. Securities and Exchange 
Commission Roundtable to Examine Oversight of Credit Rating Agencies 
(April 15, 2009) (``MFA Statement''); letter dated June 1, 2009 from 
Christine DiFabio, Vice President, Advocacy and Accounting Policy, 
Financial Executives International (``FEI Letter''); letter dated 
June 12, 2009 from Curtis C. Verschoor, L Q Research Professor, 
School of Accountancy, DePaul University (``Verschoor Letter''). 
These comments are available on the Commission's Internet Web site, 
located at http://www.sec.gov/comments/s7-04-09/s70409.shtml and in 
the Commission's Public Reference Room in its Washington, DC 
headquarters.
    \10\ See, e.g., Marchywka Letter; Council Letter; Colorado PERA 
Letter; R&I Letter; ABA Committee Letter; Pingree Letter; Realpoint 
Statement; FEI Letter.
    \11\ See ABA Committee Letter; Pingree Letter; Realpoint 
Statement.
    \12\ See Colorado PERA Letter.
    \13\ See, e.g., Fahrer Letter; DBRS Letter; ICI Letter; Hunt 
Letter; Moody's Letter; DBRS Statement; Verschoor Letter.
    \14\ See Hunt Letter.
    \15\ See ICI Letter.
    \16\ See Fahrer Letter; Hunt Letter.
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    The Commission notes that in addition to citing fostering 
competition in the credit rating industry as one of the purposes of the 
Rating Agency Act, Congress stated its finding in the Rating Agency Act 
that ``additional competition [among credit rating agencies] is in the 
public interest.'' \17\ In seeking to increase competition, the 
Commission seeks to further the purposes of Congress in enacting the 
Rating Agency Act.
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    \17\ See Rating Agency Act Sec.  2.
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    In summary, the Commission is adopting amendments to paragraph (d) 
of Rule 17g-2 and paragraphs (a) and (b) of Rule 17g-5 as well as a new 
paragraph (e) of Rule 17g-5 and a conforming amendment to Regulation 
FD.\18\ The amendments to paragraph (d) of Rule 17g-2 require a broader 
disclosure of credit ratings history information. Specifically, as 
adopted in the February 2009 Adopting Release, paragraph (d) of Rule 
17g-2 requires the disclosure of ratings actions histories, in 
eXtensible Business Reporting Language (``XBRL'') format, for 10% of 
the ratings in each class for which the NRSRO has registered and for 
which it has issued 500 or more credit ratings paid for by the issuer, 
underwriter, or sponsor of the security being rated (``issuer-paid'' 
credit ratings), with each required disclosure of a new ratings action 
to be made no later than six months after the ratings action is taken 
(hereinafter sometimes referred to as the ``10% requirement'').\19\ The 
amendments being

[[Page 63834]]

adopted today add the requirement that an NRSRO disclose ratings action 
histories for all credit ratings initially determined on or after June 
26, 2007 in an interactive data file that uses a machine-readable 
format (hereinafter sometimes referred to as the ``100% requirement''). 
In the case of issuer-paid credit ratings, each new ratings action will 
be required to be reflected in such publicly disclosed histories no 
later than twelve months after it is taken, while in the case of 
ratings actions that are not issuer-paid, each new ratings action will 
be required to be reflected no later than twenty-four months after it 
is taken.\20\ An NRSRO will be allowed to use any machine-readable 
format to make this data publicly available until 60 days after the 
date on which the Commission publishes a List of XBRL Tags for NRSROs 
on its Internet Web site, at which point the NRSRO will be required to 
make the information available in the XBRL format using the 
Commission's List of XBRL Tags for NRSROs. This new disclosure 
requirement applies to all NRSRO credit ratings regardless of the 
business model under which they are determined. Consequently, the new 
requirement applies to all types of credit ratings regardless of 
whether they are issuer-paid credit ratings, credit ratings made 
available only to subscribers (``subscriber-paid'' credit ratings), or 
credit ratings generated on an unsolicited basis and made publicly 
available (``unsolicited'' credit ratings).
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    \18\ 17 CFR 243.100, 243.101, 243.102 and 243.103.
    \19\ See February 2009 Adopting Release, 74 FR at 6460-6462. As 
discussed in greater detail below, due to the fact that the 
Commission has not yet published the List of XBRL Tags for NRSROs on 
its Internet Web site, on August 5, 2009, the Commission provided 
notice that an NRSRO subject to those disclosure provisions can 
satisfy the requirement to make publicly available ratings history 
information in an XBRL format by using an XBRL format or any other 
machine-readable format, until such time as the Commission provides 
further notice. See infra, note 99 and accompanying text.
    \20\ See 17 CFR 240.17g-2(d).
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    The amendments to paragraphs (a) and (b) of Rule 17g-5 being 
adopted today, substantially as proposed in the February 2009 Proposing 
Release, require an NRSRO that is hired by issuers, sponsors, or 
underwriters (hereinafter collectively ``arrangers'') to determine an 
initial credit rating for a structured finance product to (1) disclose 
to non-hired NRSROs that have furnished the Commission with the 
certification described below that the arranger is in the process of 
determining such a credit rating and (2) to obtain representations from 
the arranger that the arranger will provide information given to the 
hired NRSRO to the non-hired NRSROs that have furnished the Commission 
with the certification described below.\21\ In addition, the new 
paragraph (e) of Rule 17g-5 being adopted today, as proposed in the 
February 2009 Proposing Release, requires an NRSRO seeking to access 
information provided by an arranger to a hired NRSRO and made available 
to other NRSROs pursuant to the amended rule to furnish the Commission 
with an annual certification that the NRSRO is accessing the 
information solely to determine credit ratings and will determine a 
minimum number of credit ratings using that information.\22\ Finally, 
the amendment to Rule 100(b)(2)(iii) of Regulation FD being adopted 
today, substantially as proposed in the February 2009 Proposing 
Release, accommodates the new disclosure requirements under Rule 17g-5 
by permitting the disclosure of material non-public information to an 
NRSRO regardless of whether the NRSRO makes its ratings publicly 
available.\23\
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    \21\ See 17 CFR 240.17g-5(a)(3) and (b)(9).
    \22\ See 17 CFR 240.17g-5(e).
    \23\ See 17 CFR 243.100(b)(2)(iii).
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    In order to allow NRSROs sufficient time to implement the new 
disclosure requirements, the compliance date of the amendments is 
delayed until 180 days after publication in the Federal Register. The 
Commission notes that it used the same time period for compliance with 
the 10% disclosure requirement pursuant to Rule 17g-2.\24\ While 
certain NRSROs already are complying with the 10% disclosure 
requirement, the Commission notes that the 100% disclosure requirements 
being adopted are an expansion of the current 10% disclosure 
requirements for issuer-paid credit ratings and for the first time will 
require all NRSROs to disclose ratings history. Therefore, with respect 
to the requirements under Rule 17g-5, the Commission believes the 
compliance date is appropriate in order to allow the NRSROs and 
arrangers sufficient time to implement the new disclosure requirements.
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    \24\ See February 2009 Adopting Release, 74 FR at 6461.
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II. Final Amendments to Rule 17g-2

A. Summary and Background

    Rule 17g-2 requires an NRSRO to make and retain certain records 
relating to its business and to retain certain other records made in 
the normal course of business operations. The rule also prescribes the 
time periods and manner in which these records are required to be 
retained and, as described below, requires certain of those records 
regarding ratings histories to be publicly disclosed.\25\ The 
Commission is adopting today additional amendments to paragraph (d) of 
Rule 17g-2 to enhance the requirements in the rule to publicly disclose 
these records of credit rating histories for the purpose of providing 
users of credit ratings, investors, and other market participants and 
observers the raw data with which to compare the credit ratings 
performance of NRSROs by showing how different NRSROs initially rated 
an obligor or security and, subsequently, adjusted those ratings, 
including the timing of the adjustments.
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    \25\ See 17 CFR 240.17g-2.
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    Paragraph (a)(8) to Rule 17g-2 requires an NRSRO to make and 
retain, as part of its internal records that are available to 
Commission staff, a record of the ratings history of each outstanding 
credit rating it maintains showing all rating actions (initial rating, 
upgrades, downgrades, placements on watch for upgrade or downgrade, and 
withdrawals) and the date of such actions identified by the name of the 
security or obligor rated and, if applicable, the CUSIP for the rated 
security or the Central Index Key (CIK) number for the rated 
obligor.\26\ Paragraph (d) of Rule 17g-2 requires an NRSRO to make 
publicly available in an XBRL format ratings action histories for 10% 
of the outstanding issuer-paid credit ratings required to be retained 
pursuant to paragraph (a)(8), selected on a random basis, for each 
class of credit rating for which it is registered and for which it has 
issued 500 or more issuer-paid credit ratings, with each required 
disclosure of a new ratings action to be made no later than six months 
after the ratings action is taken.\27\ Exhibit 1 of Form NRSRO requires 
an NRSRO subject to the public disclosure requirements of Rule 17g-2(d) 
to indicate in the exhibit the Web address where the XBRL Interactive 
Data File with the required information can be accessed.\28\
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    \26\ See February 2009 Adopting Release; 17 CFR 240.17g-2(a)(8).
    \27\ See February 2009 Adopting Release; 17 CFR 240.17g-2(d).
    \28\ See February 2009 Adopting Release; Instructions to Form 
NRSRO.
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    While paragraph (a)(8) of Rule 17g-2 and the amendments to Exhibit 
1 were adopted in the February 2009 Adopting Release substantially as 
proposed, paragraph (d) of Rule 17g-2, as adopted, reflected 
modifications from the originally proposed amendment. Specifically, as 
proposed, the rule would have required an NRSRO to make ratings actions 
histories publicly available on its corporate Web site in XBRL format 
for 100% of outstanding credit ratings six months after the date of the 
rating action, regardless of whether the credit ratings were issuer-

[[Page 63835]]

paid, subscriber-paid, or unsolicited.\29\ The rule as adopted, 
however, limited this required ratings history disclosure to 10% of the 
outstanding issuer-paid credit ratings required to be retained pursuant 
to paragraph (a)(8) of Rule 17g-2 for each class of credit rating for 
which the NRSRO is registered and for which it has issued 500 or more 
issuer-paid credit ratings, with each required disclosure of a new 
ratings action to be disclosed no later than six months after the 
ratings action is taken.\30\
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    \29\ See June 2008 Proposing Release, 73 FR at 36228-36230.
    \30\ 17 CFR 240.17g-2(d).
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    In the February 2009 Proposing Release, the Commission stated that 
the amendments to paragraph (d) of Rule 17g-2 adopted in the February 
2009 Adopting Release would provide users of credit ratings with 
information to begin assessing the performance of NRSROs subject to the 
rule.\31\ The Commission also stated in the February 2009 Proposing 
Release that it continued to believe that the proposed amendments to 
paragraph (d) of Rule 17g-2 set forth in the June 2008 Proposing 
Release, which would have required public disclosure of ratings action 
histories for all outstanding credit ratings, could provide substantial 
benefits to users of credit ratings.\32\ However, the Commission wanted 
to solicit further comment on the proposed amendments to the rule in 
order to gain a better understanding of how they would impact NRSROs 
operating under the issuer-paid and subscriber-paid business 
models.\33\
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    \31\ See February 2009 Proposing Release, 74 FR at 6487-6488.
    \32\ See February 2009 Proposing Release, 74 FR at 6487-6488.
    \33\ See February 2009 Proposing Release, 74 FR at 6487-6490.
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    Consequently, the Commission re-proposed amendments to paragraph 
(d) that would require disclosure of ratings histories for 100% of the 
issuer-paid credit ratings outstanding. In addition, the Commission 
asked a series of detailed questions to elicit information about how 
the rule proposal would impact issuer-paid NRSROs and whether the rule 
should be expanded to apply to all credit ratings: issuer-paid, 
subscriber-paid, and unsolicited.\34\
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    \34\ See February 2009 Proposing Release, 74 FR at 6488-6490.
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    The amendments proposed in the February 2009 Proposing Release 
would have created three new subparagraphs to paragraph (d) of Rule 
17g-2: (d)(1), (d)(2), and (d)(3). Paragraphs (d)(1) and (d)(2) would 
have contained the text of paragraph (d) as adopted in the February 
2009 Adopting Release. Specifically, paragraph (d)(1) would have 
contained the record retention requirements of paragraph (d) as 
originally adopted by the Commission in the June 2007 Adopting 
Release.\35\ Paragraph (d)(2) would have contained the 10% ratings 
history disclosure requirements adopted by the Commission in the 
February 2009 Adopting Release.\36\ Finally, paragraph (d)(3) would 
have contained the new requirement that NRSROs disclose, in XBRL 
format, ratings history information for 100% of their outstanding 
issuer-paid credit ratings initially determined on or after June 26, 
2007 (the effective date of the Rating Agency Act). Under the proposed 
amendment, a credit rating action would not have needed to be disclosed 
until twelve months after the action was taken.\37\
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    \35\ See June 2007 Adopting Release, 72 FR at 33622; see also 17 
CFR 240.17g-2(d).
    \36\ See February 2009 Adopting Release, 74 FR at 6460-6463.
    \37\ See February 2009 Proposing Release, 74 FR at 6487-6488.
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    The Commission received responses from twenty-three commenters 
addressing various aspects of the proposed amendments to paragraph (d) 
of Rule 17g-2 and responding to some of the questions posed by the 
Commission.\38\ A substantial number of commenters expressed general 
support for expanding the public disclosure requirements for ratings 
history information.\39\ One NRSRO, for example, stated that the 
proposed amendment ``balances the need for adequate disclosure of 
historical information with the legitimate commercial concerns of the 
NRSROs.'' \40\ Some commenters, however, expressed general opposition 
to the proposed amendments.\41\ Two NRSROs, for example, questioned the 
Commission's authority to adopt the proposed disclosure requirements, 
contending that the amendments were not ``narrowly tailored'' and 
expressing concern over the potential impact the proposed requirements 
would have on their intellectual property interests and rights in their 
ratings data.\42\ As discussed below, the Commission is adopting the 
amendments to paragraph (d) of Rule 17g-2 under its authority to 
require NRSROs to make and keep for specified periods such records as 
the Commission prescribes as necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Exchange Act.\43\ In addition, the amendments as 
adopted are intended to further the goals of the Rating Agency Act, 
fostering competition, transparency, and accountability in the credit 
rating industry, by striking an appropriate balance between providing 
users of credit ratings, investors, and other market participants and 
observers with a sufficient volume of raw data with which to gauge the 
accuracy of different NRSROs' ratings over time while at the same time 
addressing concerns raised by NRSROs regarding their ability to derive 
revenue from granting market participants access to their credit 
ratings and downloads of their credit ratings.
---------------------------------------------------------------------------

    \38\ See JCR Letter; Council Letter; DBRS Letter; Fitch Letter; 
Colorado PERA Letter; ABA Letter; ASF/SIFMA Letter; ICI Letter; Hunt 
Letter; Multiple-Markets Letter; R&I Letter; S&P Letter; Moody's 
Letter; Realpoint Letter; ABA Committee Letter; CMSA Letter; 
Colorado PERA Statement; Federated Statement; AEI Statement; Risk 
Metrics Statement; DBRS Statement; ICI Statement; AFP Statement; ASF 
Statement; Rapid Ratings Statement; MFA Statement.
    \39\ See, e.g., Council Letter; Fitch Letter; ASF/SIFMA Letter; 
ICI Letter; Hunt Letter; Multiple-Markets Letter; Colorado PERA 
Statement; Federated Statement; Risk Metrics Statement; AFP 
Statement; ASF Statement.
    \40\ See Fitch Letter.
    \41\ See, e.g., DBRS Letter; R&I Letter; S&P Letter; Moody's 
Letter.
    \42\ See S&P Letter; Moody's Letter.
    \43\ See Section 17(a)(1) of the Exchange Act (15 U.S.C. 
78q(a)(1)).
---------------------------------------------------------------------------

    As discussed in detail below, the Commission is adopting paragraphs 
(d)(1) and (d)(2) substantially as proposed. However, in response to 
the comments received and to facilitate the ability of users of credit 
ratings to directly compare the ratings performance of all NRSROs, the 
Commission is expanding the ratings history disclosure requirement in 
new paragraph (d)(3) to include ratings history information for all 
NRSRO credit ratings initially determined on or after June 26, 2007 
(the effective date of the Rating Agency Act), whether issuer-paid, 
subscriber-paid, or unsolicited. The amendment as adopted requires a 
ratings action on an issuer-paid credit rating to be publicly disclosed 
no later than twelve months after it is taken, as proposed in the 
February 2009 Proposing Release. For ratings actions taken on ratings 
that are not issuer-paid, however, the amendment as adopted allows a 
delay of twenty-four months between the time a credit rating action is 
taken and the time it must be disclosed. The Commission is structuring 
the amendment as adopted in this manner in order to address commenters' 
concerns regarding the potentially disproportionate negative effects 
such a disclosure requirement could have on NRSROs operating under the 
subscriber-paid business model in the absence of a sufficiently long 
delay

[[Page 63836]]

between the time a ratings action is taken--and made available to paid 
subscribers--and the time that ratings action must be made public.
    In addition, as discussed in detail below, the Commission has not 
yet published the List of XBRL Tags for NRSROs on its Internet Web 
site. Consequently, the Commission is clarifying in the rule text of 
new paragraph (d)(3) of Rule 17g-2 that an NRSRO can make the required 
ratings history data publicly available in any machine-readable format, 
including XBRL, until 60 days after the date on which the Commission 
publishes a List of XBRL Tags for NRSROs on its Internet Web site, at 
which point the NRSRO will be required to make the information 
available in XBRL format using the List of XBRL Tags for NRSROs.

B. Paragraph (d)(1) of Rule 17g-2

    As adopted, paragraph (d)(1) of Rule 17g-2 consists of the record 
retention requirements of paragraph (d) as originally adopted by the 
Commission in the June 2007 Adopting Release. These requirements 
mandate that an NRSRO maintain an original, or a true and complete copy 
of the original, of each record required to be retained pursuant to 
paragraphs (a) and (b) of Rule 17g-2 in a manner that, for the 
applicable retention period specified in paragraph (c) of Rule 17g-2, 
makes the original record or copy easily accessible to the principal 
office of the NRSRO and to any other office that conducted activities 
causing the record to be made or received.\44\ The purpose of these 
requirements is to facilitate Commission examination of the NRSRO and 
to avoid delays in obtaining the records during an on-site examination.
---------------------------------------------------------------------------

    \44\ See June 2007 Adopting Release, 72 FR at 33622.
---------------------------------------------------------------------------

    The Commission did not receive any comments on this proposal to 
codify the existing requirements of paragraph (d) as new paragraph 
(d)(1) and is adopting it as proposed.

C. Paragraph (d)(2) of Rule 17g-2

    Paragraph (d)(2) of Rule 17g-2, as adopted, consists of the ratings 
history disclosure requirements adopted by the Commission in the 
February 2009 Adopting Release (i.e., the 10% requirement). As noted 
above, this provision requires an NRSRO to make publicly available, in 
an XBRL format, ratings action histories for 10% of the outstanding 
issuer-paid credit ratings required to be retained pursuant to 
paragraph (a)(8) of Rule 17g-2, selected on a random basis, for each 
class of credit rating for which it is registered and for which it has 
issued 500 or more issuer-paid credit ratings, with each required 
disclosure of a new ratings action to be made no later than six months 
after the ratings action is taken. Several commenters raised questions 
about whether it was appropriate or necessary to have both a 10% 
requirement and a 100% requirement. In particular, two commenters 
stated that the proposed 100% disclosure requirement of paragraph 
(d)(3) to Rule 17g-2 would be duplicative of the existing 10% 
disclosure requirement for issuer-paid ratings in new paragraph 
(d)(2).\45\ In addition, both of those commenters as well as a third 
suggested that the Commission consider the results of the 10% 
disclosure requirement before adopting the proposed 100% 
disclosure.\46\ These three commenters also argued that in light of the 
existing 10% disclosure requirement, the amendment as proposed, 
including the 100% disclosure requirement, was not narrowly 
tailored.\47\ One commenter noted that the Commission has not allowed 
any time to pass to be able to judge whether the existing 10% 
disclosure requirement will operate effectively to facilitate 
comparisons of the aggregate performance of issuer-paid ratings.\48\ 
Another commenter suggested extending the 10% requirement in paragraph 
(d)(2) of Rule 17g-2 to all NRSROs first before adopting the 100% 
disclosure requirement.\49\ A third commenter stated that the 
Commission should withdraw the 10% disclosure obligation altogether if 
it should decide to adopt the 100% requirement.\50\
---------------------------------------------------------------------------

    \45\ See DBRS Letter; S&P Letter.
    \46\ See DBRS Letter; Moody's Letter; S&P Letter.
    \47\ See DBRS Letter; Moody's Letter; S&P Letter.
    \48\ See Moody's Letter.
    \49\ See DBRS Letter.
    \50\ See S&P Letter.
---------------------------------------------------------------------------

    The Commission notes that the 10% requirement and 100% requirement 
will provide different types of data sets with which to analyze and 
compare the performance of NRSROs' credit ratings. For example, the 10% 
requirement applies to all outstanding and future credit ratings that 
fall within the rule's scope (i.e., an NRSRO is required to draw its 
random selection of a 10% sample from its entire pool of issuer-paid 
credit ratings, regardless of when the obligor or instrument was 
initially rated) whereas the 100% requirement is limited to outstanding 
credit ratings initially determined on or after June 26, 2007. 
Therefore, initially, the 10% requirement will provide ratings history 
information that is much more retrospective and will include ratings 
histories for credit ratings that have been outstanding for much longer 
periods of time. In addition, ratings actions subject to the 10% 
disclosure requirement must be disclosed more promptly (within six 
months) than ratings actions subject to the 100% requirement. The data 
generated by the 10% requirement will involve a longer time series of 
information and, therefore, is designed to aid statistical research on 
credit ratings performance.
    The 100% ratings history disclosure requirement will result in a 
different data set. It will be broader in scope but more limited in 
time, applying only to credit ratings initially determined on or after 
June 26, 2007. The 100% disclosure requirement also allows for a longer 
delay between the time a ratings action is taken and the time it must 
be disclosed--twelve months for ratings actions on issuer-paid credit 
ratings and twenty-four months for ratings actions on ratings not 
issuer-paid--as opposed to the six month delay allowed under the 10% 
disclosure requirement. The 100% ratings disclosure will provide for a 
more granular comparison of the performance of an NRSRO's credit 
ratings. In particular, it will require ratings history disclosure for 
every outstanding credit rating of each NRSRO. This will permit users 
of credit ratings and others to take a specific debt instrument and 
compare the ratings history for the instrument of each NRSRO that rated 
it. Thus, whereas the 10% requirement will be limited to analyses using 
a statistical sampling, the 100% requirement will facilitate analyses 
of how the NRSROs each rated a specific obligor, security, or money 
market instrument. In addition, as discussed further below, whereas the 
10% requirement is limited to issuer-paid credit ratings, the 100% 
requirement covers all credit ratings regardless of the business model 
under which they are issued, thereby allowing comparisons across and 
among a broader set of NRSROs. Thus, the comprehensive disclosure of 
ratings histories for all outstanding credit ratings will facilitate a 
more fundamental ratings-by-ratings comparisons across NRSROs, and will 
also generate data that can be used to develop independent statistical 
analyses of the overall performance of an NRSRO's credit ratings in 
total and within classes and subclasses of credit ratings (e.g., within 
product or industry types). This will provide users of credit ratings 
with more ways to analyze the performance of the NRSROs' credit 
ratings. The increased ability to

[[Page 63837]]

understand how an NRSRO's credit ratings perform will further the goals 
of the Rating Agency Act to foster accountability, transparency, and 
competition in the credit rating industry.\51\
---------------------------------------------------------------------------

    \51\ See Credit Rating Agency Reform Act of 2006, Pub. L. No. 
109-291; Senate Report, p. 2.
---------------------------------------------------------------------------

    Furthermore, the Commission notes that while the 100% requirement 
will be useful to market participants and observers within a short 
period of the rule being effective (the vast majority will be available 
at twelve months) for the purposes of comparing the performance of 
different NRSROs rating the same obligors or instruments, due to the 
June 26, 2007 cutoff date and the longer grace periods, it will take 
time for the new 100% disclosure requirement to generate the 
comprehensive data pool necessary for thorough independent analysis and 
comparison of the long-term ratings performance of the NRSROs. In the 
meantime, the 10% requirement will provide ratings performance 
information on issuer-paid credit ratings (the vast majority of 
outstanding NRSRO credit ratings). Thus, in addition to the other 
benefits of retaining the 10% requirement, the ratings performance and 
information it provides will help bridge the gap until the 100% 
requirement has generated a robust set of data.\52\
---------------------------------------------------------------------------

    \52\ According to Form NRSRO submissions by the NRSROs, issuer-
paid credit ratings account for over 98% of the current credit 
ratings issued by NRSROs.
---------------------------------------------------------------------------

    In light of the different structures of the two ratings history 
disclosure requirements as well as the different data sets which they 
will provide, and the corresponding complimentary ways in which they 
will advance the goals of the Rating Agency Act and the Commission's 
rules, the Commission believes that it would be beneficial to retain 
the 10% ratings history disclosure requirement alongside the new 100% 
disclosure requirement being adopted today.
    Accordingly, the Commission is adopting new paragraph (d)(2) to 
Rule 17g-2 as proposed.

D. Paragraph (d)(3) of Rule 17g-2

    As adopted, new paragraph (d)(3) to Rule 17g-2 requires each NRSRO 
to disclose ratings history information for 100% of its credit ratings 
initially determined on or after June 26, 2007, with each ratings 
action to be disclosed no later than twelve months or twenty-four 
months after it is taken, depending on whether the rating is issuer-
paid. Any ratings action information required under the 100% disclosure 
requirement with respect to issuer-paid credit ratings need not be made 
public less than twelve months from the date such ratings action is 
taken. A ratings action on a rating that is not issuer-paid need not be 
made public less than twenty-four months from the date it is taken. As 
noted above, this represents a modification of the proposed amendment, 
which would have applied the 100% disclosure requirement only to 
issuer-paid ratings with a twelve month grace period. The Commission 
requested comments on a number of specific questions pertaining to this 
provision of the proposed amendment, and the modifications are designed 
to address the comments received in response to those questions.
    The Commission specifically requested comment on whether the 
proposed 100% disclosure requirement should apply equally to issuer-
paid and subscriber-paid credit ratings.\53\ The Commission received 
letters from seventeen commenters in response to this inquiry,\54\ with 
twelve of those commenters answering in the affirmative.\55\ Several 
commenters argued that excluding subscriber-paid credit ratings from 
the proposed disclosure requirements would be inconsistent with the 
Commission's goals in proposing the amendment--enhancing NRSRO 
accountability, transparency, and competition.\56\ In addition, several 
commenters stated that limiting the disclosure requirement to issuer-
paid ratings would deprive users of the ability to assess the accuracy 
and integrity of subscriber-paid credit ratings.\57\ Two commenters 
argued that limiting the rule to issuer-paid credit ratings would 
result in a lack of uniformity in regulatory approach and create a lack 
of transparency for subscriber-paid credit ratings, and therefore would 
not be in the best interests of investors or the capital markets.\58\ 
One commenter in favor of expanding the disclosure requirement to 
include subscriber-paid credit ratings suggested allowing a longer 
posting delay for subscriber-paid ratings actions than for issuer-paid 
credit ratings.\59\
---------------------------------------------------------------------------

    \53\ February 2009 Proposing Release, 74 FR at 6489
    \54\ See Council Letter; DBRS Letter; Fitch Letter; Colorado 
PERA Letter; ASF/SIFMA Letter; ICI Letter; Hunt Letter; Multiple-
Markets Letter; S&P Letter; Moody's Letter; Realpoint Letter; ABA 
Committee Letter; Colorado PERA Statement; AEI Statement; 
RiskMetrics Statement; DBRS Statement; ICI Statement; AFP Statement; 
Rapid Ratings Statement; MFA Statement.
    \55\ See Council Letter; DBRS Letter; Fitch Letter; Colorado 
PERA Letter; ASF/SIFMA Letter; Multiple-Markets Letter; S&P Letter; 
Moody's Letter; Colorado PERA Statement; RiskMetrics Statement; DBRS 
Statement; ICI Statement; AFP Statement; MFA Statement.
    \56\ See, e.g., Council Letter; Fitch Letter; Colorado PERA 
Letter; ASF/SIFMA Letter; S&P Letter; Moody's Letter; ICI Statement.
    \57\ See, e.g., Council Letter; Fitch Letter; Colorado PERA 
Letter; ASF/SIFMA Letter; Moody's Letter; Colorado PERA Statement; 
MFA Statement.
    \58\ See DBRS Statement; Moody's Letter.
    \59\ See Multiple-Markets Letter.
---------------------------------------------------------------------------

    Five commenters argued that the rule should not apply to 
subscriber-paid credit ratings.\60\ Concerns expressed by these 
commenters included a higher likelihood of substantial financial harm 
to subscriber-paid NRSROs that would arise from the required 
disclosures \61\ and the threat of overly burdensome and costly 
requirements.\62\ One commenter, arguing that ``Subscriber-Paid 
competition introduces credibility back into the ratings business,'' 
warned that the Commission should be ``careful not to, in the interest 
of being overly fair * * * quash the very solutions to the problems so 
plaguing the industry.'' \63\
---------------------------------------------------------------------------

    \60\ See Hunt Letter; Realpoint Letter; ABA Committee Letter; 
AEI Statement; Rapid Ratings Statement.
    \61\ See e.g., Hunt Letter; Realpoint Letter.
    \62\ See e.g., Realpoint Letter; Rapid Ratings Statement.
    \63\ Rapid Ratings Statement.
---------------------------------------------------------------------------

    The Commission also asked whether the rule should apply to 
unsolicited credit ratings.\64\ The Commission received letters from 
nine commenters in response to this inquiry,\65\ with seven responding 
generally in the affirmative.\66\ One commenter noted that any 
distinction between solicited and unsolicited ratings would stigmatize 
unsolicited ratings and undercut the ability to foster competition,\67\ 
while others noted that the disclosure of unsolicited ratings provides 
a point of comparison facilitating efforts to identify those NRSROs 
with conflicts of interests.\68\ In contrast, one commenter stated that 
requiring unsolicited NRSROs to publish their ratings would ``put them 
out of business.'' \69\
---------------------------------------------------------------------------

    \64\ See February 2009 Proposing Release, 74 FR at 6490.
    \65\ See Council Letter; DBRS Letter; Fitch Letter; Colorado 
PERA Letter ASF/SIFMA Letter; Hunt Letter; Multiple-Markets Letter; 
Realpoint Letter; ABA Committee Letter.
    \66\ See Council Letter; DBRS Letter; Fitch Letter; Colorado 
PERA Letter; ASF/SIFMA Letter; Hunt Letter; ABA Committee Letter.
    \67\ See Fitch Letter.
    \68\ See e.g., Council Letter; Colorado PERA Letter.
    \69\ See Realpoint Letter.
---------------------------------------------------------------------------

    The Commission believes the rule should apply to all types of 
credit ratings, whether issuer-paid, subscriber-paid, or unsolicited. 
The intent of the rule is to facilitate comparisons of credit rating 
accuracy across all NRSROs--including direct comparisons of different 
NRSROs' treatment of the same obligor or instrument--in order to 
enhance NRSRO accountability,

[[Page 63838]]

transparency, and competition. Excluding certain types of credit 
ratings issued by NRSROs from the rule's scope could undermine this 
goal, particularly where the exclusion effectively would remove an 
NRSRO entirely from the rule's scope because that NRSRO issues only the 
types of credit ratings not covered by the rule. Ratings history 
information for outstanding credit ratings is the most direct means of 
comparing the performance of two or more NRSROs. It allows an investor 
or other user of credit ratings to compare how all NRSROs that maintain 
a credit rating for a particular obligor or instrument initially rated 
that obligor or instrument and, thereafter, how and when they adjusted 
their credit rating over time. This will allow the person reviewing the 
credit rating histories of the NRSROs to reach conclusions about which 
NRSROs did the best job in determining an initial rating and, 
thereafter, making appropriate and timely adjustments to the credit 
rating.
    For example, if three hypothetical NRSROs--X Credit Ratings 
Company, Y Credit Ratings Company, and Z Credit Ratings Company--each 
rated a hypothetical ABC Security, the 100% requirement would allow an 
investor to directly compare the ratings performance of those three 
NRSROs for that security. To illustrate, assume that when ABC Security 
was issued in August 2007, X Credit Ratings Company and Y Credit 
Ratings Company initially gave it their highest rating of `AAA,' while 
Z Credit Ratings Company initially rated it as `A.' Assume further that 
in March 2008, X Credit Ratings Company downgraded ABC Security to 
`AA,' followed by a June 2008 downgrade to `A,' while Y Credit Ratings 
Company maintained its `AAA' rating for ABC Security until August 2008, 
at which point it downgraded it to `A.' Assume also that Z Credit 
Ratings Company maintained its `A' rating for ABC Security without 
change. Under the 100% disclosure requirement adopted today, an 
investor reviewing the ratings histories in August 2009 would be able 
to see that X Credit Ratings Company and Y Credit Rating Companies had, 
by August 2008, arrived at the same `A' rating for ABC Security--but 
they will have taken significantly different paths to get to that 
rating:

----------------------------------------------------------------------------------------------------------------
                                 X Credit ratings company    Y Credit ratings company   Z Credit ratings company
----------------------------------------------------------------------------------------------------------------
August 2007...................  AAA                         AAA                        A
March 2008....................  AA                          AAA                        A
June 2008.....................  A                           AAA                        A
August 2008...................  A                           A                          A
----------------------------------------------------------------------------------------------------------------

    By examining the credit rating histories of the three hypothetical 
NRSROs for ABC Security, an investor will be able to perform an 
individual analysis of which NRSROs did the best job in determining an 
initial rating and in making appropriate and timely adjustments to the 
credit rating.
    The Commission believes that the new disclosure requirements will 
foster greater accountability and transparency for ratings performance 
for NRSROs as well as competition among NRSROs by making it easier for 
persons to analyze the actual credit ratings performance of NRSROs in 
assessing creditworthiness, regardless of the business model under 
which an NRSRO operates. These disclosures may also enhance competition 
by making it easier for smaller and less established NRSROs to develop 
proven track records when determining credit ratings and for potential 
users of their ratings to evaluate the relative quality and performance 
of these NRSROs.
    In addition to facilitating individual comparisons of NRSRO ratings 
performance, disclosure of ratings histories will allow market 
observers to generate statistics about NRSRO performance by compiling 
and processing the information in the aggregate. Currently, NRSROs are 
required to publicly disclose internally generated default and 
transition performance statistics in Exhibit 1 of Form NRSRO. The 
existing disclosure requirements of Exhibit 1, as amended in the 
February 2009 Adopting Release,\70\ provide investors and other users 
of credit ratings with useful, standardized performance statistics with 
which to compare the performance of NRSROs. The raw data to be provided 
by NRSROs pursuant to the new ratings history disclosure requirements, 
however, will enable market participants to develop performance 
measurement statistics that would supplement those required to be 
published by the NRSROs themselves in Exhibit 1, tapping into the 
expertise of credit market observers and participants in order to 
create better and more useful means to compare the credit ratings 
performance of NRSROs. The ratings history disclosure requirements 
adopted today will facilitate the ability of individual users of credit 
ratings to design their own performance metrics to generate the 
performance statistics most meaningful to them. Users of credit ratings 
will benefit from the ability to generate performance statistics best 
suited to their individual needs.
---------------------------------------------------------------------------

    \70\ See February 2009 Adopting Release, 74 FR at 6457-6459.
---------------------------------------------------------------------------

    As discussed above, the arguments raised by commenters for 
excluding particular types of credit ratings from the rule's scope 
focused largely on the potential that the disclosure requirement will 
result in undue costs to, or have a disproportionate negative impact on 
the revenues of, NRSROs that issue that type of credit rating.\71\ For 
example, NRSROs that primarily determine subscriber-paid credit ratings 
argued that these ratings should not be subject to the rule because it 
will cause subscribers to stop paying them for access to current 
outstanding credit ratings.\72\ NRSROs that primarily determine issuer-
paid and unsolicited credit ratings argued that these ratings should 
not be subject to a 100% disclosure requirement because it would cause 
persons who pay for downloadable access to their current ratings to 
stop paying for the service.\73\ They also argued that they derive 
separate revenue from selling access to historical information about 
their outstanding credit ratings.\74\
---------------------------------------------------------------------------

    \71\ See e.g., Hunt Letter; Realpoint Letter.
    \72\ See e.g., Realpoint Letter.
    \73\ See e.g., JCR Letter; R&I Letter.
    \74\ See e.g., Moody's Letter; S&P Letter.
---------------------------------------------------------------------------

    In the February 2009 Proposing Release, the Commission asked a 
series of detailed questions to elicit information about whether the 
rule would have the impacts described above. The intent was to provide 
interested persons with the chance to provide more detailed comments 
and supply supporting quantitative data if appropriate. Although, as 
noted above, commenters expressed concern over the potential costs, 
they did not provide

[[Page 63839]]

quantitative data as requested by the Commission.
    After careful review of the comments, the Commission believes that 
expanding the rule to include all types of credit ratings (i.e., the 
ability to compare the performance of all NRSROs) will maximize its 
benefits to users of credit ratings. The Commission acknowledges 
commenters' concerns over potential loss of NRSRO revenue, and notes 
that an overall drop in subscription revenues across the credit rating 
industry could be a sign that the rule's requirement that NRSROs 
publicly disclose their credit ratings histories is having the 
unintended effect of causing users of credit ratings to cease 
purchasing access to current credit ratings or downloads of current 
credit ratings due to the availability of ratings histories disclosed 
on a delayed basis.
    As discussed further below, however, it is the Commission's belief 
that increasing the grace period between the time a ratings action is 
taken on a rating issued that is not issuer-paid and the time it is 
required to be disclosed to twenty-four months will address these 
concerns and mitigate any potential negative impact on such NRSRO 
revenues. To the extent that users of credit ratings are paying 
subscription fees in significant part to obtain current ratings 
information, ratings that are twenty-four months old likely will not 
constitute a sufficient substitute for current ratings information such 
that existing subscribers would cease to pay such subscription fees for 
access to current ratings information. In addition, while several 
NRSROs whose ratings are issuer-paid also earn revenue from payments 
for downloads of their ratings, the Commission understands that this 
revenue is a relatively small percentage of their overall revenue. The 
Commission believes that the twelve month delay in publication will 
help mitigate any effect on these revenues for the 100% disclosure 
requirement. As with the credit ratings that are not issuer-paid, 
ratings that are twelve months old likely will not constitute a 
sufficient substitute for current ratings information such that 
existing customers would cease to pay fees for access to current 
ratings information. Furthermore, the amended rule, as adopted, does 
not require the disclosure of the analysis and report that typically 
accompany the publication of a credit rating. NRSROs will continue to 
be able to distribute such information as they see fit, including 
selling such information to subscribers, which should also serve to 
mitigate any potential loss of subscribers.
    Nonetheless, the Commission intends to closely monitor the impact, 
if any, the new disclosure requirements of the rule, as amended, have 
on the revenues NRSROs obtain from users purchasing access to current 
credit ratings or downloads of current credit ratings. Depending on 
what, if anything, this monitoring reveals, the Commission may re-
examine the rule and, if appropriate, consider modifications designed 
to address the concerns of harm to NRSRO revenue derived from selling 
current ratings information, balanced against the concerns expressed by 
other commenters regarding the usefulness of ratings history disclosure 
to investors when such disclosure does not include more recent (and 
perhaps more relevant) ratings. For example, the Commission's 
monitoring may reveal that users of credit ratings are ceasing to 
purchase access to current credit ratings or downloads of current 
credit ratings because of the public disclosure of the histories of 
those ratings. Alternatively, it may reveal that investors and other 
users of credit ratings are continuing to pay subscription fees for 
access to current ratings information, thus confirming that they do not 
view historical ratings as an adequate substitute for such current 
ratings. To complement the Commission's monitoring, the Commission 
encourages interested persons to notify the Commission of relevant 
developments under the new rules. For example, NRSROs should notify the 
Commission if they believe they are losing revenues because users of 
credit ratings view the twenty-four months delayed ratings action 
history disclosure as an adequate substitute for purchasing access to 
up-to-date credit ratings or downloads of up-to-date credit ratings.
    The Commission notes, however, that the rule is intended to foster 
greater accountability and transparency of credit rating performance 
for NRSROs and to increase competition by allowing users of credit 
ratings to better assess and compare the performance of NRSROs, and 
other Commission rules are designed to reduce undue reliance on ratings 
by investors and other market participants. The increased 
accountability and transparency provided by the rule could cause users 
of credit ratings to shift their business from one NRSRO to another 
based on their views as to which entity provides the most accurate 
credit ratings. A loss of revenues by some NRSROs resulting in the gain 
of revenues by other NRSROs occasioned by a shift in business would not 
be a reason to consider modifying the rule as discussed above; indeed, 
it could be evidence that the rule is serving its intended purpose. A 
steep decrease in subscription revenues across the credit rating 
industry, however, could be the result of a number of factors, and the 
Commission would carefully examine such a decrease. Although a general 
decline in subscription revenue likely would reflect that investors and 
other market participants have less demand for ratings, such a decrease 
in demand would be expected if regulatory emphasis on credit ratings is 
reduced, investors are performing their own independent analyses, and 
investors had less confidence in the quality of ratings. However, a 
decrease in demand also could be a sign that the rule is having the 
unintended effect of causing users of credit ratings to cease 
purchasing access to current credit ratings or downloads of current 
credit ratings due to the availability of ratings histories disclosed 
on a twenty-four month delay.
    To the extent NRSROs derive revenues from selling access to their 
ratings histories, the Commission acknowledges that the new rule may 
well have a negative impact on this revenue stream. As noted earlier, 
the amended rule, as adopted, does not require NRSROs to disclose the 
analysis or report that typically accompany a credit rating, which 
should also serve to mitigate any potential loss of subscribers to 
NRSROs' credit ratings histories. The Commission asked questions 
designed to quantify the amount of revenues derived by NRSROs from this 
activity but did not receive any revenue figures. However, information 
gathered by Commission staff over the course of discussions with NRSROs 
indicates that the amount of revenues they derived from selling access 
to ratings histories is not significant when compared to the revenues 
derived from other credit rating services. Nonetheless, the Commission 
encourages an NRSRO to notify the Commission if the rule causes a loss 
of this revenue source that is significant when compared to its total 
revenues. If that is the case, the Commission will re-examine the rule 
and review whether any action is appropriate.
    The Commission also proposed, and requested comment on the 
appropriateness of, limiting the application of the proposed new 
disclosure requirements of paragraph (d)(3) of Rule 17g-2 to ratings 
initially determined on or after June 26, 2007, as well as comment on 
whether the data for ratings determined on or after that date would 
provide meaningful

[[Page 63840]]

information to users of credit ratings. The Commission asked, 
alternatively, whether the final rule should apply to ratings 
determined on or after a different date, such as the date of enactment 
of the Rating Agency Act, or to all outstanding credit ratings 
regardless of when issued.\75\ Several commenters argued in favor of 
expanding the rule to cover all outstanding credit ratings,\76\ with 
two stating that limiting disclosure to products initially rated on or 
after June 26, 2007 would exclude many of the structured finance 
products that contributed to the current financial crisis.\77\ One 
commenter suggested that the rule be applied to all outstanding credit 
ratings starting three to five years ago,\78\ while another stated that 
the disclosure required under the rule should include, at a minimum, 
the ``2005 underwriting cohort.'' \79\ One commenter, stating that 
there is nothing in the Rating Agency Act that imposes a time-based 
limit on the Commission's authority to require disclosure, argued that 
rating history disclosure should be required for as many ratings as 
possible and suggested a starting date ``as early as the early 2000s'' 
as ``an absolute minimum.'' \80\ Another commenter stated that the 
costs for issuer-paid NRSROs to provide ratings histories for all 
outstanding credit ratings would not be substantial, arguing that the 
data was already available in digitized form and that the conversion to 
the XBRL format would require relatively simple technology.\81\
---------------------------------------------------------------------------

    \75\ February 2009 Proposing Release, 74 FR at 6488.
    \76\ See, e.g., Council Letter; Fitch Letter; Colorado PERA 
Letter; ASF/SIFMA Letter; Hunt Letter; Multiple-Markets Letter.
    \77\ See Colorado PERA Letter; Council Letter.
    \78\ See ASF/SIFMA Letter.
    \79\ See Multiple-Markets Letter.
    \80\ See Hunt Letter.
    \81\ See Multiple-Markets Letter.
---------------------------------------------------------------------------

    Two commenters expressed their opposition to applying the proposed 
new disclosure rule to all outstanding credit ratings, arguing that 
such a requirement would entail undue costs and burdens.\82\ One added 
that the benefit received from applying the disclosure requirements to 
all outstanding credit ratings would be of limited value.\83\
---------------------------------------------------------------------------

    \82\ See DBRS Letter; ABA Committee Letter.
    \83\ See ABA Committee Letter.
---------------------------------------------------------------------------

    The Commission believes that using the date of effectiveness of the 
Rating Agency Act strikes an appropriate balance between the 
Commission's desire to maximize the amount of raw data to be disclosed 
and the potential costs of the disclosure. The amendment as adopted 
limits the application of the rule's new disclosure requirements to 
credit ratings issued after credit rating agencies were put on notice 
of the effectiveness of the Commission's new regulatory authority over 
NRSROs. The Commission believes that using the date of effectiveness of 
the Rating Agency Act will permit, on a reasonable timeline, the 
development of a robust set of data while limiting the burden on 
NRSROs.
    The Commission also requested comments as to whether the proposed 
twelve-month grace period between the time a ratings action was taken 
and the time it would be required to be disclosed under proposed 
paragraph (d)(3) of Rule 17g-2 would be sufficient to address concerns 
regarding the revenues NRSROs derive from selling downloads of, and 
data feeds to, their current issuer-paid credit ratings.\84\ The 
Commission received twelve comments in response to these inquiries.\85\ 
Of these, three commenters expressed agreement with the proposed 
twelve-month grace period,\86\ with one noting that a six-month grace 
period would also be sufficient.\87\
---------------------------------------------------------------------------

    \84\ February 2009 Proposing Release, 74 FR at 6488.
    \85\ See JCR Letter; DBRS Letter; Fitch Letter; ASF/SIFMA 
Letter; ICI Letter; Hunt Letter; Multiple-Markets Letter; R&I 
Letter; S&P Letter; Realpoint Letter; ABA Committee Letter; Rapid 
Ratings Statement; ICI Statement.
    \86\ See DBRS Letter; Fitch Letter; ABA Committee Letter.
    \87\ See DBRS Letter.
---------------------------------------------------------------------------

    The commenters expressing disagreement with the proposed time lag 
offered a variety of suggestions as to the appropriate period. Three 
commenters argued for a longer grace period, citing the negative 
effects on revenue they expected would arise from a twelve-month 
period.\88\ One commenter, arguing that the required disclosure would 
negatively impact sales of its historical database, expressed its 
belief that its database sales business would not be as negatively 
impacted if the Commission extended the time lag to at least 18 months. 
That commenter further expressed the belief that such a time lag would 
not impede third-party review of credit ratings performance.\89\ One 
commenter suggested 36 months as the shortest possible delay to protect 
its subscription fees.\90\ A third commenter, while stating that 
subscriber-paid NRSROs should never be required to disclose their 
ratings information, suggested a 2 to 3 year period as an 
alternative.\91\ Two commenters argued that no grace period would be 
sufficient to avoid negatively impacting the revenues they derived from 
selling access to ratings history data.\92\
---------------------------------------------------------------------------

    \88\ See JCR Letter; R&I Letter; Realpoint Letter.
    \89\ See R&I Letter.
    \90\ See JCR Letter.
    \91\ See Realpoint Letter.
    \92\ See S&P Letter; Rapid Ratings Statement.
---------------------------------------------------------------------------

    Other commenters suggested a shorter grace period,\93\ with one 
suggesting a six-month time-lag,\94\ another two suggesting a three 
month time-lag,\95\ and one suggesting immediate disclosure.\96\ As 
noted above, one commenter supported either a six-month or twelve-month 
lag.\97\ One commenter that supported the six-month time lag expressed 
the belief that six months represented an appropriate balance between 
the private commercial interests of the NRSROs impacted and the wider 
public interests.\98\ One commenter that supported the three-month time 
lag stated that the twelve-month time would not meet the stated goal of 
the proposal to make it easier for persons to analyze the actual 
performance and accuracy of NRSROs' credit ratings.\99\ The other 
commenter supporting a three-month lag, noting that ``rating 
information that is even three months old is extremely stale by market 
standards,'' stated that a three-month lag would be more than adequate 
to protect NRSROs' interest in selling data feeds and may be adequate 
to serve the purposes of the disclosure regime.\100\ The commenter 
suggesting immediate disclosure argued that such disclosure was 
necessary to serve as a market check for ``rating shopping.'' \101\
---------------------------------------------------------------------------

    \93\ See DBRS Letter; ASF/SIFMA Letter; ICI Letter; Hunt Letter; 
Multiple-Markets Letter.
    \94\ See DBRS Letter; ASF/SIFMA Letter.
    \95\ See ICI Letter; Hunt Letter.
    \96\ See Multiple-Markets Letter.
    \97\ See DBRS Letter.
    \98\ See ASF/SIFMA Letter.
    \99\ See ICI Letter.
    \100\ See ICI Letter; Hunt Letter.
    \101\ See Multiple-Markets Letter.
---------------------------------------------------------------------------

    The amendment, as adopted, includes different grace periods 
depending on whether a rating is issuer-paid or not. For issuer-paid 
credit ratings, the amendment, as adopted, retains the proposed twelve-
month grace period between the time a ratings action is taken and the 
time it must be disclosed. This twelve-month grace period is intended 
to provide a sufficient volume of historical credit ratings information 
to permit comparison of credit ratings performance without unduly 
affecting the revenues NRSROs derive from selling downloads of their 
current credit ratings and access to historic information about their 
outstanding credit ratings. As noted above, the Commission asked 
questions designed to quantify the amount of revenues derived by NRSROs 
from this activity

[[Page 63841]]

but did not receive any revenue figures in response. The Commission 
notes, however, that one large NRSRO which primarily issues ratings 
under the issuer-paid business model stated that a twelve-month delay 
would be ``sufficient to protect the commercialization of ratings of 
any type.'' \102\
---------------------------------------------------------------------------

    \102\ See Fitch Letter.
---------------------------------------------------------------------------

    Based on the comments received, however, the Commission believes 
that a longer grace period is appropriate for ratings actions on 
ratings that are not issuer-paid. As such, the amendment, as adopted, 
allows for a delay of up to twenty-four months on ratings actions taken 
on such credit ratings. Issuer-paid credit ratings are generally made 
available on an NRSRO's Internet Web site free of charge for a 
designated period of time. For the NRSROs issuing such ratings, 
therefore, the 100% disclosure requirement adds a requirement that the 
NRSRO take data that has already been made public and, after a twelve-
month grace period, make it permanently available in an aggregated form 
and in machine-readable (or later XBRL) format. In contrast, NRSROs 
operating under the subscriber-paid business model may only make their 
ratings available to paying subscribers. For these NRSROs, the 100% 
disclosure requirement will constitute a new disclosure, since it will 
require them to put into the public domain information that they 
generally do not make publicly available without collecting a fee.
    In addition, although the Commission believes that the amended 
rule, as adopted, addresses the concerns raised by NRSROs regarding 
their ability to derive revenue from granting market participants 
access to their current credit ratings, the Commission also recognizes 
the possibility that this revenue may be negatively affected. If there 
were to be a negative impact, it will likely be disproportionately more 
significant for NRSROs that primarily or exclusively determine ratings 
paid for by subscribers compared to NRSROs that primarily or 
exclusively determine issuer-paid credit ratings. NRSROs that determine 
issuer-paid credit ratings earn the majority of their revenues from 
fees paid by issuers, underwriters, or sponsors. On the other hand, 
NRSROs that primarily or exclusively issue ratings paid for by 
subscribers derive their revenues almost entirely from the fees they 
charge subscribers. If subscribers consider non-current credit ratings 
as a reasonable substitute for current credit ratings, they may 
reconsider their subscriptions. In this case, NRSROs that primarily or 
exclusively issue ratings paid for by subscribers are more likely to 
lose a more significant proportion of their revenue than NRSROs that 
determine issuer-paid credit ratings. The twenty-four month grace 
period for the disclosure of ratings actions on non-issuer paid credit 
ratings is designed to counterbalance this potentially disproportionate 
``substitution'' effect. The Commission anticipates that the longer 
delay between the time a ratings action is taken on a non-issuer paid 
credit rating and the time it must be disclosed will significantly 
reduce the chances of users of credit ratings viewing the ratings 
histories to be disclosed as a viable substitute for subscribing to 
current credit ratings.
    The parties that pay subscription fees for access to NRSRO credit 
ratings and who pay for access to downloadable packages of issuer-paid 
and unsolicited credit ratings obtain access to the NRSRO's current 
views on the creditworthiness of obligors and debt instruments. Based 
on the comments of credit rating users and staff discussions with 
investors, the Commission believes that it would be unlikely that those 
parties would reconsider their purchase of those products due to the 
public availability of non-current ratings action information. The 
ability to receive data on a ratings action twenty-four months after it 
takes place would not appear to be an adequate substitute for 
subscribing to an NRSRO's current credit ratings, nor would the ability 
to download current credit ratings be a substitute for downloading 
credit ratings that are 12 months old. The Commission further believes, 
however, that while increasing the length of the grace period from 
twelve to twenty-four months for credit ratings that are not issuer-
paid will delay the emergence of the robust data set generated by the 
100% disclosure requirement, the 100% disclosure requirement as adopted 
will have a positive effect on furthering the purposes of the Rating 
Agency Act to improve ratings quality for the protection of investors 
and in the public interest by fostering accountability, transparency, 
and competition in the credit rating industry.
    Increasing the length of the grace period even further as suggested 
by some commenters would delay the development of a robust set of 
ratings history data and further reduce the ability to include more 
recent (and potentially relevant) ratings actions in an evaluation of 
ratings quality. Decreasing the grace period would increase the risk 
that NRSROs would lose revenues from subscribers to their current 
credit ratings and downloads of their current credit ratings, as well 
as increase the risk of lost revenues from selling access to historic 
information about outstanding credit ratings. The grace periods adopted 
(twelve and twenty-four months) are intended to strike a balance 
between these two concerns, taking into account the particular effects 
with respect to issuer-paid and non issuer-paid credit ratings as 
discussed above. Furthermore, as noted above, the amended rule does not 
require NRSROs to disclose the analysis and report that typically 
accompany the publication of credit ratings, which should serve to 
further mitigate any potential loss of subscriber revenues or 
downloads. However, as noted above, the Commission intends to monitor 
the impact on revenues resulting from this disclosure requirement, as 
well as the benefits generated by this requirement.
    As noted above, several commenters argued that the proposed 100% 
disclosure requirement was not narrowly tailored.\103\ The Commission 
notes in response that the grace periods as well as the restriction of 
applicability of the new disclosure requirement to ratings initially 
determined on or after June 26, 2007, the effective date of the Ratings 
Agency Act, serve to appropriately narrow the application of the new 
disclosure requirement. Furthermore, as discussed above, the 100% 
disclosure requirement will provide different information and, as a 
result, differing types and customization of analysis, than the 10% 
disclosure requirement. The 100% disclosure requirement will, for 
example, allow a more granular analysis of how NRSROs each rated a 
specific obligor, security, or money market instrument, thereby 
furthering the goals of the Rating Agency Act to foster accountability, 
transparency, and competition in the credit rating industry. The 
Commission therefore believes that the amendment, as adopted, is 
narrowly tailored to meet the purposes of the Exchange Act and the 
Rating Agency Act.
---------------------------------------------------------------------------

    \103\ See, e.g., DBRS Letter; Moody's Letter; S&P Letter.
---------------------------------------------------------------------------

    Finally, the Commission notes that it has not yet published the 
List of XBRL Tags for NRSROs on its Internet Web site. The disclosure 
requirements of paragraph (d) of Rule 17g-2 as adopted in the February 
2009 Adopting Release, which require NRSROs to make publicly available, 
in XBRL format and on a six-month delayed basis, the ratings histories 
for a random sample of 10% of issuer-paid credit ratings, became 
effective on August 10, 2009. On August 5, 2009, the Commission 
provided

[[Page 63842]]

notice that an NRSRO subject to those disclosure provisions can satisfy 
the requirement to make publicly available ratings history information 
in an XBRL format by using an XBRL format or any other machine-readable 
format, until such time as the Commission provides further notice.\104\ 
Consistent with this approach, new paragraph (d)(3) as adopted will 
allow an NRSRO to make the required data available in an interactive 
data file in any machine-readable format, including XBRL, until 60 days 
after the date on which the Commission publishes a List of XBRL Tags 
for NRSROs on its Internet Web site, at which point the NRSRO will be 
required to make the information available in XBRL format using the 
List of XBRL Tags for NRSROs published by the Commission.
---------------------------------------------------------------------------

    \104\ See Notice Regarding the Requirement to Use eXtensible 
Business Reporting Language Format to Make Publicly Available the 
Information Required Pursuant to Rule 17g-2(d) of the Exchange Act, 
Exchange Act Release No. 60451 (August 5, 2009), 74 FR 40246 (August 
11, 2009).
---------------------------------------------------------------------------

    For the reasons discussed above, the Commission is adopting the 
proposed new paragraph (d)(3) with the following modifications: (1) The 
disclosure requirement is not limited to issuer-paid credit ratings but 
rather applies to any type of NRSRO credit rating (i.e., issuer-paid, 
subscriber-paid, and unsolicited), (2) the grace period between the 
time a ratings action is taken and the time by which it must be 
disclosed has been increased from the proposed twelve months to twenty-
four months for ratings actions related to non issuer-paid credit 
ratings, and (3) an NRSRO may make the required data available in an 
interactive data file in any machine-readable format, including XBRL, 
until 60 days after the date on which the Commission publishes a List 
of XBRL Tags for NRSROs on its Internet Web site, at which point the 
NRSRO will be required to make the information available in XBRL format 
using the List of XBRL Tags for NRSROs.
    As adopted, paragraph (d)(3)(i)(A) of Rule 17g-2 requires an NRSRO 
to make publicly available on its corporate Internet Web site in an 
interactive data file that uses a machine-readable format the ratings 
action information required to be retained pursuant to paragraph (a)(8) 
of Rule 17g-5 (the ratings history information for all current credit 
ratings) for any credit rating initially determined by the nationally 
recognized statistical rating organization on or after June 26, 2007. 
Paragraph (d)(3)(i)(B) of Rule 17g-2, as adopted, provides that any 
ratings action information required to be made and kept publicly 
available on the NRSRO's corporate Internet Web site pursuant to 
paragraph (d)(3)(i)(A) with respect to credit ratings paid for by the 
obligor being rated or by the issuer, underwriter, or sponsor of the 
security being rated need not be made public less than twelve months 
from the date such ratings action is taken. Consequently, under this 
provision, the grace period for disclosing ratings history information 
for issuer-paid credit ratings is twelve months. Paragraph 
(d)(3)(i)(C), as adopted, provides that any ratings action information 
required to be made and kept publicly available on the NRSRO's 
corporate Internet Web site pursuant to paragraph (d)(3)(i)(A) with 
respect to credit ratings other than those referred to in paragraph 
(d)(3)(i)(B) need not be made public less than twenty-four months from 
the date such ratings action is taken. Consequently, under this 
provision, the grace period for disclosing ratings history information 
for any credit rating other than issuer-paid credit ratings is twenty-
four months. This includes subscriber-paid credit ratings. Finally, as 
adopted, paragraph (d)(3)(ii) of Rule 17g-2 provides that in making the 
information required under paragraph (d)(3)(i)(A) available in an 
interactive data file on its corporate Internet Web site, the NRSRO 
shall use any machine-readable format, including but not limited to 
XBRL format, until 60 days after the date on which the Commission 
publishes a List of XBRL Tags for NRSROs on its Internet Web site, at 
which point the NRSRO shall make this information available in an 
interactive data file on its corporate Internet Web site in XBRL format 
using the List of XBRL Tags for NRSROs as published by the Commission 
on its Internet Web site.
    The Commission is adopting these amendments, in part, under 
authority to require NRSROs to make and keep for specified periods such 
records as the Commission prescribes as necessary or appropriate in the 
public interest, for the protection of investors, or otherwise in 
furtherance of the purposes of the Exchange Act.\105\ The Commission 
believes the new recordkeeping and disclosure requirements are 
necessary and appropriate in the public interest and for the protection 
of investors, or otherwise in furtherance of the purposes of the 
Exchange Act.
---------------------------------------------------------------------------

    \105\ See Section 17(a)(1) of the Exchange Act (15 U.S.C. 
78q(a)(1)).
---------------------------------------------------------------------------

    As discussed above, the Commission recognizes that the amended rule 
could affect the revenues of NRSROs. Nevertheless, the Commission 
believes that the amended rule, as adopted, strikes an appropriate 
balance in furthering the purposes of the Rating Agency Act to increase 
transparency, accountability, and competition in the credit rating 
industry by providing users of credit ratings, investors, and other 
market participants and observers with the maximum amount of raw data 
with which to gauge the performance of NRSROs over time without unduly 
affecting NRSROs' ability to derive revenue from granting market 
participants access to their credit ratings and downloads of their 
credit ratings.
    Accordingly, the Commission is adopting the amendments to paragraph 
(d) of Rule 17g-2 with the modifications discussed above.

III. Final Amendments to Rule 17g-5 and Regulation FD

A. Summary and Background

    Rule 17g-5 \106\ identifies a series of conflicts of interest 
arising from the business of determining credit ratings. Under the 
rule, some of these conflicts must be disclosed and managed, while 
others are prohibited outright. In the June 2008 Proposing Release, the 
Commission proposed amending the rule to place additional requirements 
with respect to the conflict of being paid by the arranger of a 
structured finance product to rate the product as well as three new 
categories of conflicts of interest to be prohibited outright.\107\ In 
the February 2009 Adopting Release, the Commission adopted the three 
new categories of prohibited conflicts of interest.\108\ The Commission 
did not,

[[Page 63843]]

however, adopt the new requirements that would have been triggered by 
the conflict of being paid by an arranger to rate a structured finance 
product. Instead, in the February 2009 Proposing Release, the 
Commission re-proposed the amendments with substantial 
modifications.\109\ As discussed in detail below, the Commission is 
adopting the amendments substantially as re-proposed.
---------------------------------------------------------------------------

    \106\ 17 CFR 240.17g-5.
    \107\ See June 2008 Proposing Release, 73 FR at 36128-36228. The 
Commission's set of initial regulations implementing the Rating 
Agency Act designated eight types of conflicts of interest required 
to be disclosed and managed and prohibited outright four types of 
conflicts of interest. See June 2007 Adopting Release, 72 FR at 
33595-33599.
    \108\ See February 2009 Adopting Release, 74 FR at 6465-6469. 
The three new categories of conflicts of interest prohibited 
outright are (1) issuing or maintaining a credit rating with respect 
to an obligor or security where the NRSRO or a person associated 
with the NRSRO made recommendations to the obligor or the issuer, 
underwriter, or sponsor of the security about the corporate or legal 
structure, assets, liabilities, or activities of the obligor or 
issuer of the security, (2) issuing or maintaining a credit rating 
where the fee paid for the rating was negotiated, discussed, or 
arranged by a person within the NRSRO who has responsibility for 
participating in determining or approving credit ratings or for 
developing or approving procedures or methodologies used for 
determining credit ratings, including qualitative and quantitative 
models, and (3) issuing or maintaining a credit rating where a 
credit analyst who participated in determining or monitoring the 
credit rating, or a person responsible for approving the credit 
rating received gifts, including entertainment, from the obligor 
being rated, or from the issuer, underwriter, or sponsor of the 
securities being rated, other than items provided in the context of 
normal business activities such as meetings that have an aggregate 
value of no more than $25.
    \109\ See February 2009 Proposing Release, 74 FR at 6493-6497.
---------------------------------------------------------------------------

    In the June 2008 Proposing Release, the Commission proposed to 
amend paragraph (b) of Rule 17g-5 by re-designating the existing 
paragraph (b)(9) of the rule as (b)(10) and creating a new paragraph 
(b)(9) identifying the conflict: 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.\110\ In connection with specifying this type 
of conflict, the Commission proposed amendments to paragraph (a) of 
Rule 17g-5 that would have established additional conditions--beyond 
disclosing the conflict and establishing procedures to manage it--that 
would need to be met for an NRSRO to issue or maintain a credit rating 
subject to this conflict.\111\
---------------------------------------------------------------------------

    \110\ See June 2008 Proposing Release, 73 FR at 36219-36226, 
36251.
    \111\ See id.
---------------------------------------------------------------------------

    Specifically, the Commission proposed a new paragraph (a)(3) in the 
June 2008 Proposing Release that would have required, as a condition to 
the NRSRO rating a structured finance product, that the information 
provided to the NRSRO and used by the NRSRO in determining an initial 
credit rating and, thereafter, performing surveillance on the credit 
rating be disclosed through a means designed to provide reasonably 
broad dissemination of the information. The proposed amendments did not 
specify which entity--the NRSRO or the arranger--would need to disclose 
the information. The proposed amendments would have required further 
that, for offerings not registered under the Securities Act, the 
information would need to be disclosed only to investors and credit 
rating agencies on the day the offering price is set and, subsequently, 
publicly disclosed on the first business day after the offering 
closes.\112\ The Commission also provided in the June 2008 Proposing 
Release three proposed interpretations of how the information could be 
disclosed under the requirements of the proposed rule in a manner 
consistent with the provisions of the Securities Act. These 
interpretations addressed disclosure under the proposed amendment in 
the context of public, private, and offshore securities offerings.\113\
---------------------------------------------------------------------------

    \112\ See id. This proposed requirement would have been in 
addition to the current requirements of paragraph (a) that an NRSRO 
disclose the type of conflict of interest in Exhibit 6 to Form 
NRSRO; and establish, maintain and enforce written policies and 
procedures to address and manage the conflict of interest. 17 CFR 
240.17g-5(a)(1) and (2).
    \113\ See June 2008 Proposing Release, 73 FR at 36222-36226.
---------------------------------------------------------------------------

    As discussed in the February 2009 Proposing Release, the majority 
of commenters addressing the proposal to amend paragraphs (a) and (b) 
of Rule 17g-5 set forth in the June 2008 Proposing Release opposed the 
proposed amendments or raised substantial practical or legal questions 
about how they would operate, particularly with respect to publicly 
disclosing the information.\114\ In response to the concerns raised by 
commenters, the Commission made significant changes to the proposed 
amendments and re-proposed them for further comment. Under the re-
proposed amendments: (1) NRSROs that are hired by arrangers to perform 
credit ratings for structured finance products would have been required 
to disclose on a password-protected Internet Web site the deals for 
which they have been hired and provide access to that site to non-hired 
NRSROs that have furnished the Commission with the certification 
described below; (2) NRSROs that are hired by arrangers to perform 
credit ratings for structured finance products would have been required 
to obtain representations from those arrangers that the arranger would 
provide information given to the hired NRSRO to non-hired NRSROs that 
have furnished the Commission with the certification described below as 
well; and (3) NRSROs seeking to access information maintained by the 
NRSROs and the arrangers pursuant to the new rule would have been 
required to furnish the Commission an annual certification that they 
are accessing the information solely to determine credit ratings and 
would determine a minimum number of credit ratings using the 
information.\115\
---------------------------------------------------------------------------

    \114\ See February 2009 Proposing Release, 74 FR at 6491-6492.
    \115\ See February 2009 Proposing Release, 74 FR at 6492-6497.
---------------------------------------------------------------------------

    The Commission received letters from nineteen commenters in 
response to the re-proposed amendments to Rule 17g-5.\116\ A majority 
of those commenters expressed their general support for the 
proposal,\117\ with several commenters expressing their belief that the 
disclosure required under the amendments would have a positive effect 
on competition within the credit rating industry.\118\ One commenter 
favoring the re-proposed amendments noted the benefit of a ``level 
playing field,'' \119\ while another expressed a belief that the 
proposed disclosure requirement would result in ``true competition'' in 
the credit rating industry.\120\
---------------------------------------------------------------------------

    \116\ See Marchywka Letter; JCR Letter; Council Letter; DBRS 
Letter; FSR Letter; Fitch Letter; Colorado PERA Letter; ASF/SIFMA 
Letter; ICI Letter; Hunt Letter; R&I Letter; S&P Letter; Moody's 
Letter; Realpoint Letter; ABA Committee Letter; CMSA Letter; 
CreditSights Statement; Moody's Statement; Realpoint Statement; 
RiskMetrics Statement; Egan-Jones Statement; ASF Statement.
    \117\ See e.g., Marchywka Letter; Council Letter; FSR Letter; 
Colorado PERA Letter; Hunt Letter; Realpoint Letter; ABA Committee 
Letter; CreditSights Statement; Realpoint Statement; Riskmetrics 
Statement; Egan-Jones Statement.
    \118\ See e.g., Hunt Letter, Riskmetrics Statement, Egan-Jones 
Statement.
    \119\ See Riskmetrics Statement.
    \120\ See Egan-Jones Statement.
---------------------------------------------------------------------------

    A smaller number of commenters, however, expressed their general 
disagreement with the re-proposed amendments.\121\ One commenter argued 
that the re-proposed amendments would result in non-hired NRSROs being 
motivated to offer the most favorable preliminary ratings that the 
disclosed data would permit in order to encourage arrangers to abandon 
the originally hired NRSRO in favor of the non-hired NRSRO in order to 
obtain a ``sweeter'' final rating. The same commenter also argued that 
the proposal would favor large NRSROs with market power at the expense 
of smaller NRSROs.\122\ Another commenter expressed concerns that the 
proposed new requirements would cause small originators of structured 
finance products to abandon that market due to the costs associated 
with the proposed disclosure requirements.\123\
---------------------------------------------------------------------------

    \121\ See e.g., JCR Letter; ASF/SIFMA Letter; Moody's Letter; 
Moody's Statement; ASF Statement.
    \122\ See JCR Letter.
    \123\ See R&I Letter.
---------------------------------------------------------------------------

    One commenter cautioned that the proposal could reinforce, rather 
than diminish, an issuer's ability to engage in ``ratings shopping'' by 
creating incentives for issuers to shop for the NRSRO that will demand 
the least information in the initial rating process.\124\ The 
Commission has expressed its concern over the practice of ``ratings 
shopping'' in the past.\125\ In

[[Page 63844]]

both the June 2008 Proposing Release and the February 2009 Proposing 
Release, the Commission noted that the amendments to Rule 17g-5 as 
proposed in the former release and re-proposed in the latter could help 
address ratings shopping by exposing an NRSRO that employed less 
conservative ratings methodologies in order to gain business.\126\ In 
addition, the Commission has noted, the proposed amendments also could 
mitigate the impact of rating shopping, since NRSROs not hired to rate 
a deal could nonetheless issue a credit rating.\127\
---------------------------------------------------------------------------

    \124\ See Moody's Letter.
    \125\ See e.g., June 2008 Proposing Release, 73 FR at 36218.
    \126\ See June 2008 Proposing Release, 73 FR at 36243; February 
2009 Proposing Release, 74 FR 6506.
    \127\ Id.
---------------------------------------------------------------------------

    The Commission recognizes that an increase in the number of credit 
ratings available to investors by definition entails an increase in the 
number of NRSROs issuing those ratings, thereby giving issuers a 
broader pool of NRSROs among which to ``shop'' for a rating. The 
Commission also recognizes the concern that NRSROs not hired by the 
arranger might have the incentive to use information accessed pursuant 
to Rule 17g-5 as amended to issue an unduly favorable rating in an 
attempt to procure future business from a particular arranger. The 
Commission believes that there are several factors counteracting this 
incentive. First, the 100% disclosure requirement set forth in Rule 
17g-2(d), as amended, will facilitate the ability of investors, 
academics and other users of credit ratings to directly compare the 
credit rating performance of all NRSROs issuing a credit rating for a 
given structured finance product, whether the NRSROs are hired by the 
arranger to do so or instead are issuing unsolicited ratings based on 
information obtained under the disclosure requirements of Rule 17g-5 as 
amended. This will likely enhance both hired and non-hired NRSRO's 
accountability for the ratings they issue. Second, the information 
available pursuant to Rule 17g-5 will be accessible to all NRSROs, 
including NRSROs operating under the subscriber-paid model. Since the 
latter are not compensated by the structured products' arrangers, they 
can issue unsolicited ratings without the pressure of worrying about 
the effect that the unsolicited ratings might have on their future 
revenue stream from arrangers of structured finance. Finally, by 
facilitating the issuance of unsolicited ratings, the amendments to 
Rule 17g-5 may serve to mitigate the potential for ratings shopping, 
since an arranger that ``shopped'' in order to obtain a higher rating 
would still face the possibility of non-hired NRSROs issuing lower 
ratings.
    The Commission is adopting the re-proposed amendments substantially 
as proposed in order 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. 
Currently, 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. As a result, structured finance products 
frequently are issued with ratings from only one or two NRSROs that 
have been hired by the arranger, with the attendant conflict of 
interest that creates. The amendments to Rule 17g-5 are 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 the arranger. This will provide 
users of credit ratings with more views on the creditworthiness of the 
structured finance product. In addition, the amendments are 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. Specifically, opening up the rating 
process to more NRSROs will 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.

B. Paragraph (b)(9) of Rule 17g-5

    New paragraph (b)(9) of Rule 17g-5 identifies the following 
conflict required to be disclosed and managed under paragraph (a) of 
the rule: 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.\128\ The Commission intends this provision, which 
mirrors, in part, the text of Section 15E(i)(1)(B) of the Exchange Act 
(enacted as part of the Rating Agency Act),\129\ to cover the full 
range of structured finance products, including, but not limited to, 
securities collateralized by static and actively managed pools of loans 
or receivables (e.g., commercial and residential mortgages, corporate 
loans, auto loans, education loans, credit card receivables, and 
leases), collateralized debt obligations, collateralized loan 
obligations, collateralized mortgage obligations, structured investment 
vehicles, synthetic collateralized debt obligations that reference debt 
securities or indexes, and hybrid collateralized debt obligations.
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    \128\ In connection with the adoption of new paragraph (b)(9) of 
Rule 17g-5, the Commission is re-designating the pre-existing 
paragraph (b)(9) as paragraph (b)(10).
    \129\ 15 U.S.C. 78o-7(i)(1)(B).
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    As the Commission noted when initially proposing new paragraph 
(b)(9) in the June 2008 Proposing Release, the conflict identified in 
new paragraph (b)(9) is a subset of the broader conflict already 
identified in paragraph (b)(1) of Rule 17g-5; namely, ``being paid by 
issuers and underwriters to determine credit ratings with respect to 
securities or money market instruments they issue or underwrite.'' 
\130\ In the case of structured finance products, the Commission 
believes this ``issuer/underwriter-pay'' conflict is particularly acute 
because certain arrangers of structured finance products repeatedly 
bring ratings business to the NRSROs.\131\ As sources of frequent, 
repeated deal-based revenue, some arrangers have the potential to exert 
greater undue influence on an NRSRO than, for example, a corporate 
issuer that may bring far less ratings business to the NRSRO.\132\
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    \130\ 17 CFR 240.17g-5(b)(1). As the Commission noted when 
adopting Rule 17g-5, the concern with the conflict identified in 
paragraph (b)(1) ``is that an NRSRO may be influenced to issue a 
more favorable credit rating than warranted in order to obtain or 
retain the business of the issuer or underwriter.'' June 2007 
Adopting Release, 72 FR at 33595.
    \131\ See e.g., Testimony of Professor John C. Coffee, Jr., 
Adolf A. Berle Professor of Law, Columbia University Law School, 
before the U.S. Senate Committee on Banking, Housing, and Urban 
Affairs (April 22, 2008) pp. 4-6.
    \132\ Id.; see also, June 2008 Proposing Release, 73 FR at 
36219.
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    In the February 2009 Proposing Release, the Commission requested 
comment both generally on proposed new paragraph (b)(9) of Rule 17g-5 
and on the specific question of whether the definition of the 
securities and money market instruments giving rise to the specific 
conflict--instruments issued by an asset pool or as part of an asset-
backed or mortgage-backed securities transaction--should be broadened 
or narrowed.\133\ One commenter argued that the definition as proposed 
was too broad and suggested that structured finance products should be 
defined identically to ``asset-backed securities'' in Regulation AB 
\134\ or ``expanded with sufficient precision to clarify the intended 
scope.'' \135\ In both the June

[[Page 63845]]

2008 Proposing Release and the February 2009 Proposing Release, 
however, the Commission explicitly stated its intention to broaden the 
scope of the proposed amendments rather than restrict it to structured 
finance products meeting narrower definitions such as the one set forth 
in Regulation AB.\136\
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    \133\ See February 2009 Proposing Release, 74 FR at 6493.
    \134\ See 17 CFR 1101(c).
    \135\ See ABA Committee Letter.
    \136\ See June 2008 Proposing Release, 73 FR at 36213 note 15; 
February 2009 Proposing Release, 74 FR 6493.
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    In the February 2009 Proposing Release, the Commission stated that 
its intent is to have the definition be sufficiently broad to cover all 
structured finance products and noted that Section 15E(i)(1)(B) of the 
Exchange Act (adopted as part of the Rating Agency Act) uses identical 
language to describe a potentially unfair, coercive or abusive practice 
relating the ratings of securities or money market instruments.\137\ 
Furthermore, the Commission adopted Rule 17g-6(a)(4),\138\ in part, 
under this statutory authority, and Rule 17g-6(a)(4) uses the same 
language--securities or money market instruments ``issued by an asset 
pool or mortgage-backed securities transaction''--to describe the 
prohibitive practice. As used in Rule 17g-6 and Rule 17g-5, the 
Commission intends this definition to cover the broad range of 
structured finance products, including, but not limited to, securities 
collateralized by pools of loans or receivables (e.g., mortgages, auto 
loans, school loans, credit card receivables), collateralized debt 
obligations, collateralized loan obligations, synthetic collateralized 
debt obligations that reference debt securities or indexes, and hybrid 
collateralized debt obligations. The Commission continues to believe 
that the broader definition will appropriately result in the amended 
rules' application to a larger segment of credit ratings.
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    \137\ See 15 U.S.C. 780-7(i)(1)(B); see also February 2009 
Proposing Release, 74 FR 6493.
    \138\ 17 CFR 240.17g-6(a)(4).
---------------------------------------------------------------------------

    The Commission is adopting new paragraph (b)(9) of Rule 17g-5 as 
proposed.

C. Paragraph (a)(3) of Rule 17g-5

    The Commission also is adopting new paragraphs (a)(3)(i), (ii), and 
(iii) of Rule 17g-5 substantially as proposed. New paragraph (a)(3)(i) 
requires an NRSRO subject to the conflict set forth in new paragraph 
(b)(9) to maintain a password-protected Internet Web site containing a 
list of each structured finance security or money market instrument for 
which it currently is in the process of determining an initial credit 
rating in chronological order and identifying the type of security or 
money market instrument, the name of the issuer, the date the rating 
process was initiated, and the Internet Web site address where the 
issuer, sponsor, or underwriter of the security or money market 
instrument represents that the information described in paragraphs 
(a)(3)(iii), as discussed below, can be accessed.\139\
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    \139\ As noted in the February 2009 Proposing Release, the text 
of proposed paragraph (a)(3)(i) refers to transactions where the 
NRSRO is in the process of determining an ``initial'' credit rating. 
The Commission does not intend that the rule require the NRSRO to 
include on the Internet Web site information about securities or 
money market instruments for which the NRSRO has published an 
initial rating and is monitoring the rating. Consequently, upon 
publication of the initial rating, the NRSRO can remove the 
information about the security or money market instrument from the 
list it maintains on the Internet Web site. The Commission notes 
that the information on the arranger's Web site would remain 
available. If, however, the arranger decides to terminate the rating 
process before the hired NRSRO published an initial rating, the 
NRSRO would be permitted to remove the information from the list. 
See February 2009 Proposing Release, 74 FR at 6493-6494.
---------------------------------------------------------------------------

    New paragraph (a)(3)(ii) requires an NRSRO subject to the conflict 
to 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 new paragraph 
(e) of Rule 17g-5 (discussed below) that covers that calendar 
year.\140\ Taken together, new paragraphs (a)(3)(i) and (ii) of Rule 
17g-5 create a mechanism requiring NRSROs hired to rate structured 
finance products to alert other NRSROs that an arranger has initiated 
the rating process and to promptly inform the other NRSROs where 
information being provided by the arranger to the hired NRSRO to 
determine the credit rating may be obtained.
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    \140\ The Commission notes that, pursuant to Section 17 of the 
Exchange Act as well as the rules thereunder (including Rule 17g-2), 
representatives of the Commission will have access to the 
information required to be disclosed on the NRSRO's Internet Web 
site pursuant to Rule 17g-5.
---------------------------------------------------------------------------

    Several commenters addressed the issue of the password protected 
Internet Web site to be maintained by hired NRSROs.\141\ Three 
commenters expressed support for the concept,\142\ with one noting that 
the requirements ``to establish and maintain such web sites and to post 
very limited information on such web sites do not appear to be unduly 
burdensome to NRSROs.'' \143\ Three other commenters opposed the 
requirement, arguing that the costs of creating and maintaining a Web 
site are significant and would negatively impact smaller NRSROs in 
addition to potentially creating security risks.\144\ The Commission is 
sensitive to the costs of the new requirement but does not believe they 
are significant. All of the NRSROs currently maintain Internet Web 
sites, in most cases with password-protected portals that their 
subscribers and registered users can access to obtain information 
posted by the NRSRO. Consequently, adding a portal for other NRSROs to 
access pending deal information is not expected to require significant 
additional Internet Web site design and maintenance.
---------------------------------------------------------------------------

    \141\ See, e.g., DBRS Letter, ASF/SIFMA Letter, S&P Letter, 
Realpoint Letter, ABA Committee Letter, CMSA Letter.
    \142\ See Realpoint Letter; RiskMetrics Statement; ABA Committee 
Letter.
    \143\ See ABA Committee Letter.
    \144\ See DBRS Letter; ASF/SIFMA Letter; Moody's Letter.
---------------------------------------------------------------------------

    The Commission requested comment as to whether the information 
required to be maintained on the NRSRO's Internet Web site would be 
sufficient to alert other NRSROs that the rating process has commenced 
and where they can locate information to determine an unsolicited 
rating, or whether the Commission should, for example, require an e-
mail alert to be sent to all NRSROs that have access to the site as 
well.\145\ One commenter suggested that instead of requiring NRSROs to 
maintain the list of deals, the Commission require arrangers to notify 
non-hired NRSROs of new deals by e-mail or, alternatively, that the 
Commission implement a pilot project to set up and maintain a Web site 
with information provided by the NRSROs and/or arrangers.\146\ Two 
commenters, however, expressed their opposition to requiring NRSROs to 
send e-mails in addition to or in lieu of requiring them to maintain 
the Web site described in new paragraph (a)(3)(i), noting that 
monitoring such a Web site would be a simple and a non-time-consuming 
process for non-hired NRSROs.\147\ One further noted that if e-mails 
were required, an NRSRO interested in determining its own ratings would 
have to monitor their e-mail for update messages from other NRSROs and 
still check other NRSROs' Web sites in order to obtain the relevant 
information before checking the relevant issuer portals.\148\ The 
second commenter also argued that an NRSRO should not have to send an 
e-mail to other NRSROs that may have no interest in rating a particular 
transaction.\149\
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    \145\ See February 2009 Proposing Release, 74 FR at 6494.
    \146\ See DBRS Letter.
    \147\ See S&P Letter; Moody's Letter.
    \148\ See Moody's Letter.
    \149\ See S&P Letter.
---------------------------------------------------------------------------

    The Commission is adopting the requirement that the hired NRSRO

[[Page 63846]]

maintain an Internet Web site identifying pending deals as proposed. 
The Commission agrees with those commenters that are of the view that 
it is not necessary to require a hired NRSRO to send e-mail alerts to 
other NRSROs every time it is hired to rate a new transaction, either 
in addition to or in lieu of the hired NRSRO maintaining a list of its 
transactions on a password-protected Internet Web site. Concentrating 
the information about pending deals at the Internet Web site maintained 
by the hired NRSRO will permit other NRSROs to sort through the list of 
pending transactions and decide which arranger Web sites they want to 
access to obtain the information necessary to determine a credit 
rating. Further, the Commission requires the hired NRSRO to promptly 
disclose the required information on its Internet Web site, thereby 
notifying the non-hired NRSROs of the pending deal as soon as 
possible.\150\ The Commission believes that the non-hired NRSRO will be 
better served by the ability to access, periodically at their own 
convenience, the lists of all pending transactions maintained on the 
hired NRSROs' Internet Web sites in order to determine whether any new 
deals have been initiated. The Commission does not believe that one-
time notice e-mails are an adequate alternative in lieu of hired NRSROs 
maintaining lists of pending transactions. While the Commission does 
not believe it necessary to require hired NRSROs to send e-mail notices 
in addition to maintaining such lists, the Commission encourages hired 
NRSROs to voluntarily supplement maintaining the required lists of 
pending transactions by offering to notify other registered NRSROs by 
e-mail alert whenever they are hired to rate new transactions. This way 
the other NRSROs can decide for themselves whether they want to receive 
e-mail alerts or monitor the Internet Web sites.
---------------------------------------------------------------------------

    \150\ The Commission will take seriously any indications that 
the hired NRSRO is not complying with the requirement to promptly 
disclose the information pursuant to new paragraph (a)(3)(i) of Rule 
17g-5.
---------------------------------------------------------------------------

    As the Commission noted in the February 2009 Proposing Release, the 
text of paragraph (a)(3)(i) refers to transactions where the NRSRO is 
in the process of determining an ``initial'' credit rating.\151\ The 
rule does not require the NRSRO to include on the Internet Web site 
information about securities or money market instruments once the NRSRO 
has published the initial rating and is monitoring the rating. The 
amendment is designed to alert other NRSROs about new deals and direct 
them to the Internet Web site of the arranger where information to 
determine initial ratings and monitor the ratings can be accessed. 
Consequently, upon publication of the initial rating, the NRSRO can 
remove the information about the security or money market instrument 
from the list it maintains on the Internet Web site. Similarly, if the 
arranger decides to terminate the rating process before a hired NRSRO 
publishes an initial rating, the NRSRO would be permitted to remove the 
information from the list. As discussed in more detail below, however, 
the representations a hired NRSRO will be required to obtain from an 
arranger include a representation that once an instrument is rated, the 
arranger will be required to post on its password-protected Internet 
Web site any information provided to the hired NRSRO for surveillance 
purposes.
---------------------------------------------------------------------------

    \151\ See February 2009 Proposing Release, 74 FR at 6493.
---------------------------------------------------------------------------

    The Commission is making clarifying changes to the text of new 
paragraphs (a)(3)(ii) and (a)(3)(iii) of Rule 17g-5 as proposed. As 
discussed above, that paragraph requires an NRSRO subject to the 
conflict set forth in new paragraph (b)(9) of Rule 17g-5 to 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 new paragraph (e) of Rule 17g-
5 (discussed below) that covers that calendar year. The Commission is 
revising the proposed amendment to clarify that the hired NRSRO need 
only provide access to its password-protected Internet Web site to a 
non-hired NRSRO whose certification indicates that it has either (1) 
determined and maintained credit ratings for at least 10% of the issued 
securities and money market instruments for which it accessed 
information pursuant to Rule 17g-5(a)(3) as amended 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 (2) has not accessed information pursuant to Rule 17g-
5(a)(3) as amended 10 or more times in the calendar year prior to the 
year covered by the certification. This revision ensures that hired 
NRSROs will only be required to provide access to their password-
protected Internet Web sites to non-hired NRSROs that have met the 
requirements set forth in the certification to be provided to the 
Commission pursuant to new paragraph (e) of Rule 17g-5 as amended. The 
Commission is further clarifying that a non-hired NRSRO would not be 
precluded from accessing the hired-NRSRO's Internet Web site if at some 
point prior to the most recently ended calendar year the NRSRO accessed 
the Web site 10 or more times. For example, if a non-hired NRSRO 
accessed the Web site 10 or more times in year 1, but did not access 
the Web site in year 2, the non-hired NRSRO would then be permitted to 
access the Internet Web site in year 3.
    Accordingly, the Commission is adopting the amendments establishing 
new paragraphs (a)(3)(i) and (ii) of Rule 17a-5 substantially as 
proposed, with the revisions to the text as proposed as discussed 
above.
    New paragraph (a)(3)(iii) of Rule 17g-5, adopted substantially as 
proposed, requires an NRSRO subject to the conflict set forth in new 
paragraph (b)(9) to obtain four representations from an arranger that 
hires it to rate a structured finance product: (1) Pursuant to 
paragraph (a)(3)(iii)(A) the arranger must represent that it will 
maintain the information described in paragraphs (a)(3)(iii)(C) and 
(a)(3)(iii)(D) of Rule 17g-5 available on 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) pursuant to paragraph (a)(3)(iii)(B) 
of Rule 17g-5 the arranger must represent that it will provide access 
to that password-protected Internet Web site to any NRSRO that provides 
it with a copy of the certification described in new paragraph (e) of 
Rule 17g-5 (discussed below) that covers the current calendar year; (3) 
pursuant to paragraph (a)(3)(iii)(C) of Rule 17g-5 the arranger must 
represent that it will post on that password-protected Internet Web 
site all information the arranger provides 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; 
\152\ and (4) pursuant to paragraph (a)(3)(iii)(D) of Rule 17g-5 the

[[Page 63847]]

arranger must represent that it will post on the password-protected 
Internet Web site all information the arranger provides 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.
---------------------------------------------------------------------------

    \152\ The Commission expects that all the information will be 
provided in the same format. For example, if the arranger provides 
information to the hired NRSRO in downloadable and/or searchable 
format, the Commission expects the arranger to provide the same 
information in the same format on its Internet Web site. The 
Commission will take seriously any concerns raised in this regard.
---------------------------------------------------------------------------

    The representations required to be obtained by an NRSRO, as 
described in new paragraphs (a)(3)(iii)(A) through (D) of Rule 17g-5, 
taken together, provide that an arranger of a structured finance 
product agrees to make the information it provides to hired NRSROs, 
whether provided for the purpose of determining an initial rating or 
for monitoring a rating, available to other NRSROs. The hired NRSRO 
must obtain from the arranger a representation that the arranger will 
post that information on the arranger's Internet Web site at the same 
time it is given to the hired NRSRO, and that any time the information 
is updated or new information is given to the hired NRSRO, the arranger 
will post that information on its Internet Web site contemporaneously. 
An NRSRO also will be required to obtain from the arranger a 
representation that the arranger will tag the information in a manner 
that informs NRSROs accessing the Web site which information currently 
is operative for the purpose of determining the credit rating in order 
to ensure that NRSROs accessing the Internet Web site use the correct 
information to determine their credit ratings. Paragraph (a)(3)(iii) of 
Rule 17a-5, as adopted, adds the word ``written'' to the proposed text 
in order to clarify that these representations must be obtained in 
writing in order to ensure that they are formally documented and 
executed.
    An NRSRO will violate Rule 17a-5(a)(3) if it determines an initial 
credit rating or maintains an existing credit rating for a structured 
finance product that is paid for by an arranger unless that NRSRO 
obtains a written representation from the arranger, upon which the 
NRSRO can reasonably rely, that the arranger will take the steps set 
forth in paragraph (a)(3)(iii)(A) through (D). One commenter expressed 
concern over the proposed amendment's standard of ``reasonable'' 
reliance on an arranger's representations.\153\ The question of whether 
reliance was reasonable will depend on the facts and circumstances of a 
given situation. Factors relevant to this analysis would include, but 
not be limited to: (1) Ongoing or prior failures by the arranger to 
adhere to its representations; or (2) a pattern of conduct by the 
arranger where it fails to promptly correct breaches of its 
representations. Further, the Commission recognizes that Internet Web 
sites periodically malfunction. Depending on the facts, a limited 
Internet Web site malfunction by itself would not cause the NRSRO to no 
longer be able to rely reasonably on a written representation from that 
arranger.
---------------------------------------------------------------------------

    \153\ See Fitch Letter.
---------------------------------------------------------------------------

    In addition to the scope of the safe harbor, commenters raised a 
number of other concerns in connection with paragraph (a)(3)(iii) as 
proposed.\154\ Several commenters objected to the requirement that 
NRSROs obtain representations from arrangers, arguing that doing so 
inappropriately places NRSROs in the position of enforcing arranger 
compliance with disclosure requirements.\155\ One commenter suggested 
that the required representations be made to the Commission instead of 
the hired NRSRO.\156\ The Commission believes that the structure of the 
rule as amended is consistent with the Commission's regulation of 
NRSROs. The Commission notes that the rule as amended is designed to 
make clear the steps an NRSRO must take to provide a credit rating for 
a particular arranger. An NRSRO is not required to enforce compliance; 
however, if, for example, an NRSRO had knowledge that an arranger had 
not complied with its representations, the NRSRO would be on notice 
that future reliance on that arranger might not be reasonable. The 
Commission believes it is likely that the required representations will 
be part of the standard contracts entered into between NRSROs and 
arrangers and that an arranger that fails to comply with its 
representations will risk having the hired NRSRO withdraw the credit 
ratings paid for by that arranger and being denied the ability to 
obtain credit ratings from the hired NRSRO in the future, given that 
the hired NRSRO may not be able to reasonably rely on the safe harbor. 
The Commission believes that the consequences of losing the safe harbor 
should provide sufficient incentive for NRSROs to ensure that they 
obtain the representations from arrangers as set forth in paragraph 
(a)(3)(iii) and that arrangers comply with their representations.
---------------------------------------------------------------------------

    \154\ See e.g., Council Letter; DBRS Letter; Fitch Letter; ASF/
SIFMA Letter; Moody's Letter; Realpoint Letter; ABA Committee 
Letter; CMSA Letter; RiskMetrics Statement; Colorado PERA Letter.
    \155\ See Fitch Letter; Moody's Letter; ABA Committee Letter.
    \156\ See ABA Committee Letter.
---------------------------------------------------------------------------

    Another commenter argued that the duty to make the required 
information available should fall entirely on the hired NRSRO.\157\ The 
Commission believes that arrangers are best positioned to disclose the 
information necessary to allow the NRSRO-users to determine credit 
ratings. The disclosure representation to be obtained from an arranger 
will apply to any information provided to a hired NRSRO, of which there 
may be more than one. One of the hired NRSROs may ask for more 
information than the other hired NRSROs. Allocating the responsibility 
of disclosure to the arranger will promote the most consistent and 
orderly dissemination of information to the NRSRO-users and allow them 
to access all relevant deal information in a single location rather 
than on multiple hired NRSROs' Internet Web sites.
---------------------------------------------------------------------------

    \157\ See ASF/SIFMA Letter.
---------------------------------------------------------------------------

    Another commenter argued that requiring NRSROs to obtain such 
representations would have a chilling effect on oral communications by 
the issuer to the NRSRO and argued that the proposed amendment was an 
inappropriate means of regulating issuers' conduct.\158\ The 
representations an NRSRO will be required to obtain from an arranger 
are not intended to result in the arranger providing different 
information to a hired NRSRO than it would otherwise, much less to 
``regulate'' issuer conduct. The Commission acknowledges that the 
requirements of paragraph (a)(3) of Rule 17g-5 as a whole likely will 
formalize the process of information exchange from the arranger to the 
NRSRO for structured finance products, including the written submission 
of information that may, in the past, have been provided orally. 
However, the Commission believes this will be a positive development. 
First, conveying information in writing rather than orally may promote 
credit rating accuracy in that the NRSRO analyst will be able to refer 
back to a document containing the information rather than his or her 
memory. Second, a more formal process of information exchange will 
create a better record of the data provided to the NRSRO, which will 
make it easier for Commission staff to understand the process used to 
determine the credit rating during an after-the-fact review of whether 
the NRSRO adhered to its procedures and methodologies for determining 
such credit ratings. This will benefit the NRSRO's compliance

[[Page 63848]]

and internal audit functions as well as the Commission's examination 
function and benefit users of credit ratings.
---------------------------------------------------------------------------

    \158\ See Moody's Letter.
---------------------------------------------------------------------------

    The Commission requested comment as to whether the NRSRO should be 
required to obtain a representation from the arranger that the arranger 
will not provide any information to the hired NRSRO that is material 
without also disclosing that information on the arranger's Internet Web 
site.\159\ The three commenters directly addressing this issue 
responded in the affirmative.\160\ The Commission believes, however, 
that the representations the hired NRSRO will be required to obtain 
from an arranger, as set forth in paragraphs (a)(3)(iii)(C) and (D) as 
proposed, are sufficient to advance the purposes of the rule as 
amended. One commenter suggested that the Commission broaden the 
proposed amendment to permit unsolicited, subscriber-paid NRSROs to 
contact an arranger with questions regarding the information provided, 
or to be provided, on its password-protected Internet Web site for 
purposes of determining or monitoring a credit rating.\161\ The 
Commission believes that the representations an NRSRO will be required 
to obtain from an arranger are sufficient to accomplish the goals of 
the rule, as amended, and that it would be beyond the intended scope of 
the rule, as amended, to require arrangers to take on the 
responsibility of answering questions from the non-hired NRSROs 
obtaining access to the information that the arranger has disclosed.
---------------------------------------------------------------------------

    \159\ See February 2009 Proposing Release, 74 FR at 6496.
    \160\ See Council Letter; DBRS Letter; Realpoint Letter.
    \161\ See Realpoint Letter.
---------------------------------------------------------------------------

    Finally, one commenter stated that arranger, trustee, servicer and 
special servicer information and reports should be included in the 
arrangers' representation to disclose under paragraph (a)(3)(iii) of 
Rule 17g-5.\162\ The Commission agrees with this comment. The 
Commission recognizes that in many cases, the data required to monitor 
the rating of a structured finance product is provided by third parties 
such as trustees or loan servicers. In proposing the amendments to 
paragraph (a) of Rule 17g-5, the Commission did not intend to exclude 
such information from disclosure to non-hired NRSROs and potentially 
provide arrangers with an incentive to delegate the provision of 
information regarding a structured finance product to third parties in 
order to avoid such disclosure. Accordingly, the Commission is adding 
the language ``or contracts with a third party to provide to the 
nationally recognized statistical rating organization'' to new 
paragraphs (a)(3)(iii)(C) and (D) of Rule 17g-5 in order to clarify 
that the proposed language ``all information the issuer, sponsor, or 
underwriter provides to the nationally recognized statistical rating 
organization for the purpose of determining the initial credit rating 
for the security or money market instrument'' and ``all information the 
issuer, sponsor, or underwriter provides to the nationally recognized 
statistical rating organization for the purpose of undertaking credit 
rating surveillance on the security or money market instrument'' 
includes all information the issuer, sponsor or underwriter provides to 
the hired NRSRO either directly or by contracting with a third party.
---------------------------------------------------------------------------

    \162\ See Realpoint Letter.
---------------------------------------------------------------------------

    The same commenter suggested that the Commission clarify that 
information made available to the arranger-paid NRSRO must be made 
available to the other NRSROs not only at the same time but also in the 
same manner, and with same search, access and other capabilities, as it 
is made available to the arranger-paid NRSRO.\163\ The Commission notes 
that the nature of the relationship between the arranger and the hired 
NRSRO makes it inappropriate to mandate that all arranger information 
is made available in the same manner to non-hired NRSROs. For example, 
the rule as amended does not prohibit arrangers from continuing to 
deliver written materials directly to the hired NRSROs while posting 
that material on their password-protected Internet Web site for other 
NRSROs to access. Nevertheless, a hired NRSRO's reliance on an 
arranger's representations would not be reasonable if the arranger 
provided the information to non-hired NRSROs in an impaired manner such 
that it impeded the ability of the non-hired NRSROs to develop and 
maintain a credit rating.
---------------------------------------------------------------------------

    \163\ See Realpoint Letter.
---------------------------------------------------------------------------

    The Commission is making one additional change to the text of new 
paragraph (a)(3)(iii)(B) of Rule 17g-5 as proposed. As discussed above, 
that paragraph requires a hired NRSRO to obtain from the arranger a 
representation that it will provide access to its password-protected 
Internet Web site during the applicable calendar year to any NRSRO that 
provides it with a copy of the certification described in new paragraph 
(e) of Rule 17g-5 (discussed below) that covers that calendar year. The 
Commission is revising the text of the amendment as proposed to clarify 
that the arranger, in the written representation it provides in the 
hired NRSRO, need only represent that it will provide access to its 
password-protected Internet Web site to a non-hired NRSROs whose 
certification indicates that it has either: (1) Determined and 
maintained credit ratings for at least 10% of the issued securities and 
money market instruments for which it accessed information pursuant to 
Rule 17g-5(a)(3) as amended 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 (2) has not 
accessed information pursuant to Rule 17g-5(a)(3) as amended 10 or more 
times in the most recently ended calendar year. This revision ensures 
that the representations that a hired NRSRO will be required to obtain 
from an arranger in order to rate a structured finance product will 
limit access to the arranger's password-protected Internet Web sites to 
non-hired NRSROs that have met the requirements set forth in the 
certification to be provided to the Commission pursuant to new 
paragraph (e) of Rule 17g-5 as amended.
    The Commission is adopting new paragraph (a)(3)(iii) of Rule 17g-5 
substantially as proposed, with the revisions to the text as proposed 
as discussed above.

D. Paragraph (e) of Rule 17g-5

    The Commission also is adopting new paragraph (e) of Rule 17g-5 
substantially as proposed. This provision requires that in order to 
access the Internet Web sites maintained by NRSROs and arrangers 
pursuant to the requirements of Rule 17g-5(a)(3), an NRSRO must 
annually execute and furnish to the Commission a certification stating 
the following:

    The undersigned hereby certifies that it will access the 
Internet Web sites described in 17 CFR Sec.  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 Sec.  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 Sec.  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 Sec.  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

[[Page 63849]]

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 Sec.  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 Sec.  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 Sec.  240.17g-5(a)(3) 10 or 
more times during the recently ended calendar year.\164\
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    \164\ See February 2009 Proposing Release, 74 FR at 6496. The 
use of the term ``issued securities and money market instruments'' 
is intended to address potential deals that are posted on the 
Internet Web sites but that ultimately do not result in the 
publication of an initial rating because the arranger decides not to 
issue the securities or money market instruments. An NRSRO that 
accessed such information would not need to count it among the final 
deals that would be used to determine whether it met the 10% 
threshold. See id.*

    The 10% threshold set forth in paragraph (e) of Rule 17g-5, as 
amended, is designed to require the NRSRO accessing arranger Internet 
Web sites to determine a meaningful amount of credit ratings without 
forcing it to undertake work that it may not have the capacity or 
resources to perform. The Commission expressed its belief in the 
February 2009 Proposing Release that there should be some minimum level 
of credit ratings issued to demonstrate that the NRSRO is accessing the 
information for the purpose of determining credit ratings. On the other 
hand, if an NRSRO accesses information about a proposed deal that 
involves a structure or a type of assets that are new and that the 
NRSRO has not developed a methodology to incorporate into its ratings, 
it would not be appropriate or prudent to require the NRSRO to 
determine a credit rating. The requirement that the NRSRO list the 
number of times it accessed the information for issued securities and 
money market instruments and the number of credit ratings determined 
using that information on its next annual certification pursuant to 
paragraph (e) is designed to provide a level of verification that the 
NRSRO is, in fact, accessing the information for purposes of 
determining credit ratings.
    The Commission received five comments on proposed paragraph (e) of 
Rule 17g-5.\165\ Two commenters argued that NRSROs accessing arranger 
information pursuant to the rule should be required to provide 
confidentiality agreements to the arranger.\166\ The Commission is not 
requiring NRSROs accessing this information to enter into a 
confidentiality agreement with the arrangers. However, the Commission 
is sensitive to the concerns of commenters advocating such a 
requirement, namely that an arranger has a confidentiality agreement it 
could enforce directly itself. Accordingly, the representations an 
NRSRO must obtain from an arranger will not prevent the arranger from 
employing a simple process requiring non-hired NRSROs to agree to keep 
the information they obtain from the arranger confidential, provided 
that such a process does not operate to preclude, discourage, or 
significantly impede non-hired NRSROs' access to the information, or 
their ability to issue a credit rating based on the information. For 
example, an arranger could interpose a confidentiality agreement in a 
window (click-through screen) on the Internet Web site that appears 
after the NRSRO successfully enters its password to access the 
information and which requires the NRSRO to hit an ``Agree'' button 
before being directed to the information to be used to determine the 
credit rating. Presumably, this confidentiality agreement would contain 
the same terms as the confidentiality agreement between the arranger 
and the hired NRSRO. A process that effectively operates to preclude, 
discourage, or significantly impede non-hired NRSROs' access to the 
arranger's information or ability to issue unsolicited ratings, 
however, would be contrary to the Commission's purpose in adopting the 
rule as amended and, depending on the facts, may affect whether a hired 
NRSRO may reasonably rely on the arranger's representations.
---------------------------------------------------------------------------

    \165\ See DBRS Letter; Fitch Letter; ASF/SIFMA Letter; Realpoint 
Letter; ABA Committee Letter.
    \166\ See ASF/SIFMA Letter; ABA Committee Letter.
---------------------------------------------------------------------------

    The Commission also specifically requested comment as to whether 
the 10% threshold should be adjusted higher or lower.\167\ Two 
commenters argued against the requirement,\168\ with one stating that 
the 10% threshold could cause a chilling effect on NRSROs seeking to 
determine credit ratings using the arrangers' Internet Web sites and 
recommended that the Commission eliminate the provision and instead add 
a new provision to Rule 17g-2(a) requiring a non-hired NRSRO to make 
and retain records showing each deal it accessed pursuant to proposed 
rule 17g-5(a)(3).\169\ The Commission continues to believe that a 10% 
threshold strikes an appropriate balance between ensuring that the 
NRSRO is accessing the information for the purpose of determining 
credit ratings and not requiring the NRSRO to determine credit ratings 
for proposed deals that, upon review of the information provided, is 
beyond the current capabilities of the NRSRO. NRSROs that choose to 
access arrangers' Internet Web sites should do so with the intent to 
generate credit ratings, in which case a 10% threshold should not have 
a chilling effect. Eliminating the threshold requirement could have the 
undesirable effect of encouraging NRSROs to access the arranger 
Internet Web sites for reasons other than determining ratings, which 
would run contrary to the Commission's purposes for amending the rule. 
However, the Commission intends to closely monitor the effect of the 
10% threshold requirement.
---------------------------------------------------------------------------

    \167\ See February 2009 Proposing Release, 74 FR at 6497.
    \168\ See DBRS Letter, Realpoint Letter.
    \169\ See DBRS Letter.
---------------------------------------------------------------------------

    The Commission also specifically requested comment on whether an 
NRSRO should be prohibited from accessing the arranger information in 
the future if it accesses information 10 or more times in a calendar 
year and does not determine credit ratings for 10% or more of the 
deals.\170\ One commenter directly addressed this question and stated 
that the NRSRO should not be barred from accessing the information in 
the future.\171\ The Commission believes that an NRSRO should be 
required to meet the 10% threshold to continue to access the 
information as this provides some evidence that the NRSRO is using the 
information for purposes of determining credit ratings and not for 
other reasons. At the same time, the Commission recognizes that there 
may be legitimate reasons why an NRSRO does not meet the 10% threshold 
in a given year, and NRSROs may request appropriate relief in such 
cases. For example, an NRSRO may access the information for a new type 
of financial instrument which it believed it was capable of rating but, 
upon reviewing the information posted by the arranger, determined that 
it did not have the resources or capacity to do so. In such a case, it 
would not be in the public interest for the non-hired NRSRO to produce 
a rating; nor, however, would it be desirable to penalize that NRSRO 
for its good-faith re-evaluation of its ability to produce the rating.
---------------------------------------------------------------------------

    \170\ See February 2009 Proposing Release, 74 FR at 6497.
    \171\ See Realpoint Letter.
---------------------------------------------------------------------------

    The Commission is revising the text of paragraph (e) to correct a 
typographical error contained in the February 2009 Proposing Release by 
removing the word ``the'' prior to the phrase ``such securities and 
money market instruments'' in the final sentence of the

[[Page 63850]]

certification. Additionally, the Commission is revising the text of 
paragraph (e) to clarify that the limit on accessing information 10 or 
more times occurred during the most recently ended calendar year.
    Accordingly, the Commission is adopting paragraph (e) of Rule 17g-5 
substantially as proposed.

E. Regulation FD

    The Commission is adopting, substantially as proposed, the 
amendments to Regulation FD.\172\ The amendments to Regulation FD will 
accommodate the information disclosure program that the Commission is 
establishing under paragraphs (a) and (b) of Rule 17g-5, and permit the 
disclosure of material, non-public information to an NRSRO, solely for 
the purpose of allowing the NRSRO to determine or monitor a credit 
rating, irrespective of whether the NRSRO makes its ratings publicly 
available. As noted in the February 2009 Proposing Release, the 
amendments accommodate subscriber-based NRSROs that do not make their 
ratings publicly available for free, as well as NRSROs that access the 
information under Rule 17g-5 but ultimately do not issue a credit 
rating using the information.
---------------------------------------------------------------------------

    \172\ 17 CFR 243.100-243.103.
---------------------------------------------------------------------------

    Currently, Rule 100(b)(2)(iii) of Regulation FD \173\ provides that 
the requirements of Regulation FD do not apply to disclosures of 
material non-public information made to an entity whose primary 
business is the issuance of credit ratings, provided the information is 
disclosed solely for the purpose of developing a credit rating and the 
entity's ratings are publicly available. As amended, Rule 
100(b)(2)(iii) will contain two exceptions related to the issuance of 
credit ratings. Rule 100(b)(2)(iii)(A) of Regulation FD \174\ will 
permit the disclosure of material, non-public information to an NRSRO, 
solely for the purpose of allowing the NRSRO to determine or monitor a 
credit rating pursuant to Rule 17g-5(a)(3), irrespective of whether the 
NRSRO makes its ratings publicly available. Rule 100(b)(2)(iii)(A) will 
apply only when the disclosures to NRSROs are made pursuant to Rule 
17g-5(a)(3). Rule 100(b)(2)(iii)(B) of Regulation FD \175\ will 
continue to permit issuers to disclose material, non-public 
information, solely for the purpose of determining or monitoring a 
credit rating, to any credit rating agency (including, but not limited 
to, NRSROs), as that term is defined in Section 3(a)(61) of the 
Exchange Act,\176\ that makes its credit ratings publicly available.
---------------------------------------------------------------------------

    \173\ 17 CFR 243.100(b)(2)(iii).
    \174\ 17 CFR 243.100(b)(2)(iii)(A).
    \175\ 17 CFR 243.100(b)(2)(iii)(B).
    \176\ 15 U.S.C. 78c(a)(61).
---------------------------------------------------------------------------

    The proposed amendment to Regulation FD elicited few comments. One 
commenter supported the proposed amendment, but suggested expanding it 
to expressly permit unsolicited NRSROs to contact an arranger with 
questions regarding the information provided, or to be provided, on its 
password-protected Internet Web site for purposes of determining or 
monitoring a credit rating, and to require arrangers to post on such 
Internet Web site any additional material information provided in 
response to such questions.\177\ The Commission expects that arrangers 
will have an incentive to post any additional information provided to 
an NRSRO on its password-protected Internet Web site because if they do 
not do so, other NRSROs developing credit ratings by accessing the 
Internet Web site would be determining their credit ratings without the 
benefit of the additional information. A lack of access to this 
additional information could adversely impact the ratings and lead to 
more frequent rating actions during the surveillance process. The 
purpose of the amendment to Regulation FD is to assure arrangers that 
providing information in compliance with Rule 17g-5(a)(3) will not 
violate Regulation FD. The Commission believes that the amendment, as 
adopted, will permit arrangers to post such additional information 
without causing a violation of Regulation FD, and that no expansion of 
the amendment is necessary.
---------------------------------------------------------------------------

    \177\ See Realpoint Letter.
---------------------------------------------------------------------------

    Another commenter agreed that the disclosure regime proposed under 
Rule 17g-5 cannot operate effectively without the proposed amendment to 
Regulation FD, but suggested that such an expansion of the credit 
rating agency exemption presents a risk that none of the ratings 
determined for a structured finance product would be publicly 
available.\178\ To address this potential risk, this commenter 
suggested that the exception be revised to allow information provided 
under Rule 17g-5(a)(3) to be disclosed to all NRSROs, provided that the 
ratings of at least one of those NRSROs are publicly available. The 
Commission does not believe this revision is necessary. Because the 
disclosure regime in Rule 17g-5(a)(3) will be triggered only when 
credit ratings for structured finance products are paid for by the 
issuer, sponsor, or underwriter, the Commission believes it is already 
very likely that such ratings will be made publicly available.
---------------------------------------------------------------------------

    \178\ See DBRS Letter.
---------------------------------------------------------------------------

    Some NRSROs expressed concern that the proposed amendments would 
lead to a greater risk of selective disclosure of material, non-public 
information.\179\ These commenters suggested that the proposed 
amendment to Regulation FD would hurt investor confidence in the 
fairness of U.S. markets,\180\ encourage market abuse and undermine the 
integrity of the U.S. market.\181\ In particular, these commenters 
noted that the proposed amendment to the credit rating agency exemption 
in Regulation FD would permit NRSROs to obtain material non-public 
information from issuers and then selectively disclose it, or 
selectively disclose rating actions based upon it.\182\
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    \179\ See S&P Letter, Moody's Letter.
    \180\ See S&P Letter.
    \181\ See Moody's Letter.
    \182\ See Moody's Letter, S&P Letter.
---------------------------------------------------------------------------

    One commenter argued that the proposed amendment to Regulation FD 
would undercut the policy justification for including a credit rating 
agency exception in Regulation FD.\183\ This commenter highlighted that 
the Commission's rationale for exempting disclosure to credit rating 
agencies from Regulation FD was the widely available publication of the 
resulting credit rating.\184\
---------------------------------------------------------------------------

    \183\ See S&P Letter.
    \184\ See Selective Disclosure and Insider Trading, Securities 
Act Release No. 7881 (August 15, 2000), 65 FR 51716 (August 24, 
2000) (``Regulation FD Adopting Release''). In the Regulation FD 
Adopting Release the Commission explained that while it was aware 
that ``ratings organizations often obtain nonpublic information in 
the course of their ratings work'' it was not aware of any incidents 
of selective disclosure involving ratings organizations.
---------------------------------------------------------------------------

    The Commission is sensitive to commenters' concerns and will 
monitor the operation of the rule.\185\ To aid the monitoring, the 
Commission encourages NRSROs and other market participants to notify 
the Commission if they believe the selective availability of non-public 
information is being abused. However, the Commission believes that the 
proposed amendments will not lead to misuse of material, non-public 
information by NRSROs. As noted above, the Commission believes that in 
order to promote competition in the credit rating industry NRSROs 
should

[[Page 63851]]

have access to material, non-public information from arrangers for the 
purpose of determining or monitoring unsolicited credit ratings for 
structured finance products. Because the Regulation FD exclusion added 
today is limited to NRSROs accessing the information in the context of 
Rule 17g-5(a)(3), entities receiving the material, non-public 
information will be subject to Section 15E(g) of the Exchange Act \186\ 
and Rule 17g-4 \187\ thereunder. These statutory and regulatory 
provisions require NRSROs to establish, maintain and enforce policies 
and procedures reasonably designed to prevent the misuse of material, 
non-public information.
---------------------------------------------------------------------------

    \185\ Separately, the Commission reminds issuers and persons 
acting on their behalf of the need to consider whether information 
selectively disclosed under 17 CFR 243.100(b)(2)(iii)(A) or (B) also 
is required to be publicly disclosed in a registration statement, or 
periodic or current report, because disclosure of that information 
is necessary to make other statements made not misleading. In some 
circumstances, the fact that information is important to an NRSRO's 
analysis may be relevant to an issuer's evaluation of its other 
disclosure obligations.
    \186\ 15 U.S.C. 78o-7(g).
    \187\ 17 CFR 240.17g-4.
---------------------------------------------------------------------------

    Moreover, an NRSRO will be required to furnish to the Commission 
prior to accessing a password-protected Internet Web site a 
certification under Rule 17g-5(e) that the NRSRO will keep the 
information it accesses pursuant to Rule 17g-5(a)(3) confidential and 
treat it as material, non-public information subject to its Section 
15E(g) and Rule 17g-4 obligations. In addition, the disclosure regime 
in Rule 17g-5 will only be triggered when an issuer pays an NRSRO to 
issue or maintain a credit rating for a structured finance product. As 
a result, the Commission expects that a credit rating for such 
structured finance product will be issued publicly along with any 
unsolicited ratings from subscriber-based NRSROs.
    In addition, the Commission is amending Rule 100(b)(2)(iii) to 
replace ``developing'' with ``determining or monitoring[.]'' This 
amendment to Rule 100(b)(2)(iii) is intended to mirror the use of 
``determining'' in the Rating Agency Act \188\ and other Commission 
rules regarding NRSROs.\189\ The Commission also notes that this 
amendment will be consistent with the Rule 17g-5(e) certification that 
NRSROs will be required to furnish to the Commission and to arrangers 
in order to access an arranger's password-protected Internet Web site 
described in Rule 17g-5(a)(3). New Rule 17g-5(e) requires NRSROs to 
certify that the NRSRO will access the arranger's password-protected 
Internet Web site described in Rule 17g-5(a)(3) solely for the purpose 
of ``determining or monitoring'' credit ratings.
---------------------------------------------------------------------------

    \188\ See, e.g., 15 U.S.C. 78o-7(a)(1)(B)(ii).
    \189\ See, e.g., 17 CFR 240.17g-2.
---------------------------------------------------------------------------

    The Commission is also adopting, as proposed, the amendment to the 
text in Rule 100(b)(2)(iii)(B) of Regulation FD \190\ to use the 
statutory definition of ``credit rating agency'' as defined in Section 
3(a)(61) of the Exchange Act.\191\ The Commission received one comment 
on this proposed amendment, which supported it.\192\
---------------------------------------------------------------------------

    \190\ 17 CFR 243.100(b)(2)(iii)(B).
    \191\ 15 U.S.C. 78c(a)(61).
    \192\ See ABA Letter.
---------------------------------------------------------------------------

F. Conclusion

    The Commission is adopting these amendments to Rule 17g-5, in part, 
pursuant to the authority in Section 15E(h)(2) of the Exchange 
Act.\193\ The provisions in this section of the statute provide the 
Commission with authority to prohibit, or require the management and 
disclosure of, any potential conflict of interest relating to the 
issuance of credit ratings by an NRSRO.\194\ The Commission believes 
that the amendments are necessary and appropriate in the public 
interest and for the protection of investors because they are 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 these instruments.
---------------------------------------------------------------------------

    \193\ 15 U.S.C. 78o-7(h)(2).
    \194\ Id.
---------------------------------------------------------------------------

    The Commission believes that these amendments will advance the 
Rating Agency Act's goal of promoting competition in the credit rating 
industry by facilitating the issuance of credit ratings by NRSROs that 
are not hired by the arranger. The Commission further believes that the 
resulting increase in the number of ratings extant for a given 
structured finance security or money market instrument will provide 
users of credit ratings with more views on the creditworthiness of the 
security or money market instrument. The amendments also are designed 
to make it more difficult for arrangers to exert influence over the 
NRSROs they hire to determine ratings for structured finance products. 
By facilitating the issuance of unsolicited ratings by non-hired 
NRSROs, the amendments will increase the likelihood that if a hired 
NRSRO issues a ratings that is higher than warranted, that fact will be 
revealed to the market through the lower ratings issued by other 
NRSROs.
    For the reasons discussed above, the Commission is adopting the 
amendments to Rule 17g-5 and Regulation FD substantially as proposed.

IV. Paperwork Reduction Act

    Certain provisions of the rule amendments contain a ``collection of 
information'' within the meaning of the Paperwork Reduction Act of 1995 
(``PRA''). The Commission published a notice requesting comment on the 
collection of information requirements in the February 2009 Proposing 
Release and submitted the proposed collection to the Office of 
Management and Budget (``OMB'') for review in accordance with the 
PRA.\195\ An agency may not conduct or sponsor, and a person is not 
required to comply with, a collection of information unless it displays 
a currently valid control number. The titles for the collections of 
information are:
---------------------------------------------------------------------------

    \195\ See February 2009 Proposing Release, 74 FR 6498-6501.
---------------------------------------------------------------------------

    (1) Rule 17g-2, Records to be made and retained by nationally 
recognized statistical rating organizations (OMB Control Number 3235-
0628); and
    (2) Rule 17g-5, Conflicts of interest (OMB Control Number 3235-
0649).
    The amendment to Regulation FD does not contain a collection of 
information within the meaning of the PRA.

A. Collections of Information Under the Proposed Rule Amendments

    The Commission is adopting rule amendments to impose additional 
disclosure and conflict of interest requirements on NRSROs. These 
amendments are designed to address concerns about the integrity of the 
credit rating procedures and methodologies at NRSROs and to promote 
transparency and objectivity in the NRSRO credit rating process by, 
among other things, increasing competition and making it easier for 
investors and other market participants and observers to assess the 
credit ratings performance of NRSROs. These amendments modify the 
Commission's rules, adopted in June 2007 and modified in February 2009, 
implementing registration, recordkeeping, financial reporting, and 
oversight rules under the Rating Agency Act. The amendments contain 
recordkeeping and disclosure requirements that are subject to the PRA.
    In summary, the rule amendments require: (1) An NRSRO to make 
publicly available on its Internet Web site in an interactive data file 
that uses any machine-readable computer format (until 60 days after the 
date on which the Commission publishes a List of XBRL Tags for NRSROs 
on its Internet Web site, at which point the NRSRO will be required to 
make the information available in XBRL format using the Commission's 
List of XBRL Tags for NRSROs) ratings action histories for all credit 
ratings initially determined on or after June 26, 2007, with each new 
ratings action that is related to issuer-

[[Page 63852]]

paid credit ratings to be reflected in such publicly disclosed 
histories no later than twelve months after it was taken, and each new 
ratings action that is related to credit ratings that are not issuer-
paid to be reflected in such publicly disclosed histories no later than 
twenty-four months after it was taken; \196\ (2) an NRSRO that is hired 
by arrangers to issue credit ratings for structured finance products to 
disclose the deals for which they are in the process of determining 
such credit ratings to non-hired NRSROs that have furnished the 
Commission with the certification as described below; (3) an NRSRO that 
is hired by arrangers to perform credit ratings for structured finance 
products to obtain written representations from arrangers, on which the 
NRSRO can reasonably rely, that the arrangers will provide all the 
information given to the hired NRSRO to non-hired NRSROs that have 
furnished the Commission with the certification described below; \197\ 
and (4) an NRSRO seeking to access the information maintained by the 
NRSROs and the arrangers pursuant to the amended rules to furnish the 
Commission an annual certification that it is accessing the information 
solely to determine credit ratings and will determine a minimum number 
of credit ratings using that information.\198\
---------------------------------------------------------------------------

    \196\ See 17 CFR 240.17g-2(d)
    \197\ See 17 CFR 240.17g-5(a)(3) and (b)(9).
    \198\ See 17 CFR 240.17g-5(e).
---------------------------------------------------------------------------

B. Proposed Use of Information

    The amendments enhance the framework for Commission oversight of 
NRSROs. As the Commission noted in the February 2009 Proposing 
Release,\199\ the collections of information in the amendments are 
designed to provide users of credit ratings with information upon which 
to evaluate the performance of NRSROs and to enhance the accuracy of 
credit ratings for structured finance products by increasing 
competition among NRSROs who rate these products.
---------------------------------------------------------------------------

    \199\ See February 2009 Proposing Release, 74 FR at 6498.
---------------------------------------------------------------------------

C. Respondents

    In the June 2007 Adopting Release, the Commission estimated that 
approximately 30 credit rating agencies would be registered as 
NRSROs.\200\ Since the initial set of rules under the Rating Agency Act 
became effective in June 2007, ten credit rating agencies have 
registered with the Commission as NRSROs.\201\ The Commission, however, 
expects additional entities will register. The Commission received no 
comments on this estimate. The Commission believes that this estimate 
continues to be appropriate for identifying the number of respondents 
for purposes of the amendments.
---------------------------------------------------------------------------

    \200\ See June 2007 Adopting Release, 72 FR at 33607.
    \201\ A.M. Best Company, Inc.; DBRS Ltd.; Fitch, Inc.; Japan 
Credit Rating Agency, Ltd.; Moody's Investors Service, Inc.; Rating 
and Investment Information, Inc.; Standard & Poor's Ratings Service; 
LACE Financial Corp.; Egan-Jones Rating Company; and Realpoint LLC.
---------------------------------------------------------------------------

    In addition, under the amendments to paragraphs (a) and (b) of Rule 
17g-5, NRSROs that are hired to rate structured finance products will 
be required to obtain representations from arrangers that the arrangers 
will provide information given to the hired NRSRO to other NRSROs. In 
the June 2008 Proposing Release and again in the February 2009 
Proposing Release, based on staff information gained from the NRSRO 
examination process, the Commission estimated that approximately 200 
arrangers would be respondents for the purpose of the PRA 
estimate.\202\ The Commission received no comments on this estimate 
when originally proposed or re-proposed. The Commission continues to 
estimate, for purposes of this PRA, that approximately 200 arrangers 
will be affected.
---------------------------------------------------------------------------

    \202\ See June 2008 Proposing Release, 73 FR at 36237; February 
2009 Proposing Release, 74 FR at 6498.
---------------------------------------------------------------------------

D. Total Annual Recordkeeping and Reporting Burden

    As discussed in further detail below, the Commission estimates the 
total recordkeeping burden resulting from the amendments will be 
approximately 71,550 hours on a one-time basis \203\ and 169,390 hours 
on an annual basis.\204\ This represents an increase from the estimates 
of 69,315 hours on a one-time basis and 169,045 hours on an annual 
basis set forth in the February 2009 Proposing Release.\205\ This 
increase is attributable in part to the fact that the amendments to 
Rule 17g-2(d) as adopted apply to all NRSROs, rather than only to 
NRSROs operating under the issuer-paid business model as proposed. The 
increase also reflects additional burdens, as described in detail 
below.
---------------------------------------------------------------------------

    \203\ This total is derived from the total one-time hours set 
forth, in the order in which they are set forth, in the text below: 
2,550 + 9,000 + 60,000 = 71,550.
    \204\ This total is derived from the total annual hours set 
forth, in the order in which they are set forth, in the text below: 
450 + 14,880 + 4,000 + 150,000 + 60 = 169,390.
    \205\ February 2009 Proposing Release, 74 FR at 6498-6499.
---------------------------------------------------------------------------

    The total annual and one-time hour burden estimates for NRSROs 
described below are averages across all types of NRSROs expected to be 
affected by the amendments. The size and complexity of NRSROs range 
from small entities to entities that are part of complex global 
organizations employing thousands of credit analysts. The Commission 
notes that, given the significant variance in size between the largest 
NRSROs and the smallest NRSROs, the burden estimates, as averages 
across all NRSROs, are skewed higher because the largest firms 
currently predominate in the industry.
1. Amendments to Rule 17g-2
    Rule 17g-2 requires an NRSRO to make and keep current certain 
records relating to its business and requires an NRSRO to preserve 
those and other records for certain prescribed time periods.\206\ The 
amendments to paragraph (d) of Rule 17g-2 require an NRSRO to make 
publicly available on its Internet Web site in an interactive data file 
that uses a machine-readable computer format ratings action histories 
for all credit ratings initially determined on or after June 26, 2007, 
with each new ratings action to be reflected in such publicly disclosed 
histories no later than twelve months after it was taken for ratings 
actions related to issuer-paid credit ratings and twenty-four months 
after it was taken for ratings actions related to credit ratings that 
are not issuer-paid. An NRSRO will be allowed to use any machine-
readable format to make this data publicly available until 60 days 
after the date on which the Commission publishes a List of XBRL Tags 
for NRSROs on its Internet Web site, at which point the NRSRO will be 
required to make the information available in XBRL format using the 
Commission's List of XBRL Tags for NRSROs.\207\
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    \206\ 17 CFR 240.17g-2.
    \207\ 17 CFR 240.17g-2(d)(iii).
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    The Commission requested comment in the February 2009 Proposing 
Release on all aspects of the burden estimates for the proposed 
amendments to Rule 17g-2(d) and received none.
    In the February 2009 Adopting Release, the Commission determined 
that, in order to implement the Rule 17g-2(d) requirement that an NRSRO 
make public, in XBRL format and with a six-month grace period, the 
ratings action histories required under paragraph (a)(8) for a random 
sample of 10% of the credit ratings for each ratings class for which it 
has issued 500 or

[[Page 63853]]

more issuer-paid credit ratings, an NRSRO subject to the requirements 
will spend, on average, approximately 30 hours to publicly disclose the 
rating action histories in XBRL format and, thereafter, 10 hours per 
year to update this information.\208\ In the February 2009 Proposing 
Release, the Commission estimated, based on staff experience, that the 
proposed amendments to Rule 17g-2(d) requiring NRSROs to publicly 
disclose ratings action histories of all issuer-paid credit ratings 
would increase by 50% the estimated hour burdens for the disclosure 
requirements of paragraph (d) of Rule 17g-2 as adopted at that 
time.\209\ Therefore, the Commission estimated that the one time annual 
hour burden for each NRSRO affected by the rule would increase from 30 
hours to 45 hours \210\ and the annual hour burden would increase from 
10 hours to 15 hours.\211\ Although the Commission based its estimates 
for individual NRSROs' hour burdens of Rule 17g-2(d) as proposed on the 
assumption that the requirements of the rule would apply only to 
issuer-paid credit ratings, the Commission believes that the estimates 
are valid for NRSROs operating under the subscriber-paid business 
model, all of which already have an Internet Web site, as well.\212\
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    \208\ The Commission also based this estimate on the current 
one-time and annual burden hours for an NRSRO to publicly disclose 
its Form NRSRO. No alternatives to these estimates as proposed were 
suggested by commenters and the Commission adopted these hour 
burdens. See February 2009 Adopting Release, 74 FR at 6472.
    \209\ See February 2009 Proposing Release, 74 FR at 6499.
    \210\ 50% of 30 hours = 15 hours + 30 hours = 45 hours.
    \211\ 50% of 10 hours = 5 hours + 10 hours = 15 hours.
    \212\ See February 2009 Proposing Release, 74 FR at 6499.
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    The Commission notes the February 2009 Proposing Release 
contemplated that NRSROs would provide the information in XBRL when it 
determined its estimates. The Commission does not believe that 
requiring the information to be disclosed initially in any machine 
readable format alters those burden estimates because we believe the 
steps to be taken are quite similar. The Commission also notes that 
currently seven NRSROs are providing the disclosure required pursuant 
to Rule 17g-2(d) (or the 10% requirement) in machine-readable format. 
The Commission does believe that there will be an hour burden 
associated with transitioning from disclosing the information in a 
machine-readable format into an XBRL format. Specifically, the 
Commission estimates that this hour burden will be approximately 40 
hours per NRSRO. This estimate is based on Commission's staff 
experience regarding cost associated with XBRL programming. The 40 
hours estimate includes time for the appropriate staff of the NRSRO 
\213\ to research and become familiar with the List of XBRL Tags, map 
the information disclosed in the machine-readable format to the XBRL 
taxonomy and conduct initial testing.
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    \213\ The Commission believes a Senior Programmer would be 
tasked to perform the transition of disclosing the information in 
machine-readable format to XBRL.
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    Accordingly, the Commission estimates that the total aggregate one-
time burden for NRSROs to make their ratings histories publicly 
available initially in machine-readable interactive format, and the 
one-time burden to transition the disclosure of information from 
machine-readable to XBRL will be approximately 2,550 hours,\214\ and 
the total aggregate annual burden hours will be approximately 450 
hours.\215\ This represents an increase from the estimates of 210 hours 
on a one-time basis and 70 hours on an annual basis set forth in the 
February 2009 Proposing Release.\216\ This increase is attributable to 
the fact that the amendments to Rule 17g-2(d) as adopted apply to all 
NRSROs, rather than only to NRSROs operating under the issuer-paid 
business model as originally proposed.
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    \214\ 45 hours x 30 NRSROs = 1,350 hours, plus the one time 
burden to change from machine readable format to XBRL of 40 hours x 
30 NRSROs = 1,200 hours; for a total one-time burden of 1,350 + 
1,200 = 2,550.
    \215\ 15 hours x 30 NRSROs = 450 hours.
    \216\ February 2009 Proposing Release, 74 FR at 6499.
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2. Amendments to Rule 17g-5
    Rule 17g-5 requires an NRSRO to manage and disclose certain 
conflicts of interest \217\ and prohibits certain other types of 
conflicts of interest outright.\218\ The amendments to Rule 17g-5 add 
an additional conflict to paragraph (b) of Rule 17g-5 for NRSROs to 
manage: Issuing or maintaining a credit rating for a security or money 
market instrument issued by an asset pool or as part of an asset-backed 
or mortgage-backed securities transaction that was paid for by the 
issuer, sponsor, or underwriter of the security or money market 
instrument.\219\ The amendments to paragraph (a) of the rule further 
specify that an NRSRO subject to this conflict is prohibited from 
issuing a credit rating for a structured finance product, unless 
certain information about the transaction and the assets underlying the 
structured finance product are disclosed or arranged to be disclosed by 
the NRSRO. Specifically, the amendments require an NRSRO that is hired 
by arrangers to perform credit ratings for structured finance products 
to disclose to other NRSROs the deals for which it is in the process of 
determining such credit ratings and to obtain written representations 
from arrangers that the arrangers will provide the same information 
given to the hired NRSRO to other NRSROs. An NRSRO rating such products 
will need to disclose to other NRSROs the following information on a 
password protected Internet Web site: A list of each such security or 
money market instrument for which it is currently in the process of 
determining an initial credit rating in chronological order and 
identifying the type of security or money market instrument, the name 
of the issuer, the date the rating process was initiated, and the 
Internet Web site address where the issuer, sponsor, or underwriter of 
the security or money market instrument represents that the information 
described in paragraphs (a)(3)(iii)(C) and (D) of Rule 17g-5 as amended 
can be accessed.\220\
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    \217\ 17 CFR 240.17g-5(a) and (b).
    \218\ 17 CFR 240.17g-5(c).
    \219\ 17 CFR 240.17g-5(b)(9).
    \220\ Paragraph (a)(3)(i) of Rule 17g-5.
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    The Commission estimated in the February 2009 Proposing Release 
that it would take an NRSRO approximately 300 hours to develop a 
system, as well as policies and procedures, for the disclosures 
required.\221\ This estimate was based on the Commission's experience 
with, and burden estimates for, the recordkeeping requirements for 
NRSROs.\222\ In addition to the estimated one-time hour burden, the 
amendments will result in an annual hour burden to the NRSRO arising 
from the requirement to make disclosures for each deal being rated. 
Based on staff experience, the Commission estimated that it would take 
approximately 1 hour per transaction for an NRSRO to update the lists 
maintained on its password protected Internet Web sites.\223\
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    \221\ See February 2009 Proposing Release, 74 FR at 6500.
    \222\ See June 2007 Adopting Release, 72 FR at 33609.
    \223\ See February 2009 Proposing Release, 74 FR at 6500.
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    In the February 2009 Proposing Release, the Commission repeated its 
estimate, originally set forth in the June 2008 Proposing Release,\224\ 
that a large NRSRO would have rated approximately 2,000 new RMBS and 
CDO transactions in a given year. The

[[Page 63854]]

Commission based this estimate on the number of new RMBS and CDO deals 
rated in 2006 by two of the largest NRSROs which rated structured 
finance transactions. The Commission adjusted this number to 4,000 
transactions in order to account for other types of structured finance 
products, including commercial real estate MBS and other consumer 
assets.\225\ As noted in the February 2009 Proposing Release, the 
Commission recognizes that the number of new structured finance 
transactions has dropped precipitously since 2006 because of the credit 
market turmoil. Nonetheless, to account for future market developments, 
which is a more conservative approach, the Commission retained the 
estimate that a large NRSRO will rate 4,000 new deals per year.\226\ 
The Commission received no comments on the estimate.
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    \224\ See June 2008 Proposing Release, 73 FR at 36240.
    \225\ See February 2009 Proposing Release, 74 FR at 6500.
    \226\ Id.
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    Based on the number of outstanding structured finance ratings 
submitted by the ten registered NRSROs on their Form NRSROs, the 
Commission estimated that the three largest NRSROs account for 97% of 
the market for structured finance ratings. As explained in greater 
detail in the February 2009 Proposing Release, the Commission used that 
estimate of market share to estimate that the total structured finance 
ratings issued by all NRSROs in a given year would be 14,880.\227\
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    \227\ Id.
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    The Commission requested comment on its burden estimates for the 
proposed amendments to Rule 17g-5(a) and (b) and received one comment 
from a large NRSRO arguing that the Commission significantly 
underestimated the initial and recurring burdens associated with the 
proposed amendments.\228\ Specifically, the commenter argued that 
developing the software and password-protected Internet Web page could 
require a thousand, if not thousands, of hours of work and that the 
development of policies and procedures and controls to implement the 
requirement could take at least a thousand hours, and that developing a 
training module and training affected staff could take at least 500 
hours. The commenter further stated that it may take one to two hours 
per transaction to update the NRSRO Web site, depending on the 
frequency with which key data change during the rating process.\229\
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    \228\ See Moody's Letter.
    \229\ See Moody's Letter.
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    The Commission is sensitive to the potential burdens imposed on 
NRSRO by these new disclosure requirements. However, based on staff 
experience, the Commission does not believe the cost will result in the 
burdens estimated by the sole commenter expressing disagreement with 
the Commission's original estimates. As previously noted, all of the 
NRSROs currently maintain Internet Web sites, in most cases with 
password-protected portals that their subscribers and registered users 
can access to obtain information posted by the NRSRO. The Commission 
believes that adding a portal for other NRSROs to access pending deal 
information should not require significant additional Internet Web site 
design and maintenance.
    Consistent with the estimates set forth in the February 2009 
Proposing Release,\230\ the Commission believes, based on staff 
experience, that an NRSRO will take approximately 300 hours on a one-
time basis to implement a disclosure system to comply with the new 
requirements of Rule 17g-5(a)(3)(i) and (ii), resulting in a total one-
time hour burden of 9,000 hours for 30 NRSROs.\231\ The Commission 
further believes that based on its estimates that the total structured 
finance ratings issued by all NRSROs in a given year would be 14,880 
and that it will take each NRSRO affected by the rule approximately 1 
hour per transaction for the NRSRO to update the lists maintained on 
the NRSROs' password protected Internet Web sites, the total annual 
hour burden for the industry will be 14,880 hours.\232\
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    \230\ See February 2009 Proposing Release, 74 FR at 6500.
    \231\ 300 hours x 30 NRSROs = 9,000 hours.
    \232\ 14,880 ratings x 1 hour = 14,880 hours.
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    New paragraph (a)(3)(iii) of Rule 17g-5 requires that an NRSRO 
hired to rate a structured finance product obtain from the arranger a 
written representation on which it can reasonably rely that it will 
disclose the following information on a password-protected Internet Web 
site at the same time the information is provided to the NRSRO:
     All information the arranger provides to the NRSRO for the 
purpose of determining the initial credit rating for the security or 
money market instrument, including information about 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; and
     All information the arranger provides 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.\233\
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    \233\ Paragraph (a)(3)(iii) of Rule 17g-5.
---------------------------------------------------------------------------

    In the February 2009 Proposing Release, the Commission estimated 
that there would be approximately 200 arrangers affected by the 
proposed new paragraph (a)(iii) of Rule 17g-5 and that it would take 
each arranger approximately 300 hours to develop a system, including 
policies and procedures, for the disclosures.\234\ These estimates were 
based on the Commission's experience with, and burden estimates for, 
the recordkeeping requirements for NRSROs.\235\ The Commission further 
noted that in addition to this one-time hour burden, the proposed 
amendments would result in an annual hour burden for arrangers arising 
from the disclosure of information on a transaction-by-transaction 
basis each time an initial rating process is commenced. The Commission 
estimated, based on staff experience and the estimate of 4,000 new 
structured finance deals per year as discussed above, that each 
respondent would disclose information for approximately 20 new 
transactions per year \236\ and that it would take approximately 1 hour 
per transaction to post the information to its password-protected 
Internet Web sites. The Commission noted that the number of new 
transactions per year would vary by the size of issuer, with larger 
respondents perhaps arranging in excess of 20 new deals per year and 
smaller arrangers perhaps initiating less. The estimate of 20 new deals 
per year is therefore an average across all respondents.\237\ Based on 
this analysis, the Commission estimated that it would take a respondent 
approximately 20 hours \238\ to disclose this information, on an annual 
basis, for a total aggregate annual hour burden of 4,000 hours.\239\ 
The Commission received no comments on this estimate, nor did the 
Commission receive any comments on an identical burden estimate in the 
original proposing release.
---------------------------------------------------------------------------

    \234\ See February 2009 Proposing Release, 74 FR at 6500.
    \235\ See June 2007 Adopting Release, 72 FR at 33609.
    \236\ 4,000 new transactions/200 issuers = 20 new transactions 
per issuer.
    \237\ See February 2009 Proposing Release, 74 FR at 6501.
    \238\ 20 transactions x 1 hour = 20 hours.
    \239\ 20 hours x 200 respondents = 4,000 hours.
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    In addition, Rule 17g-5(a)(3)(iii)(D) requires that an NRSRO hired 
to rate a structured finance product obtain from the arranger a written 
representation on which it can reasonably rely that the

[[Page 63855]]

arranger will disclose the information it provides to the hired NRSRO 
to be used for credit rating surveillance on a security or money market 
instrument on a password-protected Internet Web site at the same time 
the information is provided to the hired NRSRO. Because surveillance 
covers more than just initial ratings, the Commission estimated, in the 
June 2008 Proposing Release and the February 2009 Proposing Release, 
based on staff information gained from the NRSRO examination process, 
that monthly disclosure would be required with respect to approximately 
125 transactions on an ongoing basis.\240\ Also based on staff 
information gained from the NRSRO examination process, the Commission 
estimated that it would take a respondent approximately 0.5 hours per 
transaction to disclose the information.\241\
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    \240\ See infra note 286 and accompanying text.
    \241\ See June 2008 Proposing Release, 73 FR at 36240; February 
2009 Proposing Release, 74 FR at 6500.
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    The Commission requested comment in the February 2009 Proposing 
Release on all aspects of its estimates for the amount of time 
arrangers would spend complying with the requirements of proposed 
paragraph (a)(3)(iii) of Rule 17g-5. The Commission did not receive any 
comments in response to this request.
    Accordingly, the Commission believes, based on its estimate that an 
arranger will take approximately 300 hours on a one-time basis to 
implement a disclosure system consistent with the representations to be 
made pursuant to new paragraph (a)(3)(iii) of Rule 17g-5, that the 
total one-time hour burden for arrangers will be 60,000 hours.\242\ The 
Commission further believes, based on its estimate of an average of 125 
ongoing transactions each month and 30 minutes spent on the monthly 
disclosure for each transaction, that each respondent will spend 
approximately 750 hours \243\ on an annual basis disclosing information 
consistent with the representations to be made pursuant to new 
paragraph (a)(3)(iii) of Rule 17g-5, for a total aggregate annual 
burden of 150,000 hours.\244\
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    \242\ 300 hours x 200 respondents = 60,000 hours.
    \243\ 125 transactions x 30 minutes x 12 months = 45,000 
minutes/60 minutes = 750 hours.
    \244\ 750 hours x 200 respondents = 150,000 hours.
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    An NRSRO that wishes to access information on another NRSRO's 
Internet Web site or on an arranger's Internet Web site pursuant to 
Rule 17g-5(a)(3) as amended is required to provide the Commission with 
an annual certification described in proposed new paragraph (e) to Rule 
17g-5. In the February 2009 Proposing Release, the Commission estimated 
that this annual certification would become a matter of routine over 
time and should take less time than it takes an NRSRO to submit its 
annual certification under Rule 17g-1(f).\245\ The annual certification 
required under Rule 17g-1(f) involves the disclosure of substantially 
more information than the certification in proposed paragraph (e) of 
Rule 17g-5. The Commission estimated that it will take an NRSRO 
approximately 10 hours to complete the Rule 17g-1(f) annual 
certification.\246\ Given that the paragraph (e) certification requires 
much less information, the Commission estimated, based on staff 
experience, that it would take an NRSRO approximately 20% of the time 
it takes to do the Rule 17g-5 annual certification, or 2 hours.\247\ 
The Commission assumed that all 30 NRSROs ultimately registered with 
the Commission would complete the certification. The Commission 
requested comment on this estimate but did not receive any. 
Accordingly, the Commission estimates it will take an NRSRO 
approximately 2 hours to complete the proposed paragraph (e) 
certification for an aggregate annual hour burden to the industry of 60 
hours.\248\
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    \245\ 17 CFR 240.17g-1(f). See February 2009 Proposing Release, 
74 FR at 6501.
    \246\ See June 2007 Adopting Release, 72 FR at 33609.
    \247\ 20% of 10 hours = 2 hours.
    \248\ 2 hours x 30 NRSROs = 60 hours.
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    To comply with the requirement under Rule 17g-5(a)(3)(iii) that it 
obtain from the issuer, sponsor or underwriter a written representation 
that reasonably can be relied upon, an NRSRO likely will include such a 
representation in the standardized contract it uses in each transaction 
the NRSRO contracts to rate. The Commission notes that the Rule 17g-
5(a)(3)(iii) includes representations an NRSRO is required to obtain 
from an arranger. The Commission expects an NRSRO's in-house attorney 
to draft the representations based on this text, which will be inserted 
into the NRSRO's existing standardized contracts. Based on staff 
experience, the Commission estimates that there will be a one-time 
burden of five hours for this language to be drafted, negotiated and 
added to the NRSRO's standardized contract. This estimate is based in 
part on the two hour burden estimate that the Commission believes would 
result from an NRSRO completing the certification required under 
paragraph (e) of Rule 17g-5. However, the added hours reflect the 
additional time needed to draft the representations because the 
specific language is not included in the rule. Therefore, there will be 
a total one-time aggregate hour burden of 150 hours.\249\
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    \249\ 5 hours x 30 NRSROs = 150 hours.
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E. Collection of Information Is Mandatory

    The recordkeeping and notice requirements for the amendments are 
mandatory for credit rating agencies that choose to register as NRSROs 
with the Commission.\250\
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    \250\ See Section 15E of the Exchange Act (15 U.S.C. 78o-7).
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F. Confidentiality

    The disclosures required under the amendments to Rule 17g-2(d) will 
be public. Pursuant to the representations an NRSRO hired to rate a 
structured finance product is required to obtain under the amendments 
to Rule 17g-5, arrangers will make the information they provide to the 
hired NRSRO available to other NRSROs. Pursuant to Rule 17g-5(e), the 
NRSROs are required to provide certifications to the Commission 
agreeing to keep the information they access under Rule 17g-5(a)(3) 
confidential.
    The information an NRSRO posts on its Internet Web site pursuant to 
Rule 17g-5(a)(3)(i) and (ii) will be available only to NRSROs that have 
provided to the NRSRO that posts the information a certification that 
was furnished to the Commission pursuant to subparagraph (e). The 
representations made by the arranger and provided to the NRSRO will not 
be made public, unless the NRSRO or arranger chooses to make them 
public. All documents maintained by an NRSRO are subject to inspection 
by representatives of the Commission. The Commission will not make 
public the certifications provided by NRSROs pursuant to subparagraph 
(e). NRSROs will also provide copies of their certifications to 
arrangers when accessing arranger Web sites. Arrangers are not expected 
to make these certifications public.

V. Costs and Benefits of the Amended Rules

    The Commission is sensitive to the costs and benefits that result 
from its rules. In the February 2009 Proposing Release, the Commission 
identified certain costs and benefits of the amendments and requested 
comment on all aspects of this cost-benefit analysis, including 
identification and assessment of any costs and benefits not discussed 
in the analysis.\251\ The Commission

[[Page 63856]]

sought comment and data on the value of the benefits identified. The 
Commission also solicited comments on the accuracy of its cost 
estimates in each section of this cost-benefit analysis, and requested 
commenters to provide data so the Commission could improve the cost 
estimates, including identification of statistics relied on by 
commenters to reach conclusions on cost estimates. Finally, the 
Commission requested estimates and views regarding these costs and 
benefits for particular types of market participants, as well as any 
other costs or benefits that may result from the adoption of the rule 
amendments.
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    \251\ For the purposes of the cost/benefit analysis set forth in 
the February 2009 Proposing Release, the Commission used salary data 
from the Securities Industry and Financial Markets Association 
(``SIFMA'') Report on Management and Professional Earnings in the 
Securities Industry 2007, which provides base salary and bonus 
information for middle-management and professional positions within 
the securities industry. The Commission believes that the salaries 
for these securities industry positions would be comparable to the 
salaries of similar positions in the credit rating industry. The 
salary costs derived from the report and referenced in this costs 
and benefits section, are modified to account for an 1,800-hour work 
year and multiplied by 5.35 to account for bonuses, firm size, 
employee benefits and overhead. Hereinafter, references to data 
derived from this SIFMA report as modified in the manner described 
above will be cited as SIFMA 2007 Report as Modified. For the 
purposes of this costs and benefits section, the Commission is using 
updated salary data from SIFMA's Management and Professional 
Earnings in the Securities Industry 2008 with similar modifications. 
Hereinafter, references to data derived from the most recent SIFMA 
report as modified in the manner described above will be cited as 
SIFMA 2008 Report as Modified.
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A. Benefits

    The purposes of the Rating Agency Act, as stated in the 
accompanying Senate Report, are to improve ratings quality for the 
protection of investors and in the public interest by fostering 
accountability, transparency, and competition in the credit rating 
industry.\252\ As the Senate Report states, the Rating Agency Act 
establishes ``fundamental reform and improvement of the designation 
process'' with the goal that ``eliminating the artificial barrier to 
entry will enhance competition and provide investors with more choices, 
higher quality ratings, and lower costs.'' \253\
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    \252\ Senate Report, p. 2.
    \253\ Id. p. 7.
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    The amendments are designed to improve the transparency of credit 
ratings performance and promote competition by making histories of 
credit ratings actions publicly available and creating a mechanism for 
NRSROs to determine unsolicited credit ratings for structured finance 
products.
    The amendments to Rule 17g-2(d) require NRSROs to publicly disclose 
all of their ratings actions histories for credit ratings in an 
interactive data file that uses a machine-readable computer format 
either with a twelve month or twenty-four month grace period, depending 
on whether the credit rating was issuer-paid or not. An NRSRO will be 
allowed to use any machine-readable format to make this data publicly 
available until 60 days after the date on which the Commission 
publishes a List of XBRL Tags for NRSROs on its Internet Web site, at 
which point the NRSRO will be required to make the information 
available in XBRL format using the Commission's List of XBRL Tags for 
NRSROs. This disclosure will allow the marketplace to better compare 
the performance of NRSROs determining credit ratings. The Commission 
believes that making this information publicly available will benefit 
users of credit ratings by providing them with useful metrics with 
which to compare NRSROs. The Commission also notes that the 100% 
requirement will be useful to market participants and observers within 
a short period of the rule being effective as the vast majority will be 
available at twelve months.
    Analyzing ratings history information for outstanding credit 
ratings is the most direct means of comparing the performance of two or 
more NRSROs. The access to ratings history data provided by the rule as 
amended will facilitate the ability of users of credit ratings to 
compare how each NRSRO that maintains a credit rating for a particular 
obligor or debt instrument initially rated the instrument and, 
thereafter, how and when it adjusted its credit rating over time. This 
will provide the benefit of allowing the person reviewing the credit 
rating histories of the NRSROs to reach conclusions about which NRSROs 
did the best job in determining an initial rating and, thereafter, 
making appropriate and timely adjustments to the credit rating. 
Increased disclosure of ratings history for credit ratings will make 
the performance of the NRSROs more transparent to the marketplace and, 
thereby, highlight those firms that do a better job assessing 
creditworthiness. This may cause users of credit ratings to give 
greater weight to credit ratings of NRSROs that distinguish themselves 
by a better history of credit rating performance than their peers. 
Moreover, to the extent this improves the quality of the credit 
ratings, persons that use credit ratings, for example, to make 
investment or lending decisions will have better information upon which 
to base their decisions.
    In addition to facilitating the ability of individual comparisons 
of NRSRO ratings performance, the Commission believes the ratings 
history disclosures will enable market observers and participants to 
generate statistics about NRSRO performance by compiling and processing 
the information in the aggregate. The ratings history disclosure 
requirements adopted today will facilitate the ability of market 
observers and participants and other users of credit ratings to 
complement the standardized performance metrics disclosure required 
under Commission rules by designing their own performance metrics in 
order to generate the performance statistics most meaningful to them. 
Specifically, the raw data to be provided by NRSROs will allow market 
participants to develop performance measurement statistics that would 
supplement those required to be published by the NRSROs themselves in 
Exhibit 1 to Form NRSRO, tapping into the expertise of credit market 
observers and participants in order to create better and more useful 
means to compare the performance of NRSROs. In addition, the Commission 
believes that the new disclosure requirements will provide the benefit 
of fostering greater accountability for NRSROs as well as promoting 
competition among NRSROs by making it easier for users of credit 
ratings to analyze the actual performance of credit ratings in terms of 
accuracy (as defined by each individual user of credit ratings) in 
assessing creditworthiness, regardless of the business model under 
which an NRSRO operates. These disclosures may also enhance competition 
by making it easier for smaller and less established NRSROs to develop 
proven track records of determining accurate credit ratings.
    As discussed above and below in the cost discussion, the Commission 
recognizes that the amended rule may negatively affect the revenues of 
NRSROs. Nevertheless, as explained in greater detail above, the 
Commission believes that the amended rule, as adopted, strikes an 
appropriate balance between providing users of credit ratings, 
investors, and other market participants and observers with a 
sufficient volume of raw data with which to gauge the performance of 
different NRSROs' ratings over time while at the same time addressing 
concerns raised by NRSROs regarding their ability to derive revenue 
from granting market participants access to their credit ratings and 
downloads of their credit ratings. In particular, by providing 100% of 
credit ratings

[[Page 63857]]

histories for ratings initially determined after June 26, 2007, the 
rule as amended will over time provide a robust data set for users of 
credit ratings, investors, and other market participants and observers.
    At the same time, the Commission believes that the twenty-four 
month grace period before a credit rating action that is not issuer-
paid is required to be disclosed, as well as requiring only the 
disclosure of the credit ratings and not any analysis or report 
accompanying the publication of a rating, will not lead to significant 
or undue lost revenues to NRSROs operating under the subscriber-paid 
business model. Additionally, the Commission believes that the 
disclosure of a credit rating action that is issuer-paid on a twelve 
month delayed basis also will not lead to undue lost revenue. As noted 
previously, the Commission understands that the revenue derived from 
payments for downloads of their ratings represents a relatively small 
percentage of their total net revenue. The rule does not require an 
NRSRO to disclose any analysis or report along with the rating history. 
Therefore, the Commission does not believe the fees that NRSROs derive 
from selling their analysis along with their ratings will be 
significantly impacted. Further, the ability to receive data on a 
ratings action twenty-four months after it takes place would not appear 
to be an adequate substitute for subscribing to an NRSRO's current 
credit ratings, nor would the ability to download credit ratings that 
are twelve months old be a substitute for downloading current credit 
ratings.
    The amendments to paragraphs (a) and (b) of Rule 17g-5 require 
NRSROs that are paid by arrangers to determine credit ratings for 
structured finance products to maintain a password-protected Internet 
Web site that lists each deal they have been hired to rate. They also 
will be required to obtain written representations from the arranger 
hiring the NRSRO, on which the NRSRO can reasonably rely, that the 
arranger will post all information provided to the NRSRO to determine 
the rating and, thereafter, to monitor the rating on a password 
protected Internet Web site. NRSROs not hired to determine and monitor 
the ratings will then be able to access the NRSRO Internet Web sites to 
learn of new deals being rated and access the arranger Internet Web 
sites to obtain the information being provided by the arranger to the 
hired NRSRO during the initial rating process and, thereafter, for the 
purpose of surveillance. However, the ability of NRSROs to access these 
NRSRO and arranger Internet Web sites will be limited to NRSROs that 
certify to the Commission on an annual basis, among other things, that 
they are accessing the information solely for the purpose of 
determining or monitoring credit ratings, that they will keep the 
information confidential and treat it as material non-public 
information, and that they will determine credit ratings for at least 
10% of the deals for which they obtain information if they access such 
information for ten or more structured finance products in the calendar 
year covered by the certification. They are also required to disclose 
in the certification the number of deals for which they obtained 
information through accessing the Internet Web sites and the number of 
ratings they issued using that information during the year covered by 
their most recent certification, or, alternatively that they previously 
had not accessed such information ten or more times in the most 
recently ended calendar year.
    The Commission is adopting these amendments to Rule 17g-5, in part, 
pursuant to the authority in Section 15E(h)(2) of the Exchange 
Act.\254\ These provisions provide the Commission with authority to 
prohibit, or require the management and disclosure of, any potential 
conflict of interest relating to the issuance of credit ratings by an 
NRSRO.\255\ The amendments are designed to address conflicts of 
interest and improve competition and the quality of credit ratings for 
structured finance products by making it possible for more NRSROs to 
rate structured finance products. Generally, the information relied on 
by the hired NRSROs to rate structured finance products is non-public. 
This makes it difficult for other NRSROs to rate these securities and 
money market instruments. As a result, the products frequently are 
issued with ratings from only one or two NRSROs and only by NRSROs that 
are hired by the issuer, sponsor, or underwriter (i.e., NRSROs that are 
subject to the conflict of being repeatedly paid by certain arrangers 
to rate these securities and money market instruments).
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    \254\ 15 U.S.C. 78o-7(h)(2).
    \255\ Id.
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    The Commission's goal is to increase the number of ratings extant 
for a given structured finance security or money market instrument and, 
in particular, promote the issuance of ratings by NRSROs that are not 
hired by the arranger. This will provide users of credit ratings with a 
broader range of views on the creditworthiness of the security or money 
market instrument than is currently available. The amendments are also 
designed to make it more difficult for arrangers to exert influence 
over the NRSROs they hire to determine ratings for structured finance 
products. Specifically, by opening up the rating process to more 
NRSROs, the amendments may 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 ratings issued by other NRSROs.
    As discussed in detail above, the Commission recognizes that the 
amendments to Rule 17g-5 will increase the number of credit ratings 
available to investors by increasing the number of NRSROs issuing those 
ratings, thereby potentially giving arrangers a broader pool of NRSROs 
among which to ``shop'' for a rating. The Commission also recognizes 
the concern that NRSROs not hired by the arranger might have the 
incentive to use information accessed pursuant to Rule 17g-5 as amended 
to issue an unduly favorable rating in an attempt to procure future 
business from a particular arranger. The Commission believes that there 
are several factors counteracting this incentive. First, the 100% 
disclosure requirement set forth in Rule 17g-2(d), as amended, will 
facilitate users of credit ratings to compare the credit rating 
performance of all NRSROs issuing a credit rating for a given 
structured finance product, whether the NRSROs are hired by the 
arranger to do so or instead are issuing unsolicited ratings based on 
information obtained under the provisions of Rule 17g-5 as amended. 
This will likely enhance both hired and non-hired NRSRO's 
accountability for the ratings they issue. Second, the information 
disclosed pursuant Rule 17g-5 will be available to all NRSROs, 
including NRSROs operating under the subscriber-paid model. Since the 
latter are not compensated by the structured products' arrangers, they 
can issue unsolicited ratings without the pressure of worrying about 
the effect that the unsolicited ratings might have on their future 
revenue stream from arrangers of structured finance. Finally, by 
facilitating the issuance of unsolicited ratings, the amendments to 
Rule 17g-5 may serve to mitigate the potential for ratings shopping, 
since an arranger that ``shopped'' in order to obtain a higher rating 
would still face the possibility of non-hired NRSROs issuing lower 
ratings.
    The Commission generally requested comment on all aspects of the 
benefits

[[Page 63858]]

of the amendments as proposed.\256\ In addition, the Commission 
requested specific comment on the available metrics to quantify these 
benefits and any other benefits the commenter may identify, including 
the identification of sources of empirical data that could be used for 
such metrics. The Commission did not receive any specific comments in 
response.
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    \256\ See February 2009 Proposing Release, 74 FR at 6473.
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    The amendment to Regulation FD will accommodate the information 
disclosure program that the Commission is establishing under paragraphs 
(a) and (b) of Rule 17g-5. Specifically, it will permit issuers to rely 
on Regulation FD in providing information to NRSROs that require 
subscriptions to access their ratings. In this way, the amendment will 
not favor a particular NRSRO business model. Furthermore, to the extent 
that it increases the number of NRSRO credit ratings for structured 
finance products, users of credit ratings will have more choices. 
Finally, the amendment to Regulation FD will provide legal certainty to 
arrangers who provide access to the information to NRSROs consistent 
with the mechanisms established by Rule 17g-5.

B. Costs

    As discussed below, the amendments will result in costs to NRSROs, 
arrangers, and others. The costs to a given NRSRO arising from the 
amendments adopted today will depend on its size and the complexity of 
its business activities. The size and complexity of NRSROs vary 
significantly. Therefore, the cost to implement these rule amendments 
will vary significantly across NRSROs. The cost to NRSROs will also 
vary depending on which classes of credit ratings an NRSRO issues and 
how many outstanding ratings it has in each class. NRSROs which issue 
credit ratings for structured finance products may incur higher 
compliance costs than those NRSROs which do not issue such credit 
ratings or issue very few credit ratings in that class. For these 
reasons, the cost estimates represent the average cost across all 
NRSROs.
1. Amendment to Rule 17g-2
    The amendments to paragraph (d) of Rule 17g-2 require NRSROs to 
make 100% of their ratings action histories for any credit rating 
initially determined on or after June 26, 2007 publicly available in an 
interactive data file that uses a machine-readable format, with either 
a twelve month or twenty-four month grace period, depending on whether 
the rating action relates to an issuer-paid credit rating or not.\257\ 
An NRSRO will be allowed to use any machine-readable format to make 
this data publicly available until 60 days after the date on which the 
Commission publishes a List of XBRL Tags for NRSROs on its Internet Web 
site, at which point the NRSRO will be required to make the information 
available in XBRL format using the Commission's List of XBRL Tags for 
NRSROs. As discussed with respect to the PRA, the Commission estimates 
that the total aggregate one-time burden to the industry to make the 
history of its rating actions publicly available initially in a 
machine-readable format, and subsequently in XBRL, will be 2,550 hours 
\258\ and the total aggregate annual burden hours will be 450 
hours.\259\ For cost purposes, the Commission believes that a senior 
programmer will perform the functions required to comply with these 
requirements. Accordingly, the Commission estimates that an NRSRO will 
incur an average one-time cost of $24,820 and an average annual cost of 
$4,380, as a result of the proposed amendment.\260\ The Commission does 
not believe the NRSRO will incur any additional software cost from 
initially providing the information in machine-readable format prior to 
transitioning to XBRL. Based on staff experience, the Commission 
believes that NRSROs already have the necessary software to provide 
this disclosure in machine-readable format. Moreover, the Commission 
notes that currently seven NRSROs are providing the disclosure required 
pursuant to Rule 17g-2(d) (or the 10% requirement) in machine-readable 
format. Therefore, the Commission estimates the total aggregate one-
time paperwork cost to the industry will be $744,600 \261\ and the 
total aggregate paperwork costs annual cost to the industry will be 
$131,400.\262\
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    \257\ See 17 CFR 240.17g-2(d).
    \258\ 45 hours x 30 NRSROs = 1,350 hours + 5 hours x 30 NRSROs 
for the one time burden of switching the disclosure to XBRL for a 
total of 1,500; see also supra note 209 at accompanying text.
    \259\ 15 hours x 30 NRSROs = 450 hours; see also supra note 210 
at accompanying text.
    \260\ The SIFMA 2008 Report as Modified indicates that the 
average hourly cost for a Senior Programmer is $292. Therefore, the 
average one-time cost would be $24,820 [(45 hours x $292 per hour) + 
(40 hours x $292 per hour for the transition to disclose the 
information in XBRL)] and the average annual cost would be $4,380 
(15 hours per year x $292 per hour). In the February 2009 Proposing 
Release, the Commission based its estimate on an average hourly cost 
of $289 for a Senior Programmer as set forth in the SIFMA 2007 
Report as Modified, which resulted in estimates of a one-time cost 
of $13,005 (45 hours x $289 per hour) and an average annual cost of 
$4,335 (15 hours per year x $289 per hour).
    \261\ $24,820 x 30 NRSROs = $744,600. The estimate set forth in 
the February 2009 Proposing Release was $390,050 ($13,005 x 30 
NRSROs).
    \262\ $4,380 x 30 NRSROs = $131,400. The estimate set forth in 
the February 2009 Proposing Release was $130,150 ($4,335 x 30 
NRSROs).
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    In the February 2009 Proposing Release, the Commission noted that 
the amendments may impose other costs. For example, making some 
information about ratings action histories available to the public for 
free may have some impact on the business models of NRSROs, although 
the amendment is designed to minimize any such impact. Further, the 
rule may affect NRSROs with different revenue sources and business 
models differently.
    The Commission generally requested comment on all aspects of these 
cost estimates for the proposed amendments to paragraph (d) of Rule 
17g-2. In addition, the Commission requested specific comment on the 
costs, for example, costs that will result from lost revenues incurred 
because NRSROs subject to the rule may not be able to sell ratings 
action histories if they are required to be publicly disclosed.\263\ 
The Commission received seven letters that addressed the costs 
associated with complying with the proposed amendments to paragraph (d) 
of Rule 17g-2.\264\ Several commenters argued that the proposed 
amendments entailed a higher likelihood of substantial financial harm 
to subscriber-paid NRSROs,\265\ potentially resulting in fatal harm to 
the viability of the subscriber-paid business model.\266\ Three 
commenters stated that without a longer grace period, the subscriber-
based NRSROs would suffer a negative impact on sales of their 
products.\267\ Two commenters stated that the proposed amendment would 
reduce the diversification of their revenue sources.\268\ None of these 
commenters, however, provided any figures quantifying these costs.
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    \263\ See February 2009 Proposing Release 74, FR at 6503.
    \264\ See JCR Letter, ASF/SIFMA Letter, R&I Letter, Realpoint 
Letter, Moody's Letter, and S&P Letter.
    \265\ See e.g., Hunt Letter; Realpoint Letter; Rapid Ratings 
Statement.
    \266\ See e.g., Rapid Ratings Statement.
    \267\ See JCR Letter, R&I Letter, and Realpoint Statement.
    \268\ See Moody's Letter, S&P Letter.
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    As discussed in detail above,\269\ the Commission believes that the 
grace periods in the rule will significantly mitigate the negative 
impact on NRSRO revenues that are derived from selling access to 
current ratings and downloads

[[Page 63859]]

of current ratings. The Commission believes that the parties that pay 
subscription fees for access to NRSRO credit ratings and who pay for 
access to downloadable packages of issuer-paid and unsolicited credit 
ratings are unlikely to reconsider their purchase of those products due 
to the public availability of twelve to twenty-four month-old ratings 
action information. The Commission believes that most of the persons 
who pay for these services want access to the NRSRO's current views on 
the creditworthiness of obligors and debt instruments; as such, it is 
not likely that they will view credit ratings that may be as much as 
twenty-four months old as an adequate substitute for access to the 
NRSRO's current credit ratings. Furthermore, the amended rule, as 
adopted, does not require the disclosure of the analysis and report 
that typically accompany the publication of a credit rating. NRSROs 
will continue to be able to distribute such information as they see 
fit, including selling information to subscribers, which should serve 
to mitigate any such potential loss. As explained in detail above, the 
Commission's goals in adopting the amendments are to improve ratings 
quality for the protection of investors and in the public interest by 
fostering accountability, transparency, and competition in the credit 
rating industry, and the Commission has balanced carefully its goals 
with the potential costs. While the Commission believes that NRSRO 
revenues derived from selling access to current ratings and downloads 
of current ratings will not be affected significantly by these new 
disclosure requirements, as previously stated, the Commission intends 
to closely monitor the impact, if any, they have on those revenues.
---------------------------------------------------------------------------

    \269\ See supra discussion in Section II.D.
---------------------------------------------------------------------------

    To the extent NRSROs derive revenues from selling access to their 
ratings histories, the Commission acknowledges that the new rule may 
well have a negative impact on this revenue stream. As noted above, the 
amended rule does not require NRSROs to disclose the analysis or report 
that typically accompany a credit rating, which is expected to mitigate 
any potential loss of revenue. Also, as noted above, information 
gathered by Commission staff over the course of discussions with NRSROs 
indicates that the amount of revenues they derived from selling access 
to ratings histories is not significant when compared to the revenues 
derived from other credit rating services. Nonetheless, the Commission 
will monitor this issue and, as part of that monitoring, the Commission 
encourages an NRSRO to notify the Commission if the rule causes a loss 
of this revenue source that is significant when compared to its total 
revenues.
    While the Commission intends to closely monitor the impact, if any, 
of the rule amendments being adopted today on the revenue derived from 
selling access to current and historical ratings as discussed above, 
the Commission notes that a decrease in revenues could be the result of 
a number of factors. External factors, such as a reduction in 
regulatory emphasis on credit ratings, an increase in the level of 
independent analysis performed by investors, and a loss of confidence 
in the quality of ratings generally could result in an industry-wide 
loss of revenues unrelated to the rule amendments being adopted today. 
In addition, the increased transparency provided by the rule may cause 
users of credit ratings to shift their business to an NRSRO that the 
marketplace views as providing better credit ratings.
    One commenter raised an issue regarding the costs associated with 
supplying the disclosure with the required CUSIP, stating that it 
anticipates an increase in transaction costs to amend its CUSIP license 
as well as a potentially higher annual licensing fee.\270\ The 
Commission notes that it addressed the potential increased costs 
associated with CUSIP licensing security in the February 2009 Adopting 
Release and that it believes that the estimates and evaluations of the 
costs set forth at that time continue to be valid.\271\
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    \270\ See Moody's Letter.
    \271\ See February 2009 Adopting Release, 74 FR at 6477.
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2. Amendment to Rule 17g-5
    Rule 17g-5 requires an NRSRO to manage and disclose certain 
conflicts of interest \272\ and prohibits certain other types of 
conflicts of interest outright.\273\ The amendments to Rule 17g-5 add 
an additional conflict to paragraph (b) of Rule 17g-5 for NRSROs to 
manage: Issuing or maintaining a credit rating for a security or money 
market instrument issued by an asset pool or as part of an asset-backed 
or mortgage-backed securities transaction that was paid for by the 
issuer, sponsor, or underwriter of the security or money market 
instrument.\274\ The amendments further specify that an NRSRO subject 
to this conflict is prohibited from issuing a credit rating for a 
structured finance product, unless certain information about the 
transaction and the assets underlying the structured finance product 
are disclosed: The amendments require an NRSRO that is hired by 
arrangers to perform credit ratings for structured finance products to 
disclose to other NRSROs the deals for which it is in the process of 
determining such credit ratings and to obtain representations from 
arrangers that the arrangers will provide the same information given to 
the hired NRSRO to other NRSROs. Specifically, an NRSRO rating such 
products will need to disclose to other NRSROs the following 
information on a password protected Internet Web site: A list of each 
such security or money market instrument for which it is currently in 
the process of determining an initial credit rating in chronological 
order and identifying the type of security or money market instrument, 
the name of the issuer, the date the rating process was initiated, and 
the Internet Web site address where the issuer, sponsor, or underwriter 
of the security or money market instrument represents that the 
information described in paragraphs (a)(3)(iii)(C) and (D) of Rule 17g-
5 as amended can be accessed.\275\
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    \272\ 17 CFR 240.17g-5(a) and (b).
    \273\ 17 CFR 240.17g-5(c).
    \274\ Paragraph (b)(9) of Rule 17g-5.
    \275\ Paragraph (a)(3)(i) of Rule 17g-5.
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    The Commission estimates that the average one-time cost to each 
NRSRO to establish the Internet Web site required under the rule as 
amended would be $66,900,\276\ resulting in a total aggregate one-time 
cost to all NRSROs of $2,007,000.\277\ As discussed with respect to the 
PRA, the Commission estimates a total aggregate annual hour burden of 
14,880 hours.\278\ The Commission estimates that the average annual 
cost to a large NRSRO would be $799,280, the average annual cost to an 
NRSRO not in that category would be

[[Page 63860]]

$24,720,\279\ and the total aggregate annual cost to NRSROs will be 
$3,065,280.\280\
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    \276\ The Commission believes that an NRSRO would have a 
Compliance Manager and a Programmer Analyst perform these 
responsibilities, and that each would spend 50% of the estimated 
hours performing these responsibilities. The SIFMA 2008 Report as 
Modified indicates that the average hourly cost for a Compliance 
Manager is $258 and the average hourly cost for a Programmer Analyst 
is $193. Therefore, the average one-time cost to an NRSRO would be 
(150 hours x $253) + (150 hours x $193) = $66,900. In the February 
2009 Proposing Release, the Commission based its estimate on an 
average hourly cost of $245 for a Compliance Manager and $194 for a 
Programmer Analyst as set forth in the SIFMA 2007 Report as 
Modified, which resulted in an estimate of an average one-time cost 
to an NRSRO of (150 hours x $245) + (150 hours x $194) = $65,850.
    \277\ $66,900 x 30 NRSROs = $2,007,000. The estimate set forth 
in the February 2009 Proposing Release was $1,975,500 ($65,850 x 30 
NRSROs).
    \278\ (3,880 hours per large NRSRO x 3) + (120 hours per NRSRO 
not in that category x 27) = 14,880 hours.
    \279\ The Commission believes that an NRSRO would have a 
Webmaster perform these responsibilities. The SIFMA 2008 Report as 
Modified indicates that the average hourly cost for a Webmaster is 
$206. Therefore, the average annual cost for a large NRSRO averaging 
3,880 structured finance ratings would be $799,280 (3,880 hours x 
$206) and the average annual cost for an NRSRO not in that category 
averaging 120 structured finance ratings would be $24,720 (120 hours 
x $206). In the February 2009 Proposing Release, the Commission 
based its estimate on an average hourly cost of $205 for a Webmaster 
as set forth in the SIFMA 2007 Report as Modified, which resulted in 
an estimate of an average annual cost to a large NRSRO of $795,400 
(3,880 hours x $205) and an average annual cost to NRSROs not in 
that category of $24,600 (120 hours x $205 = $24,600.)
    \280\ ($799,280 x 3) + ($24,720 x 27) = $3,065,280.
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    The amendments also require the hired NRSRO to obtain 
representations from the arranger that the arranger will disclose the 
following information:
     All information the issuer, sponsor, or underwriter 
provides to the nationally recognized statistical rating organization 
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 nationally recognized statistical rating organization; and
     All information the issuer, sponsor, or underwriter 
provides to the nationally recognized statistical rating organization 
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 nationally recognized statistical rating 
organization.\281\
---------------------------------------------------------------------------

    \281\ See 17 CFR 240.17g-5(a)(3)(iii).
---------------------------------------------------------------------------

    For purposes of the PRA, as discussed above, the Commission 
estimates that it will take an NRSRO approximately 5 hours to develop 
the written representation that the NRSRO is required to obtain from 
the issuer, sponsor or underwriter. The Commission estimates that the 
average one-time cost to an NRSRO would be $1,525 and the total 
aggregate one-time cost to NRSROs will be $45,750.\282\
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    \282\ The Commission believes that the NRSRO would have an in-
house Attorney perform these responsibilities. The SIFMA 2008 Report 
as Modified indicates that the average hourly cost for an Attorney 
is $305. Therefore, the average one-time cost to an NRSRO would be 
(5 hours x $305) = $1,525, and the aggregate one-time cost to an 
NRSRO would be 30 NRSROs x $1,525 = $45,750.
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    For purposes of the PRA, as discussed above, the Commission 
estimates that it will take an arranger approximately 300 hours to 
develop a system, as well as policies and procedures to disclose the 
information. This results in a total one-time hour burden of 60,000 
hours for 200 arrangers.\283\ For these reasons, the Commission 
estimates that the average one-time cost to each arranger will be 
$66,900 \284\ and the total aggregate one-time cost to the industry 
would be $13,380,000.\285\
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    \283\ 300 hours x 200 respondents = 60,000 hours.
    \284\ The Commission believes that an arranger would have a 
Compliance Manager and a Programmer Analyst perform these 
responsibilities, and that each would spend 50% of the estimated 
hours performing these responsibilities. The SIFMA 2008 Report as 
Modified indicates that the average hourly cost for a Compliance 
Manager is $258 and the average hourly cost for a Programmer Analyst 
is $193. Therefore, the average one-time cost to an arranger would 
be (150 hours x $253) + (150 hours x $193) = $66,900. In the 
February 2009 Proposing Release, the Commission based its estimate 
on an average hourly cost of $245 for a Compliance Manager and $194 
for a Programmer Analyst as set forth in the SIFMA 2007 Report as 
Modified, which resulted in an estimate of an average one-time cost 
to an arranger of (150 hours x $245) + (150 hours x $194) = $65,850.
    \285\ $66,900 x 200 arrangers = $13,380,000. The estimate set 
forth in the February 2009 Proposing Release was $13,117,000 
($65,850 x 200 arrangers = $13,117,000).
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    As discussed with respect to the PRA, in addition to the one-time 
hour burden, arrangers also will disclose the information on a 
transaction by transaction basis. Based on staff experience and the 
estimate of 4,000 new structured finance deals per year, as discussed 
above, the Commission estimates that the amendments will result in each 
arranger disclosing information with respect to approximately 20 new 
transactions per year and that it will take approximately 1 hour per 
transaction to make the information publicly available.\286\ Therefore, 
as discussed with respect to the PRA, the Commission estimates that the 
total aggregate annual hour burden for arrangers will be 4,000 
hours.\287\ The Commission estimates that the average annual cost to a 
respondent to be $4,120 \288\ and the total annual cost to the industry 
to be $824,000.\289\
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    \286\ This estimate is based on the arranger already 
implementing the system and policies and procedures for disclosure. 
The Commission cannot estimate the number of initial transactions 
per year with certainty. The Commission believes that the number of 
deals on which each arranger will disclose information will vary 
widely based on the size of the arranger. In addition, the 
Commission believes that the number of asset-backed or mortgaged-
backed issuances being rated by NRSROs in the next few years is 
difficult to predict given the recent credit market turmoil. The 
estimates, however, reflect the Commission's best assessment of the 
number of transactions based on experience and the available data.
    \287\ 20 hours x 200 respondents = 4,000 hours.
    \288\ The Commission believes that an arranger would have a 
Webmaster perform these responsibilities. The SIFMA 2008 Report as 
Modified indicates that the average hourly cost for a Webmaster is 
$206. Therefore, the average one-time cost to a respondent would be 
20 hours x $206 = $4,120. In the February 2009 Proposing Release, 
the Commission based its estimate on an average hourly cost of $205 
for a Webmaster as set forth in the SIFMA 2007 Report as Modified, 
which resulted in an estimate of an average one-time cost to an 
arranger of $4,100 (20 hours x $205 = $4,100.)
    \289\ $4,120 x 200 respondents = $824,000. The estimate set 
forth in the February 2009 Proposing Release was $820,000 ($4,100 x 
200 respondents = $820,000.)
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    Rule 17g-5(a)(3)(iii)(D) requires hired NRSROs to obtain 
representations from the arranger that the arranger will disclose 
information provided to the hired NRSRO to undertake credit rating 
surveillance on a structured product. Because surveillance covers more 
than just initial ratings, the Commission estimates that an arranger 
will disclose information with respect to approximately 125 
transactions on an ongoing basis and that the information will be 
provided to the hired NRSRO on a monthly basis. As discussed with 
respect to the PRA, the Commission estimates a total aggregate annual 
burden hours of 150,000 hours.\290\ The Commission estimates that the 
average annual cost to a respondent will be $154,500 \291\ and the 
total annual cost to the industry will be $30,900,000.\292\
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    \290\ 750 hours x 200 respondents = 150,000 hours.
    \291\ The Commission believes that an arranger would have a 
Webmaster perform these responsibilities. The SIFMA 2008 Report as 
Modified indicates that the average hourly cost for a Webmaster is 
$206. Therefore, the average annual cost to a respondent would be 
750 hours x $206 = $154,500. In the February 2009 Proposing Release, 
the Commission based its estimate on an average hourly cost of $205 
for a Webmaster as set forth in the SIFMA 2007 Report as Modified, 
which resulted in an estimate of an average annual cost to an 
arranger of $153,750 (750 hours x $205 = $153,750.)
    \292\ $154,500 x 200 respondents = $30,900,000. The estimate set 
forth in the February 2009 Proposing Release was $30,750,000 
($153,750 x 200 respondents = $30,750,000).
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    An NRSRO that wishes to access information on another NRSRO's Web 
site or on an arranger's Web site will need to provide the Commission 
with an annual certification described in proposed new paragraph (e) to 
Rule 17g-5. In the PRA, the Commission estimates an aggregate annual 
hour burden to the industry of 60 hours.\293\ For these reasons, the 
Commission estimates it will cost an NRSRO approximately $516 dollars 
per year \294\

[[Page 63861]]

and the industry $15,480 per year to comply with the certification 
requirement.\295\
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    \293\ 2 hours x 30 NRSROs = 60 hours.
    \294\ The Commission believes that an NRSRO would have a 
Compliance Manager prepare the annual certification. The SIFMA 2008 
Report as Modified indicates that the average hourly cost for a 
Compliance Manager is $258. Therefore, the average annual cost to an 
arranger would be $516 (2 hours x $258 = $516). In the February 2009 
Proposing Release, the Commission based its estimate on an average 
hourly cost of $245 for a Compliance Manager which resulted in an 
estimate of an average annual cost to an arranger of $490 (2 hours x 
$245 = $490.)
    \295\ $516 x 30 NRSROs = $15,480. The estimate set forth in the 
February 2009 Proposing Release was $14,700 ($490 x 30 NRSROs = 
$14,700).
---------------------------------------------------------------------------

    The Commission requested comment on all aspects of these cost 
estimates for the amendments to Rule 17g-5. In addition, the Commission 
requested specific comment on whether the proposals impose costs on 
other market participants, including persons who use credit ratings to 
make investment decisions or for regulatory purposes, and persons who 
purchase services and products from NRSROs; and whether there would be 
additional costs not identified.\296\ The Commission received three 
comment letters that addressed the costs associated with the amendments 
to Rule 17g-5.\297\ One commenter stated that the consideration of 
financial impact should be based on the economic value a given entity 
contributes to the economy and not the company's financial health.\298\ 
Another stated that the proposal would create the need for additional 
technology and staff, especially in consideration of the strong 
controls needed to protect the proprietary data published on the Web 
site.\299\ The third commenter raised the concern that the formulations 
of the disclosures and information-sharing proposals could create costs 
that outweigh any burden.\300\ As discussed above, the Commission 
believes the benefits of the enhanced disclosure requirements pursuant 
to Rule 17g-5 justify the costs.
---------------------------------------------------------------------------

    \296\ See February 2009 Proposing Release, 74 FR at 6505.
    \297\ See Marchywka Letter, FSR Letter, ASF Statement.
    \298\ See Marchywka Letter.
    \299\ See FSR Letter.
    \300\ See ASF Statement.
---------------------------------------------------------------------------

    Lastly, the Commission notes that the conforming amendment to 
Regulation FD needed to facilitate the disclosure requirements under 
Rule 17g-5 will not result in any additional costs.

VI. Consideration of Burden on Competition and Promotion of Efficiency, 
Competition, and Capital Formation

    Section 23(a)(2) of the Exchange Act \301\ requires the Commission, 
when making rules and regulations under the Exchange Act, to consider 
the impact a new rule would have on competition. In addition, Section 
23(a)(2) of the Exchange Act prohibits the Commission from adopting any 
rule that would impose a burden on competition not necessary or 
appropriate in furtherance of the purposes of the Exchange Act. Section 
3(f) of the Exchange Act \302\ requires the Commission, when engaging 
in rulemaking that requires it to consider or determine whether an 
action is necessary or appropriate in the public interest, to consider 
whether the action would promote efficiency, competition, and capital 
formation.
---------------------------------------------------------------------------

    \301\ 15 U.S.C. 78w(a).
    \302\ 15 U.S.C. 78c(f).
---------------------------------------------------------------------------

    As discussed in detail above, the amendments to paragraph (d) of 
Rule 17g-2 are designed to provide the marketplace with additional 
information for comparing the ratings performance of NRSROs and, 
therefore, provide users of credit ratings with more useful metrics 
with which to compare these NRSROs. Increased disclosure of ratings 
history for credit ratings will make the performance of the NRSROs more 
transparent to the marketplace and, thereby, highlight those firms that 
do a better job analyzing credit risk. This may cause users of credit 
ratings to give greater weight to credit ratings of NRSROs that 
distinguish themselves by creating a track record of better credit 
rating performance than their peers. Moreover, to the extent this 
improves the quality of the credit ratings, persons that use credit 
ratings to make investment or lending decisions would have better 
information upon which to base their decisions. As a consequence, the 
rule may result in a more efficient allocation of capital and loans to 
issuers and obligors based on the risk appetites of the investors and 
lenders. The Commission believes that this enhanced disclosure will 
benefit smaller NRSROs that determine issuer-paid credit ratings to the 
extent they do a better job of assessing creditworthiness because these 
smaller NRSROs will be better able to compete with the larger NRSROs 
for new business; users of credit ratings will be able to compare 
credit rating performance, allowing smaller NRSROs more easily to 
compete based on quality and creditability of their ratings.
    Also as discussed in detail above, the amendments to paragraphs (a) 
and (b) of Rule 17g-5 are designed to enhance competition among NRSROs. 
The goal of these amendments is to provide a mechanism to enhance the 
ability of NRSROs to prepare unsolicited credit ratings, which would 
provide users of credit ratings with more assessments of the 
creditworthiness of a structured finance product. This mechanism may 
expose NRSROs whose procedures and methodologies for determining credit 
ratings are less conservative in order to gain business. In the same 
way, by creating a mechanism for a range of NRSROs to issue ratings, it 
also may mitigate the impact of rating shopping if ratings issued by 
NRSROs not hired to rate a deal differ from those of hired NRSROs. 
These potential impacts of the amendments may help to restore 
confidence in credit ratings and, thereby, promote capital formation. 
The Commission further believes that these amendments could promote the 
more efficient allocation of capital by investors to the extent the 
quality of credit ratings is improved. In addition, these amendments 
could increase competition by creating a mechanism for smaller NRSROs 
to obtain the information necessary to rate structured products and to 
market themselves based on a demonstrated proficiency in rating these 
structured products.
    The Commission generally requested comment on all aspects of this 
analysis of its consideration of the effect on competition and 
promotion of efficiency, competition, and capital formation. Several 
commenters argued that the proposed amendments entailed a higher 
likelihood of substantial financial harm to subscriber-paid 
NRSROs,\303\ potentially resulting in fatal harm to the viability of 
the subscriber-paid business model.\304\ Three commenters stated that 
without a longer grace period, the subscriber-based NRSROs would suffer 
a negative impact on sales of their products.\305\
---------------------------------------------------------------------------

    \303\ See e.g., Hunt Letter; Realpoint Letter; Rapid Ratings 
Statement.
    \304\ See e.g., Rapid Ratings Statement.
    \305\ See JCR Letter, R&I Letter, and Realpoint Statement.
---------------------------------------------------------------------------

    As discussed in detail above, the Commission acknowledges the 
different grace periods provided for ratings disclose with respect to 
credit ratings that are issuer-paid or not.\306\ The Commission 
believes that any competitive effects are limited because of the 
tailored time periods. The Commission believes that the twenty-four 
month grace period will significantly mitigate the negative impact on 
NRSRO revenues that are derived from selling subscriptions to their 
credit ratings and that the twelve month grace period will mitigate the 
impact on NRSRO revenues that are derived from selling downloadable 
access to their current credit ratings. Furthermore, the Commission 
believes that the parties that pay subscription fees for access to 
NRSRO credit ratings

[[Page 63862]]

are unlikely to reconsider their purchase of those products due to the 
public availability of twenty-four month-old ratings action 
information. Likewise, the Commission believes that persons who pay for 
downloadable access to their current credit ratings are unlikely to re-
consider their purchase of those products due to the public 
availability for databases containing twelve-month-old ratings action 
information.\307\ The Commission believes that most of the persons who 
pay for these services want access to the NRSRO's current views on the 
creditworthiness of obligors and debt instruments; as such, it is not 
likely that they will view credit ratings that are twelve to twenty-
four months old as an adequate substitute for access to the NRSRO's 
current credit ratings. As noted previously, the amended rule, as 
adopted, does not require the disclosure of the analysis and report 
that typically accompany the publication of a credit rating. NRSROs 
will continue to be able to distribute such information as they see 
fit, including restricting access to such information to paying 
subscribers, which should serve to mitigate any potential loss of 
subscribers.
---------------------------------------------------------------------------

    \306\ See supra discussion in Section II.D.
    \307\ Id.
---------------------------------------------------------------------------

    As stated above, the Commission's goals in adopting the amendments 
are to improve ratings quality for the protection of investors and in 
the public interest by fostering accountability, transparency, and 
competition in the credit rating industry. Enacting regulations that 
would threaten the ability of competitors to enter and compete with 
existing NRSROs in a manner consistent with the Exchange Act would be 
adverse to these goals. While the Commission believes that NRSRO 
revenues derived from selling access to current credit ratings will not 
be affected significantly by these new disclosure requirements, as 
previously stated, the Commission intends to closely monitor the 
impact, if any, they have on those revenues.

VII. Final Regulatory Flexibility Analysis

    The Commission proposed amendments to Rules 17g-2 and 17g-5 under 
the Exchange Act. An Initial Regulatory Flexibility Analysis (``IRFA'') 
was published in the February 2009 Proposing Release.\308\ The 
Commission has prepared the following Final Regulatory Flexibility 
Analysis (``FRFA''), in accordance with the provisions of the 
Regulatory Flexibility Act,\309\ regarding the amendments to Rules 17g-
2 and 17g-5 under the Exchange Act.
---------------------------------------------------------------------------

    \308\ See February 2009 Proposing Release, 74 FR at 6506.
    \309\ 5 U.S.C. 603.
---------------------------------------------------------------------------

A. Need for and Objective of the Amendments

    The amendments prescribe additional requirements for NRSROs to 
address concerns relating to the transparency of ratings actions and 
the conflicts of interest at NRSROs. The objectives of the Rating 
Agency Act are ``to improve ratings quality for the protection of 
investors and in the public interest by fostering accountability, 
transparency, and competition in the credit rating industry.'' \310\ 
The amendments are designed to improve the transparency of credit 
ratings performance by making credit ratings actions publicly available 
and the accuracy of credit ratings for structured finance products by 
increasing competition among the NRSROs that rate these securities and 
money market instruments.
---------------------------------------------------------------------------

    \310\ See Senate Report.
---------------------------------------------------------------------------

B. Significant Issues Raised by Commenters

    The Commission sought comment with respect to every aspect of the 
IRFA, including comments with respect to the number of small entities 
that may be affected by the amendments.\311\ The Commission asked 
commenters to specify the costs of compliance with the proposed rules 
and suggest alternatives that would accomplish the goals of the 
rules.\312\ The Commission did not receive any comments on the IRFA. 
The Commission, did, however receive comments arguing that the 
amendments requiring disclosure of 100% of ratings actions would 
negatively impact the revenue of NRSROs operating under the subscriber-
paid model, although these commenters did not address whether their 
comments pertained to entities that would be small businesses for 
purposes of Regulatory Flexibility Act analysis.\313\
---------------------------------------------------------------------------

    \311\ See February 2009 Proposing Release 74 FR at 6506.
    \312\ Id.
    \313\ See e.g. JCR Letter; R&I Letter; Realpoint Statement.
---------------------------------------------------------------------------

    As stated above, the Commission believes that the twenty-four month 
grace period will significantly mitigate any negative impact on NRSRO 
revenues that are derived from selling subscriptions to current 
ratings. The parties that pay subscription fees for access to NRSRO 
credit ratings are unlikely to reconsider their purchase of those 
products due to the public availability of twenty-four month-old 
ratings action information. Furthermore, the amended rule, as adopted, 
does not require the disclosure of the analysis and report that 
typically accompany the publication of a credit rating. NRSROs will 
continue to be able to distribute such information as they see fit, 
including restricting access to such information to paying subscribers, 
which should serve to mitigate any potential loss of subscribers. While 
the Commission believes that NRSRO revenues derived from selling access 
to current credit ratings will not be affected significantly by these 
new disclosure requirements, the Commission will closely monitor the 
impact, if any, they have on those revenues. If this monitoring reveals 
that users of credit ratings are ceasing to purchase access to current 
credit ratings or downloads of current credit ratings because of the 
public disclosure of the histories of those ratings, the Commission 
will re-examine the rule and, if appropriate, consider modifications. 
At the same time, the Commission notes that the purpose of the rule is 
to allow users of credit ratings to better assess and compare the 
performance of NRSROs. The increased transparency provided by the rule 
could cause users of credit ratings to shift their business to an NRSRO 
that the marketplace views as providing the highest quality credit 
ratings. As a result, smaller NRSROs may benefit to the extent that 
they are better able to establish a reputation for providing high 
quality ratings and therefore increase their market share.
    Although, the Commission did not receive any comments on the IRFA 
with respect to the re-proposed amendments to Rule 17g-5, the 
Commission did receive comments that addressed the proposal. 
Specifically, one commenter argued that the new disclosure requirement 
would favor large NRSROs with market power at the expense of small 
NRSROs.\314\ The Commission notes that the rule is designed, among 
other things, to benefit small NRSROs to allow them the opportunity to 
rate structured finance products even if they are not hired by the 
arranger to determine the credit rating. The Commission recognizes that 
small NRSROs that are hired by an arranger to rate a structured finance 
product will incur a burden by having to make this information 
available to other NRSROs and conceivably lose business if other NRSROs 
develop a track record for doing a better job. However, the Commission 
believes that the burden of having to disclose the information is not 
significant. Moreover, with respect to losing business the rule is 
designed to foster competition and create a market

[[Page 63863]]

where an NRSRO must perform well in determining a credit rating to 
succeed.
---------------------------------------------------------------------------

    \314\ See JCR Letter.
---------------------------------------------------------------------------

    Three other comments argued that the costs of creating and 
maintaining a Web site are significant and would negatively impact 
smaller NRSROs in addition to potentially creating security risks.\315\ 
As noted above, the Commission is sensitive to the costs of the new 
requirement but does not believe they are significant. As previously 
discussed, all of the NRSROs currently maintain Internet Web sites, in 
most cases with password-protected portals that their subscribers and 
registered users can access to obtain information posted by the NRSRO. 
Consequently, the Commission believes that adding a portal for other 
NRSROs to access pending deal information is not expected to require 
significant additional Internet Web site design and maintenance.
---------------------------------------------------------------------------

    \315\ See DBRS Letter; ASF/SIMFA Letter; Moody's Letter.
---------------------------------------------------------------------------

C. Small Entities Subject to the Rule

    Paragraph (a) of Rule 0-10 provides that for purposes of the 
Regulatory Flexibility Act, a small entity ``[w]hen used with reference 
to an `issuer' or a `person' other than an investment company'' means 
``an `issuer' or `person' that, on the last day of its most recent 
fiscal year, had total assets of $5 million or less.'' \316\ The 
Commission believes that an NRSRO with total assets of $5 million or 
less qualifies as a ``small'' entity for purposes of the Regulatory 
Flexibility Act.
---------------------------------------------------------------------------

    \316\ 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

    As noted in the June 2007 Adopting Release,\317\ the Commission 
believes that approximately 30 credit rating agencies ultimately would 
be registered as an NRSRO. Currently, there are two NRSROs that are 
classified as ``small'' entities for purposes of the Regulatory 
Flexibility Act.\318\
---------------------------------------------------------------------------

    \317\ June 2007 Adopting Release, 72 FR at 33618.
    \318\ See 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

D. Projected Reporting, Recordkeeping, and Other Compliance 
Requirements

    The amendments to paragraph (d) Rule 17g-2 add the requirement that 
an NRSRO disclose ratings actions histories in an interactive data file 
that uses a machine-readable format for all credit ratings initially 
determined on or after June 26, 2007, with each new ratings action to 
be reflected in such publicly disclosed histories no later than twelve 
months after the action for rating actions related to credit ratings 
that are issuer-paid, and no later than twenty-four months after it is 
taken for rating actions related to credit ratings that are not issuer-
paid.\319\ An NRSRO will be allowed to use any machine-readable format 
to make this data publicly available until 60 days after the date on 
which the Commission publishes a List of XBRL Tags for NRSROs on its 
Internet Web site, at which point the NRSRO will be required to make 
the information available in XBRL format using the Commission's List of 
XBRL Tags for NRSROs.\320\ This new disclosure requirement applies to 
all NRSRO credit ratings regardless of the business model under which 
they are determined.
---------------------------------------------------------------------------

    \319\ See Paperwork Reduction Act, supra Section IV.
    \320\ See 17 CFR 240.17g-2(d).
---------------------------------------------------------------------------

    The amendments to paragraphs (a) and (b) of Rule 17g-5 being 
adopted today require an NRSRO that is hired by arrangers to perform 
credit ratings for structured finance products (1) to disclose to non-
hired NRSROs that have furnished the Commission with the certificate 
described below the deals for which they are in the process of 
determining such credit ratings and (2) to obtain written 
representations from arrangers on which the NRSRO can reasonably rely 
that the arrangers will provide information given to the hired NRSRO to 
non-hired NRSROs that have furnished the Commission with the 
certificate described below.\321\ In addition, a new paragraph (e) of 
Rule 17g-5 requires NRSROs seeking to access the information maintained 
by the NRSROs and the arrangers pursuant to the amended rules to 
furnish the Commission an annual certification that they are accessing 
the information solely to determine credit ratings and will determine a 
minimum number of credit ratings using that information.\322\
---------------------------------------------------------------------------

    \321\ See 17 CFR 240.17g-5(a)(3) and (b)(9); see also Paperwork 
Reduction Act, supra Section IV.
    \322\ See 17 CFR 240.17g-5(e).
---------------------------------------------------------------------------

E. Significant Alternatives

    Pursuant to Section 3(a) of the Regulatory Flexibility Act,\323\ 
the Commission must consider certain types of alternatives, including: 
(1) The establishment of differing compliance or reporting requirements 
or timetables that take into account the resources available to small 
entities; (2) the clarification, consolidation, or simplification of 
compliance and reporting requirements under the rule for small 
entities; (3) the use of performance rather than design standards; and 
(4) an exemption from coverage of the rule, or any part of the rule, 
for small entities.
---------------------------------------------------------------------------

    \323\ 5 U.S.C. 603(c).
---------------------------------------------------------------------------

    The Commission is not establishing different compliance or 
reporting requirements or timetables but is using performance 
standards. The Commission believes that obtaining comparable 
information from NRSROs regardless of size is important. Moreover, 
because the amendments are designed to improve the overall quality of 
ratings by promoting transparency, accountability, and competition, and 
to enhance the Commission's oversight, the Commission believes that 
small entities should be covered by the rule.

VIII. Statutory Authority

    The Commission is amending Rule 17g-2 and Rule 17g-5 pursuant to 
the authority conferred by the Exchange Act, including Sections 3(b), 
15E, 17, and 23(a).\324\
---------------------------------------------------------------------------

    \324\ 15 U.S.C. 78c(b), 78o-7, 78q, and 78w.
---------------------------------------------------------------------------

Text of the Amendments

List of Subjects in 17 CFR Parts 240 and 243

17 CFR Part 240

    Brokers, Reporting and recordkeeping requirements, Securities.

17 CFR Part 243

    Reporting and recordkeeping requirements, Securities.

0
In accordance with the foregoing, the Commission amends Title 17, 
Chapter II of the Code of Federal Regulations as follows.

PART 240--GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 
1934

0
1. The authority citation for part 240 continues to read in part as 
follows:

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3, 
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i, 
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u-5, 
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4, 
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise 
noted.
* * * * *

0
2. Section 240.17g-2 is amended by revising paragraph (d) to read as 
follows:

Sec.  240.17g-2  Records to be made and retained by nationally 
recognized statistical rating organizations.

* * * * *
    (d)(1) Manner of retention. An original, or a true and complete 
copy of the original, of each record required to be retained pursuant 
to paragraphs (a) and (b) of this section must be maintained in a 
manner that, for the applicable retention period specified in paragraph 
(c) of this section, makes the original record or copy easily 
accessible

[[Page 63864]]

to the principal office of the nationally recognized statistical rating 
organization and to any other office that conducted activities causing 
the record to be made or received.
    (2) A nationally recognized statistical rating organization must 
make and keep publicly available on its corporate Internet Web site in 
an XBRL (eXtensible Business Reporting Language) format the ratings 
action information for ten percent of the outstanding credit ratings 
required to be retained pursuant to paragraph (a)(8) of this section, 
selected on a random basis, for each class of credit rating for which 
it is registered and for which it has issued 500 or more outstanding 
credit ratings paid for by the obligor being rated or by the issuer, 
underwriter, or sponsor of the security being rated. Any ratings action 
required to be disclosed pursuant to this paragraph (d)(2) need not be 
made public less than six months from the date such ratings action is 
taken. If a credit rating made public pursuant to this paragraph is 
withdrawn or the instrument rated matures, the nationally recognized 
statistical rating organization must randomly select a new outstanding 
credit rating from that class of credit ratings in order to maintain 
the 10 percent disclosure threshold. In making the information 
available on its corporate Internet Web site, the nationally recognized 
statistical rating organization shall use the List of XBRL Tags for 
NRSROs as specified on the Commission's Internet Web site.
    (3)(i)(A) A nationally recognized statistical rating organization 
must make publicly available on its corporate Internet Web site in an 
interactive data file that uses a machine-readable format the ratings 
action information required to be retained pursuant to paragraph (a)(8) 
of this section for any credit rating initially determined by the 
nationally recognized statistical rating organization on or after June 
26, 2007.
    (B) Any ratings action information required to be made and kept 
publicly available on a nationally recognized statistical rating 
organization's corporate Internet Web site pursuant to paragraph 
(d)(3)(i)(A) of this section with respect to credit ratings paid for by 
the obligor being rated or by the issuer, underwriter, or sponsor of 
the security being rated need not be made public less than twelve 
months from the date such ratings action is taken.
    (C) Any ratings action information required to be made and kept 
publicly available on a nationally recognized statistical rating 
organization's corporate Internet Web site pursuant to paragraph 
(d)(3)(i)(A) of this section with respect to credit ratings other than 
those ratings described in paragraph (d)(3)(i)(B) of this section need 
not be made public less than twenty-four months from the date such 
ratings action is taken.
    (ii) In making the information required under paragraph (d)(3)(i) 
of this section available in an interactive data file on its corporate 
Internet Web site, the nationally recognized statistical rating 
organization shall use any machine-readable format, including but not 
limited to XBRL format, until 60 days after the date on which the 
Commission publishes a List of XBRL Tags for NRSROs on its Internet Web 
site, at which point the nationally recognized statistical rating 
organization shall make this information available in an interactive 
data file on its corporate Internet Web site in XBRL format using the 
List of XBRL Tags for NRSROs as published by the Commission on its 
Internet Web site.
* * * * *
0
3. Section 240.17g-5 is amended by:
0
a. Removing the word ``and'' at the end of paragraph (a)(1);
0
b. Removing the period at the end of paragraph (a)(2) and in its place 
adding ``; and'';
0
c. Adding paragraph (a)(3);
0
d. Redesignating paragraph (b)(9) as paragraph (b)(10);
0
e. Adding new paragraph (b)(9); and
0
f. Adding new paragraph (e).
    The additions read as follows:

Sec.  240.17g-5  Conflicts of interest.

    (a) * * *
    (3) In the case of the conflict of interest identified in paragraph 
(b)(9) of this section relating to 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, the nationally recognized statistical rating organization:
    (i) Maintains on a password-protected Internet Web site a list of 
each such security or money market instrument for which it is currently 
in the process of determining an initial credit rating in chronological 
order and identifying the type of security or money market instrument, 
the name of the issuer, the date the rating process was initiated, and 
the Internet Web site address where the issuer, sponsor, or underwriter 
of the security or money market instrument represents that the 
information described in paragraphs (a)(3)(iii)(C) and (a)(3)(iii)(D) 
of this section can be accessed;
    (ii) Provides free and unlimited access to such password-protected 
Internet Web site during the applicable calendar year to any nationally 
recognized statistical rating organization that provides it with a copy 
of the certification described in paragraph (e) of this section that 
covers that calendar year, provided that such certification indicates 
that the nationally recognized statistical rating organization 
providing the certification either:
    (A) Determined and maintained credit ratings for at least 10% of 
the issued securities and money market instruments for which it 
accessed information pursuant to 17 CFR 240.17g-5(a)(3)(iii) 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
    (B) Has not accessed information pursuant to 17 CFR 240.17g-5(a)(3) 
10 or more times during the most recently ended calendar year; and
    (iii) Obtains from the issuer, sponsor, or underwriter of each such 
security or money market instrument a written representation that can 
reasonably be relied upon that the issuer, sponsor, or underwriter 
will:
    (A) Maintain the information described in paragraphs (a)(3)(iii)(C) 
and (a)(3)(iii)(D) of this section 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;
    (B) Provide access to such password-protected Internet Web site 
during the applicable calendar year to any nationally recognized 
statistical rating organization that provides it with a copy of the 
certification described in paragraph (e) of this section that covers 
that calendar year, provided that such certification indicates that the 
nationally recognized statistical rating organization providing the 
certification either:
    (1) Determined and maintained credit ratings for at least 10% of 
the issued securities and money market instruments for which it 
accessed information pursuant to 17 CFR 240.17g-5(a)(3)(iii) 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
    (2) Has not accessed information pursuant to 17 CFR 240.17g-5(a)(3) 
10 or more times during the most recently ended calendar year.
    (C) Post on such password-protected Internet Web site all 
information the issuer, sponsor, or underwriter provides to the 
nationally recognized statistical rating organization, or contracts 
with a

[[Page 63865]]

third party to provide to the nationally recognized statistical rating 
organization, 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 nationally recognized statistical rating 
organization; and
    (D) Post on such password-protected Internet Web site all 
information the issuer, sponsor, or underwriter provides to the 
nationally recognized statistical rating organization, or contracts 
with a third party to provide to the nationally recognized statistical 
rating organization, 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 nationally recognized 
statistical rating organization.
* * * * *
    (b) * * *
    (9) 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;
* * * * *
    (e) Certification. In order to access a password-protected Internet 
Web site described in paragraph (a)(3) of this section, a nationally 
recognized statistical rating organization must furnish to the 
Commission, for each calendar year for which it is requesting a 
password, the following certification, signed by a person duly 
authorized by the certifying entity:

    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.

PART 243--REGULATION FD

0
4. The authority citation for part 243 continues to read as follows:

    Authority: 15 U.S.C. 78c, 78i, 78j, 78m, 78o, 78w, 78mm, and 
80a-29, unless otherwise noted.

0
5. Section 243.100 is amended by revising paragraph (b)(2)(iii) to read 
as follows:

Sec.  243.100  General rule regarding selective disclosure.

* * * * *
    (b) * * *
    (2) * * *
    (iii) To the following entities solely for the purpose of 
determining or monitoring a credit rating:
    (A) Any nationally recognized statistical rating organization, as 
that term is defined in Section 3(a)(62) of the Securities Exchange Act 
of 1934 (15 U.S.C. 78c(a)(62)), pursuant to Sec.  240.17g-5(a)(3) of 
this chapter; or
    (B) Any credit rating agency, as that term is defined in Section 
3(a)(61) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(61)), 
that makes its credit ratings publicly available; or
* * * * *

    By the Commission.

    Dated: November 23, 2009.
Elizabeth M. Murphy,
Secretary.
[FR Doc. E9-28496 Filed 12-3-09; 8:45 am]

BILLING CODE 8011-01-P