disclosure of information about the assets underlying structured
finance products; require more information about the procedures and
methodologies used to determine structured finance ratings; and address
conflicts of interest arising from the structured finance rating
process. As discussed below, the Commission believes that these
proposed amendments and proposed new rule would further the purpose of
the Rating Agency Act to improve the quality of credit ratings by
fostering accountability, transparency, and competition in the credit
rating industry, particularly with respect to credit ratings for
structured finance products.\223\
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    \223\ See Senate Report, p. 2.
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    Rule 17g-1 prescribes a process for a credit rating agency to
register with the Commission as an NRSRO using Form NRSRO, \224\ and
requires that a credit rating agency provide information required under
Section 15E(a)(1)(B) of the Exchange Act and certain additional
information.\225\ Form NRSRO is also the means by which NRSROs update
the information they must publicly disclose. The proposed amendments to
the instructions to Exhibit 1 to Form NRSRO would require NRSROs to
provide more detailed performance statistics and, thereby, make it
easier for users of credit ratings to compare the ratings performance
of the NRSROs.\226\ In addition, these proposed amendments could make
it easier for an NRSRO to demonstrate that it has a superior ratings
methodology or competence and, thereby, attract clients.
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    \224\ See Rule 17g-1.
    \225\ See Section 15E(a)(1)(B) of the Exchange Act. 15 U.S.C.
78o-7(a)(1)(B).
    \226\ 17 CFR 240.17g-1 and Form NRSRO.
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    The proposed amendments to the instructions to Exhibit 2 of Form
NRSRO are designed to provide greater clarity around three areas of the
NRSROs' rating processes for structured finance products that have
raised concerns in the context of the recent credit market turmoil: the
level of verification performed on information provided in loan
documents; the quality of loan originators; and the on-going
surveillance of existing ratings and how changes made to a model used
for initial ratings are applied to existing ratings. The additional
information provided by the proposed amendments would assist users of
credit ratings in making more informed decisions about the quality of
an NRSRO's ratings processes, particularly with regard to structured
finance products.
    The Commission preliminarily believes that these proposed enhanced
disclosures in the Exhibits to Form NRSRO could make it easier for
market participants to select the NRSROs that are performing best and
have the highest quality processes for determining credit ratings. The
potential result could be increased competition and the promotion of
capital formation through a restoration of confidence in credit
ratings.
    The proposed amendments to Rule 17g-2 are designed to assist the
Commission in its examination function and provide greater information
to users of credit ratings about the performance of an NRSRO's credit
ratings. The additional records would be: (1) A record of the rationale
for any material difference between the credit rating implied by the
model and the final credit rating issued, if a quantitative model is a
substantial component in the process of determining a credit
rating;\227\ (2) a record showing the history and dates of all previous
rating actions with respect to each current credit rating;\228\ and (3)
any complaints regarding the performance of a credit analyst in
determining credit ratings.\229\ These proposed records would assist
the Commission in monitoring whether an NRSRO is complying with
provisions of Section 15E of the Exchange Act and the rules thereunder.
This would include monitoring whether an NRSRO is operating
consistently with the methodologies and procedures it establishes (and
discloses) to determine credit ratings and its policies and procedures
designed to ensure the

impartiality of its credit ratings, including its ratings of structured
finance products.
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    \227\ Proposed paragraph (a)(2)(iii) of Rule 17g-2.
    \228\ Proposed paragraph (a)(8) of Rule 17g-2.
    \229\ Proposed paragraph (b)(8) of Rule 17g-2.
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    In addition, the proposed amendments to Rule 17g-2, which would
require an NRSRO to make its rating actions history publicly available
in an XBRL Interactive Data File, would allow the marketplace to
develop performance measurement statistics that would supplement those
already required to be published by NRSROs in Exhibit 1 to Form NRSRO.
This proposed amendment is designed to leverage the expertise of the
marketplace and, thereby, provide users of credit ratings with
innovative and potentially more useful metrics with which to compare
NRSROs. This could make NRSROs more accountable for their ratings by
enhancing the transparency of their ratings performance. By proposing
to require an XBRL Interactive Data File the Commission also believes
the proposed amendment would allow investors, analysts, and the
Commission staff to capture and analyze the ratings action data more
quickly and at less of a cost than is possible using another format.
    The Commission preliminarily believes that the proposed amendments
to Rule 17g-2 would enhance the Commission's oversight of NRSROs and,
with respect to the public disclosure of ratings history, provide the
marketplace with the raw materials to develop metrics for comparing the
ratings performance of NRSROs. This could, in turn, help in restoring
confidence in credit ratings and, thereby, promote capital formation.
Increased disclosure of ratings history could make the ratings
performance of the NRSROs more transparent to the marketplace and,
thereby, highlight those firms that do a better job analyzing credit
risk. This could benefit smaller NRSROs to the extent they have
performed better than others by alerting the market to their superior
competence.
    The proposed amendment to Rule 17g-3 would require an NRSRO to
furnish an additional annual report to the Commission: An unaudited
report of the number of credit ratings that were changed during the
fiscal year in each class of credit ratings for which the NRSRO is
registered with the Commission.\230\ The proposed new report is
designed to enhance the Commission's oversight of NRSROs by providing
the Commission with additional information to assist in the monitoring
of NRSROs for compliance with their stated policies and procedures. For
example, the proposed new report would allow examiners to target
potential problem areas in an NRSRO's rating processes by highlighting
spikes in rating actions within a particular class of credit rating.
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    \230\ See proposed Rule 17g-3(a)(6).
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    The proposed amendments to Rule 17g-5 would prohibit an NRSRO from
issuing a rating for a structured product unless information about the
assets underlying the rated security is made available to certain
persons.\231\ These proposed rule amendments would prohibit an NRSRO
from issuing or maintaining a credit rating where the NRSRO or an
affiliate provided recommendations on the structure of the transaction
being rated; a credit analyst or person involved in the ratings process
participated in fee negotiations; or a credit analyst or a person
responsible for approving a credit rating received gifts from the
obligor being rated, or from the issuer, underwriter, or sponsor of the
securities being rated, other than items provided in the context of
normal business activities such as meetings that have an aggregate
value of no more than $25.\232\ The Commission believes that the
proposed amendments to Rule 17g-5 would promote the disclosure and
management of conflicts of interest and mitigate potential undue
influences on an NRSRO's credit rating process, particularly with
respect to credit ratings for structured finance products.\233\ This
would in turn increase confidence in the integrity of NRSRO ratings
and, thereby, promote capital formation. In addition, the proposed
disclosure of additional information regarding the assets underlying a
structured finance transaction \234\ would allow for unsolicited
ratings that could help address ratings shopping by exposing an NRSRO
whose ratings methodologies are less conservative in order to gain
business. It also could mitigate the impact of rating shopping, since
NRSROs not hired to rate a deal could nonetheless issue a credit
rating. These potential impacts of the rule proposal could help to
restore confidence in credit ratings and, thereby, promote capital
formation. Also, by creating a mechanism for determining unsolicited
ratings, they could increase competition by allowing smaller NRSROs to
demonstrate proficiency in rating structured products.
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    \231\ See proposed Rule 17g-5(a)(3) and (b)(9).
    \232\ See proposed Rule 17 CFR 240.17g-5(c)(5)-(7).
    \233\ See 15 U.S.C. 78o-7(a)(1)(B)(vi) and (h).
    \234\ See proposed Rule 17 CFR 240.17g-5(a)(3).
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    Proposed Rule 17g-7 would address concerns that investors may
believe that the risk characteristics for a structured finance product
are the same as for other types of obligors or debt securities by
requiring an NRSRO to attach a report each time it publishes a credit
rating for a structured finance product describing how the ratings
procedures and methodologies differ from those ratings for other types
of obligors or debt securities.\235\ Alternatively, an NRSRO would be
permitted to use rating symbols for structured finance products that
differentiate them from its other credit ratings. The Commission
believes this proposed rule would address potential confusion by
investors as to the different characteristics of structured finance
products when compared to other types of obligors or debt securities
and help them in assessing the risks involved with different types of
securities and promote better informed investment decisions.
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    \235\ See proposed Rule 17g-7.
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    The Commission generally requests comment on all aspects of these
proposed benefits. In addition, the Commission requests specific
comment on the following items related to these benefits.
     Are there metrics available to quantify these benefits and
any other benefits the commenter may identify, including the
identification of sources of empirical data that could be used for such
metrics.

Commenters should provide specific data and analysis to support any
comments they submit with respect to these benefit estimates.

B. Costs

    The cost of compliance with the proposed amendments and new rule to
a given NRSRO would depend on its size and the complexity of its
business activities. The size and complexity of NRSROs vary
significantly. Therefore, the cost could vary significantly across
NRSROs. Instead, the Commission is providing estimates of the average
cost per NRSRO, as a result of the proposed amendments, taking into
consideration the range in size and complexity of NRSROs and the fact
that many already may have established policies, procedures and
recordkeeping systems and processes that would comply substantially
with the proposed amendments. Additionally, the Commission notes that
nine credit rating agencies are currently registered with the
Commission as NRSROs and subject to the Act and its implementing
regulations. The cost of compliance would also vary depending on which
classes of credit ratings an NRSRO issues. NRSROs which issue credit
ratings for structured finance products would incur higher compliance
costs

than those NRSROs which do not issue such credit ratings or issue very
few credit ratings in that class.
    For these reasons, the cost estimates represent the average cost
across all NRSROs and take into account that some firms would only need
to augment existing policies, procedures and recordkeeping systems and
processes to come into compliance with the proposed amendments.
1. Proposed Amendments to Form NRSRO
    As discussed above, the Commission is proposing to amend the
instructions to Exhibit 1 to Form NRSRO to provide more detailed
performance statistics. Currently, the instructions require the
disclosure of performance measurement statistics of the credit ratings
of the ``Applicant/NRSRO over the short-term, mid-term and long-term
periods (as applicable) through the most recent calendar year end.''
The proposed amendments would augment these instructions to require the
disclosure of separate sets of default and transition statistics for
each class of credit ratings. In addition, the class-by-class
disclosures would need to be broken out over 1, 3 and 10 year
periods.\236\
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    \236\ See proposed instructions to Exhibit 1, Form NRSRO.
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    The proposed amendments would also amend the instructions to
Exhibit 2 to Form NRSRO to require enhanced disclosures about the
procedures and methodologies an NRSRO uses to determine credit ratings,
including whether and, if so, how information about verification
performed on assets underlying a structured finance transaction is
relied on in determining credit ratings; whether and, if so, how
assessments of the quality of originators of assets underlying a
structured finance transaction factor into the determination of credit
ratings; and how frequently credit ratings are reviewed, whether
different models are used for ratings surveillance than for determining
credit ratings, and whether changes made to models and criteria for
determining initial ratings are applied retroactively to existing
ratings. As discussed above, the Commission estimates that for PRA
purposes the total one-time and annual hour burdens and the cost would
have a neutral effect, resulting in no overall change in hours or cost
for the currently approved PRA collection.
    The Commission preliminarily believes, however, NRSROs may incur a
cost of compliance in updating their performance metric statistics to
conform to the new requirements set forth in the proposed rule
amendments. Under the current instructions to Exhibit 1 to Form NRSRO,
an NRSRO must disclose its performance metrics over short, mid, and
long-term periods. Thus, the current Form NRSRO instructions to Exhibit
1 allow an NRSRO to use its own definitions of ``short, mid, and long-
term periods'' and to include all credit ratings, regardless of class
of rating, in one set of metrics. Under the proposed amendments, an
NRSRO would be required to break out on a class-by-class basis
performance statistics over 1, 3 and 10-year periods. The Commission
believes that existing NRSROs would incur costs to conform their
current performance statistics with the requirements of this proposed
amendment to Exhibit 1.
    The Commission estimates that it would take each NRSRO currently
registered with the Commission approximately 50 hours to review its
performance measurement statistics and to develop and implement any
changes necessary to comply with the proposed amendment. The Commission
is basing this estimate on the amount of time the Commission estimated
that it would take an NRSRO to establish procedures in conformance with
Rule 17g-4 and on information gained from the NRSRO examination
process.\237\ For these reasons, the Commission estimates that the
average one-time cost to an NRSRO would be $12,740 \238\ and the total
aggregate cost to the currently registered NRSROs would be
$114,660.\239\
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    \237\ See 17 CFR 240.17g-4; Adopting Release, 72 FR at 33616.
    \238\ The Commission estimates that a Compliance Attorney (40
hours) and a Programmer Analyst (10 hours) would perform these
responsibilities. The SIFMA 2007 Report as Modified indicates that
the average hourly rates for a Compliance Attorney and a Programmer
Analyst are $270 and $194 per hour, respectively. Therefore, the
average one-time cost to an NRSRO would be $12,740 [(40 hours x
$270) + (10 hours x $194)].
    \239\ $12,740 x 9 NRSROs = $114,660.
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    The Commission generally requests comment on all aspects of these
proposed cost estimates for the proposed amendments to Form NRSRO. In
addition, the Commission requests specific comment on the following
items related to these cost estimates:
     Would these proposals impose costs on other market
participants, including persons who use credit ratings to make
investment decisions or for regulatory purposes, and persons who
purchase services and products from NRSROs?

Commenters should provide specific data and analysis to support any
comments they submit with respect to these burden estimates.
2. Proposed Amendments to Rule 17g-2
Rule 17g-2 requires an NRSRO to make and preserve specified records
related to its credit rating business.\240\ As discussed above, the
proposed amendments to Rule 17g-2 would require an NRSRO to make and
retain two additional records and retain a third type of record. The
records to be made and retained would be: (1) A record of the rationale
for any material difference between the credit rating implied by the
model and the final credit rating issued, if a quantitative model is a
substantial component in the process of determining a credit rating;
\241\ and (2) a record showing the history and dates of all previous
rating actions with respect to each current credit rating.\242\ The
proposed amendments to Rule 17g-2 would require an NRSRO to make the
second record-rating actions related to current ratings publicly
available in an XBRL Interactive Data File.\243\ In addition, the
proposed amendments would require an NRSRO to retain communications
that contain any complaints by an obligor, issuer, underwriter, or
sponsor about the performance of a credit analyst.\244\
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    \240\ 17 CFR 240.17g-2.
    \241\ Proposed paragraph (a)(2)(iii) of Rule 17g-2.
    \242\ Proposed paragraph (a)(8) of Rule 17g-2.
    \243\ Proposed amendment to Rule 17g-2(d).
    \244\ Proposed paragraph (b)(8) of Rule 17g-2.
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    As discussed with respect to the PRA, the Commission estimates
that, based on staff experience, the total one-time and annual
recordkeeping burdens would increase approximately 10% and 5%,
respectively. Thus, the Commission estimates that the one-time hour
burden that each NRSRO would spend implementing a recordkeeping system
to comply with Rule 17g-2 would be approximately 330 hours (an increase
of 30 hours) \245\ for a total one-time burden of 9,900 hours (an
increase of 900 hours).\246\
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    \245\ 300 hours x 1.10 = 330 hours.
    \246\ 330 hours x 30 respondents = 9,900 hours.
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    The Commission estimates that an NRSRO would spend an average of
267 hours per year (an increase of 13 hours) \247\ to make and maintain
records under Rule 17g-2, for a total annual hour burden of 8,010
hours.\248\ This estimate would increase the currently approved PRA
burden under Rule 17g-2 by 390 hours.\249\ For these reasons, the
Commission estimates that an NRSRO would incur an average one-time cost
of $7,350 and the average annual cost of $3,185, as a result of the
proposed

amendments.\250\ Consequently, the total aggregate one-time cost
attributable to the proposed amendments would be $220,500 \251\ and the
total aggregate annual cost to the industry would be $95,550.\252\
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    \247\ 254 hours x 1.05 = 267 hours.
    \248\ 267 hours x 30 respondents = 8,010 hours.
    \249\ 8,010 hours-7,620 hours = 390 hours.
    \250\ The Commission estimates that an NRSRO will have a
Compliance Manager perform these responsibilities. Based on the
average hourly rate for a Compliance Manager of $245, the average
one time cost will be $7,350 (30 hours x $245 per hour) and the
average annual cost will be $3,185 (13 hours x $245 per hour).
    \251\ $7,350 x 30 NRSROs = $220,500.
    \252\ $3,185 x 30 NRSROs = $95,550.
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    In addition, the proposed amendments to Rule 17g-2 would require an
NRSRO to make the records of its rating actions publicly available in
an XBRL Interactive Data File.\253\ As discussed with respect to the
PRA, the Commission estimates that, on average, an NRSRO would spend
approximately 30 hours to publicly disclose this ratings history
information in an XBRL Interactive Data File and, thereafter, 10 hours
per year to update its rating action history.\254\ Accordingly, the
total aggregate one-time burden to the industry to make the history of
its rating actions publicly available in an XBRL Interactive Data File
would be 900 hours \255\ and the total aggregate annual burden hours
would be 300 hours.\256\ Furthermore, as discussed in the PRA the
Commission estimates there will be 30 NRSROs. For these reasons, the
Commission estimates that an NRSRO would incur an average one-time cost
of $8,670 and an average annual cost of $2,890, as a result of the
proposed amendment.\257\ Consequently, the total aggregate one-time
cost to the industry would be $260,100 \258\ and the total aggregate
annual cost to the industry would be $86,700.\259\
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    \253\ See proposed amendment to Rule 17g-2(d).
    \254\ The Commission also bases this estimate on the estimated
one-time and annual burden hours it would take an NRSRO to publicly
disclose its Form NRSRO on its Web site. No comments were received
on these estimates in the final rule release. See Adopting Release,
72 FR at 33609.
    \255\ 30 hours x 30 NRSROs = 900 hours.
    \256\ 10 hours x 30 NRSROs = 300 hours.
    \257\ The Commission estimates that an NRSRO would have a Senior
Programmer perform these responsibilities. The SIFMA 2007 Report as
Modified indicates that the average hourly cost for a Senior
Programmer is $289. Therefore, the average one-time cost would be
$8,670 [(30 hours) x ($289 per hour)] and the average annual cost
would be $2,890 [(10 hours per year) x ($289 per hour)].
    \258\ 900 hours x $289 per hour.
    \259\ 300 hours x $289 per hour.
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    As discussed with respect to the PRA, the Commission estimated that
an NRSRO may have to purchase recordkeeping software to establish a
recordkeeping system in conformance with Rule 17g-2. The Commission
estimated that the cost of the software will vary based on the size and
complexity of the NRSRO. Also, the Commission estimated that some
NRSROs would not need such software because they already have adequate
recordkeeping systems or, given their small size, such software would
not be necessary. Based on these estimates, the Commission estimated
that the average cost for recordkeeping software across all NRSROs
would be approximately $1,000 per firm. Therefore, the estimated one-
time cost to the industry would be $30,000. The Commission estimates
that the proposed amendments to Rule 17g-2 would not alter this
estimate or that any increases in the cost would be de minimis.
    Finally, proposed paragraph (a)(8) to Rule 17g-2 would require an
NRSRO to create and maintain a record showing all rating actions and
the date of such actions from the initial rating to the current rating
identified by the name or rated security or obligor, and, if
applicable, the CUSIP of the rated security or the Central Index Key
(CIK) number of the rated obligor.\260\ The Commission estimates that
an NRSRO could be required to purchase a license from the CUSIP Service
Bureau in order to access CUSIP numbers for the securities it rates.
The CUSIP Service Bureau's operations are covered by fees paid by
issuers and licensees of the CUSIP Service Bureau's data. Issuers pay a
one-time fee for each new CUSIP assigned, and licensees pay a renewable
subscription or a license fee for access and use of the CUSIP Service
Bureau's various database services. The CUSIP Service Bureau's license
fees vary based on usage, i.e., how many securities or by type of
security or business line.\261\ The Commission estimates that the
license fees incurred by an NRSRO would vary depending on the size of
the NRSRO and the number of credit ratings it issues. For purposes of
this cost estimate, the Commission estimates that an NRSRO would incur
a fee of $100,000 to obtain access to the CUSIP numbers for the
securities it rates. Consequently, the estimated total one-time cost to
the industry would be $3,000,000.\262\
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    \260\ See proposed Rule 17g-2(a)(8). The Central Index Key (CIK)
is used on the Commission's computer systems to identify
corporations and individual people who have filed disclosure with
the Commission. Anyone may search http://www.edgarcompany.sec.gov
for a company, fund, or individual CIK. There is no fee for this
service. CUSIP stands for Committee on Uniform Securities
Identification Procedures. A CUSIP number identifies most
securities, including: Stocks of all registered U.S. and Canadian
companies, U.S. government and municipal bonds, as well as
structured finance issuances. The CUSIP system--owned by the
American Bankers Association and operated by Standard & Poor's--
facilitates the clearing and settlement process of securities. The
CUSIP number consists of nine characters (including letters and
numbers) that uniquely identify a company or issuer and the type of
security.
    \261\ See https://www.cusip.com/static/html/webpage/service_
fees.html#lic_fees.
    \262\ $100,000 x 30 NRSROs = $3,000,000.
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    The Commission generally requests comment on all aspects of these
cost estimates for the proposed amendments to Rule 17g-2. In addition,
the Commission requests specific comment on the following items related
to these cost estimates:
     Would these proposals impose costs on other market
participants, including persons who use credit ratings to make
investment decisions or for regulatory purposes, and persons who
purchase services and products from NRSROs?

Commenters should provide specific data and analysis to support any
comments they submit with respect to these burden estimates.
3. Proposed Amendment to Rule 17g-3
    Rule 17g-3 requires an NRSRO to furnish audited annual financial
statements to the Commission, including certain specified
schedules.\263\ The proposed amendment to Rule 17g-3 would require an
NRSRO to furnish the Commission with an additional annual report: An
unaudited report of the number of credit ratings that were changed
during the fiscal year in each class of credit ratings for which the
NRSRO is registered with the Commission. The Commission believes that
the annual costs to NRSROs to comply with the proposed amendment to
Rule 17g-3 would be de minimis, as the Commission preliminarily
believes that a credit rating agency already would have this
information with respect to each class of credit ratings for which it
is registered. In addition, the proposed amendment does not prescribe a
format for the report. Consequently, the Commission estimates that
proposed Rule 17g-3(a)(6) would not have a significant effect on the
total average annual cost burden currently estimated for Rule 17g-3.
---------------------------------------------------------------------------

    \263\ 17 CFR 240.17g-3.
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    The Commission generally requests comment on all aspects of these
cost estimates for the proposed amendment to Rule 17g-3. In addition,
the Commission requests specific comment on the following items related
to these cost estimates:
     Would this proposal impose costs on other market
participants, including persons who use credit ratings to make
investment decisions or for regulatory

purposes, and persons who purchase services and products from NRSROs?

Commenters should provide specific data and analysis to support any
comments they submit with respect to these burden estimates.
4. Proposed Amendments to Rule 17g-5
    Rule 17g-5 requires an NRSRO to manage and disclose certain
conflicts of interest.\264\ The proposed amendments would add an
additional conflict to paragraph (b) of Rule 17g-5. This proposed
conflict of interest would be issuing or maintaining a credit rating
for a security or money market instrument issued by an asset pool or as
part of an asset-backed or mortgage-backed securities transaction that
was paid for by the issuer, sponsor, or underwriter of the security or
money market instrument.\265\ Unlike the other conflicts of interest in
paragraph (b) of Rule 17g-5, NRSROs would be prohibited from issuing a
rating, unless certain information about the transaction and the assets
underlying the structured product being rated were disclosed, pursuant
to proposed Rule 17g-5(a)(3)(i) and (ii).\266\
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    \264\ 17 CFR 240.17g-5.
    \265\ See proposed Rule 17g-5(b)(9). The current paragraph
(b)(9) would be renumbered as (b)(10).
    \266\ See proposed Rule 17g-5(a)(3).
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    Specifically, proposed Rule 17g-5(a)(3)(i) and (ii) would require
the disclosure of certain information about the assets underlying a
structured product that is provided to an NRSRO and used in determining
an initial rating and monitoring the rating. While the proposed rule
would require disclosure of certain information, the rule would not
specify which party would disclose the information. For purposes of
this PRA, the Commission estimates that it would take a respondent
approximately 300 hours to develop a system, as well as policies and
procedures to disclose the information as required under the proposed
rule. This would result in a total one-time hour burden of 60,000 hours
for 200 respondents.\267\ For these reasons, the Commission estimates
that the average one-time cost to each respondent would be $65,850
\268\ and the total aggregate one-time cost to the industry would be
$13,116,000.\269\
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    \267\ 300 hours x 200 respondents = 60,000 hours.
    \268\ The Commission estimates an NRSRO would have a Compliance
Manager and a Programmer Analyst perform these responsibilities, and
that each would spend 50% of the estimated hours performing these
responsibilities. The SIFMA 2007 Report as Modified indicates that
the average hourly cost for a Compliance Manager is $245 and the
average hourly cost for a Programmer Analyst is 194. Therefore, the
average one-time cost to an NRSRO would be $[150 hours x $245) +
(150 hours x $194)] = $65,850.
    \269\ $65,580 x 200 respondents = $13,116,000.
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    As discussed with respect to the PRA, in addition to the one-time
hour burden, respondents also would be required to disclose the
required information under proposed Rule 17g-5(a)(3)(i) on a
transaction by transaction basis. Based on staff information gained
from the NRSRO examination process, the Commission estimates that the
proposed amendments would require each respondent to disclose
information with respect to approximately 20 new transactions per year
and that it would take approximately 1 hour per transaction to make the
information publicly available.\270\ Therefore, as discussed with
respect to the PRA, the Commission estimates that it would take a
respondent approximately 20 hours \271\ to disclose this information
under proposed Rule 17g-5(a)(i) and (ii), on an annual basis, for a
total aggregate annual hour burden of 4,000.\272\ For these reasons,
the Commission estimates that the average annual cost to a respondent
would be $4,100 \273\ and the total annual cost to the industry would
be $820,000.\274\
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    \270\ This estimate assumes the respondent has already
implemented the system and policies and procedures for disclosure.
The Commission cannot estimate the number of initial transactions
per year with certainty. The Commission believes that the number of
deals that each respondent will disclose information on will vary
widely based on the size of the entity. In addition, the Commission
preliminarily believes that the number of asset-backed or mortgaged-
backed issuances being rated by NRSROs in the next few years would
be difficult to predict given the recent credit market turmoil.
    \271\ 20 transactions x 1 hour = 20 hours.
    \272\ 20 hours x 200 respondents = 4,000 hours.
    \273\ The Commission estimates an NRSRO would have a Webmaster
perform these responsibilities. The SIFMA 2007 Report as Modified
indicates that the average hourly cost for a Webmaster is $205.
Therefore, the average one-time cost to a respondent would be 20
hours x $205 = $4,100.
    \274\ $4,100 x 200 respondents = $820,000.
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    Proposed Rule 17g-5(a)(ii) would require respondents to disclose
information provided to an NRSRO that is used by an NRSRO in
undertaking credit rating surveillance on a structured product. Because
surveillance would cover more than just initial ratings, the Commission
estimates that a respondent would be required to disclose information
with respect to approximately 125 transactions on an ongoing basis and
that the information would be provided to the NRSRO on a monthly basis.
As discussed with respect to the PRA, the Commission estimates that
each respondent would spend approximately 750 hours \275\ on an annual
basis disclosing the information for a total aggregate annual burden
hours of 150,000 hours.\276\ For these reasons, the Commission
estimates that the average annual cost to a respondent would be
$153,750 \277\ and the total annual cost to the industry would be
$30,750,000.\278\
---------------------------------------------------------------------------

    \275\ 125 transactions x 30 minutes x 12 months = 45,000
minutes/60 minutes = 750 hours.
    \276\ 750 hours x 200 respondents = 150,000 hours.
    \277\ The Commission estimates an NRSRO would have a Webmaster
perform these responsibilities. The SIFMA 2007 Report as Modified
indicates that the average hourly cost for a Webmaster is $205.
Therefore, the average one-time cost to a respondent would be 750
hours x 205 = $153,750.
    \278\ $153,750 x 200 respondents = $30,750,000.
---------------------------------------------------------------------------

    The Commission is also proposing to amend paragraph (c) to Rule
17g-5 to add three additional prohibited conflicts of interest.\279\
The Commission estimates that the amendments to paragraph (c) to Rule
17g-5 generally would impose de minimis costs on an NRSRO. However, the
Commission recognizes that an NRSRO may incur costs related to training
employees about the requirements with respect to these proposed
amendments. It also is possible that the proposed amendments could
require some NRSROs to restructure their business models or activities,
in particular with respect to their consulting services.
---------------------------------------------------------------------------

    \279\ See proposed Rule 17g-5(c)(5)-(7).
---------------------------------------------------------------------------

    The Commission generally requests comment on all aspects of these
cost estimates for the proposed amendments to Rule 17g-5. In addition,
the Commission requests specific comment on the following items related
to these cost estimates:
     Would the proposals for additional disclosure impose costs
on issuers, underwriters, sponsors, depositors, or trustees?
     Would these proposals impose costs on other market
participants, including persons who use credit ratings to make
investment decisions or for regulatory purposes, and persons who
purchase services and products from NRSROs?
     Would there be costs in addition to those identified
above, such as costs arising from systems changes and restructuring
business practices to account for the new reporting requirement?
     Would the proposed amendments to paragraph (c) of Rule
17g-5 impose training and restructuring costs?
     Would the proposed amendments to paragraph (c) of Rule
17g-5 impose personnel costs?
     Would the proposed amendments to paragraph (c) of Rule
17g-5 impose any additional costs on an NRSRO that is part of a large
conglomerate related to monitoring the business activities of persons
associated with the NRSRO, such as affiliates located in other

countries, to comply with the proposed requirement?

Commenters should provide specific data and analysis to support any
comments they submit with respect to these burden estimates.
5. Proposed Rule 17g-7
    The Commission is proposing a new rule--proposed Rule 17g-7--which
would require an NRSRO to attach a report each time it publishes a
credit rating for a structured finance product describing how the
ratings procedures and methodologies differ from those for corporate
debt.\280\ Alternatively, an NRSRO would be permitted to use rating
symbols for structured finance products that differentiate them from
its other credit ratings. The Commission expects that most NRSROs
already have methodologies in place to determine credit ratings for
structured finance products and corporate debt securities, and
disclosed such policies and procedures if they have registered as an
NRSRO. The Commission expects, however, that an NRSRO would have to
conform these disclosures into a report to comply with the specific
requirements in the proposed rule. As discussed above with respect to
PRA, the Commission estimates that it would take approximately 50 hours
for an NRSRO to compile and write disclosures to comply with the
proposed rule and that there would be 30 NRSROs. For these reasons, the
Commission estimates that the average one-time cost to an NRSRO would
be $12,250 \281\ and the total aggregate one-time cost to the industry
would be $367,500.\282\
---------------------------------------------------------------------------

    \280\ See proposed Rule 17g-3A.
    \281\ The Commission estimates an NRSRO would have a Compliance
Manager perform these responsibilities. The SIFMA 2007 Report as
Modified indicates that the average hourly cost for a Compliance
Manager is $245. Therefore, the average one-time cost to an NRSRO
would be $12,250 (50 hours x $245).
    \282\ 30 NRSROs x $12,250 = $367,500.
---------------------------------------------------------------------------

    As discussed above with respect to the PRA, the Commission also
estimates that it would take an NRSRO additional time to attach the
report to each credit rating for a structured finance product and to
monitor the report on an ongoing basis to ensure that the disclosure
was accurate. Based on staff experience staff information gained from
the NRSRO examination process, the Commission estimates that an NRSRO
would spend approximately 5 minutes to attach each proposed report to
the estimated 128,000 asset-backed credit ratings per NRSRO, four times
per year, as discussed above, for a total of 42,667 annual burden hours
\283\ per respondent, and a total of 1,280,010 annual burden hours
\284\ for 30 NRSROs. For these reasons, the Commission estimates that
the average annual cost to an NRSRO would be $4,373,265 \285\ and the
total aggregate annual cost to the industry would be $131,197,950.\286\
---------------------------------------------------------------------------

    \283\ 128,000 x 4 = 512,000 reports x 5 minutes per report =
2,560,000 minutes/60 minutes per hour = 42,667 hours.
    \284\ 42,667 hours x 30 NRSROs = 1,280,010 hours.
    \285\ The Commission estimates an NRSRO would have a Webmaster
perform these responsibilities. The SIFMA 2007 Report as Modified
indicates that the average hourly cost for a Webmaster is $205.
Therefore, the average one-time cost to an NRSRO would be $4,373,265
(21,333 hours x $205).
    \286\ $4,373,265 x 30 NRSROs = $131,197,950.
---------------------------------------------------------------------------

    Finally, as discussed with respect to the PRA, the Commission
estimates, based on staff experience, that it would take an NRSRO
approximately 10 hours per year to review and update the report to
ensure the disclosure was accurate and up-to-date for a total aggregate
annual hour burden to the industry of 300 hours.\287\ For these
reasons, the Commission estimates that the average annual cost to an
NRSRO would be $2,700 \288\ and the total aggregate annual cost to the
industry would be $81,000.\289\
---------------------------------------------------------------------------

    \287\ This estimate is based on the number of hours it would
take an NRSRO to complete an annual certification on Form NRSRO. See
Exchange Act Release No. 55857 (June 5, 2007), 72 FR 33564, 33609
(June 18, 2007). 10 hours x 30 NRSROs = 300 hours.
    \288\ The Commission estimates an NRSRO would have a Compliance
Attorney perform these responsibilities. The SIFMA 2007 Report as
Modified indicates that the average hourly cost for a Compliance
Attorney is $270. Therefore, the average one-time cost to an NRSRO
would be $2,700 (10 hours x $270).
    \289\ $2,700 x 30 NRSROs = $81,000.
---------------------------------------------------------------------------

    The Commission generally requests comment on all aspects of these
cost estimates for the proposed amendments to Rule 17g-7. In addition,
the Commission requests specific comment on the following items related
to these cost estimates:
     Would the use of different rating symbols for structured
products impact automated securities trading, routing, settlement,
clearance, trade confirmation, reporting, processing, and risk
management systems and any other systems that are programmed to use
standard credit rating symbols across all product classes?
     Would the use of different rating symbols have
consequences for investment guidelines and covenants in legal documents
that use credit ratings to distinguish finance instruments?
     Would these proposals impose costs on other market
participants, including persons who use credit ratings to make
investment decisions or for regulatory purposes, and persons who
purchase services and products from NRSROs?
     Would there be costs in addition to those identified
above, such as costs arising from systems changes and restructuring
business practices to account for the new reporting requirement?
Commenters should provide specific data and analysis to support any
comments they submit with respect to these burden estimates.

C. Total Estimated Costs and Benefits of This Rulemaking

    As discussed above, the proposed amendments and new rules are
expected to have both benefits and costs for investors and the credit
rating industry as a whole. The Commission believes the benefits to
investors and other users of credit ratings, especially with respect to
investments in structured finance products would be quite substantial,
but are difficult to quantify. Similarly difficult to quantify are the
expected benefits to the Commission's oversight over NRSROs due to the
enhanced recordkeeping, disclosure and reporting requirements.
Moreover, not all the costs the Commission anticipates would result
from this rulemaking are quantifiable. Based on the figures discussed
above, however, the Commission estimates that the first year
quantifiable costs related to this proposed rulemaking would be
approximately $180,175,810.\290\
---------------------------------------------------------------------------

    \290\ $17,078,760 (total one-time costs) + $163,097,810 (total
annual costs) = $180,175,810.
---------------------------------------------------------------------------

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

    Under Section 3(f) of the Exchange Act,\291\ the Commission shall,
when engaging in rulemaking that requires the Commission to consider or
determine if an action is necessary or appropriate in the public
interest, consider whether the action will promote efficiency,
competition, and capital formation. Section 23(a)(2) of the Exchange
Act \292\ requires the Commission to consider the anticompetitive
effects of any rules the Commission adopts under the Exchange Act.
Section 23(a)(2) prohibits the Commission from adopting any rule that
would impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act. As discussed below,
the Commission's preliminary view is that the proposed amendments and
new

rules should promote efficiency, competition, and capital formation.
---------------------------------------------------------------------------

    \291\ 15 U.S.C. 78c(f).
    \292\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The proposed amendments to the Instructions to Exhibit 1 to Form
NRSRO would require NRSROs to make more comparable disclosures about
the performance of their credit ratings. These could make it easier for
an NRSRO to demonstrate that it has a superior ratings methodology or
competence and, thereby, attract clients. In addition, the proposed
amendments to the instructions to Exhibit 2 are designed to enhance the
disclosures NRSROs make with respect to their methodologies for
determining credit ratings. The Commission believes these enhanced
disclosures would make it easier for users of credit ratings to compare
the quality of the NRSRO's procedures and methodologies for determining
credit ratings. The greater transparency that would result from all
these enhanced disclosures could make it easier for market participants
to select the NRSROs that are performing best and have the highest
quality processes for determining credit ratings. This could increase
competition and promote capital formation by restoring confidence in
the credit ratings, which are an integral part of the capital formation
process.
    The proposed amendments to Rule 17g-2 are designed to enhance the
Commission's oversight of NRSROs and, with respect to the public
disclosure of ratings history, provide the marketplace with the raw
materials to develop metrics for comparing the ratings performance of
NRSROs. Enhancing the Commission's oversight could help in restoring
confidence in credit ratings and, thereby, promote capital formation.
Increased disclosure of ratings history could make the ratings
performance of the NRSROs more transparent to the marketplace and,
thereby, highlight those firms that do a better job analyzing credit
risk. This could benefit smaller NRSROs to the extent they have
performed better than others by alerting the market to their superior
competence.
    The proposed amendment to Rule 17g-3 is designed to enhance the
Commission's oversight of NRSROs. Enhancing the Commission's oversight
could help in restoring confidence in credit ratings and, thereby,
promote capital formation.
    The proposed amendments to paragraphs (a) and (b) of Rule 17g-5
would enhance the disclosures made about assets underlying structured
finance products. The goal of these proposals is to provide a mechanism
for NRSROs to determine unsolicited credit ratings and other market
participants and observers to independently assess the creditworthiness
of structured finance products. This could expose NRSROs whose
procedures and methodologies for determining credit ratings are less
conservative in order to gain business. It also could mitigate the
impact of rating shopping, since NRSROs not hired to rate a deal could
nonetheless issue a credit rating. These potential impacts of the rule
proposal could help to restore confidence in credit ratings and,
thereby, promote capital formation. Also, by creating a mechanism for
determining unsolicited ratings, they could increase competition by
allowing smaller NRSROs to demonstrate proficiency in rating structured
products.
    The proposed amendments to paragraph (c) of Rule 17g-5 would
prohibit NRSROs and their affiliates from providing consulting or
advisory services, prohibit analysts from participating in fee
negotiations, and prohibit credit analysts or persons responsible for
approving a credit rating receiving gifts from the obligor being rated,
or from the issuer, underwriter, or sponsor of the securities being
rated, other than items provided in the context of normal business
activities such as meetings that have an aggregate value of no more
than $25. These proposals could increase confidence in the integrity of
NRSROs and the credit ratings they issue. This could help to restore
confidence in credit ratings and, thereby, promote capital formation.
    Proposed new Rule 17g-7 would provide users of credit ratings with
useful information about structured product ratings. This could help
them in assessing the risk of securities and promote better informed
investment decisions. This could increase the efficiency of the capital
markets by making structured finance ratings more transparent.
    The Commission generally requests comment on all aspects of this
analysis of the burden on competition and promotion of efficiency,
competition, and capital formation. In addition, the Commission
requests specific comment on the following items related to this
analysis:
     Would the proposed amendments have an adverse effect on
efficiency, competition, and capital formation that is neither
necessary nor appropriate in furtherance of the purposes of the
Exchange Act?
Commenters should provide specific data and analysis to support any
comments they submit with respect to these burden estimates.

VII. Consideration of Impact on the Economy

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996, or ``SBREFA,'' \293\ the Commission must advise OMB
whether a proposed regulation constitutes a major rule. Under SBREFA, a
rule is ``major'' if it has resulted in, or is likely to result in:
---------------------------------------------------------------------------

    \293\ Pub. L. 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).
---------------------------------------------------------------------------

     An annual effect on the economy of $100 million or more;
     A major increase in costs or prices for consumers or
individual industries; or
     A 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. The Commission requests
comment on the potential impact of each of the proposed amendments on
the economy on an annual basis. Commenters are requested to provide
empirical data and other factual support for their view to the extent
possible.

VIII. Initial Regulatory Flexibility Analysis

    The Commission has prepared the following Initial Regulatory
Flexibility Analysis (``IRFA''), in accordance with the provisions of
the Regulatory Flexibility Act,\294\ regarding proposed amendments to
Form NRSRO, Rule 17g-2, Rule 17g-3, and Rule 17g-5 and regarding
proposed Rule 17g-7 under the Exchange Act.
---------------------------------------------------------------------------

    \294\ 5 U.S.C. 603.
---------------------------------------------------------------------------

    The Commission encourages comments with respect to any aspect of
this IRFA, including comments with respect to the number of small
entities that may be affected by the proposed amendments. Comments
should specify the costs of compliance with the proposed amendments and
suggest alternatives that would accomplish the goals of the amendments.
Comments will be considered in determining whether a Final Regulatory
Flexibility Analysis is required and will be placed in the same public
file as comments on the proposed amendments. Comments should be
submitted to the Commission at the addresses previously indicated.

A. Reasons for the Proposed Action

    The proposed amendments would prescribe additional requirements for
NRSROs to address concerns raised about the role of credit rating
agencies in the recent credit market turmoil. The proposed amendments
are designed to enhance and strengthen the rules the

Commission adopted in 2007 to implement specific provisions of the
Rating Agency Act.\295\ The Rating Agency Act defines the term
``nationally recognized statistical rating organization'' as a credit
rating agency registered with the Commission, provides authority for
the Commission to implement registration, recordkeeping, financial
reporting, and oversight rules with respect to registered NRSROs.
---------------------------------------------------------------------------

    \295\ Pub. L. 109-291 (2006); see also Exchange Act Release No.
55857 (June 5, 2007), 72 FR 33564, 33609 (June 18, 2007).
---------------------------------------------------------------------------

B. Objectives

    The proposed amendments and new rules would enhance and strengthen
the rules the Commission adopted in 2007 to implement specific
provisions of the Rating Agency Act. The objectives of the Rating
Agency Act are ``to improve ratings quality for the protection of
investors and in the public interest by fostering accountability,
transparency, and competition in the credit rating industry.'' \296\
The proposed amendments and new rules are designed to further enhance
these objectives and assist the Commission in monitoring whether an
NRSRO complies with the provisions of the Rating Agency Act and rules
thereunder, consistent with the Commission's statutory mandate to adopt
rules to implement the NRSRO regulatory program, and provide
information regarding NRSROs to the public and to users of credit
ratings. These proposed amendments would also prescribe additional
requirements for NRSROs to address concerns raised about the role of
credit rating agencies in the recent credit market turmoil, including
concerns with respect to the determination of credit ratings for
structured finance products.
---------------------------------------------------------------------------

    \296\ See Senate Report.
---------------------------------------------------------------------------

C. Legal Basis

    Pursuant to the Sections 3(b), 15E, 17(a), 23(a) and 36 of the
Exchange Act.\297\
---------------------------------------------------------------------------

    \297\ 15 U.S.C. 78c(b), 78o-7, 78q(a), and 78w.
---------------------------------------------------------------------------

D. Small Entities Subject to the Rule

    Paragraph (a) of Rule 0-10 provides that for purposes of the
Regulatory Flexibility Act, a small entity ``[w]hen used with reference
to an `issuer' or a `person' other than an investment company'' means
``an `issuer' or `person' that, on the last day of its most recent
fiscal year, had total assets of $5 million or less.'' \298\ The
Commission believes that an NRSRO with total assets of $5 million or
less would qualify as a ``small'' entity for purposes of the Regulatory
Flexibility Act.
---------------------------------------------------------------------------

    \298\ 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

    As noted in the Adopting Release,\299\ the Commission believes that
approximately 30 credit rating agencies ultimately would be registered
as an NRSRO. Of the approximately 30 credit rating agencies estimated
to be registered with the Commission, the Commission estimates that
approximately 20 may be ``small'' entities for purposes of the
Regulatory Flexibility Act.\300\
---------------------------------------------------------------------------

    \299\ Adopting Release, 72 FR at 33618.
    \300\ See 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

E. Reporting, Recordkeeping, and Other Compliance Requirements

    The proposals would amend Form NRSRO to elicit certain additional
information regarding the performance data for the credit ratings and
the methods used by a credit rating agency for issuing credit
ratings.\301\
---------------------------------------------------------------------------

    \301\ See proposed amendments to Form NRSRO.
---------------------------------------------------------------------------

    The proposals would amend Rule 17g-2 to establish additional
recordkeeping requirements.\302\ The proposed amendments would require
an NRSRO to make and retain two additional records and retain a third
type of record. The records would be: (1) A record of the rationale for
any material difference between the credit rating implied by the model
and the final credit rating issued, if a quantitative model is a
substantial component in the process of determining a credit rating;
\303\ (2) a record showing the history and dates of all previous rating
actions with respect to each current credit rating; \304\ and (3) any
complaints about the performance of a credit analyst.\305\ These
records would assist the Commission, through its examination process,
in monitoring whether the NRSRO continues to maintain adequate
financial and managerial resources to consistently produce credit
ratings with integrity (as required under the Rating Agency Act) and
whether the NRSRO was complying with the provisions of the Exchange Act
including the provisions of the Rating Agency Act, the rules adopted
thereunder, and the NRSRO's disclosed policies and procedures.
---------------------------------------------------------------------------

    \302\ See proposed amendments to Rule 17g-2.
    \303\ Proposed paragraph (a)(2)(iii) of Rule 17g-2.
    \304\ Proposed paragraph (a)(8) of Rule 17g-2.
    \305\ Proposed paragraph (b)(8) of Rule 17g-2.
---------------------------------------------------------------------------

    The proposals would amend Rule 17g-3 to require an NRSRO to furnish
the Commission with an additional annual report: the number of
downgrades in each class of credit ratings for which it is registered
and the description of the findings from an independent review.\306\
This requirement is designed to assist the Commission in its
examination function and to require an NRSRO to assess the integrity of
its rating process. It also is designed to assist the Commission in
monitoring whether the NRSRO is complying with provisions of the Rating
Agency Act and the rules adopted thereunder.
---------------------------------------------------------------------------

    \306\ See proposed amendment to Rule 17g-3.
---------------------------------------------------------------------------

    The proposals would amend paragraphs (a) and (b) of Rule 17g-5 to
prohibit an NRSRO from issuing a credit rating for a structured product
unless certain information about the assets underlying the product are
disclosed. The proposals would amend paragraph (c) of Rule 17g-5 to
prohibit NRSROs and their affiliates from providing consulting or
advisory services, prohibit analysts from participating in fee
negotiations, and prohibit credit analysts or persons responsible for
approving a credit rating received gifts from the obligor being rated,
or from the issuer, underwriter, or sponsor of the securities being
rated, other than items provided in the context of normal business
activities such as meetings that have an aggregate value of no more
than $25.\307\
---------------------------------------------------------------------------

    \307\ See proposed amendment to Rule 17g-5.
---------------------------------------------------------------------------

    The proposals would amend Rule 17g-7 to require an NRSRO to attach
a report each time it publishes a credit rating for a structured
finance product describing how the ratings procedures and methodologies
and credit risk characteristics for structured products differ from
those for other types of obligors and debt securities. An NRSRO could
avoid having to attach the report if it used ratings symbols for
structured products that differentiate them from its other types of
credit ratings.\308\
---------------------------------------------------------------------------

    \308\ See proposed Rule 17g-7.
---------------------------------------------------------------------------

F. Duplicative, Overlapping, or Conflicting Federal Rules

    The Commission believes that there are no federal rules that
duplicate, overlap, or conflict with the proposed amendments or new
rule.

G. Significant Alternatives

    Pursuant to Section 3(a) of the RFA,\309\ the Commission must
consider certain types of alternatives, including: (1) The
establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance and reporting requirements under the rule for small
entities; (3) the use of

performance rather than design standards; and (4) an exemption from
coverage of the rule, or any part of the rule, for small entities.
---------------------------------------------------------------------------

    \309\ 5 U.S.C. 603(c).
---------------------------------------------------------------------------

    The Commission is considering whether it is necessary or
appropriate to establish different compliance or reporting requirements
or timetables; or clarify, consolidate, or simplify compliance and
reporting requirements under the rule for small entities. Because the
proposed amendments and proposed new rule are designed to improve the
overall quality of ratings and enhance the Commission's oversight, the
Commission is not proposing to exempt small entities from coverage of
the rule, or any part of the rule. The proposed amendments and new
rules allow NRSROs the flexibility to develop procedures tailored to
their specific organizational structure and business models. The
Commission also does not believe that it is necessary at this time to
consider whether small entities should be permitted to use performance
rather than design standards to comply with the proposed amendments as
the amendments already propose performance standards and do not dictate
for entities of any size any particular design standards that must be
employed to achieve the Act's objectives.

H. Request for Comments

    The Commission encourages the submission of comments to any aspect
of this portion of the IRFA. Comments should specify costs of
compliance with the proposed amendments and suggest alternatives that
would accomplish the objective of the proposed amendments

IX. Statutory Authority

    The Commission is proposing amendments to Form NRSRO and Rules 17g-
2, 17g-3, and 17g-5 and is proposing new rule 17g-7 pursuant to the
authority conferred by the Exchange Act, including Sections 3(b), 15E,
17, 23(a) and 36.\310\
---------------------------------------------------------------------------

    \310\ 15 U.S.C. 78c(b), 78o-7, 78q, 78w, and 78mm.
---------------------------------------------------------------------------

Text of Proposed Rules

List of Subjects in 17 CFR Parts 240 and 249b

    Brokers, Reporting and recordkeeping requirements, Securities.
    In accordance with the foregoing, the Commission proposes to amend
Title 17, Chapter II of the Code of Federal Regulations as follows.

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

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

    Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z-2, 77z-3,
77eee, 77ggg, 77nnn, 77sss, 77ttt, 78c, 78d, 78e, 78f, 78g, 78i,
78j, 78j-1, 78k, 78k-1, 78l, 78m, 78n, 78o, 78p, 78q, 78s, 78u5,
78w, 78x, 78ll, 78mm, 80a-20, 80a-23, 80a-29, 80a-37, 80b-3, 80b-4,
80b-11, and 7201 et seq.; and 18 U.S.C. 1350, unless otherwise
noted.
* * * * *
    2. Section 240.17g-2 is amended by:
    a. Removing paragraph (a)(2)(iv);
    b. Redesignating paragraph (a)(2)(iii) as paragraph (a)(2)(iv);
    c. In newly redesignated paragraph (a)(2)(iv), removing ``; and''
and in its place adding a period;
    d. Adding new paragraph (a)(2)(iii);
    e. Adding paragraph (a)(8);
    f. In paragraph (b)(7), revising the phrase ``maintaining,
changing,'' to read ``maintaining, monitoring, changing,'';
    g. Redesignating paragraphs (b)(8), (b)(9), and (b)(10) as
paragraphs (b)(9), (b)(10), and (b)(11), respectively;
    h. Adding new paragraph (b)(8); and
    i. In paragraph (d), adding a sentence to the end of the paragraph.
    The additions read as follows:

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

    (a) * * *
    (2) * * *
    (iii) If a quantitative model was a substantial component in the
process of determining the credit rating, a record of the rationale for
any material difference between the credit rating implied by the model
and the final credit rating issued; and
* * * * *
    (8) A record showing all rating actions and the date of such
actions from the initial credit rating to the current credit rating
identified by the name of the rated security or obligor and, if
applicable, the CUSIP of the rated security or the Central Index Key
(CIK) number of the rated obligor.
    (b) * * *
    (8) Any communications that contain complaints about the
performance of a credit analyst in initiating, determining,
maintaining, monitoring, changing, or withdrawing a credit rating.
* * * * *
    (d) * * * In addition, the records required to be retained pursuant
to paragraph (a)(8) of this section must be made publicly available on
the corporate Web site of the NRSRO in an XBRL Interactive Data File
that uses a machine-readable computer code that presents information in
eXtensible Business Reporting Language in electronic format no later
than six months after the date of the rating action.
* * * * *
    3. Section 240.17g-3 is amended by:
    a. Adding paragraph (a)(6); and
    b. Revising paragraph (b).
    The additions and revision read as follows:

Sec.  240.17g-3  Annual financial reports to be furnished by nationally
recognized statistical rating organizations.

    (a) * * *
    (6) The number of credit ratings actions taken during the fiscal
year in each class of credit ratings identified in section 3(a)(62)(B)
of the Act (15 U.S.C. 78c(a)(62)(B)) for which the nationally
recognized statistical rating organization is registered with the
Commission.

    Note to paragraph (a)(6): A nationally recognized statistical
rating organization registered in the class of credit ratings
described in section 3(a)(62)(B)(iv) of the Act (15 U.S.C.
78c(a)(62)(B)(iv)) must include credit ratings actions taken on
credit ratings of any security or money market instrument issued by
an asset pool or as part of any asset-backed or mortgage-backed
securities transaction for purposes of reporting the number of
credit ratings actions in this class.

    (b) The nationally recognized statistical rating organization must
attach to the financial reports furnished pursuant to paragraphs (a)(1)
through (a)(6) of this section a signed statement by a duly authorized
person associated with the nationally recognized statistical rating
organization stating that the person has responsibility for the
financial reports and, to the best knowledge of the person, the
financial reports fairly present, in all material respects, the
financial condition, results of operations, cash flows, revenues,
analyst compensation, and credit rating actions of the nationally
recognized statistical rating organization for the period presented.
* * * * *
    4. Section 240.17g-5 is amended by:
    a. Removing the word ``and'' at the end of paragraph (a)(1);
    b. Removing the period at the end of paragraph (a)(2) and in its
place adding ``; and'';
    c. Adding paragraph (a)(3);
    d. Redesignating paragraph (b)(9) as paragraph (b)(10);
    e. Adding new paragraph (b)(9);
    f. Removing the word ``or'' at the end of paragraph (c)(3);
    g. Removing the period at the end of paragraph (c)(4) and in its
place adding a semi-colon; and

    h. Adding paragraphs (c)(5), (c)(6), and (c)(7).
    The additions read as follows:

Sec.  240.17g-5  Conflicts of interest.

    (a) * * *
    (3) In the case of the conflict of interest identified in paragraph
(b)(9) of this section, the following information is disclosed through
a means designed to provide reasonably broad dissemination:
    (i) (A) All information provided to the nationally recognized
statistical rating organization by the issuer, underwriter, sponsor,
depositor, or trustee that is used in determining the initial credit
rating for the security or money market instrument, including
information about the characteristics of the assets underlying or
referenced by the security or money market instrument, and the legal
structure of the security or money market instrument, with such
information to disclosed publicly in an offering registered under the
Securities Act of 1933 (15 U.S.C. 77a et seq.) on the date the
underwriter and the issuer or depositor set the offering price of the
securities being rated;
    (B) In offerings that are not registered under the Securities Act
of 1933 (15 U.S.C. 77a et seq.), the information in paragraph
(a)(3)(i)(A) of this section must be disclosed to investors and credit
rating agencies on the date the underwriter and the issuer or depositor
set the offering price of the securities being rated, and disclosed
publicly on the first business day after the transaction closes; and
    (ii) All information provided to the nationally recognized
statistical rating organization by the issuer, underwriter, sponsor,
depositor, or trustee that is used by the nationally recognized
statistical rating organization in undertaking credit rating
surveillance on the security or money market instrument, including
information about the characteristics and performance of the assets
underlying or referenced by the security or money market instrument,
with such information to be disclosed publicly at the time such
information is provided to the nationally recognized statistical rating
organization.
    (b) * * *
    (9) Issuing or maintaining a credit rating for a security or money
market instrument issued by an asset pool or as part of any asset-
backed or mortgage-backed securities transaction that was paid for by
the issuer, sponsor, or underwriter of the security or money market
instrument.
* * * * *
    (c) * * *
    (5) The nationally recognized statistical rating organization
issues or maintains a credit rating with respect to an obligor or
security where the nationally recognized statistical rating
organization or a person associated with the nationally recognized
statistical rating organization made recommendations to the obligor or
the issuer, underwriter, or sponsor of the security about the corporate
or legal structure, assets, liabilities, or activities of the obligor
or issuer of the security;
    (6) The nationally recognized statistical rating organization
issues or maintains a credit rating where the fee paid for the rating
was negotiated, discussed, or arranged by a person within the
nationally recognized statistical rating organization who has
responsibility for participating in determining credit ratings or for
developing or approving procedures or methodologies used for
determining credit ratings, including qualitative and quantitative
models; or
    (7) The nationally recognized statistical rating organization
issues or maintains a credit rating where a credit analyst who
participated in determining or monitoring the credit rating, or a
person responsible for approving the credit rating received gifts,
including entertainment, from the obligor being rated, or from the
issuer, underwriter, or sponsor of the securities being rated, other
than items provided in the context of normal business activities such
as meetings that have an aggregate value of no more than $25.
* * * * *
    5. Section 240.17g-7 is added to read as follows:

Sec.  240.17g-7  Credit rating reports to be furnished by nationally
recognized statistical rating organizations.

    (a) A nationally recognized statistical rating organization must
attach a report each time it publishes a credit rating for a security
or money market instrument issued by an asset pool or as part of any
asset-backed or mortgage-backed securities transaction that describes
the rating methodology used to determine such credit rating and how it
differs from the determination of ratings for any other type of obligor
or debt security and how the credit risk characteristics associated
with a security or money market instrument issued by an asset pool or
as part of any asset-backed or mortgage-backed securities transaction
differ from those of any other type of obligor or debt security.
    (b) Exemption from attaching report. A nationally recognized
statistical rating organization is not required to attach the report
each time it publishes a credit rating as prescribed by paragraph (a)
of this section if the credit rating symbol used by the nationally
recognized statistical rating organization to indicate the credit
rating identifies the credit rating as relating to a security or money
market instrument issued by an asset pool or as part of any asset-
backed or mortgage-backed securities transaction as distinct from a
credit rating for any other type of obligor or debt security.

PART 249b--FURTHER FORMS, SECURITIES EXCHANGE ACT OF 1934

    6. The authority citation for part 249b continues to read in part
as follows:

    Authority: 15 U.S.C. 78a et seq., unless otherwise noted;
* * * * *
    7. Form NRSRO (referenced in Sec.  249b.300) is amended by revising
Exhibits 1 and 2 in section H, Item 9 of the Form NRSRO Instructions to
read as follows:

    Note: The text of Form NRSRO and this amendment does not appear
in the Code of Federal Regulations.

Form NRSRO

* * * * *

Form NRSRO Instructions

* * * * *

H. Instructions for Specific Line Items

* * * * *
    Item 9. Exhibits. * * *
    Exhibit 1. Provide in this Exhibit performance measurement
statistics of the credit ratings of the Applicant/NRSRO, including
performance measurement statistics of the credit ratings seperately for
each class of credit rating for which the Applicant/NRSRO is seeking
registration or is registered (as indicated in Item 6 and/or 7 of Form
NRSRO) and any other broad class of credit rating issued by the
Applicant/NRSRO. For the purposes of this Exhibit, an Applicant/NRSRO
registered in the class of credit ratings described in Section
3(a)(62)(B)(iv) of the Act (15 U.S.C. 78c(a)(62)(B)(iv)) must include
credit ratings of any security or money market instrument issued by an
asset pool or as part of any asset-backed or mortgage-backed securities
transaction for purposes of reporting the performance measurement
statistics for this class. The performance measurement statistics must
at a minimum show the performance of credit ratings in each class over
1 year, 3 year, and 10 year periods (as applicable) through the most
recent calendar year-end, including, as applicable: historical ratings
transition

and default rates within each of the credit rating categories, notches,
grades, or rankings used by the Applicant/NRSRO as an indicator of the
assessment of the creditworthiness of an obligor, security, or money
market instrument in each class of credit rating. The default
statistics must include defaults relative to the initial rating and
must incorporate defaults that occur after a credit rating is
withdrawn. As part of this Exhibit, define the credit rating
categories, notches, grades, and rankings used by the Applicant/NRSRO
and explain the performance measurement statistics, including the
inputs, time horizons, and metrics used to determine the statistics.
Also provide in this Exhibit the Web site address where the records of
credit rating actions required under 17 CFR 240.17g-2(a)(8) are, or
will be, made publicly available in an XBRL Interactive Data File
pursuant to the requirements of 17 CFR 240.17g-2(d).
    Exhibit 2. Provide in this Exhibit a general description of the
procedures and methodologies used by the Applicant/NRSRO to determine
credit ratings, including unsolicited credit ratings within the classes
of credit ratings for which the Applicant/NRSRO is seeking registration
or is registered. The description must be sufficiently detailed to
provide users of credit ratings with an understanding of the processes
employed by the Applicant/NRSRO in determining credit ratings,
including, as applicable, descriptions of: policies for determining
whether to initiate a credit rating; a description of the public and
non-public sources of information used in determining credit ratings,
including information and analysis provided by third-party vendors;
whether and, if so, how information about verification performed on
assets underlying or referenced by a security or money market
instrument issued by an asset pool or as part of any asset-backed or
mortgage-backed securities transaction is relied on in determining
credit ratings; the quantitative and qualitative models and metrics
used to determine credit ratings, including whether and, if so, how
assessments of the quality of originators of assets underlying or
referenced by a security or money market instrument issued by an asset
pool or as part of any asset-backed or mortgage-backed securities
transaction factor into the determination of credit ratings; the
methodologies by which credit ratings of other credit rating agencies
are treated to determine credit ratings for securities or money market
instruments issued by an asset pool or as part of any asset-backed or
mortgaged-backed securities transaction; the procedures for interacting
with the management of a rated obligor or issuer of rated securities or
money market instruments; the structure and voting process of
committees that review or approve credit ratings; procedures for
informing rated obligors or issuers of rated securities or money market
instruments about credit rating decisions and for appeals of final or
pending credit rating decisions; procedures for monitoring, reviewing,
and updating credit ratings, including how frequently credit ratings
are reviewed, whether different models or criteria are used for ratings
surveillance than for determining initial ratings, whether changes made
to models and criteria for determining initial ratings are applied
retroactively to existing ratings, and whether changes made to models
and criteria for performing ratings surveillance are incorporated into
the models and criteria for determining initial ratings; and procedures
to withdraw, or suspend the maintenance of, a credit rating. An
Applicant/NRSRO may provide in Exhibit 2 the location on its Web site
where additional information about the procedures and methodologies is
located.
* * * * *

    Dated: June 16, 2008.

    By the Commission.
Jill M. Peterson,
Assistant Secretary.
 [FR Doc. E8-13887 Filed 6-24-08; 8:45 am]

BILLING CODE 8010-01-P


[Federal Register: November 1, 2007 (Volume 72, Number 211)]
[Notices]
[Page 61946-61948]
[DOCID:fr01no07-101]

-----------------------------------------------------------------------

DEPARTMENT OF TRANSPORTATION

Federal Railroad Administration

Notice and Request for Comments

SUMMARY: In compliance with the Paperwork Reduction Act of 1995 (44
U.S.C. 3501 et seq.), this notice announces that the Information
Collection Requirement (ICR) abstracted below has been forwarded to the
Office of Management and Budget (OMB) for review and comment. The ICR
describes the nature of the information collection and its expected
burden. The Federal Register notice with a 60-day comment period
soliciting comments on the following collection of information was
published on August 23, 2007 (72 FR 48315).

DATES: Comments must be submitted on or before December 3, 2007.

FOR FURTHER INFORMATION CONTACT: Mr. Robert Brogan, Office of Safety,
Planning and Evaluation Division, RRS-21, Federal Railroad
Administration, 1120 Vermont Ave., NW., Mail Stop 25, Washington, DC
20590 (telephone:<PHONE_NUMBER>), or Ms. Gina Christodoulou, Office of
Support Systems Staff, RAD-43, Federal Railroad Administration, 1120
Vermont Ave., NW., Mail Stop 35, Washington, DC 20590 (telephone: (202)
493-6139). (These telephone numbers are not toll-free.)

SUPPLEMENTARY INFORMATION: The Paperwork Reduction Act of 1995 (PRA),
Public Law 104-13, Section 2, 109 Stat. 163 (1995) (codified as revised
at 44 U.S.C. 3501-3520), and its implementing regulations, 5 CFR Part
1320, require Federal agencies to issue two notices seeking public
comment on information collection activities before OMB may approve
paperwork packages. 44 U.S.C. 3506, 3507; 5 CFR 1320.5, 1320.8(d)(1),
1320.12. On August 23, 2007, FRA published a 60-day notice in the
Federal Register soliciting comment on ICRs that the agency was seeking
OMB approval. 72 FR 48315. FRA received two comments after issuing this
notice.
    The first comment was submitted by Donald M. Hahs, National
President, on behalf of the Brotherhood of Locomotive Engineers and
Trainmen (BLET), who expressed whole hearted support for the proposed
study. The BLET is a Division of the Rail Conference of the

International Brotherhood of Teamsters, and is the duly designated and
recognized collective bargaining representative for the craft or class
of Locomotive Engineer employed on all Class I railroads. BLET also
represents operating and other employees on numerous Class II and Class
III railroads. In his letter, Mr. Hahs remarked:

* * * The proposed activity will involve the participation of BLET
members, and I am pleased to support the activity and strongly urge
its approval by OMB.
    The BLET has long been in the forefront of efforts to combat
fatigue among its members and operating crews. Our activities
include numerous cooperative ventures with the nation's railroad
carriers and with FRA, as well as proposing and advocating
legislative remedies designed to combat fatigue. We have followed
previous FRA studies--involving other crafts--with interest and have
found the results of those studies helpful to our endeavors.
    Moreover, we fully support and have actively provided assistance
in designing the proposed activity. In our opinion, the activity has
significant scientific validity and will produce meaningful data for
use in future fatigue-mitigation efforts by BLET and all railroad
industry stakeholders. We are satisfied that adequate safeguards are
in place to protect all legitimate confidentiality interests, and we
look forward to OMB approval and implementation of the information
collection.

    The second comment was submitted by Paul C. Thompson, International
President, on behalf of the United Transportation Union (UTU), who
completely endorsed the proposed study. The UTU represents
approximately 65,000 railroad employees who work in the operating
crafts on the nation's railroads today. In his letter, Mr. Thompson
noted:

* * * This FRA proposed study will focus on train and engine service
employees, which consists of locomotive engineers, conductors,
remote control operators, and switchmen. Fatigue is a major safety
concern for our operating crews today, and UTU fully supports this
study `to develop an understanding of the work schedule-related
fatigue issues that affect these operating crafts.'
    This study will be very similar in both method and scope to the
recently completed studies of railroad signalmen, maintenance of way
employees, and train dispatchers.
    In response to the Federal Register Notice and request for
comments published on August 23, 2007, UTU files the following
supportive comments:
     The proposed collection of information is necessary to
assist the Department in furthering its understanding of work-
schedule related fatigue issues affecting railroad train and engine
employees. This information will provide the Department with the
means to evaluate the overall impact of work/rest scheduling
practices in the railroad industry.
     The collected information will have practical utility
to the Department in its ongoing effort to analyze and combat work-
schedule related fatigue within the railroad industry.
     The methodology proposed for this information
collection activity is suitable and appropriate for the study and
the respondent population, and will facilitate the collection of
high quality data with high utility.
     The proposed information collection activity has been
designed to be minimally burdensome on respondents. The proposed
information collection activity is of limited duration and is
compatible with the work environment where the data will be recorded
by respondents.

    Neither BLET nor UTU addressed the issue of burden hour estimates
or burden cost estimates. After carefully reviewing these comments, DOT
announces that these information collection activities have been re-
evaluated and certified under 5 CFR 1320.5(a) and forwarded to OMB for
review and approval pursuant to 5 CFR 1320.12(c).
    Before OMB decides whether to approve these proposed collections of
information, it must provide 30 days for public comment. 44 U.S.C.
3507(b); 5 CFR 1320.12(d). Federal law requires OMB to approve or
disapprove paperwork packages between 30 and 60 days after the 30 day
notice is published. 44 U.S.C. 3507 (b)-(c); 5 CFR 1320.12(d); see also
60 FR 44978, 44983, Aug. 29, 1995. OMB believes that the 30 day notice
informs the regulated community to file relevant comments and affords
the agency adequate time to digest public comments before it renders a
decision. 60 FR 44983, Aug. 29, 1995. Therefore, respondents should
submit their respective comments to OMB within 30 days of publication
to best ensure having their full effect. 5 CFR 1320.12(c); see also 60
FR 44983, Aug. 29, 1995.
    The summaries below describe the nature of the information
collection requirements (ICRs) and the expected burden, and are being
submitted for clearance by OMB as required by the PRA.
    Title: Work Schedules and Sleep Patterns of Train and Engine
Service Employees.
    OMB Control Number: 2130-NEW.
    Type of Request: New collection.
    Affected Public: Rail Workers.
    Abstract: In a continuing effort to improve rail safety and to
reduce the number of injuries and fatalities to rail workers, the issue
of fatigue has received considerable attention from both FRA and the
railroad industry. One of FRA's fatigue-related activities has been a
series of studies designed to document and characterize the work/rest
schedules and sleep patterns in signalmen, maintenance-of-way workers,
and dispatchers. These studies used the methodology approved by the
Office of Management and Budget (OMB), including random selection of
participants to ensure a representative sample of each group. FRA has
not yet collected data from two critically important labor crafts whose
work schedules are regulated by FRA, locomotive engineers and
conductors.
    FRA is proposing a study that will focus on train and engine
service employees, which consists of locomotive engineers, conductors,
remote control operators, and switchmen. FRA seeks to develop an
understanding of the work schedule-related fatigue issues that affect
these operating crafts. The project will be very similar in both method
and scope to the recently completed studies of railroad signalmen,
maintenance of way employees, and dispatchers. The FRA proposes to
undertake this study to develop an understanding of the work schedule-
related fatigue issues for train and engine service employees.
    The proposed study has two primary purposes:
     To document and characterize the work/rest schedules and
sleep patterns of train and engine service employees.
     To examine the relationship between these schedules and
level of alertness/fatigue for the individuals who work these
schedules.
    The intent is to report results in aggregate, not by railroad.
    Subjective ratings from participants of their alertness/sleepiness
on both work and non-work days will be an integral part of this study.
The data will be collected through the use of a daily diary or log, as
well as a brief background questionnaire for each participant. Analysis
of the diary data will allow the FRA to assess the extent of any work-
related fatigue issues for train and engine service employees. The
proposed study will provide a defensible and definitive estimate of the
work/rest cycle parameters and fatigue in train and engine service
employees that will inform future FRA regulatory policy and action.
    Form Number(s): FRA F 6180.127; FRA F 6180.128.
    Affected Public: Rail Workers.
    Respondent Universe: 340 Train and Engine Service Employees.
    Frequency of Submission: On occasion.
    Annual Estimated Burden Hours: 878 hours.
    Status: Regular Review.

    Addressee: Send comments regarding this information collection to
the Office of Information and Regulatory Affairs, Office of Management
and Budget, 725 Seventeenth Street, NW., Washington, DC 20503,
Attention: FRA Desk Officer.
    Comments are invited on the following: Whether the proposed
collection of information is necessary for the proper performance of
the functions of the Department, including whether the information will
have practical utility; the accuracy of the Department's estimate of
the burden of the proposed information collection; ways to enhance the
quality, utility, and clarity of the information to be collected; and
ways to minimize the burden of the collection of information on
respondents, including the use of automated collection techniques or
other forms of information technology.
    A comment to OMB is best assured of having its full effect if OMB
receives it within 30 days of publication of this notice in the Federal
Register.

    Authority: 44 U.S.C. 3501-3520.

    Issued in Washington, DC on October 25, 2007 .
D.J. Stadtler,
Director, Office of Financial Management, Federal Railroad
Administration.
 [FR Doc. E7-21476 Filed 10-31-07; 8:45 am]

BILLING CODE 4910-06-P