SEC Rel 34-55231

Summary

SEC propose rules to regulate rating agencies

Rules will implement provisions of the
Credit Rating Agency Reform Act of 2006

Which was enacted on 9.29.06

Credit Rating Agency Reform Act:

Added new Section 15E to the Exchange Act
Defines nationally recognized statistical rating organization ... NRSROs
Requires NRSROs to register with the SEC
Requires NRSROs to submit to SEC rules for recordkeeping, financial reporting, and oversight
Directed SEC to adopt final rules by 6.26.07
See Credit Rating Agency Reform Act of 2006

SEC has proposed new Rules 17g-1 to 17g-6

17g-1 NRSRO registration with the SEC
17g-2 Recordkeeping
17g-3 Annual audited financials
17g-4 Procedures re: material nonpublic information
17g-5 Conflicts of interest
17g-6 Prohibited acts and practices

Proposed Rules 17g-1 to 17g-6

Hyperlinked Index Final Release 34-55857 6.05.07

Federal Register PDF 72 FR ___ ___.07

Top of release

Background I

Timing of final rules II

Effective date III

Review of Commission rules IV

Final rules V

Rule 17g-1 Registration requirements V.A

Rule 17g-1(a) V.A.1
Rule 17g-1(b) V.A.2
Rule 17g-1(c) V.A.3
Rule 17g-1(d) V.A.4
Rule 17g-1(e) V.A.5
Rule 17g-1(f) V.A.6
Rule 17g-1(g) V.A.7
Rule 17g-1(h) V.A.8
Rule 17g-1(i) V.A.9

Form NRSRO V.B

Checkboxes V.B.1
Item 1 (Identifying information) V.B.2
Certification V.B.3
Item 2 (Legal status, etc) V.B.4
Item 3 (Credit Rating Affiliates) V.B.5
Item 4 (Compliance officer) V.B.6
Item 5 (Form and Exhibits publicly available) V.B.7
Item 6 (Classes of ratings / QIB certifications) V.B.8
Item 7 (Ratings covered by current registration) V.B.9
Item 8 (Potential statutory disqualifications) V.B.10
Exhibit 1 (Credit Ratings Performance Statistics) V.B.11
Exhibit 2 (Procedures and methodologies for determining credit ratings) V.B.12
Exhibit 3 (Procedures to prevent the misuse of material non-public information) V.B.13
Exhibit 4 (Organizational information) V.B.14
Exhibit 5 (Code of ethics) V.B.15
Exhibit 6 (Conflicts of interest) V.B.16
Exhibit 7 (Procedures to manage conflicts) V.B.17
Exhibit 8 (Credit analyst information) V.B.18
Exhibit 9 (Designated compliance officer) V.B.19
Exhibit 10 (List of large user) V.B.20
Exhibit 11 (Audited financials) V.B.21
Exhibit 12 (Revenues) V.B.22
Exhibit 13 (Analyst compensation) V.B.23

Rule 17g-2 Recordkeeping V.C

Rule 17g-2(a) V.C.1
Rule 17g-2(a)(1) V.C.1.a
Rule 17g-2(a)(2) V.C.1.b
Rule 17g-2(a)(3) V.C.1.c
Rule 17g-2(a)(4) V.C.1.d
Rule 17g-2(a)(5) V.C.1.e
Rule 17g-2(a)(6) V.C.1.f
Rule 17g-2(a)(7) V.C.1.g
Rule 17g-2(b) V.C.2
Rule 17g-2(b)(1) V.C.2.a
Rule 17g-2(b)(2) V.C.2.b
Rule 17g-2(b)(3) V.C.2.c
Rule 17g-2(b)(4) V.C.2.d
Rule 17g-2(b)(5) V.C.2.e
Rule 17g-2(b)(6) V.C.2.f
Rule 17g-2(b)(7) V.C.2.g
Rule 17g-2(b)(8) V.C.2.h
Rule 17g-2(b)(9) V.C.2.i
Rule 17g-2(b)(10) V.C.2.j
Rule 17g-2(c) V.C.3
Rule 17g-2(d) V.C.4
Rule 17g-2(e) V.C.5
Rule 17g-2(f) V.C.6
Non-resident NRSROs V.C.7

Rule 17g-3 Annual financial reports V.D

Rule 17g-3(a) V.D.1
Rule 17g-3(a)(1): Audited Financial Statements V.D.1.a
Rule 17g-3(a)(2): Consolidating Financial Statements V.D.1.b
Rule 17g-3(a)(3): Revenue Information V.D.1.c
Rule 17g-3(a)(4): Credit Analyst Compensation V.D.1.d
Rule 17g-3(a)(5): List of Large Customers V.D.1.e
Rule 17g-3(b) of Rule 17g-3 V.D.2
Rule 17g-3(c) of Rule 17g-3 V.D.3

Rule 17g-4
Procedures re: material nonpublic information V.E

Rule 17g-4(a)(1) V.E.1
Rule 17g-4(a)(2) V.E.2
Rule 17g-4(a)(3) V.E.3
Rule 17g-4(b) V.E.4

Rule 17g-5 Management conflicts of interest V.F

Rule 17g-5(a) V.F.1
Rule 17g-5(b) V.F.2
Rule 17g-5(b)(1) V.F.2.a
Rule 17g-5(b)(2) V.F.2.b
Rule 17g-5(b)(3) V.F.2.c
Rule 17g-5(b)(4) V.F.2.d
Rule 17g-5(b)(5) V.F.2.e
Rule 17g-5(b)(6) V.F.2.f
Rule 17g-5(b)(7) V.F.2.g
Rule 17g-5(b)(8) V.F.2.h
Rule 17g-5(b)(9) V.F.2.i
Rule 17g-5(c) V.F.3
Rule 17g-5(c)(1) V.F.3.a
Rule 17g-5(c)(2) V.F.3.b
Rule 17g-5(c)(3) V.F.3.c
Rule 17g-5(c)(4) V.F.3.d

Rule 17g-6 Prohibited practices V.G

Rule 17g-6(a)(1) V.G.1
Rule 17g-6(a)(2)/(3) V.G.2
Rule 17g-6(a)(4) V.G.3
Structured Product Credit Rating Practices V.G.3.a
Proposed Rule 17g-6(a)(4) V.G.3.b
Comments on Proposed Rule 17g-6(a)(4) V.G.3.c
Support for a Prohibition V.G.3.c.i
Opposition to a Prohibition V.G.3.c.ii
Final Rule 17g-6(a)(4) V.G.3.d
Enhanced Recordkeeping Requirements V.G.3.e
Rule 17g-2(a)(7) V.G.3.e.i
Rule 17g-2(b)(8) V.G.3.e.ii
Rule 17g-2(b)(9) V.G.3.e.iii
Unsolicited credit ratings V.G.4

Miscellaneous sections

Paperwork Reduction Act V
Cost-benefit analysis VI
Promotion of capital formation, etc VII
Regulatory Flexibility Analysis VIII

Statutory authority IX

Proposed Form NRSRO

Hyperlinked Index Proposal Release 34-55231 2.02.07

Federal Register PDF 72 FR 6377 2.09.07

Top of release

Background I

Credit Rating Agency Reform Act of 2006 II

Proposed rules III

Overview III.A
Proposed Rule 17g-1 Registration requirements III.B

Entities eligible to apply III.B.1
Proposed registration rule (Rule 17g-1) III.B.2

Form NRSRO III.C

Use of the form III.C.1
Form items III.C.2
Form exhibits III.C.3

Proposed Rule 17g-2 Recordkeeping III.D

Records to be made III.D.1
Records to be retained III.D,2
Remaining provisions III.D.3

Proposed Rule 17g-3 Annual audit III.E
Proposed Rule 17g-4
Procedures re: material nonpublic information III.F

Proposed Rule 17g-5 Conflicts of interest III.G
Proposed Rule 17g-6 Prohibited practices III.H

Miscellaneous sections

Paperwork Reduction Act IV
Cost-benefit analysis V
Promotion of capital formation, etc VI
Impact on the economy VII
Regulatory Flexibility Analysis VIII

Text of proposed amendments IX

Proposed Form NRSRO

Proposed Rules 17g-1 to 17g-6

Rule 17g-1 NRSRO registration with the SEC

Would require a credit rating agency to apply to the Commission for registration as an NRSRO and, if approved, to provide updated information (when certain information provided becomes materially inaccurate) and an annual certification on proposed Form NRSRO
The credit rating agency would be required to provide information such as the classes of credit ratings for which it is applying to be registered; credit ratings performance statistics; methods for determining credit ratings; organizational structure; procedures to prevent the misuse of material non-public information; conflicts of interest; procedures to address and manage conflicts of interest; and the qualifications of its credit analysts and compliance personnel
The credit rating agency would be required to provide on a confidential basis certifications from qualified institutional buyers; a list of its largest customers; audited financial statements; and certain summary financial information
The proposed rule would also require an NRSRO to make the non-confidential information and documents submitted to the Commission in its application or amendments to the application publicly available and readily accessible; for example, by posting them on its Web site

Rule 17g-2 Recordkeeping

Would require an NRSRO to make and retain certain records relating to the business of issuing and maintaining credit ratings
Would also prescribe the time periods and manner in which the records must be maintained

Rule 17g-3 Annual audited financials

Would require NRSROs to furnish the SEC, on a confidential basis, financial statements audited by an independent public accountant annually
In addition to statements of financial condition, results of operations, and cash flows, the audited statements would include summary financial information that would assist the SEC in carrying out its statutory responsibilities under the Credit Rating Agency Reform Act

Rule 17g-4 Procedures re: material nonpublic information

Would require an NRSRO to have procedures designed to prevent three specific potential misuses of material nonpublic information:

Dissemination of confidential information
NRSRO employees trading on material nonpublic information
Misuse of information relating to a pending credit rating action

Rule 17g-5 Conflicts of interest

Would require an NRSRO to disclose and manage those conflicts of interest that arise in the normal course of engaging in the business of issuing credit ratings
These include receiving compensation from persons being rated or from subscribers that use the credit ratings for regulatory purposes
The proposed rule would prohibit other conflicts of interest. For example, an NRSRO could not rate an affiliate

Rule 17g-6 Prohibited acts and practices

Would prohibit the NRSRO from engaging in certain acts or practices relating to the issuance of credit ratings that the Commission has determined to be unfair, coercive, or abusive
For example, an NRSRO could not pressure a customer to buy other services or products sold by the NRSRO by threatening to lower a credit rating if the purchase were not made

Proposed Form NRSRO

Form NRSRO

SEC Comment Letters

Comment letters to SEC

SEC webpage
Due by 3.12.07

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