procedures and methodologies for determining credit ratings. In other
words, the proposal would rely on the NRSRO's policies and procedures
for determining credit ratings and not require revisions that are
contrary to those policies and procedures. The Commission preliminarily
believes this approach appropriately avoids regulating the substance of
credit ratings or the procedures and methodologies an NRSRO uses to
determine credit ratings but, at the same time, requires an NRSRO to
have procedures reasonably designed to achieve the objectives set forth
in Section 15E(r) of the Exchange Act.
    The Commission preliminarily believes this proposed implementation
of Section 15E(r) of the Exchange Act would promote an efficient
process for NRSROs to comply with the requirements. As noted above, the
proposal would be designed to provide the NRSRO with flexibility to
integrate the required policies and procedure with its procedures and
methodologies for determining credit ratings.
    The Commission proposes to further implement Section 15E(r) of the
Exchange Act by adding new paragraph (b)(13) to Rule 17g-2 to apply the
record retention and production requirements of Rule 17g-2 to the
policies and policies and procedures required pursuant to paragraph (a)
of proposed new Rule 17g-8.\1201\ The record retention requirements
would promote efficiency by facilitating Commission oversight of
NRSROs. In this regard, recordkeeping rules such as Rule 17g-2 have
proven integral to the Commission's investor protection function
because the preserved records are the primary means of monitoring
compliance with applicable securities laws.\1202\ Rule 17g-2 is
designed to ensure that an NRSRO makes and retains records that will
assist the Commission in monitoring, through its examination authority,
whether an NRSRO is complying with the provisions of Section 15E of the
Exchange Act and the rules thereunder.\1203\ The proposed amendment to
Rule 17g-2 is designed to assist the Commission in monitoring an
NRSRO's compliance with paragraph (a) of proposed new Rule 17g-8.
---------------------------------------------------------------------------

    \1201\ See 17 CFR 240.17g-2(a), (c), (d), (e) and (f).
    \1202\ See Oversight of Credit Rating Agencies Registered as
Nationally Recognized Statistical Rating Organizations, 72 FR at
33582 (June 18, 2007).
    \1203\ Id.
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2. Costs
    The Commission preliminarily estimates that the Commission's
exercise of rulemaking discretion in proposed paragraph (a) of new Rule
17g-8 would impose incremental costs. However, the Commission
preliminarily estimates that the costs discussed below resulting from
proposed paragraph (a) of new Rule 17g-8 would be attributable largely
to the rulemaking mandated by Dodd-Frank Act \1204\ and that the
incremental costs would be minimal.
---------------------------------------------------------------------------

    \1204\ Compare 15 U.S.C. 78o-7(r)(1)-(3), with proposed
paragraph (a) of new Rule 17g-8.
---------------------------------------------------------------------------

    As discussed in Section IV.D.6 of this release with respect to the
PRA, the Commission preliminarily estimates that an NRSRO would spend
an average of approximately 200 hours establishing the policies and
procedures that would be required under paragraph (a) of proposed new
Rule 17g-8, resulting in an industry-wide one-time hour burden of
approximately 2,000 hours.\1205\ In addition, as discussed in Section
IV.D.6 of this release with respect to the PRA, the Commission
preliminarily estimates an NRSRO would spend an average of
approximately 50 hours annually reviewing and updating the policies and
procedures required under proposed paragraph (a) of Rule 17g-8,
resulting in an annual industry-wide hour burden of approximately 500
hours.\1206\
---------------------------------------------------------------------------

    \1205\ 10 NRSROs x 200 hours = 2,000 hours.
    \1206\ 10 NRSROs x 50 hours = 500 hours.
---------------------------------------------------------------------------

    As noted above, the Commission preliminarily estimates that the
costs resulting from proposed new paragraph (b)(13) of new Rule 17g-2
largely would be attributable to the Commission's discretionary
rulemaking. As discussed above in Section IV.D.3 of this release with
respect to the PRA, the Commission preliminary believes applying the
recordkeeping requirements of Rule 17g-2 to five new types of records
would result in one-time and annual hour burdens for NRSROs in
connection with updating their record retention policies and procedures
to account for and retain these new records. As discussed above in
Section IV.D.3 of this release with respect to the PRA, based on staff
experience, the Commission preliminarily estimates that the additional
one-time hour burden for each NRSRO to update its record retention
policies and procedures to account for the new records that would need
to be retained under proposed new paragraphs (a)(9), (b)(12), (b)(13),
(b)(14), and (b)(15) of Rule 17g-2 would be 20 hours. Based on that
estimate, the Commission preliminary believes that the average one-time
hour burden resulting from proposed new paragraph (b)(13) to Rule 17g-2
would be approximately 4 hours per NRSRO, resulting an industry-wide
one-time hour burden of approximately 40 hours.\1207\ As discussed
above in Section IV.D.3 of this release with respect to the PRA, the
Commission preliminarily estimates it would take an average of
approximately one hour each year for an NRSRO to retain updated
versions of the information required pursuant to paragraph (a) of new
Rule 17g-8 resulting in an annual industry-wide burden of 10
hours.\1208\
---------------------------------------------------------------------------

    \1207\ 20 hours/5 new required records = 4 hours; 10 NRSROs x 4
hours = 40 hours.
    \1208\ 10 NRSROs x 1 hour = 10 hours.
---------------------------------------------------------------------------

    For the foregoing reasons, Commission preliminarily believes any
incremental cost resulting from the amendments would not impact
competition or impose a burden on

competition not necessary or appropriate in furtherance of the purposes
of the Exchange Act.
Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with proposed new paragraph (a)(8) of Rule 17g-8
and proposed new paragraph (b)(13) of Rule 17g-2.

H. Form and Certification to Accompany Credit Ratings

    Section 932(a)(8) of the Dodd-Frank Act amended Section 15E of the
Exchange Act to add new paragraph (s).\1209\ Sections 15E(s)(1) through
(4), among other things, set forth provisions specifying Commission
rulemaking with respect to disclosures an NRSRO must make with the
publication of a credit rating.\1210\ The Commission proposes to
implement these provisions by adding new paragraph (a) to Rule 17g-
7.\1211\ As discussed in detail below, the prefatory text of proposed
new paragraph (a) would require an NRSRO to publish two items when
taking a rating action: (1) A form containing information about the
credit rating resulting from or subject to the rating action; \1212\
and (2) any certification of a provider of third-party due diligence
services received by the NRSRO that relates to the credit rating.\1213\
Proposed paragraph (a)(1) of Rule 17g-7 would contain three primary
components: Paragraph (a)(1)(i) prescribing the format of the form;
\1214\ paragraph (a)(1)(ii) prescribing the content of the form; \1215\
and paragraph (a)(1)(iii) prescribing an attestation requirement for
the form.\1216\ Proposed paragraph (a)(2) of Rule 17g-7 would identify
the certification from a provider of third-party due diligence services
as an item to be published with the rating action.\1217\
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    \1209\ See 15 U.S.C. 78o-7(s).
    \1210\ See 15 U.S.C. 78o-7(s)(1)-(4).
    \1211\ See proposed new paragraph (a) of Rule 17g-7. See also
Sections II.G.1 through G.5 of this release for a more detailed
discussion of this proposal.
    \1212\ See proposed new paragraph (a)(1) of Rule 17g-7. This
paragraph would implement, in large part, rulemaking specified in
Sections 15E(s)(1), (2), and (3) of the Exchange Act. See 15 U.S.C.
78o-7(s)(1), (2), and (3).
    \1213\ See proposed new paragraph (a)(2) of Rule 17g-7. This
paragraph would implement, in part, rulemaking specified in Section
15E(s)(4) of the Exchange Act. See 15 U.S.C. 78o-7(s)(4).
    \1214\ See proposed new paragraph (a)(1)(i) of Rule 17g-7. This
paragraph would implement, in large part, rulemaking specified in
Section 15E(s)(2) of the Exchange Act. See 15 U.S.C. 78o-7(s)(2).
    \1215\ See proposed new paragraph (a)(1)(ii) of Rule 17g-7. This
paragraph would implement, in large part, rulemaking specified in
Section 15E(s)(3) of the Exchange Act. See 15 U.S.C. 78o-7(s)(3). It
would also incorporate the existing text of Rule 17g-7 as adopted by
the Commission on January 20, 2011 to implement Section 943 of the
Dodd-Frank Act. See Disclosure for Asset-Backed Securities Required
by Section 943 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Securities Act of 1933 (``Securities Act'') Release
No. 9175 (Jan. 20, 2011), 76 FR 4489 (Jan. 26, 2011) and 17 CFR
240.17g-7.
    \1216\ See proposed new paragraph (a)(1)(iii) of Rule 17g-7.
This paragraph would implement, in large part, rulemaking specified
in Section 15E(q)(2)(F) of the Exchange Act. See 15 U.S.C. 78o-
7(q)(2)(F). Section 15E(q)(2)(F) of the Exchange Act requires that
the Commission's rules require an NRSRO to include an attestation
with any credit rating it issues affirming that no part of the
rating was influenced by any other business activities, that the
rating was based solely on the merits of the instruments being
rated, and that such rating was an independent evaluation of the
risks and merits of the instrument. See 15 U.S.C. 78o-7(q)(2)(F).
Proposed paragraph (a)(1)(iii) of Rule 17g-7 would require the NRSRO
to attach to the form a signed statement by a person within the
NRSRO who has responsibility for the credit rating affirming that:
(1) No part of the credit rating was influenced by any other
business activities; (2) the credit rating was based solely upon the
merits of the instruments being rated; and (3) the credit rating was
an independent evaluation of the risks and merits of the instrument.
Thus, the proposed requirement would mirror the statutory text in
terms of the representations that would need to be made in the
attestation. Compare proposed new paragraphs (a)(1)(iii)(A) through
(C) of Rule 17g-7, with 15 U.S.C. 78o-7(q)(2)(F).
    \1217\ See proposed paragraph (a)(2) of Rule 17g-7.
---------------------------------------------------------------------------

1. Benefits
    The Commission preliminarily believes that the proposed
implementation of the rulemaking mandated by Sections 15E(s)(1), (2),
(3), and (4)(D) through disclosure requirements in proposed new
paragraph (a) of Rule 17g-7 could be used by investors and other users
of credit ratings to better understand credit ratings in each class of
credit rating issued by the NRSRO and to determine the adequacy and
level of due diligence services provided by a third party with respect
to an issuance of Exchange Act-ABS.\1218\ As the Commission has noted
previously, the NRSRO credit ratings of structured finance products
such as Exchange Act-ABS played a role in the recent credit
crisis.\1219\ The proposed information to be disclosed in the form,
including information about the limitations of credit ratings and
information regarding the due diligence performed on Exchange Act-ABS,
could promote more prudent use of credit ratings by investors and other
users of credit ratings, and discourage undue reliance by investors and
other users of credit ratings in making investment and other credit
based decisions.
---------------------------------------------------------------------------

    \1218\ See 15 U.S.C. 78o-7(s)(1)(B).
    \1219\ See Proposed Rules for Nationally Recognized Statistical
Rating Organizations, 73 FR 36212 (June 25, 2008).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed
implementation of Section 15E(s) of the Exchange Act as mandated by the
Dodd-Frank Act may promote efficiency. As noted above, the proposal
would be designed to enable investors and other users of credit ratings
to better understand the credit ratings and, thereby, promote more
prudent use of credit ratings in terms of not unduly relying on credit
ratings in making investment and other credit based decisions.
2. Costs
    The Commission preliminarily estimates that the Commission's
exercise of rulemaking discretion in proposed new paragraph (a) of Rule
17g-7 would impose incremental costs. However, the Commission
preliminarily estimates that the costs discussed below resulting from
the proposed new paragraph (a) of Rule 17g-7 would be attributable
largely to the rulemaking mandated by Dodd-Frank Act and that the
incremental costs would be minimal.\1220\
---------------------------------------------------------------------------

    \1220\ Compare 15 U.S.C. 78o-7(s)(1), (2), (3) and (4)(D) with
proposed new paragraph (a) of Rule 17g-7.
---------------------------------------------------------------------------

    The Commission preliminarily estimates that proposed new paragraph
(a) to Rule 17g-7 would result in a one-time cost to develop the
standardized disclosures and establish systems, protocols, and
procedures for generating the new information as well as protocols,
procedures, and systems designed to ensure that all the information
required to be included in the form is input into a form prior to the
publication of the credit rating, that any certifications received from
a provider of third-party due diligence services are attached to the
form, and that the form and certifications are published with the
credit rating.
    As discussed in above in Section IV.D.5 of this release with
respect to the PRA, the Commission preliminarily estimates that the
one-time hour burden to develop the required disclosures and establish
systems, protocols, and procedures would be approximately 5,000 hours,
resulting in a one-time industry-wide hour burden of approximately
50,000 hours.\1221\ In addition, the Commission preliminarily allocates
75% of these burden hours (37,500 hours) to internal burden and the
remaining 25% (12,500 hours) to external burden to hire outside
professionals to assist in setting up the process to generate the forms
and publish them with applicable credit ratings.\1222\ The Commission

preliminarily estimates $273 per hour for internal costs \1223\ and
$400 per hour for external costs for retaining outside professionals
such as attorneys and information technology consultants,\1224\
resulting in an industry-wide one-time cost of approximately
$15,237,500.\1225\
---------------------------------------------------------------------------

    \1221\ 10 NRSROs x 5,000 hours = 50,000 hours.
    \1222\ 50,000 hours x 0.75 = 37,500 hours; 50,000 hours x 0.25 =
12,500 hours. This allocation is based on the Commission's
allocation of the industry-wide hour burden for the amount of time
it would take a securitizer to set-up a system to make the
disclosures required by Form ABS-15G. See Disclosure for Asset-
Backed Securities Required by Section 943 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, 76 FR at 4507-4506 (Jan.
26, 2011).
    \1223\ The $273 per hour figure is based on the salary for
compliance managers from SIFMA's Management & Professional Earnings
in the Securities Industry 2010, modified by Commission staff to
account for an 1800-hour work-year and multiplied by 5.35 to account
for bonuses, firm size, employee benefits, and overhead.
    \1224\ See Disclosure for Asset-Backed Securities Required by
Section 943 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, 76 FR at 4507-4506 (Jan. 26, 2011) (providing an
estimate of $400 an hour engage outside professionals) and Proposed
Rules for Nationally Recognized Statistical Rating Organizations, 74
FR 63889 (Dec. 4, 2009) (providing an estimate of $400 per hour to
engage an outside attorney).
    \1225\ 37,500 hours x $273 = $10,237,500; 12,500 hours x $400 =
$5,000,000; $10,237,500 + $5,000,000 = $15,237,500.
---------------------------------------------------------------------------

    With respect to the annual costs, the Commission preliminarily
believes that the estimate should be broken into two components. The
first component would constitute the cost to an NRSRO to update its
standardized disclosures. As discussed in above in Section IV.D.5 of
this release with respect to the PRA, the Commission preliminarily
believes an NRSRO would spend substantially less time updating the
disclosures than the one-time estimate of approximately 5,000 hours per
NRSRO to initially develop the standardized disclosures and establish
the systems, protocols, and procedures to generate the forms.
Consequently, the Commission preliminarily estimates that each NRSRO
would spend an average of approximately 500 hours per year updating the
standardized disclosures, resulting in an annual industry-wide burden
of approximately 5,000 hours. The Commission preliminarily believes
that the update process would be handled by the NRSROs internally.
    The second component would constitute the amount of time an NRSRO
would spend generating and publishing each form and attaching to the
form applicable certifications. The Commission preliminarily believes
this estimate should be based on the number of rating actions taken per
year by the NRSROs because the requirement to generate and publish the
form and attach the certifications would be triggered upon the taking
of a rating action. As discussed above in Section IV.D.5 of this
release with respect to the PRA, the Commission preliminarily estimates
that the 10 NRSROs take approximately 2,909,958 credit rating actions
per year.\1226\ The Commission preliminarily estimates that the time it
would take to generate a form by populating it with the required
disclosures (most of which would have been pre-established) and to
publish the form and any applicable certifications with the credit
rating would be 15 minutes, resulting in an industry-wide annual hour
burden of approximately 727,490.\1227\ Moreover, although larger NRSROs
may realize economies of scale, the Commission preliminarily believes
that the annual hour burden would be allocated to the 10 NRSROs based
on the number of credit ratings they have outstanding.
---------------------------------------------------------------------------

    \1226\ [2,000,000 credit rating actions constituting upgrades,
downgrades, placements on credit watch, and withdrawals] + [4,134
preliminary or expected credit ratings] + [415,117 initial credit
ratings] + [490,707 affirmations of existing credit ratings] =
2,909,958 rating actions per year. See Section IV.D.5 of this
release for an extensive discussion and explanation of these
numbers.
    \1227\ 2,909,958 rating actions x .25 hours = 727,489.5 hours
(rounded to 727,490 hours).
---------------------------------------------------------------------------

Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with proposed new paragraph (a) of Rule 17g-7.

I. Rule 15GA-2 and Form ABS-15G

    The Commission is proposing new Rule 15Ga-2 and amendments to Form
ABS-15G.\1228\ The new rule and amended form would implement Section
15E(s)(4)(A) of the Exchange Act.\1229\ Proposed new Rule 15Ga-2 would
require an issuer or underwriter of any Exchange Act-ABS that is to be
rated by an NRSRO to furnish a Form ABS-15G on the EDGAR system
containing the findings and conclusions of any third-party ``due
diligence report'' obtained by the issuer or underwriter. Under the
proposal, the disclosure would be furnished using Form ABS-15G for both
registered and unregistered offerings of Exchange Act-ABS. In addition,
under the Commission's proposal, an issuer or underwriter would not
need to furnish Form ABS-15G if the issuer or underwriter obtains a
representation from each NRSRO engaged to produce a credit rating for
the Exchange Act-ABS that can be reasonably relied on that the NRSRO
will publicly disclose the findings and conclusions of any third-party
due diligence report obtained by the issuer or underwriter with the
publication of the credit rating five business days prior to the first
sale in the offering in an information disclosure form generated
pursuant to proposed new paragraph (a)(1) of Rule 17g-7.
---------------------------------------------------------------------------

    \1228\ See proposed new Rule 15Ga-2 and proposed amendments to
Form ABS-15G.
    \1229\ See 15 U.S.C. 78o-7(s)(4)(A); see also Section II.H.1 of
this release for a more detailed discussion of this proposal.
---------------------------------------------------------------------------

1. Benefits
    The proposed rulemaking would provide a standardized format for an
issuer or underwriter to make the disclosures required by Section
15E(s)(4)(A). In addition, the Commission proposes to permit an issuer
or underwriter to rely on an NRSRO to make the required disclosure.
This would avoid duplicate disclosures. The Commission preliminarily
believes these proposals would give effect to the objective in Section
15E(s)(4)(A) of the Exchange Act that there be public disclosure of the
findings and conclusions of a provider of third-party due diligence
services. In addition to directly using the summaries of due diligence
findings contained in the disclosure to evaluate the Exchange Act-ABS,
investors and other users of credit ratings could benefit by being able
to review that disclosure to determine the adequacy and the level of
due diligence services provided by a third party. The required
increased transparency regarding the due diligence process could
promote greater rigor and discipline in that process, to the benefit of
investors. In addition, if no disclosure is made, investors and other
users of credit ratings would be put on notice that the issuer or
underwriter did not employ a provider of third-party due diligence
services in connection with the offering of an Exchange Act-ABS.
    The Commission also is proposing amendments to Rule 314 of
Regulation S-T that would permit municipal securitizers of Exchange
Act-ABS, or underwriters in the offering of municipal Exchange Act-ABS,
to provide the information required by Form ABS-15G on EMMA, the
Municipal Securities Rulemaking Board's centralized public
database.\1230\ The Commission preliminarily believes that the use of
this pre-existing database would promote an efficient process for
municipal securitizers of Exchange Act-ABS or underwriters in the
offering of municipal Exchange Act-ABS, who would use it to file the
required information, as well as for investors and other market
participants, who would

use it to access that information. The Commission preliminarily
believes that the proposed implementation of Section 15E(s)(4)(A) of
the Exchange Act would promote an efficient process for issuers and
underwriters by requiring an issuer or underwriter to use a
standardized form to make the disclosure. It also would permit an
issuer or underwriter to rely on an NRSRO to make the disclosures,
thereby eliminating duplicate disclosure requirements.
---------------------------------------------------------------------------

    \1230\ See proposed amendments to Rule 314 of Regulation S-T (17
CFR 231.314); see also Section II.H.1 of this release for a more
detailed discussion of this proposal.
---------------------------------------------------------------------------

2. Costs
    The Commission preliminarily estimates that the costs arising from
proposed new Rule 15Ga-2 and the proposed amendments to Form ABS-15G
would be attributable largely to the requirements set forth in Section
15E(s)(4)(A) of the Exchange Act.\1231\ Specifically, the Commission
believes that the costs to issuers and underwriters arising from
preparing a summary of the findings and conclusions of any third-party
due diligence report they obtained would be directly attributable to
the Dodd-Frank Act, while the incremental costs associated with placing
such summaries into Form ABS-15G and furnishing the form on EDGAR (or
EMMA, as appropriate) would be attributable to the Commission's
rulemaking. As noted above, however, the Commission's rulemaking would
provide issuers and underwriters with guidelines as to how they can
meet the requirements of Section 15E(s)(4)(A) of the Exchange Act,
which the Commission believes would eliminate costs that could
potentially arise from uncertainty as to how those requirements could
be fulfilled.
---------------------------------------------------------------------------

    \1231\ Compare 15 U.S.C. 78o-7(s)(4)(A), with proposed new Rule
15Ga-2 and the proposed amendments to Form ABS-15G.
---------------------------------------------------------------------------

    As discussed above in Section IV.D.9 of this release with respect
to the PRA, the Commission preliminarily estimates that proposed new
Rule 15Ga-2 and the proposed amendments to Form ABS-15G would result in
one-time and annual costs for issuers and underwriters in offerings of
registered and unregistered Exchange Act-ABS.\1232\ The Commission
preliminarily estimates that issuers and underwriters would incur a
one-time cost in connection with developing processes and protocols to
provide the required information to comply with new Rule 15Ga-2,
including modifying their existing Form ABS-15G processes and protocols
to accommodate the requirements of Rule 15Ga-2. In the adopting release
for Form ABS-15G, the Commission estimated that 270 unique securitizers
would be required to file the form.\1233\ The Commission preliminarily
estimates that each securitizer would spend an average of approximately
100 hours to develop processes and protocols to comply with new Rule
15Ga-2 and to modify their existing Form ABS-15G processes and
protocols to provide for the disclosure of the information required
pursuant to Rule 15Ga-2, resulting in an industry-wide one-time hour
burden of approximately 27,000 hours.\1234\ The Commission further
believes that this work would be done internally.
---------------------------------------------------------------------------

    \1232\ As discussed above in Section IV.D.9, although issuers
and underwriters likely will seek to obtain representations from
NRSROs engaged to produce a credit rating for Exchange Act-ABS that
the NRSRO will publicly disclose the findings and conclusions of any
third-party due diligence report obtained by the issuer or
underwriter with the publication of the credit rating five business
days prior to the first sale in the offering in an information
disclosure form generated pursuant to proposed new paragraph (a)(1)
of Rule 17g-7, thus removing the need for the issuer or underwriter
to do so. Consequently, the PRA burden for issuers and underwriters
may be reduced substantially. However, to be conservative, the
Commission preliminarily allocates the PRA burden for complying with
proposed new Rule 15Ga-2 and the proposed amendments to Form ABS-15G
to the issuers and underwriters. The Commission also is proposing to
permit issuers of municipal Exchange Act-ABS, or underwriters in
such offerings, to provide the information required by Form ABS-15G
on EMMA, which would also limit the PRA burden on issuers and
underwriters of municipal Exchange Act-ABS subject to the proposed
rule.
    \1233\ See Disclosure for Asset-Backed Securities Required by
Section 943 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, 76 FR at 4506 (Jan. 26, 2011).
    \1234\ 270 unique securitizers x 100 hours = 27,000 hours. This
estimate is based on the Commission's estimate for the amount of
time it would take a securitizer to set up a system to make the
disclosures required by Form ABS-15G as originally adopted by the
Commission. See Disclosure for Asset-Backed Securities Required by
Section 943 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, 76 FR at 4507-4506 (Jan. 26, 2011). The Commission,
however, believes that the hour burden for amending existing Form
ABS-15G processes and protocols will be significantly lower than the
estimate of 850 hours used to initially develop those processes and
protocols.
---------------------------------------------------------------------------

    As discussed above in Section IV.D.9 of this release with respect
to the PRA, the Commission has preliminarily based its estimate of the
annual hour burden for preparing and furnishing Form ABS-15G on an
estimate of the total number of Exchange Act-ABS offerings per year. In
the adopting release for Rule 17g-7, the Commission estimated that
there would be an average of approximately 2,067 Exchange Act-ABS
offerings per year.\1235\ The Commission preliminarily estimates that
an issuer or underwriter would spend an average of approximately one
hour completing and submitting each Form ABS-15G for purpose of meeting
the requirement in Rule 15Ga-2. The Commission bases this preliminary
estimate on the fact that the information that would be required to be
included in Form ABS-15G pursuant to proposed new Rule 15Ga-2 could be
drawn directly from the due diligence reports the Commission expects
providers of third-party due diligence services to generate with
respect to their performance of due diligence services. Therefore, the
Commission preliminarily estimates that the industry-wide annual hour
burden resulting from proposed new Rule 15Ga-2 and the amendments to
Form ABS-15G would be approximately 2,067 hours.\1236\ The Commission
believes that this work would be done internally.
---------------------------------------------------------------------------

    \1235\ See Disclosure for Asset-Backed Securities Required by
Section 943 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, 76 FR at 4507-4508 (Jan. 26, 2011). As noted above,
issuers, underwriters, and NRSROs may not use providers of third-
party due diligence services with respect to every issuance of
Exchange Act-ABS. For example, as discussed in Section II.H of this
release, the Commission preliminarily believes that providers of
third-party due diligence services are used primarily for RMBS
transactions. However, the Commission's estimate uses the total
number of estimated Exchange Act-ABS offerings (as opposed to a
lesser amount based on an estimate of RMBS offerings) because the
use of providers of third-party due diligence services may migrate
to other types of Exchange Act-ABS. This also makes the Commission's
estimates more conservative.
    \1236\ 2,067 Exchange Act-ABS transactions x 1 hour = 2,067
hours.
---------------------------------------------------------------------------

    The Commission preliminarily believes any incremental cost
resulting from the amendments would not impact competition or impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act.
Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with proposed new Rule 15Ga-2 and the proposed
amendments to Form ABS-15G.

J. Third-Party Due Diligence for Asset-Backed Securities

    Section 932(a)(8) of the Dodd-Frank Act amended Section 15E of the
Exchange Act to add new paragraph (s)(4).\1237\ The Commission is
proposing new Rule 17g-10 and new Form ABS Due Diligence-15E to
implement rulemaking mandated in Sections 15E(s)(4)(B) and (C) of the
Exchange Act.\1238\ Proposed new Rule 17g-10 would contain three
paragraphs: (a), (b)

and (c).\1239\ Proposed paragraph (a) would provide that the written
certification of a provider of third-party due diligence services
required pursuant to Section 15E(s)(4)(B) of the Exchange Act must be
made on Form ABS Due Diligence-15E.\1240\ Proposed paragraph (b) of new
Rule 17g-10 would provide that the written certification must be signed
by an individual who is duly authorized by the person providing the
third-party due diligence services to make such a certification.\1241\
Proposed paragraph (c) of new Rule 17g-10 would contain four
definitions to be used for the purposes of Section 15E(s)(4)(B) and
Rule 17g-10; namely, a definition of ``due diligence services,'' \1242\
``issuer,'' \1243\ ``originator,'' \1244\ and ``securitizer.'' \1245\
---------------------------------------------------------------------------

    \1237\ See Public Law 111-203 Sec.  932(a)(8) and 15 U.S.C. 78o-
7(s)(4).
    \1238\ See proposed new Rule 17g-10, and proposed new Form ABS
Due Diligence-15E; see also Sections II.H.2 and II.H.3 of this
release for a more detailed discussion of this proposal.
    \1239\ See proposed paragraphs (a), (b) and (c) of Rule 17g-10
see also Sections II.H.2 of this release for a more detailed
discussion of this proposal.
    \1240\ See proposed paragraph (a) of new Rule 17g-10.
    \1241\ See proposed paragraph (b) of Rule 17g-10.
    \1242\ See proposed paragraph (c)(1) of new Rule 17g-10.
    \1243\ See proposed paragraph (c)(2) of new Rule 17g-10.
    \1244\ See proposed paragraph (c)(3) of new Rule 17g-10.
    \1245\ See proposed paragraph (c)(4) of new Rule 17g-10.
---------------------------------------------------------------------------

    Proposed Form ABS Due Diligence-15E would contain five line items
identifying information the provider of third-party due diligence
services would need to provide in the form.\1246\ It also would contain
a signature line with a corresponding representation.\1247\ Item 1
would elicit the identity and address of the provider of third-party
due diligence services.\1248\ Item 2 would elicit the identity and
address of the issuer, underwriter, or NRSRO that employed the provider
of third-party due diligence services.\1249\ Item 3 would instruct the
provider of third-party due diligence services to identify each NRSRO
whose published criteria for performing due diligence the provider of
third-party due diligence services satisfied in performing the due
diligence review.\1250\ Item 4 would require the provider of third-
party due diligence services to describe the scope and manner of the
due diligence performed.\1251\ Item 5 would require the provider of
third-party due diligence services to describe the findings and
conclusions resulting from the review.\1252\
---------------------------------------------------------------------------

    \1246\ See proposed new Form ABS Due Diligence-15E; see also
Section II.H.3 of this release for a more detailed discussion of
this proposal.
    \1247\ See proposed new Form ABS Due Diligence-15E.
    \1248\ See Item 1 to proposed Form ABS Due Diligence-15E.
    \1249\ See Item 2 to proposed Form ABS Due Diligence-15E.
    \1250\ See Item 3 to proposed Form ABS Due Diligence 15E.
    \1251\ See Item 4 to proposed Form ABS Due Diligence 15E.
    \1252\ See Item 5 to proposed Form ABS Due Diligence 15E.
---------------------------------------------------------------------------

1. Benefits
    The proposed rulemaking would be designed to promote a thorough
review by the provider of third-party due diligence services of data,
documentation, and other relevant information necessary for an NRSRO to
provide an accurate credit rating.\1253\ The Commission also
preliminarily believes that, in combination with the proposed
requirement in proposed new paragraph (a)(2) of Rule 17g-7 that the
NRSRO disclose the certifications, the proposed rulemaking would allow
the public to determine the adequacy and level of due diligence
services provided by a third party.
---------------------------------------------------------------------------

    \1253\ See 15 U.S.C. 78o-7(s)(4)(B).
---------------------------------------------------------------------------

    The Commission preliminarily believes that the proposed
implementation of Section 15E(s)(4)(C) of the Exchange Act as mandated
by the Dodd-Frank Act would promote an efficient process for NRSROs by
establishing a standardized format for the certification and providing
clarity through the definition of ``due diligence services'' as to when
the requirement was triggered.
2. Costs
    The Commission preliminarily estimates that the Commission's
exercise of rulemaking discretion with respect to proposed new Rule
17g-10 and new Form ABS Due Diligence-15E would impose incremental
costs. However, the Commission preliminarily estimates that the costs
discussed below resulting from proposed new Rule 17g-10 and new Form
ABS Due Diligence-15E would be attributable largely to the rulemaking
mandated by Dodd-Frank Act \1254\ and that the incremental costs would
be minimal.
---------------------------------------------------------------------------

    \1254\ Compare 15 U.S.C. 78o-7(s)(4)(B) and (C), with proposed
new Rule 17g-10 and proposed new Form ABS Due Diligence-15E.
---------------------------------------------------------------------------

    As discussed above in Section IV.D.8 of this release with respect
to the PRA, the Commission preliminarily estimates that the proposed
new rule and form would result in one-time hour burdens for providers
of third-party due diligence services to develop processes and
protocols to provide the required information in new Form ABS Due
Diligence-15E and submit the certifications to NRSROs. The Commission
preliminarily estimates that there are approximately 10 firms that
provide, or would begin providing, third-party ``due diligence
services'' to issuers and underwriters of Exchange Act-ABS as the term
``due diligence services'' would be defined in paragraph (a) of
proposed new Rule 17g-10. The Commission preliminarily estimates that
each of these providers of third-party due diligence services would
spend approximately 300 hours to develop these processes and protocols,
resulting in a one-time industry-wide burden of 3,000 hours.\1255\ In
addition, the Commission preliminarily allocates 75% of these burden
hours (2,250 hours) to internal burden and the remaining 25% (750
hours) to external burden to hire outside attorneys to provide legal
advice on the requirements of new Rule 17g-10 and Form ABS Due
Diligence-15E.\1256\ The Commission, therefore, preliminarily estimates
that the average one-time cost to each provider third-party due
diligence services would be $91,425, resulting in an industry-wide one-
time cost of $914,250.\1257\
---------------------------------------------------------------------------

    \1255\ 10 Providers of third-party due diligence services x 300
hours = 3,000 hours. This estimate is based on the Commission's
estimate for the amount of time it would take a securitizer to set
up a system to make the disclosures required by Form ABS-15G as
originally adopted by the Commission. See Disclosure for Asset-
Backed Securities Required by Section 943 of the Dodd-Frank Wall
Street Reform and Consumer Protection Act, 76 FR at 4507-4506 (Jan.
26, 2011). The Commission, however, reduces the hour estimate of 850
hours originally used for Form ABS-15G by approximately two-thirds
because information required to provided in proposed new Form ABS
Due Diligence-15E is substantially less detailed and complex than
the information required in Form ABS-15G as initially adopted by the
Commission.
    \1256\ 3,000 hours x 0.75 = 2,250 hours; 3,000 hours x 0.25 =
750 hours.
    \1257\ 2,250 hours x $273 = $614,250; 750 hours x $400 =
$300,000; $614,250 + $300,000 = $914,250; $914,250/10 providers of
third-party due diligence services = $91,250. The $273 per hour
figure is based on the rate for compliance managers from SIFMA's
Management & Professional Earnings in the Securities Industry 2010,
modified by Commission staff to account for an 1800-hour work-year
and multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead. The $400 figure is based on the Commission's
estimate of $400 per hour to engage an outside attorney. See
Proposed Rules for Nationally Recognized Statistical Rating
Organizations, 74 FR 63889 (Dec. 4, 2009).
---------------------------------------------------------------------------

    With respect to the annual cost, the Commission preliminarily
believes that the estimate should be based on the number of issuances
per year of Exchange Act-ABS, since the requirement to produce the
certification and provide it to NRSROs would be triggered when an
issuer, underwriter, or NRSRO hires a provider of third-party due
diligence services with respect to such transactions.\1258\ In the
adopting release for Rule 17g-7, the

Commission estimated there would be an average of approximately 2,067
Exchange Act-ABS offerings per year.\1259\ In addition, the Commission
preliminarily estimates that a provider of third-party due diligence
services would spend approximately 30 minutes completing and submitting
Form ABS Due Diligence-15E. The Commission bases this preliminary
estimate on the fact that first three Items in the form require basic
information and the fourth Item (the due diligence performed) and the
fifth Item (the findings and conclusions of the review) could be drawn
directly from the due diligence reports the Commission expects
providers of third-party due diligence services generate with respect
to their performance of due diligence services. Therefore, the
Commission preliminarily estimates that the industry-wide annual hour
burden resulting from proposed new Rule 17g-10 and Form ABS Due
Diligence-15E would be approximately 1,034 hours.\1260\ The Commission
believes that completing and submitting Form ABS Due Diligence-15E
would be done internally.
---------------------------------------------------------------------------

    \1258\ See 15 U.S.C. 78o-7(s)(4)(B) and (C), and proposed new
Rule 17g-10.
    \1259\ See Disclosure for Asset-Backed Securities Required by
Section 943 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, 76 FR at 4507-4508 (Jan. 26, 2011). The Commission
notes that issuers, underwriters, and NRSROs may not use providers
of third-party due diligence services with respect to every issuance
of Exchange Act-ABS. For example, as discussed in Section II.H of
this release, the Commission preliminarily believes that providers
of third-party due diligence services are used primarily for RMBS
transactions. However, the Commission's estimate uses the total
number of estimated Exchange Act-ABS offerings (as opposed to a
lesser amount based on an estimate of RMBS offerings) because the
use of providers of third-party due diligence services may migrate
to other types of Exchange Act-ABS. This also makes the Commission's
estimates more conservative.
    \1260\ 2,067 Exchange Act-ABS offerings x 30 minutes = 1,034
hours.
---------------------------------------------------------------------------

    The Commission preliminarily believes any incremental cost
resulting from the amendments would not impact competition or impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act.
Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with proposed new Rule 17g-10 and new Form ABS Due
Diligence-15E.

K. Standards of Training, Experience, and Competence

    Section 936 of the Dodd-Frank Act provides that the Commission
shall issue rules that are reasonably designed to ensure that any
person employed by an NRSRO to perform credit ratings: (1) Meets
standards of training, experience, and competence necessary to produce
accurate ratings for the categories of issuers whose securities the
person rates; \1261\ and (2) is tested for knowledge of the credit
rating process.\1262\ The Commission proposes to implement Section 936
by proposing new Rule 17g-9 and amending Rule 17g-2.\1263\
---------------------------------------------------------------------------

    \1261\ See Public Law 111-203 Sec.  936(1).
    \1262\ See Public Law 111-203 Sec.  936(2).
    \1263\ See proposed new Rule 17g-9 and proposed new paragraph
(b)(15) of Rule 17g-2.
---------------------------------------------------------------------------

    Proposed paragraph (a) of new Rule 17g-9 would require an NRSRO to
establish, maintain, enforce, and document standards of training,
experience, and competence for the individuals it employs to determine
credit ratings that are reasonably designed to achieve the objective
that such individuals produce accurate credit ratings in the classes
and subclasses of credit ratings for which the NRSRO is
registered.\1264\
---------------------------------------------------------------------------

    \1264\ See proposed paragraph (a) of new Rule 17g-9; see also
Section II.I.1.a of this release for a more detailed discussion of
this proposal.
---------------------------------------------------------------------------

    Proposed paragraph (b) would identify factors the NRSRO must
consider when designing the standards.\1265\ Specifically, the NRSRO
would need to consider:
---------------------------------------------------------------------------

    \1265\ See proposed paragraph (b) of new Rule 17g-9; see also
Section II.I.1.b of this release for a more detailed discussion of
this proposal.
---------------------------------------------------------------------------

     If the credit rating procedures and methodologies used by
the individual involve qualitative analysis, the knowledge necessary to
effectively evaluate and process the data relevant to the
creditworthiness of the obligor being rated or the issuer of the
securities or money market instruments being rated;
     If the credit rating procedures and methodologies used by
the individual involve quantitative analysis, the technical expertise
necessary to understand any models and model inputs that are a part of
the procedures and methodologies;
     The classes and subclasses of credit ratings for which the
individual participates in determining credit ratings and the factors
relevant to such classes and subclasses, including the geographic
location, sector, industry, regulatory and legal framework, and
underlying assets, applicable to the obligors or issuers in the classes
and subclasses; and
     The complexity of the obligors, securities, or money
market instruments being rated by the individuals.
    Proposed paragraph (c) of new Rule 17g-9 would prescribe two
requirements that an NRSRO must incorporate into its standards of
training, experience, and competence.\1266\ Proposed paragraph (c)(1)
of new Rule 17g-9 would provide that the standards of training,
experience, and competence must include a requirement for periodic
testing of the individuals employed by the NRSRO to determine credit
ratings on their knowledge of the procedures and methodologies used by
the NRSRO to determine credit ratings in the classes or subclasses of
credit ratings for which the individual is responsible for determining
credit ratings.\1267\ Proposed paragraph (c)(2) of new Rule 17g-9 would
provide that the standards of training, experience, and competence must
include a requirement that at least one individual with three years or
more experience in performing credit analysis participates in the
determination of a credit rating.\1268\
---------------------------------------------------------------------------

    \1266\ See proposed paragraphs (c)(1) and (2) of new Rule 17g-9;
see also Section II.I.1.c of this release for a more detailed
discussion of this proposal.
    \1267\ See proposed paragraph (c)(1) of new Rule 17g-9.
    \1268\ See proposed paragraph (c)(2) of new Rule 17g-9.
---------------------------------------------------------------------------

    In addition, the Commission proposes adding new paragraph (b)(15)
to Rule 17g-2 to identify the standards of training, experience, and
competence the NRSRO must establish, maintain, enforce, and document
pursuant to proposed new Rule 17g-9 as a record that must be
retained.\1269\ As a result, the procedures would be subject to the
record retention and production requirements in paragraphs (c) through
(f) of Rule 17g-2.\1270\
---------------------------------------------------------------------------

    \1269\ See proposed new paragraph (b)(15) to Rule 17g-2.
    \1270\ See 17 CFR 240.17g-2; see also Section II.I.2 of this
release for a more detailed discussion of this proposal.
---------------------------------------------------------------------------

1. Benefits
    The Commission is proposing to implement rulemaking mandated by
Section 936 of the Dodd-Frank Act through proposed new Rule 17g-9. The
proposed rule would be designed to achieve the objectives in Section
936 that any person employed by an NRSRO to perform credit ratings: (1)
Meets standards of training, experience, and competence necessary to
produce accurate ratings for the categories of issuers whose securities
the person rates; \1271\ and (2) is tested for knowledge of the credit
rating process.\1272\ The Commission preliminarily believes that the
proposed new rule could promote the integrity of the ratings process to
the benefit of

investors and other users of credit ratings.
---------------------------------------------------------------------------

    \1271\ See Public Law 111-203 Sec.  936(1).
    \1272\ See Public Law 111-203 Sec.  936(2).
---------------------------------------------------------------------------

    Paragraph (a) of proposed new Rule 17g-9 would require the NRSRO to
design its own standards but provide that they must be reasonably
designed to achieve the common objective that individuals employed by
the NRSRO to determine credit ratings produce accurate credit ratings
in the classes of credit ratings for which the NRSRO is registered.
This could benefit NRSROs by providing flexibility to allow each NRSRO
to customize the standards according to its unique procedures and
methodologies for determining credit ratings and its size.
    Paragraph (b) of proposed new Rule 17g-9 would identify factors the
NRSRO must consider when designing the standards.\1273\ This would
provide guidance to NRSROs about the Commission's expectations for the
design of the standards of training, experience, and competence. It
also could serve an investor protection function by providing
benchmarks that Commission examiners could use to evaluate whether a
given NRSRO's standards are reasonably designed to meet the objective
that individuals employed by the NRSRO to determine credit ratings
produce accurate credit ratings in the classes of credit ratings for
which the NRSRO is registered.
---------------------------------------------------------------------------

    \1273\ See proposed paragraph (b) of new Rule 17g-9.
---------------------------------------------------------------------------

    Paragraph (c)(1) of proposed new Rule 17g-9 would provide that the
standards of training, experience, and competence must include a
requirement for periodic testing of the individuals employed by the
NRSRO to determine credit ratings on their knowledge of the procedures
and methodologies used by the NRSRO to determine credit ratings in the
classes or subclasses of credit ratings for which the individual
participates in determining credit ratings.\1274\ The rule could
benefit NRSROs by allowing each NRSRO to establish the frequency and
manner of testing its analysts. These considerations may depend on the
number of analysts the NRSRO employs, the complexity of the products
that are being rated, and the varying levels of experience of the
analysts.
---------------------------------------------------------------------------

    \1274\ Id.
---------------------------------------------------------------------------

    Paragraph (c)(2) of proposed new Rule 17g-9 would provide that the
standards of training, experience, and competence must include a
requirement that at least one individual with three years or more
experience in performing credit analysis participates in the
determination of a credit rating.\1275\ This would establish a minimum
requirement that someone with experience performing credit analysis is
involved in determining the credit rating.
---------------------------------------------------------------------------

    \1275\ Id.
---------------------------------------------------------------------------

2. Costs
    The Commission preliminarily estimates that the Commission's
exercise of rulemaking discretion with respect to proposed new Rule
17g-9 would impose incremental costs. However, the Commission
preliminarily estimates that the costs discussed below resulting from
proposed new Rule 17g-9 would be attributable largely to the rulemaking
mandated by Dodd-Frank Act and that the incremental costs would be
minimal.\1276\
---------------------------------------------------------------------------

    \1276\ Compare Public Law 111-203 Sec.  936 with proposed new
Rule 17g-9.
---------------------------------------------------------------------------

    As discussed above in Section IV.D.7 of this release with respect
to the PRA, the Commission preliminary estimates that an NRSRO would
incur one-time and annual hour burdens as a result of proposed new Rule
17g-9. Also, the Commission preliminarily estimates that the degree of
the one-time and annual hour burdens resulting from proposed Rule 17g-9
would depend on the number of credit analysts an NRSRO employs as well
as the range and complexity of the obligors, securities, and money
market instruments it rates. Thus, hour burdens in the PRA and the
costs estimated below are based on the number of credit rating analysts
employed by the NRSROs.
    As discussed above in Section IV.D.7 of this release with respect
to the PRA, the Commission preliminarily estimates that the one-time
hour burden to establish the standards that would be required under
proposed new Rule 17g-9 would be approximately 5 hours per credit
analyst. Based on the 2009 annual certifications, the Commission
estimates that the NRSROs currently employ approximately 3,520 credit
analysts,\1277\ resulting in an industry-wide one-time hour burden of
17,600 hours.\1278\ In addition, the Commission estimates that 75% of
the burden hours (13,200 hours) would be internal and the remaining 25%
(4,400 hours) would be external to hire outside professionals to assist
in setting up training programs.\1279\ Consequently, the Commission
preliminarily estimates that the industry-wide one-time internal cost
would be approximately $3,603,000.\1280\ With respect to the external
costs associated with the proposal, the Commission preliminarily
estimates that outside professionals would charge approximately $400
per hour.\1281\ Consequently, the Commission preliminarily estimates
that the industry-wide external cost would be approximately
$1,760,000.\1282\ The Commission, therefore, preliminarily estimates
that the total industry-wide one-time cost of proposed Rule 17g-9 would
be approximately $5,363,000.\1283\ The Commission preliminarily
estimates that this cost would be allocated to the 10 NRSROs based on
the number of credit analysts each employs.
---------------------------------------------------------------------------

    \1277\ See Figure 3.
    \1278\ 3,520 credit analysts x 5 hours = 17,600 hours.
    \1279\ 17,600 hours x 0.75 = 13,200 hours; 17,600 hours x 0.25 =
4,400 hours.
    \1280\ 13,200 hours x $273 = $3,603,600. The $273 per hour
figure is based on the rate for compliance managers from SIFMA's
Management & Professional Earnings in the Securities Industry 2010,
modified by Commission staff to account for an 1800-hour work-year
and multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead.
    \1281\ See Disclosure for Asset-Backed Securities Required by
Section 943 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, 76 FR at 4507-4506 (Jan. 26, 2011) (providing an
estimate of $400 an hour engage outside professionals) and Proposed
Rules for Nationally Recognized Statistical Rating Organizations, 74
FR 63889 (Dec. 4, 2009) (providing an estimate of $400 per hour to
engage an outside attorney).
    \1282\ 4,400 hours x $400 = $1,760,000.
    \1283\ $1,760,000 + $3,603,000 = $5,363,000.
---------------------------------------------------------------------------

    As discussed above in Section IV.D.7 of this release with respect
to the PRA, the Commission believes that the annual cost to comply with
proposed new Rule 17g-9 would be less than the one-time cost since
NRSROs already would have established the standards of training,
experience, and competence for the individuals they employ to determine
credit ratings and, therefore, only would need to update them. The
Commission preliminarily estimates that reviewing and updating the
standards as appropriate would take approximately 1 hour per credit
analyst, resulting in an annual industry-wide hour burden of
approximately 3,520 hours.\1284\ The Commission estimates that
approximately 75% of these burden hours (2,640 hours) would be internal
and the remaining 25% (880 hours) would be external to hire outside
professionals to assist in updating the training programs.
Consequently, the Commission preliminarily estimates that the industry-
wide annual internal costs would be approximately $720,720.\1285\ With
respect to the external costs, the Commission preliminarily estimates
that outside

professionals would charge approximately $400 per hour.\1286\
Consequently, the Commission preliminarily estimates that the annual
industry-wide external costs would be approximately $352,000.\1287\ The
Commission, therefore, preliminarily estimates that the total industry-
wide annual cost would be approximately $1,072,720.\1288\ The
Commission preliminarily estimates that this cost would be allocated to
the 10 NRSROs based on the number of credit analysts each employs.
---------------------------------------------------------------------------

    \1284\ 3,520 credit analysts x 1 hour = 3,520 hours.
    \1285\ 2,640 hours x $273 = $720,720. The $273 per hour figure
is based on the rate for compliance managers from SIFMA's Management
& Professional Earnings in the Securities Industry 2010, modified by
Commission staff to account for an 1800-hour work-year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits, and overhead.
    \1286\ See Disclosure for Asset-Backed Securities Required by
Section 943 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, 76 FR at 4507-4506 (Jan. 26, 2011) (providing an
estimate of $400 an hour engage outside professionals) and Proposed
Rules for Nationally Recognized Statistical Rating Organizations, 74
FR 63889 (Dec. 4, 2009) (providing an estimate of $400 per hour to
engage an outside attorney).
    \1287\ 880 hours x $400 = $352,000.
    \1288\ $720,720 + $352,000 = $1,072,072.
---------------------------------------------------------------------------

    The Commission acknowledges that the three-year analyst experience
requirement proposed in paragraph (c)(2) of proposed new Rule 17g-9
could impose a barrier to entry to becoming an NRSRO. It is possible
that this requirement, as well as the increased training standards in
general, could increase labor costs for NRSROs by increasing the
competition for credit analysts with the requisite amount of
experience. The Commission further understands that the effects could
likely be more pronounced with existing smaller NRSROs, as well as with
new NRSRO entrants, as these smaller firms would presumably be less
able to bear the costs. This could, in turn, decrease competition
amongst NRSROs. The Commission requests comment on this potential
effect of the proposed rulemaking.
    The Commission preliminarily estimates that, although the costs
resulting from proposed new paragraph (b)(15) of new Rule 17g-2 would
be attributable to the Commission's discretionary rulemaking, those
incremental costs would be minimal. As discussed above in Section
IV.D.3 of this release with respect to the PRA, the Commission
preliminary believes that applying the recordkeeping requirements of
Rule 17g-2 to five new types of records would result in one-time and
annual hour burdens for NRSROs in connection with updating their record
retention policies and procedures to retain these new records. As
discussed above in Section IV.D.3 of this release with respect to the
PRA, based on staff experience, the Commission preliminarily estimates
that the additional one-time hour burden for each NRSRO to update its
record retention policies and procedures for the new records that would
need to be retained under proposed new paragraphs (a)(9), (b)(12),
(b)(13), (b)(14), and (b)(15) of Rule 17g-2 would be 20 hours. Based on
that estimate, the Commission preliminary believes that the average
one-time hour burden attributable to proposed new paragraph (b)(15) of
Rule 17g-2 would be approximately 4 hours per NRSRO, resulting in an
industry-wide hour burden of approximately 40 hours.\1289\ As discussed
above in Section IV.D.3 of this release with respect to the PRA, the
Commission preliminarily estimates it would take an average of
approximately one hour each year for an NRSRO to retain updated
versions of the information required pursuant to proposed new paragraph
(b)(15) of Rule 17g-2, resulting in an industry-wide hour burden of 10
hours.\1290\
---------------------------------------------------------------------------

    \1289\ 20 hours/5 new required records = 4 hours; 10 NRSROs x 4
hours = 40 hours.
    \1290\ 10 NRSROs x 1 hour = 10 hours.
---------------------------------------------------------------------------

Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with proposed new Rule 17g-9 and new paragraph
(b)(15) of Rule 17g-2.

L. Universal Rating Symbols

    Section 938(a) of the Dodd-Frank Act provides that the Commission
shall require, by rule, each NRSRO to establish, maintain, and enforce
written policies and procedures that: (1) Assess the probability that
an issuer of a security or money market instrument will default, fail
to make timely payments, or otherwise not make payments to investors in
accordance with the terms of the security or money market instrument;
\1291\ (2) clearly define and disclose the meaning of any symbol used
by the NRSRO to denote a credit rating; \1292\ and (3) apply any symbol
described in item (2) in a manner that is consistent for all types of
securities and money market instruments for which the symbol is
used.\1293\
---------------------------------------------------------------------------

    \1291\ See Public Law 111-203 Sec.  938(a)(1).
    \1292\ See Public Law 111-203 Sec.  938(a)(2).
    \1293\ See Public Law 111-203 Sec.  938(a)(3).
---------------------------------------------------------------------------

    The Commission proposes to implement this rulemaking mandate
through paragraph (b) of proposed new Rule 17g-8. In particular,
paragraph (b)(1) of proposed new Rule 17g-8 would require the NRSRO to
have policies and procedures reasonably designed to assess the
probability that an issuer of a security or money market instrument
will default, fail to make timely payments, or otherwise not make
payments to investors in accordance with the terms of the security or
money market instrument.\1294\ Paragraph (b)(2) of proposed new Rule
17g-8 would require the NRSRO to have policies and procedures
reasonably designed to clearly define the meaning of each symbol,
number, or score in the rating scale used by the NRSRO to denote a
credit rating category and notches within a category for each class and
subclass of credit ratings for which the NRSRO is registered and to
include such definitions in Exhibit 1 to Form NRSRO.\1295\ Paragraph
(b)(3) of proposed new Rule 17g-8 would require the NRSRO to have
policies and procedures reasonably designed to apply any symbol,
number, or score defined pursuant to paragraph (b)(2) of new Rule 17g-8
in a manner that is consistent for all types of obligors, securities,
and money market instruments for which the symbol, number, or score is
used.\1296\
---------------------------------------------------------------------------

    \1294\ See proposed paragraph (b)(1) of new Rule 17g-8.
    \1295\ See proposed paragraph (b)(2) of new Rule 17g-8.
    \1296\ See proposed paragraph (b)(1) of new Rule 17g-8.
---------------------------------------------------------------------------

    The Commission also is proposing that the policies and procedures
required pursuant to proposed paragraph (b) of new Rule 17g-8 be
subject to the record retention and production requirements of Rule
17g-2.\1297\ Consequently, the Commission proposes adding new paragraph
(b)(14) to Rule 17g-2 to identify the policies and procedures an NRSRO
is required to establish, maintain, enforce, and document pursuant to
proposed paragraph (b) of new Rule 17g-8 as a record that must be
retained.\1298\
---------------------------------------------------------------------------

    \1297\ 17 CFR 240.17g-2.
    \1298\ See proposed new paragraph (b)(13) to Rule 17g-2; see
also Section II.F.2 of this release for a more detailed discussion
of this proposal.
---------------------------------------------------------------------------

1. Benefits
    The proposal could facilitate investor understanding of credit
ratings by promoting a consistent application of rating methodologies
to particular credit ratings, at least within a class of credit
ratings. In addition, the proposed requirement for NRSROs to disclose
the meaning of credit rating symbols, numbers, and scores could benefit
investors and other users of credit ratings by promoting a better
understanding of credit rating terminology and allowing them to better
compare the various ratings issued by a single NRSRO.

2. Costs
    The Commission preliminarily estimates that the Commission's
exercise of rulemaking discretion with respect to proposed paragraph
(b) of new Rule 17g-8 would impose incremental costs. However, the
Commission preliminarily estimates that the costs discussed below
resulting from proposed paragraph (b) of new Rule 17g-8 would be
attributable largely to the rulemaking mandated by Dodd-Frank Act
\1299\ and that the incremental costs would be minimal.
---------------------------------------------------------------------------

    \1299\ Compare Public Law 111-203 Sec.  938, with proposed new
Rule 17g-9.
---------------------------------------------------------------------------

    As discussed in above in Section IV.D.6 with respect to the PRA,
the Commission preliminarily estimates each NRSRO would spend an
average of approximately 200 hours establishing the policies and
procedures that would be required under paragraph (b) of proposed new
Rule 17g-8, resulting in an industry-wide one-time hour burden of 2,000
hours.\1300\ In addition, as discussed in above in Section IV.D.6 with
respect to the PRA, the Commission preliminarily estimates an NRSRO
would spend an average of approximately 50 hours annually reviewing and
updating those policies and procedures, resulting in an industry-wide
annual burden of 500 hours.\1301\
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    \1300\ 10 NRSROs x 200 hours = 2000 hours.
    \1301\ 10 NRSROs x 50 hours = 500 hours.
---------------------------------------------------------------------------

    The Commission preliminarily estimates that, although the costs
resulting from proposed new paragraph (b)(14) of new Rule 17g-2 would
be attributable to the Commission's discretionary rulemaking, those
incremental costs would be minimal. As discussed above in Section
IV.D.3 of this release with respect to the PRA, the Commission
preliminary believes applying the recordkeeping requirements of Rule
17g-2 to five new types of records would result in one-time and annual
hour burdens for NRSROs in connection with updating their record
retention policies and procedures to account for and retain these new
records. As discussed above in Section IV.D.3 of this release with
respect to the PRA, based on staff experience, the Commission
preliminarily estimates that the additional one-time hour burden for
each NRSRO to update its record retention policies and procedures to
account for the new records that would need to be retained under
proposed new paragraphs (a)(9), (b)(12), (b)(13), (b)(14), and (b)(15)
of Rule 17g-2 would be 20 hours. Based on that estimate, the Commission
preliminary believes that the average one-time hour burden attributable
to proposed new paragraph (b)(14) of Rule 17g-2 would be approximately
4 hours per NRSRO, resulting in an industry-wide hour burden of
approximately 40 hours.\1302\
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    \1302\ 20 hours/5 new required records = 4 hours; 10 NRSROs x 4
hours = 40 hours.
---------------------------------------------------------------------------

    As discussed above in Section IV.D.3 of this release with respect
to the PRA, the Commission preliminarily estimates it would take an
average of approximately one hour each year for an NRSRO to retain
updated versions of the information required pursuant to proposed new
paragraph (b)(14) of Rule 17g-2, resulting in an industry-wide hour
burden of 10 hours.\1303\
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    \1303\ 10 NRSROs x 1 hour = 10 hours.
---------------------------------------------------------------------------

    The Commission preliminarily believes any incremental cost
resulting from the amendments would not impact competition or impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act.
Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with proposed paragraph (b) of new Rule 17g-8.

M. Annual Report of Designated Compliance Officer

    Section 932(a)(5) of the Dodd-Frank Act amended Section 15E(j) of
the Exchange Act to re-designate paragraph (j) as paragraph (j)(1) and
to add new paragraphs (j)(2) through (j)(5).\1304\ Section 15E(j)(1) of
the Exchange Act contains a self-executing provision that an NRSRO
designate an individual responsible for administering the policies and
procedures that are required to be established pursuant to Sections
15E(g) and (h) of the Exchange Act,\1305\ and for compliance with the
securities laws and the rules and regulations thereunder, including
those promulgated by the Commission under Section 15E of the Exchange
Act.\1306\ Section 15E(j)(5)(A) of the Exchange Act requires the
designated compliance officer to submit to the NRSRO an annual report
on the compliance of the NRSRO with the securities laws and the
policies and procedures of the NRSRO that includes: (1) A description
of any material changes to the code of ethics and conflict of interest
policies of the NRSRO; and (2) a certification that the report is
accurate and complete.\1307\ Section 15E(j)(5)(B) of the Exchange Act
provides that the NRSRO shall file the report required pursuant to
Section 15E(j)(5)(A) together with the financial report that is
required to be submitted to the Commission under Section 15E of the
Exchange Act.\1308\
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    \1304\ See 15 U.S.C. 78o-7(j)(1) through (5).
    \1305\ See 15 U.S.C 780-7(g) and (h).
    \1306\ See 15 U.S.C. 78o-7(j)(1).
    \1307\ See 15 U.S.C. 78o-7(j)(5)(A).
    \1308\ See 15 U.S.C. 78o-7(j)(5)(B).
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    As discussed above in Section II.A.3 of this release, Rule 17g-3
requires an NRSRO to submit five or, in certain cases, six separate
reports not more than 90 days after the end of the NRSRO's fiscal year
and identifies the reports to be submitted to the Commission.\1309\ In
order to further clarify the self-executing requirement in Section
15E(j)(5)(B) of the Exchange Act, the Commission is proposing to amend
Rule 17g-3 to identify the annual report of the designated compliance
officer as one of the reports that must be submitted to the
Commission.\1310\ Specifically, the Commission proposes adding a new
paragraph (a)(8) to Rule 17g-3 to identify the report on the compliance
of the NRSRO with the securities laws and the policies and procedures
of the NRSRO required pursuant to Section 15E(j)(5)(B) of the Exchange
Act.\1311\ The Commission preliminarily estimates that the costs and
benefits of this proposal are entirely attributable to the mandates of
the Dodd-Frank Act, and are not a result of decisions made by the
Commission to fulfill the mandates of the Dodd-Frank Act within its
permitted discretion. Proposed new paragraph (a)(8) to Rule 17g-3 is
intended only to clarify how an NRSRO must adhere to the self-executing
provisions in Section 15E(j)(5)(B) of the Exchange Act and would result
in no additional costs. Moreover, the Commission is not proposing to
add any additional requirements with respect to the filing other than
the proposed requirement that this report and the other annual reports
be filed through the EDGAR system, which is addressed separately below.
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    \1309\ See 17 CFR 240.17g-3(a)(1)-(6). As discussed above in
Section II.A.3 of this release, the Commission is proposing that
Rule 17g-3 be amended to add a new paragraph (a)(7) to implement
Section 15E(c)(3)(B) of the Exchange Act by requiring an NRSRO to
file the annual internal controls report. See 15 U.S.C. 78o-
7(c)(3)(B).
    \1310\ See proposed new paragraph (a)(8) of Rule 17g-3.
    \1311\ Id.
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Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with proposed new paragraph (a)(8) to Rule 17g-3.

N. Electronic Submission of Form NRSRO and the Rule 17g-3 Annual
Reports

    The Commission is proposing that certain Form NRSRO submissions and
all Rule 17g-3 annual report submissions be submitted to the Commission
using the EDGAR system. In order to implement this requirement, the
Commission is proposing amendments to Rule 101 of Regulation S-T to
require the electronic submission using the EDGAR system of Form NRSRO
pursuant to paragraphs (e), (f), and (g) of Rule 17g-1 and the annual
reports pursuant Rule 17g-3.\1312\ The Commission also is proposing to
amend Rule 201 of Regulation S-T, which governs temporary hardship
exemptions from electronic filing, to make this exemption unavailable
for NRSRO submissions.\1313\
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    \1312\ See proposed amendment of Rule 101 of Regulation S-T (17
CFR 231.101); see also Section II.L of this release for a more
detailed discussion of this proposal.
    \1313\ See proposed amendment of Rule 201 of Regulation S-T (17
CFR 231.201); see also Section II.L of this release for a more
detailed discussion of this proposal.
---------------------------------------------------------------------------

1. Benefits
    One of the primary goals of the EDGAR system since its inception is
to facilitate the rapid dissemination of financial and business
information in connection with filings the Commission receives.
Although paragraph (i) of Rule 17g-1 currently requires NRSROs to make
the public portions of their current Form NRSROs publicly available
within 10 business days after submission to the Commission, the
Commission believes that having all such information available
immediately upon submission in one location would make the information
more easily available and searchable to investors and other users of
credit ratings. Further, the Commission believes that submissions made
to the Commission are more valuable to investors and other users of
credit ratings if they are available in electronic form and that adding
the Form NRSRO submissions to the EDGAR database would provide a more
complete picture for the public. The Commission preliminarily estimates
that, as a result of the proposals, the EDGAR page of the Commission's
Web site,\1314\ in conjunction with the NRSRO page of the Commission's
Web site,\1315\ would be a comprehensive source from which to find most
public information submitted to the Commission, as well as other
information, related to NRSROs. The Commission preliminarily believes
that the electronic submission of Form NRSRO would benefit investors
and other users of credit ratings by increasing the efficiency of
retrieving and comparing NRSRO public submissions and enabling the
investors and other users of credit ratings to access information more
quickly.
---------------------------------------------------------------------------

    \1314\ http://www.sec.gov/investor/pubs/edgarguide.htm.
    \1315\ http://www.sec.gov/divisions/marketreg/ratingagency.htm.
---------------------------------------------------------------------------

    In addition, while the Rule 17g-3 annual reports would not be made
public on EDGAR, having them submitted on EDGAR would assist the
Commission in its oversight of NRSROs. For example, Commission
examiners could easily retrieve the annual reports of a specific NRSRO
to prepare for an examination. Moreover, having these records submitted
and stored through EDGAR in a centralized location would assist the
Commission from a records management perspective by establishing a more
automated storage process and creating efficiencies in terms of
reducing the volume of paper submissions that must be manually
processed and stored.
    Moreover, the Commission preliminarily believes that the electronic
submission of the Form NRSROs and the Rule 17g-3 annual reports would
benefit NRSROs. For example, NRSROs would avoid the uncertainties,
delay, and expense related to the manual delivery of paper submissions.
Further, NRSROs would benefit from no longer having to submit multiple
paper copies of these submissions to the Commission.
    The Commission preliminarily believes that the proposed requirement
that Form NRSROs and Exhibits 1 through 9 and the Rule 17g-3 annual
reports be submitted through the EDGAR system would promote efficiency.
As noted above, the proposal would provide a central location for an
investor or other user of credit ratings to access the Forms and
Exhibits. It also would assist the Commission staff in storing and
accessing these records in furtherance of the Commission's NRSRO
oversight function. Furthermore, it would provide NRSROs with a more
efficient way to submit these forms and reports to the Commission.
2. Costs
    The Commission preliminarily estimates that, although the
Commission's exercise of rulemaking discretion with respect to the
proposed amendments to Rules 101 and 201 of Regulation S-T, Rule 17g-1,
and Rule 17g-3 would impose incremental costs, those incremental costs
would be minimal.
    As discussed in Section IV.D.1 of this release with respect to the
PRA, the Commission preliminarily estimates that each NRSRO would spend
an average of approximately 5 hours becoming familiar with the EDGAR
filing system and completing and submitting Form ID.\1316\ The
Commission preliminarily estimates that the annual cost attributable to
submitting the Form NRSROs and Rule 17g-3 annual reports through the
EDGAR system would be no greater than the annual costs attributable to
submitting them in paper form.
---------------------------------------------------------------------------

    \1316\ An NRSRO would need to complete Form ID in order to be
eligible to submit documents using the EDGAR system. However,
completing Form ID is a simple process. The Commission has noted in
the past that the burden associated with Form ID is 15 minutes. See
Securities Exchange Act Release No. 57280 (Feb. 6, 2008), 73 FR
10592, 10610 (Feb. 27, 2008). Thus, the Commission preliminarily
estimates that the one-time hour burden per NRSRO associated with
the filing of Form ID would be 15 minutes, resulting in an industry-
wide burden of 1.5 hours.
---------------------------------------------------------------------------

    The Commission preliminarily believes any incremental cost
resulting from the amendments would not impact competition or impose a
burden on competition not necessary or appropriate in furtherance of
the purposes of the Exchange Act.
Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with the proposed amendments to Rules 101 and 201
of Regulation S-T, Rule 17g-1, and Rule 17g-3.

O. Other Amendments

    The Commission is proposing additional amendments to several of the
NRSRO rules in response to amendments the Dodd-Frank Act made to
sections of the Exchange Act that authorize or otherwise are relevant
to these rules. The Commission preliminarily estimates that these
proposals would not result in any one-time or annual incremental costs
to NRSROs. Furthermore, the Commission preliminarily believes these
proposals would benefit NRSROs and Commission staff be making terms in
Commission rules applicable to NRSROs consistent with terms in Section
15E of the Exchange. This could promote greater clarity as to the
requirements in the rules and remove potential ambiguity caused by
inconsistent terms.
    The Commission preliminarily believes that the proposals would
promote efficiency. As noted above, the proposals would be designed to
promote greater clarity as to the requirements in the rules and remove
potential

ambiguity caused by inconsistent terms. In addition, as discussed
above, the Commission preliminarily estimates that the proposals would
not result in any one-time or annual incremental costs to NRSROs and
would have substantial benefits. Consequently, the Commission
preliminarily believes that the proposals would not impact competition
or impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act.
1. Changing ``Furnish'' To ``File''
    In accordance with the Dodd-Frank Act, the Commission is proposing
amending certain provisions of Rule 17g-1 and Rule 17g-3 to replace the
word ``furnish'' with the word ``file''.\1317\ The Commission also is
proposing to make conforming amendments to Form NRSRO and the
instructions for Form NRSRO.
---------------------------------------------------------------------------

    \1317\ See Section II.M.1 of this release.
---------------------------------------------------------------------------

Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with these proposed amendments, including whether
they would result in one-time or annual incremental costs to NRSROs.
2. Amended Definition of ``NRSRO''
    The definition of ``nationally recognized statistical rating
organization'' in Section 3(a)(62) of the Exchange Act, prior to being
amended by the Dodd-Frank Act, included a condition in Section
3(a)(62)(A) that the entity ``has been in business as a credit rating
agency for at least the 3 consecutive years immediately preceding the
date of its application for registration under Section 15E''.\1318\
Section 932(b) of the Dodd-Frank Act struck subparagraph (A) of Section
3(a)(62).\1319\ Form NRSRO contains a definition of ``NRSRO'' that
tracks Section 3(a)(62) as originally enacted. The Commission proposes
amending this definition to conform it to Section 3(a)(62) as amended
by the Dodd-Frank Act.\1320\ The Commission does not believe these
proposals would result in any incremental costs to NRSROs.
---------------------------------------------------------------------------

    \1318\ See Section 3(a)(62)(A) of the Exchange Act (15 U.S.C.
78c(a)(62)(A)) added by the Rating Agency Act of 2006.
    \1319\ The Dodd-Frank Act did not, however, amend Section
15E(a)(1)(C), which requires that the certifications from qualified
institutional buyers that are required to be submitted with an
application for registration as an NRSRO under Section 15E(a)(1)(B),
include a representation that the qualified institutional buyer
``has used the credit ratings of the applicant for at least the 3
years immediately preceding the date of the certification in the
subject category or categories of obligors.''
    \1320\ See Section II.M.2 of this release.
---------------------------------------------------------------------------

Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with these proposed amendments, including whether
they would result in one-time or annual incremental costs to NRSROs.
3. Definition of Asset-Backed Security
    Section 941(a) of the Dodd-Frank Act amended Section 3 of the
Exchange Act to add Section 3(a)(77), which defines ``asset-backed
security.'' \1321\ In response, the Commission is proposing that
certain language in Exchange Act Rules 17g-2(a)(2)(iii); 17g-2(a)(7);
17g-5(a)(3); 17g-5(b)(9); 17g-6(a)(4); and Form NRSRO be amended to
reflect this new definition.\1322\ The Commission preliminarily
estimates that these proposals would result in no incremental costs to
NRSROs.
---------------------------------------------------------------------------

    \1321\ 15 U.S.C. 78c(a)(77).
    \1322\ See Section II.M.3 of this release.
---------------------------------------------------------------------------

Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with these proposed amendments, including whether
they would result in one-time or annual incremental costs to NRSROs.
4. Other Amendments to Form NRSRO
    The Commission is proposing a number of additional amendments to
the Instructions to Form NRSRO to clarify certain requirements because
the instructions, as written, have created some confusion among NRSROs.
The Commission preliminarily estimates that these proposals would not
result in any one-time or annual incremental costs to NRSROs as they
would clarify existing requirements (not create new requirements).
Furthermore, the Commission preliminarily believes these proposals
would benefit NRSROs and Commission staff by addressing parts of the
instructions that have led to inconsistent interpretations among the
NRSROs as to the requirements.
    The Commission preliminarily believes that the proposals would
promote efficiency. As noted above, the proposals would be designed to
promote greater clarity as to the requirements in the instructions. In
addition, as discussed above, the Commission preliminarily estimates
that the proposals would not result in any one-time or annual
incremental costs to NRSROs and would have substantial benefits.
Consequently, the Commission preliminarily believes that the proposals
would not impact competition or impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act.
a. Clarification With Respect to Items 6 and 7
    The Commission is proposing amendments to Form NRSRO and the
Instructions for Form NRSRO to remove potential ambiguity as to how an
applicant and NRSRO must determine the approximate number of credit
ratings outstanding for the purposes of Items 6 and 7. In particular,
the Commission is proposing to amend the text in Items 6.A and 7.A of
Form NRSRO to clarify that an applicant or NRSRO must provide the
approximate number of obligors, securities, and money market
instruments in each class of credit ratings for which the applicant or
NRSRO has an outstanding credit rating.\1323\
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    \1323\ See proposed amendments to the text in Items 6.A and 7.A
respectively.
---------------------------------------------------------------------------

    In addition, the Commission is proposing to amend Instruction H to
Form NRSRO (as it relates to Items 6.A and 7.A) in four ways. First, in
conformity with the proposed amendments to the text of Items 6.A and
7.A in the Form, the Instructions would be amended to provide that the
applicant or NRSRO must, for each class of credit ratings, provide in
the appropriate box the approximate number of obligors, securities, and
money market instruments in that class for which the applicant or NRSRO
presently has a credit rating outstanding as of the date of the
application (Item 6.A) or had a credit rating outstanding as of the end
of the most recently ended calendar year (Item 7.A).
    Second, Instruction H would be amended to provide that the
applicant or NRSRO must treat as a separately rated security or money
market instrument each individually rated security and money market
instrument that, for example, is assigned a distinct CUSIP or other
unique identifier, has distinct credit enhancement features as compared
with other securities or money market instruments of the same issuer,
or has a different maturity date as compared with other securities or
money market instruments of the same issuer. This proposed instruction
would be designed to clarify that each security or money market
instrument of an issuer must be included in the count if it is assigned
a credit rating by the applicant or NRSRO.
    Third, Instruction H would be amended to provide that the applicant
or NRSRO must not include an obligor,

security, or money market instrument in more than one class of credit
rating. In other words, the applicant or NRSRO cannot double count an
obligor, security, or money market instrument by including it in total
credit ratings outstanding for two or more classes. Fourth, Instruction
H would be amended to provide that the applicant or NRSRO must include
in the class of credit ratings described in Section 3(a)(62)(B)(iv) of
the Exchange Act (issuers of asset-backed securities) to the extent not
described in Section 3(a)(62)(B)(iv), any rated security or money
market instrument issued by an asset pool or as part of any asset-
backed securities transaction. As discussed above in Section II.M.3 of
this release, Section 3(a)(62)(B)(iv) contains a narrower definition of
``asset-backed security'' than the Commission uses for the purposes of
its NRSRO rules.\1324\
---------------------------------------------------------------------------

    \1324\ Compare 15 U.S.C. 78c(a)(62)(B)(iv) with: Instructions
for Exhibit 1 to Form NRSRO; paragraphs (a)(2)(iii), (a)(7), and
(b)(9) of Rule 17g-2; paragraph (a)(6) of Rule 17g-3; paragraphs
(a)(3) and (b)(9) of Rule 17g-5; and paragraph (a)(4) of Rule 17g-6.
---------------------------------------------------------------------------

Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with these proposed amendments, including whether
they would result in one-time or annual incremental costs to NRSROs.
b. Clarification With Respect to Exhibit 8
    The Commission proposes to amend Instruction H to Form NRSRO as it
relates to Exhibit 8. Exhibit 8 requires an applicant and NRSRO to
provide the number of credit analysts it employs and the number of
credit analyst supervisors. The Commission is proposing two amendments
to the instructions for Exhibit 8. The first amendment would delete a
parenthesis in the instructions that provides that the applicant or
NRSRO should ``see definition below'' of the term ``credit analyst.''
There is no such definition. The second amendment would clarify that
the applicant or NRSRO, in providing the number of credit analysts,
should include the number of credit analyst supervisors. This would be
designed to ensure that the disclosures in Form NRSRO are comparable
across NRSROs by avoiding the situation in which some NRSROs include
credit analyst supervisors in the total number of credit analysts and
some NRSROs do not include credit analyst supervisors in that amount.
Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with these proposed amendments, including whether
they would result in one-time or annual incremental costs to NRSROs.
c. Clarification With Respect to Exhibits 10 through 13
    The Commission proposes to amend Instruction H in several places to
add a ``Note'' instructing that after registration, Exhibits 10 through
13 are not required to be made publicly available by the NRSRO pursuant
to Rule 17g-1(i) and they should not be updated with the filing of the
annual certification. The ``Note'' further would instruct that similar
information is required in the annual reports that must be filed with
the Commission not more than 90 days after the end of each fiscal year
under Rule 17g-3.\1325\
---------------------------------------------------------------------------

    \1325\ See ``Notes'' proposed to be added to Instruction H to
Form NRSRO.
---------------------------------------------------------------------------

    The Commission preliminarily believes that none of these proposed
clarifications entail any changes to the existing requirements of the
Commission's rules, but instead merely explain more clearly what those
rules already require. Therefore, Commission does not attribute any
costs or benefits to these clarifications.
Request for Comment
    The Commission requests comment on all aspects of the costs and
benefits associated with these proposed amendments, including whether
they would result in one-time or annual incremental costs to NRSROs.

VI. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996, or ``SBREFA,'' \1326\ the Commission must advise OMB as to
whether the proposed regulation constitutes a ``major'' rule. Under
SBREFA, a rule is considered ``major'' where, if adopted, it results or
is likely to result in: (1) An annual effect on the economy of $100
million or more (either in the form of an increase or a decrease); (2)
a major increase in costs or prices for consumers or individual
industries; or (3) significant adverse effect on competition,
investment or innovation. If a rule is ``major,'' its effectiveness
will generally be delayed for 60 days pending Congressional review.
---------------------------------------------------------------------------

    \1326\ Public Law 104-121, Title II, 110 Stat. 857 (1996)
(codified in various sections of 5 U.S.C., 15 U.S.C. and as a note
to 5 U.S.C. 601).
---------------------------------------------------------------------------

    The Commission requests comment on the potential impact of the
proposed amendments to existing rules and proposed new rules on the
economy on an annual basis, on the costs or prices for consumers or
individual industries, and on competition, investment or innovation.
Commenters are requested to provide empirical data and other factual
support for their view to the extent possible.

VII. Initial Regulatory Flexibility Analysis

    The Commission has prepared this Initial Regulatory Flexibility
Analysis (IRFA) in accordance with Section 603(a) of the Regulatory
Flexibility Act (RFA).\1327\ This IRFA relates to the Commission's
proposed new requirements for NRSROs that would result from the
amendments to Rule 101 of Regulation S-T, Rule 201 of Regulation S-T,
Rule 17g-1, Rule 17g-2, Rule 17g-3, Rule 17g-5, Rule 17g-6, Rule 17g-7,
and Form NRSRO, and proposed new Rule 17g-8 and new Rule 17g-9. In
addition, the IRFA relates to the Commission's proposed new
requirements for providers of third-party due diligence services that
would result from new Rule 17g-10 and new Form ABS Due Diligence-15E.
Finally, this IRFA relates to the Commission's proposed new
requirements for issuers and underwriters of Exchange Act-ABS that
would result from the amendments to Rule 314 of Regulation S-T and Form
ABS-15G, and new Rule 15Ga-2.
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    \1327\ See 5 U.S.C. 603(a).
---------------------------------------------------------------------------

A. Reasons and Objectives

    Section II of this release describes the reasons and objectives of
the proposed amendments to existing rules and proposed new rules. In
addition, Section IV.B of this release describes the intended use of
the collection of information requirements that would result from the
proposed amendments to existing rules and proposed new rules. Moreover,
as described in Section II of this release, these proposed amendments
and proposed new rules would implement rulemaking mandated in Title IX,
Subtitle C of the Dodd-Frank Act.\1328\ In Section 931 of Title IX,
Subtitle C of the Dodd-Frank Act, Congress made the following findings:
---------------------------------------------------------------------------

    \1328\ See Public Law 111-203 Sec. Sec.  931-939H.
---------------------------------------------------------------------------

     Because of the systemic importance of credit ratings and
the reliance placed on credit ratings by individual and institutional
investors and financial regulators, the activities and performances of
credit rating agencies, including NRSROs, are matters of national
public interest, as credit rating agencies are central to capital
formation, investor confidence, and the efficient

performance of the United States economy.\1329\
---------------------------------------------------------------------------

    \1329\ Public Law 111-203 Sec.  931(1).
---------------------------------------------------------------------------

     Credit rating agencies, including NRSROs, play a critical
``gatekeeper'' role in the debt market that is functionally similar to
that of securities analysts, who evaluate the quality of securities in
the equity market, and auditors, who review the financial statements of
firms. Such role justifies a similar level of public oversight and
accountability.\1330\
---------------------------------------------------------------------------

    \1330\ Public Law 111-203 Sec.  931(2).
---------------------------------------------------------------------------

     Because credit rating agencies perform evaluative and
analytical services on behalf of clients, much as other financial
``gatekeepers'' do, the activities of credit rating agencies are
fundamentally commercial in character and should be subject to the same
standards of liability and oversight as apply to auditors, securities
analysts, and investment bankers.\1331\
---------------------------------------------------------------------------

    \1331\ Public Law 111-203 Sec.  931(3).
---------------------------------------------------------------------------

     In certain activities, particularly in advising arrangers
of structured financial products on potential ratings of such products,
credit rating agencies face conflicts of interest that need to be
carefully monitored and that therefore should be addressed explicitly
in legislation in order to give clearer authority to the Securities and
Exchange Commission.\1332\
---------------------------------------------------------------------------

    \1332\ Public Law 111-203 Sec.  931(4).
---------------------------------------------------------------------------

     In the recent financial crisis, the ratings on structured
financial products have proven to be inaccurate. This inaccuracy
contributed significantly to the mismanagement of risks by financial
institutions and investors, which in turn adversely impacted the health
of the economy in the United States and around the world. Such
inaccuracy necessitates increased accountability on the part of credit
rating agencies.\1333\
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    \1333\ Public Law 111-203 Sec.  931(5).
---------------------------------------------------------------------------

B. Legal Basis

    The Commission's proposed amendments to existing rules and proposed
new rules are made pursuant to the Exchange Act,\1334\ particularly
Sections 15E, 17(a) and 36 of the Exchange Act,\1335\ and Sections 936
and 938(a) of the Dodd-Frank Act.\1336\
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    \1334\ 15 U.S.C. 78a et seq.
    \1335\ 15 U.S.C. 78o-7, 78q and 78mm.
    \1336\ Public Law 111-203 Sec. Sec.  936 and 938(a).
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C. Small Entities Subject to the Rule

1. NRSROs and Providers of Third-Party Due Diligence Services
    Under section 601(3) of the RFA, the term ``small business'' is
defined as having ``the same meaning as the term `small business
concern' under Section 3 of the Small Business Act, unless an agency,
after consultation with the Office of Advocacy of the Small Business
Administration and after opportunity for public comment, establishes
one or more definitions of such term which are appropriate to the
activities of the agency and publishes such definition(s) in the
Federal Register.'' \1337\ The Commission's rules do not define ``small
business'' or ``small organization'' with respect to NRSROs. However,
paragraph (a) of Rule 0-10 provides that for purposes of the RFA, 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.'' \1338\ The Commission has stated in the past
that an NRSRO with total assets of $5 million or less would qualify as
a ``small'' entity for purposes of the RFA.\1339\ The Commission
continues to believe this threshold of total assets of $5 million or
less would qualify an NRSRO as ``small'' for purposes of the RFA. In
addition, the Commission preliminarily believes this would be an
appropriate threshold for determining whether a provider of third-party
due diligence services is ``small'' for purposes of the RFA.
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    \1337\ 5 U.S.C. 601(3).
    \1338\ 17 CFR 240.0-10(a).
    \1339\ See e.g., Oversight of Credit Rating Agencies Registered
as Nationally Recognized Statistical Rating Organizations, 72 FR
33618 (June 18, 2007); Amendments to Rules for Nationally Recognized
Statistical Rating Organizations, 74 FR at 6481 (Feb. 9, 2009); and
Amendments to Rules for Nationally Recognized Statistical Rating
Organizations, 74 FR at 63863 (Dec. 4, 2009).
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    Currently, there are 10 NRSROs and, based on their most recently
filed annual reports pursuant to Rule 17g-3, one NRSRO is a small
entity under the above definition. For purposes of the PRA, the
Commission preliminarily estimates that there will be 10 providers of
third-party due diligence services subject to the proposed new
requirements.\1340\ Of these 10 respondents, the Commission estimates
that all 10 would be ``small'' entities.
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    \1340\ See Section VI.C of this release.
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2. Issuers and Underwriters
    The proposing release for Form ABS-15G certified that the form
would not have a significant economic impact on a substantial number of
small entities.\1341\ As discussed above in Section V.I.2 of this
release, the Commission believes that the costs to the issuers and
underwriters subject to proposed new Rule 15Ga-2 and the proposed
amendments to Form ABS-15G would be less than those arising from the
adoption of Form ABS-15G. The Commission, therefore, certifies pursuant
to 5 U.S.C. 605(b) that proposed new Rule 15Ga-2 and the proposed
amendments to Form ABS-15G contained in this release, if adopted, would
not have a significant economic impact on a substantial number of small
entities. The proposals relate to disclosure requirements for Exchange
Act-ABS. As noted above, Rule 0-10(a) \1342\ defines an issuer, other
than an investment company, to be a ``small business'' or ``small
organization'' if it had total assets of $5 million or less on the last
day of its most recent fiscal year. The Commission's data indicates
that only one sponsor could meet the definition of a small broker-
dealer for purposes of the Regulatory Flexibility Act.\1343\
Accordingly, the Commission does not believe that proposed new Rule
15Ga-2 and the proposed amendments to Form ABS-15G, if adopted, would
have a significant economic impact on a substantial number of small
entities.
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    \1341\ See Disclosure for Asset-Backed Securities Required by
Section 943 of the Dodd-Frank Wall Street Reform and Consumer
Protection Act, Securities Act Release No. 9148 (Oct. 4, 2010), 75
FR 62718 at 62734 (Oct. 13, 2010).
    \1342\ 17 CFR 240.0-10(a).
    \1343\ This is based on data from Asset-Backed Alert.
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D. Reporting, Recordkeeping, and Other Compliance Requirements

    The proposed amendments and proposed new rules would impose certain
reporting, recordkeeping, and other compliance requirements on small
NRSROs and small providers of third-party due diligence services.
Preliminary estimates of the costs attributable to these proposals are
discussed in detail in Section V of this release. As discussed in
Section V of this release, the Commission preliminarily estimates that
the costs are largely attributable to rulemaking mandates in the Dodd-
Frank Act and not to the exercise of Commission discretionary
rulemaking.
    The Commission is providing summary information below about the
preliminary cost estimates in Section V of this release to estimate the
impact the proposals would have on the one small NRSRO and the 10 small
providers of third-party due diligence services. In some cases, the
Commission preliminarily believes it is appropriate to estimate the
one-time and annual costs per small NRSRO using average costs across
all NRSROs that would be subject to the proposed amendments and new
rules. The NRSROs vary, in terms of size and complexity, from

small entities that employ less than 20 credit analysts to complex
global organizations that employ over a thousand credit analysts.\1344\
Given the variance in size between the largest NRSROs and the smallest
NRSROs, the average costs are skewed higher because the largest firms
currently dominate in terms of size and the volume of credit rating
activities.\1345\ In other cases, as described below, the Commission
preliminarily believes it is appropriate to estimate the one-time and
annual costs per small NRSRO based on the number of credit ratings
outstanding or the number of credit analysts employed by the seven
smaller NRSROs.\1346\ In a cost estimate based on the number of credit
ratings outstanding, the Commission preliminarily proposes to use the
number of credit ratings outstanding of the 7 smaller NRSROs.\1347\ In
a cost estimate based on the number of credit analysts, the Commission
preliminarily proposes to use the number of credit analysts employed by
the 7 smaller NRSROs.\1348\
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    \1344\ See, e.g., Annual Report on Nationally Recognized
Statistical Rating Organizations. Commission (Jan. 2011), pp. 4-9.
    \1345\ As discussed above in Section IV.D of this release, based
on data collected from the NRSROs in their Form NRSROs and Rule 17g-
3 annual reports, the Commission has calculated an HHI number using
the number credit ratings outstanding per NRSRO and that number is
3,495, which is equivalent to there being approximately 2.86 equally
sized firms. The HHI using earnings reported by NRSROs in the Rule
17g-3 annual reports is 3,926, which the equivalent of 2.55 equally
sized firms.
    \1346\ The seven smaller NRSROs are: A.M. Best Company, Inc.,
DBRS Ltd., Egan-Jones Rating Company, Japan Credit Rating Agency,
Ltd., Kroll Bond Rating Agency, Inc. (formerly LACE Financial
Corp.), Rating and Investment Information, Inc., and Realpoint LLC.
See Figures 2 and 3. The small NRSRO is one these NRSROs.
    \1347\ 80,648 (total credit ratings outstanding for the seven
smaller NRSROs)/2,905,825 (total credit ratings outstanding for all
ten NRSROs)/7 (the number of smaller NRSROs) = 0.00396. See Figure
2.
    \1348\ 370 (the total number of credit analysts employed by the
seven smaller NRSROs)/3,520 (the total number of credit analysts
employed by all ten NRSROs)/7 (the number of smaller NRSROs) =
.01502. See Figure 3.
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    As discussed above in Section V.A.2 of this release, the Commission
preliminarily estimates that the proposed amendments to Rule 17g-3
would result in one-time and annual costs to NRSROs.\1349\ In
particular, the Commission preliminarily estimates that the proposal
would result in an average one-time cost to each NRSRO of approximately
$40,000 and an average annual cost to each NRSRO of approximately
$60,950.\1350\
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    \1349\ See proposed new paragraph (a)(7) and proposed amendments
to paragraph (b) of Rule 17g-3; see also Section II.A.1 of this
release for a more detailed discussion of these provisions.
    \1350\ See Section V.A.2 of this release for a more detailed
discussion of the basis for these cost estimates.
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    As discussed above in Section V.B.2 of this release, the Commission
preliminarily estimates that the proposed amendments to Rule 17g-5
would result in one-time and annual costs to each NRSRO.\1351\
Moreover, the Commission provides separate preliminary cost estimates
for the three larger NRSROs and the seven smaller NRSROs. In
particular, the Commission preliminarily estimates that the proposal
would result in an average one-time cost to each of the seven smaller
NRSROs of approximately $15,867 and an average annual cost to each of
the seven smaller NRSROs of approximately $4,587.\1352\
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    \1351\ See proposed new paragraph (c)(8) of Rule 17g-5; see also
Section II.B.1 of this release for a more detailed discussion of
this proposal.
    \1352\ See Section V.B.2 of this release for a more detailed
discussion of the basis for these cost estimates.
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    As discussed above in Section V.C.2 of this release, the Commission
preliminarily estimates proposed paragraph (c) to new Rule 17g-8 would
result in one-time and annual costs to each NRSRO.\1353\ In particular,
the Commission preliminarily estimates that the proposal would result
in an average one-time cost to each NRSRO of approximately $27,300 and
an average annual cost to each NRSRO of approximately $6,825.\1354\
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    \1353\ See proposed paragraph (c) of new Rule 17g-8; see also
Section II.C.1 of this release for a more detailed discussion of
this proposal.
    \1354\ See Section V.C.2 of this release for a more detailed
discussion of the basis for these cost estimates.
---------------------------------------------------------------------------

    As discussed above in Section V.E.2 of this release, the Commission
preliminarily estimates that the proposed amendments to the
instructions to Exhibit 1 of Form NRSRO would result in one-time and
annual costs to each NRSRO.\1355\ Based on the total number of ratings
outstanding across all 10 NRSROs, the Commission preliminarily
estimates an industry-wide one-time cost of approximately $735,680 and
an industry-wide annual cost of approximately $367,840.\1356\ Moreover,
because of the wide variance in the number of credit ratings
outstanding among the NRSROs, the Commission preliminarily believes
that it is appropriate to allocate these costs to NRSROs based on the
number of credit ratings each has outstanding (although larger NRSROs
may realize economies of scale). Consequently, the Commission
preliminarily estimates that the proposal would result in an average
one-time cost to the small NRSRO of approximately $2,913 and an average
annual cost to the small NRSRO of approximately $1,457.\1357\
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    \1355\ See proposed amendments to Instruction H to Form NRSRO
(as it relates to Exhibit 1); see also Section II.E.1.a of this
release for a more detailed discussion of this proposal.
    \1356\ See Section V.E.2 of this release for a more detailed
discussion of the basis for these cost estimates.
    \1357\ $735,680 x .00396 = $2,913.29, rounded to $2,913;
$367,840 x .00396 = $1,456.65, rounded to $1,457.
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    As discussed above in Section V.E.2 of this release, the Commission
preliminarily estimates that the proposed amendments to Rule 17g-1
would result in one-time and annual costs to each NRSRO.\1358\ First,
the Commission preliminarily estimates that the proposal to require an
NRSRO to it make its Form NRSRO and Exhibits 1 through 9 freely
available on an ``easily accessible'' portion of its corporate Internet
Web site would result in an average one-time cost to each NRSRO of
approximately $1,125.\1359\ Second, the Commission preliminarily
estimates that the proposal to require an NRSRO to provide, when
requested, a written copy of Exhibit 1 would result in an average one-
time cost to each NRSRO of approximately $13,104 and an average annual
cost to each NRSRO of approximately $18,291.\1360\
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    \1358\ See proposed amendments to paragraph (i) of Rule 17g-1;
see also Section II.E.1.b of this release for a more detailed
discussion of this proposal.
    \1359\ See Section V.E.2 of this release for a more detailed
discussion of the basis for this cost estimate.
    \1360\ Id.
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    As discussed above in Section V.F.2 of this release, the Commission
preliminarily estimates that proposed new paragraph (b) of Rule 17g-7
would result in one-time and annual costs to each NRSRO.\1361\ First,
the Commission preliminarily estimates that the proposal to make the
ratings histories available on an ``easily accessible'' portion of the
NRSRO's corporate Internet Web site would result in an average one-time
cost to each NRSRO of approximately $1,125.\1362\ Second, the
Commission preliminarily estimates that the proposed enhancements to
the current ratings history disclosure requirements would result in an
average one-time cost to each NRSRO of approximately $30,375 and an
average

annual cost to each NRSRO of approximately $10,125.\1363\
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    \1361\ See proposed new paragraph (b) of Rule 17g-7; see also
Section II.E.2 of this release for a more detailed discussion of
this proposal.
    \1362\ See Section V.F.2 of this release for a more detailed
discussion of the basis for this cost estimate.
    \1363\ See Section V.F.2 of this release for a more detailed
discussion of the basis for these cost estimates.
---------------------------------------------------------------------------

    As discussed above in Section V.G.2 of this release, the Commission
preliminarily estimates that paragraph (a) of proposed new Rule 17g-8
would result in one-time and annual costs to each NRSRO.\1364\ In
particular, the Commission preliminarily estimates that the proposal
would result in an average one-time cost to each NRSRO of approximately
$54,600 and an average annual cost to each NRSRO of approximately
$13,650.\1365\
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    \1364\ See paragraph (a) of new Rule 17g-8; see also Section
II.F.1 of this release for a more detailed discussion of this
proposal.
    \1365\ See Section V.G.2 of this release for a more detailed
discussion of the basis for these cost estimates.
---------------------------------------------------------------------------

    As discussed above in Section V.H.2 of this release, the Commission
preliminarily estimates that proposed new paragraph (a) of Rule 17g-7
would result in one-time and annual costs to each NRSRO.\1366\ Based on
the total number of ratings outstanding across all 10 NRSROs, the
Commission preliminarily estimates an industry-wide one-time cost of
approximately $15,237,500 and an industry-wide annual cost of
approximately $115,580,930.\1367\ Moreover, the Commission
preliminarily estimates that the one-time and annual costs would vary
considerably among NRSROs based on the number of credit ratings they
issue and monitor and the number of classes and subclasses of credit
ratings for which they issue and monitor credit ratings. Consequently,
the Commission preliminarily estimates that the proposal would result
in an average one-time cost to the small NRSRO of approximately $60,340
and an average annual cost to the small NRSRO of approximately
$457,700.\1368\
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    \1366\ See proposed new paragraph (a) of Rule 17g-7 see also
Sections II.G.1 through G.5 of this release for a more detailed
discussion of this proposal.
    \1367\ See Section V.H.2 of this release for a more detailed
discussion of the basis for these cost estimates.
    \1368\ $15,237,500 x .00396 = $60,340.50, rounded to $60,340;
$115,580,930 x .00396 = $457,700.48, rounded to $457,700.
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    As discussed above in Section V.K.2 of this release, the Commission
preliminarily estimates that proposed new Rule 17g-9 would result in
one-time and annual costs to each NRSRO.\1369\ Based on the total
number of credit rating analysts employed by the 10 NRSROs, the
Commission preliminarily estimates an industry-wide one-time cost of
approximately $5,363,000 and an industry-wide annual cost of
approximately $1,072,720.\1370\ Moreover, the Commission preliminarily
estimates that these costs would be allocated to the 10 NRSROs based on
the number of credit analysts each employs. Consequently, the
Commission preliminarily estimates that the proposal would result in an
average one-time cost to the small NRSRO of approximately $80,552 and
an average annual cost to the small NRSRO of approximately
$16,112.\1371\
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    \1369\ See proposed new Rule 17g-9; see also Section II.I.1 of
this release for a more detailed discussion of this proposal.
    \1370\ See Section V.K.2 of this release for a more detailed
discussion of the basis for these cost estimates.
    \1371\ $5,363,000 x .01502 = $80,552.26, rounded to $80,552;
$1,072,720 x .01502 = $16,112.25, rounded to $16,112..
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    As discussed above in Section V.L.2 of this release, the Commission
preliminarily estimates that paragraph (b) of proposed new Rule 17g-8
would result in one-time and annual costs to each NRSRO.\1372\ In
particular, the Commission preliminarily estimates that the proposal
would result in an average one-time cost to each NRSRO of approximately
$54,600 and an average annual cost to each NRSRO of approximately
$13,650.\1373\
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    \1372\ See paragraph (b) of proposed new Rule 17g-8; see also
Section II.J.1 of this release for a more detailed discussion of
this proposal.
    \1373\ See Section V.L.2 of this release for a more detailed
discussion of the basis for these cost estimates.
---------------------------------------------------------------------------

    As discussed above in Section V.N.2 of this release, the Commission
preliminarily estimates that proposed requirement to file certain Form
NRSROs (and Exhibits 1 through 9) and the Rule 17g-3 annual reports
with the Commission through the EDGAR system would result in one-time
costs to each NRSRO.\1374\ In particular, the Commission preliminarily
estimates that the proposal would result in an average one-time cost to
each NRSRO of approximately $1,365.\1375\
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    \1374\ See proposed amendments to Regulation S-T, Rule 17g-1,
and Rule 17g-3; see also Section II.L of this release for a more
detailed discussion of this proposal.
    \1375\ See Section V.N.2 of this release for a more detailed
discussion of the basis for this cost estimate.
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    As discussed above in Sections V.A.2, V.C.2, V.G.2, V.K.2, and
V.L.2 of this release, the Commission has proposed applying the
recordkeeping requirements of Rule 17g-2 to five new types of
records.\1376\ The Commission preliminarily estimates that these
proposals would result in one-time and annual costs to each NRSRO. In
particular, the Commission preliminarily estimates an average one-time
cost to each NRSRO of approximately $5,460 and an average annual cost
to each NRSRO of approximately $1,365.\1377\
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    \1376\ See proposed new paragraphs (a)(9), (b)(12), (b)(13),
(b)(14), and (b)(15) of Rule 17g-2; see also Sections II.A.2,
II.C.2, II.F.2, II.I.2, and II.J.2 of this release, respectively,
for a more detailed discussion of these proposals.
    \1377\ $1,092 x 5 = $5,460; $273 x 5 = $1,365. See Sections
V.A.2, V.C.2, V.G.2, V.K.2, and V.L.2 of this release for a more
detailed discussion of the basis for these cost estimates.
---------------------------------------------------------------------------

    Finally, as discussed in Section V.J.2 of this release, the
Commission preliminarily estimates that proposed new Rule 17gx10 and
proposed new Form ABS Due Diligence-15E would result in one-time and
annual costs to providers of third-party due diligence services.\1378\
In particular, the Commission estimates an average one-time cost to
each provider of third-party due diligence services of approximately
$91,425.\1379\ In addition, the Commission preliminarily estimates that
the annual cost resulting from these proposals would be based on the
number of Exchange Act-ABS transactions issued per year. Consequently,
the Commission preliminarily estimates that the industry-wide annual
cost would be approximately $282,282.\1380\ For this reason, the
Commission preliminarily estimates that the average annual cost to each
provider of third-party due diligence services would be approximately
$28,228.\1381\
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    \1378\ See proposed new Rule 17g-10 and proposed new Form ABS
Due Diligence-15E; see also Sections II.H.2 and II.H.3 of this
release, respectively, for a more detailed discussion of these
proposals.
    \1379\ See Section V.J.2 of this release for a more detailed
discussion of the basis for this cost estimate.
    \1380\ Id.
    \1381\ $282,282/10 small providers of third-party due diligence
services = $28,228.20 (rounded to $28,228).
---------------------------------------------------------------------------

    As noted above, the Commission preliminarily estimates that these
costs largely are attributable to rulemaking mandates in the Dodd-Frank
Act. The Commission also notes that the Dodd-Frank Act explicitly
provides that the Commission's rulemaking make exceptions for small
NRSROs in one instance.\1382\ The Commission preliminary believes that
the exercise of the Commission's discretionary rulemaking would not
disproportionately affect small entities. The Commission preliminarily
believes that the exercise of discretionary rulemaking strikes an
appropriate balance between minimizing the burden on small entities and
meeting the rulemaking mandates in the Dodd-Frank Act.
---------------------------------------------------------------------------

    \1382\ See Public Law 111-203 Sec.  932(a)(4) and 15 U.S.C. 78o-
7(h)(3)(B)(i).

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E. Duplicative, Overlapping, or Conflicting Federal Rules

    The Commission believes that there are no Federal rules that
duplicate, overlap, or conflict with the proposed rules.

F. Significant Alternatives

    Pursuant to Section 3(a) of the RFA,\1383\ the Commission must
consider certain types of alternatives, including: (1) The
establishment of differing compliance or recording 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 proposed rules for
small entities; (3) the use of performance rather than design
standards; and (4) an exemption from coverage of the proposed rules, or
any part of the proposed rules, for small entities.
---------------------------------------------------------------------------

    \1383\ 5 U.S.C. 603(c).
---------------------------------------------------------------------------