[Federal Register: December 4, 2009 (Volume 74, Number 232)]
[Rules and Regulations]
[Page 63831-63865]
[DOCID:fr04de09-28]

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Part II

Securities and Exchange Commission

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17 CFR Parts 240, 243, and 249b

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

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 240 and 243

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

Amendments to Rules for Nationally Recognized Statistical Rating
Organizations

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

ACTION: Final rules.

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

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

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

SUPPLEMENTARY INFORMATION:

I. Background

A. Prior Commission Actions

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

B. Summary of the Comments and Final Rules

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

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

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

A. Summary and Background

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A. Summary and Background

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

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

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

    In the June 2008 Proposing Release, the Commission proposed to
amend paragraph (b) of Rule 17g-5 by re-designating the existing
paragraph (b)(9) of the rule as (b)(10) and creating a new paragraph
(b)(9) identifying the conflict: Issuing or maintaining a credit rating
for a security or money market instrument issued by an asset pool or as
part of any asset-backed or mortgage-backed securities transaction that
was paid for by the issuer, sponsor, or underwriter of the security or
money market instrument.\110\ In connection with specifying this type
of conflict, the Commission proposed amendments to paragraph (a) of
Rule 17g-5 that would have established additional conditions--beyond
disclosing the conflict and establishing procedures to manage it--that
would need to be met for an NRSRO to issue or maintain a credit rating
subject to this conflict.\111\
---------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2008 Proposing Release and the February 2009 Proposing Release,
however, the Commission explicitly stated its intention to broaden the
scope of the proposed amendments rather than restrict it to structured
finance products meeting narrower definitions such as the one set forth
in Regulation AB.\136\
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    \133\ See February 2009 Proposing Release, 74 FR at 6493.
    \134\ See 17 CFR 1101(c).
    \135\ See ABA Committee Letter.
    \136\ See June 2008 Proposing Release, 73 FR at 36213 note 15;
February 2009 Proposing Release, 74 FR 6493.
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    In the February 2009 Proposing Release, the Commission stated that
its intent is to have the definition be sufficiently broad to cover all
structured finance products and noted that Section 15E(i)(1)(B) of the
Exchange Act (adopted as part of the Rating Agency Act) uses identical
language to describe a potentially unfair, coercive or abusive practice
relating the ratings of securities or money market instruments.\137\
Furthermore, the Commission adopted Rule 17g-6(a)(4),\138\ in part,
under this statutory authority, and Rule 17g-6(a)(4) uses the same
language--securities or money market instruments ``issued by an asset
pool or mortgage-backed securities transaction''--to describe the
prohibitive practice. As used in Rule 17g-6 and Rule 17g-5, the
Commission intends this definition to cover the broad range of
structured finance products, including, but not limited to, securities
collateralized by pools of loans or receivables (e.g., mortgages, auto
loans, school loans, credit card receivables), collateralized debt
obligations, collateralized loan obligations, synthetic collateralized
debt obligations that reference debt securities or indexes, and hybrid
collateralized debt obligations. The Commission continues to believe
that the broader definition will appropriately result in the amended
rules' application to a larger segment of credit ratings.
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    \137\ See 15 U.S.C. 780-7(i)(1)(B); see also February 2009
Proposing Release, 74 FR 6493.
    \138\ 17 CFR 240.17g-6(a)(4).
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    The Commission is adopting new paragraph (b)(9) of Rule 17g-5 as
proposed.

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

    The Commission also is adopting new paragraphs (a)(3)(i), (ii), and
(iii) of Rule 17g-5 substantially as proposed. New paragraph (a)(3)(i)
requires an NRSRO subject to the conflict set forth in new paragraph
(b)(9) to maintain a password-protected Internet Web site containing a
list of each structured finance security or money market instrument for
which it currently is in the process of determining an initial credit
rating in chronological order and identifying the type of security or
money market instrument, the name of the issuer, the date the rating
process was initiated, and the Internet Web site address where the
issuer, sponsor, or underwriter of the security or money market
instrument represents that the information described in paragraphs
(a)(3)(iii), as discussed below, can be accessed.\139\
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    \139\ As noted in the February 2009 Proposing Release, the text
of proposed paragraph (a)(3)(i) refers to transactions where the
NRSRO is in the process of determining an ``initial'' credit rating.
The Commission does not intend that the rule require the NRSRO to
include on the Internet Web site information about securities or
money market instruments for which the NRSRO has published an
initial rating and is monitoring the rating. Consequently, upon
publication of the initial rating, the NRSRO can remove the
information about the security or money market instrument from the
list it maintains on the Internet Web site. The Commission notes
that the information on the arranger's Web site would remain
available. If, however, the arranger decides to terminate the rating
process before the hired NRSRO published an initial rating, the
NRSRO would be permitted to remove the information from the list.
See February 2009 Proposing Release, 74 FR at 6493-6494.
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    New paragraph (a)(3)(ii) requires an NRSRO subject to the conflict
to provide free and unlimited access to such password-protected
Internet Web site during the applicable calendar year to any NRSRO that
provides it with a copy of the certification described in new paragraph
(e) of Rule 17g-5 (discussed below) that covers that calendar
year.\140\ Taken together, new paragraphs (a)(3)(i) and (ii) of Rule
17g-5 create a mechanism requiring NRSROs hired to rate structured
finance products to alert other NRSROs that an arranger has initiated
the rating process and to promptly inform the other NRSROs where
information being provided by the arranger to the hired NRSRO to
determine the credit rating may be obtained.
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    \140\ The Commission notes that, pursuant to Section 17 of the
Exchange Act as well as the rules thereunder (including Rule 17g-2),
representatives of the Commission will have access to the
information required to be disclosed on the NRSRO's Internet Web
site pursuant to Rule 17g-5.
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    Several commenters addressed the issue of the password protected
Internet Web site to be maintained by hired NRSROs.\141\ Three
commenters expressed support for the concept,\142\ with one noting that
the requirements ``to establish and maintain such web sites and to post
very limited information on such web sites do not appear to be unduly
burdensome to NRSROs.'' \143\ Three other commenters opposed the
requirement, arguing that the costs of creating and maintaining a Web
site are significant and would negatively impact smaller NRSROs in
addition to potentially creating security risks.\144\ The Commission is
sensitive to the costs of the new requirement but does not believe they
are significant. All of the NRSROs currently maintain Internet Web
sites, in most cases with password-protected portals that their
subscribers and registered users can access to obtain information
posted by the NRSRO. Consequently, adding a portal for other NRSROs to
access pending deal information is not expected to require significant
additional Internet Web site design and maintenance.
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    \141\ See, e.g., DBRS Letter, ASF/SIFMA Letter, S&P Letter,
Realpoint Letter, ABA Committee Letter, CMSA Letter.
    \142\ See Realpoint Letter; RiskMetrics Statement; ABA Committee
Letter.
    \143\ See ABA Committee Letter.
    \144\ See DBRS Letter; ASF/SIFMA Letter; Moody's Letter.
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    The Commission requested comment as to whether the information
required to be maintained on the NRSRO's Internet Web site would be
sufficient to alert other NRSROs that the rating process has commenced
and where they can locate information to determine an unsolicited
rating, or whether the Commission should, for example, require an e-
mail alert to be sent to all NRSROs that have access to the site as
well.\145\ One commenter suggested that instead of requiring NRSROs to
maintain the list of deals, the Commission require arrangers to notify
non-hired NRSROs of new deals by e-mail or, alternatively, that the
Commission implement a pilot project to set up and maintain a Web site
with information provided by the NRSROs and/or arrangers.\146\ Two
commenters, however, expressed their opposition to requiring NRSROs to
send e-mails in addition to or in lieu of requiring them to maintain
the Web site described in new paragraph (a)(3)(i), noting that
monitoring such a Web site would be a simple and a non-time-consuming
process for non-hired NRSROs.\147\ One further noted that if e-mails
were required, an NRSRO interested in determining its own ratings would
have to monitor their e-mail for update messages from other NRSROs and
still check other NRSROs' Web sites in order to obtain the relevant
information before checking the relevant issuer portals.\148\ The
second commenter also argued that an NRSRO should not have to send an
e-mail to other NRSROs that may have no interest in rating a particular
transaction.\149\
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    \145\ See February 2009 Proposing Release, 74 FR at 6494.
    \146\ See DBRS Letter.
    \147\ See S&P Letter; Moody's Letter.
    \148\ See Moody's Letter.
    \149\ See S&P Letter.
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    The Commission is adopting the requirement that the hired NRSRO

maintain an Internet Web site identifying pending deals as proposed.
The Commission agrees with those commenters that are of the view that
it is not necessary to require a hired NRSRO to send e-mail alerts to
other NRSROs every time it is hired to rate a new transaction, either
in addition to or in lieu of the hired NRSRO maintaining a list of its
transactions on a password-protected Internet Web site. Concentrating
the information about pending deals at the Internet Web site maintained
by the hired NRSRO will permit other NRSROs to sort through the list of
pending transactions and decide which arranger Web sites they want to
access to obtain the information necessary to determine a credit
rating. Further, the Commission requires the hired NRSRO to promptly
disclose the required information on its Internet Web site, thereby
notifying the non-hired NRSROs of the pending deal as soon as
possible.\150\ The Commission believes that the non-hired NRSRO will be
better served by the ability to access, periodically at their own
convenience, the lists of all pending transactions maintained on the
hired NRSROs' Internet Web sites in order to determine whether any new
deals have been initiated. The Commission does not believe that one-
time notice e-mails are an adequate alternative in lieu of hired NRSROs
maintaining lists of pending transactions. While the Commission does
not believe it necessary to require hired NRSROs to send e-mail notices
in addition to maintaining such lists, the Commission encourages hired
NRSROs to voluntarily supplement maintaining the required lists of
pending transactions by offering to notify other registered NRSROs by
e-mail alert whenever they are hired to rate new transactions. This way
the other NRSROs can decide for themselves whether they want to receive
e-mail alerts or monitor the Internet Web sites.
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    \150\ The Commission will take seriously any indications that
the hired NRSRO is not complying with the requirement to promptly
disclose the information pursuant to new paragraph (a)(3)(i) of Rule
17g-5.
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    As the Commission noted in the February 2009 Proposing Release, the
text of paragraph (a)(3)(i) refers to transactions where the NRSRO is
in the process of determining an ``initial'' credit rating.\151\ The
rule does not require the NRSRO to include on the Internet Web site
information about securities or money market instruments once the NRSRO
has published the initial rating and is monitoring the rating. The
amendment is designed to alert other NRSROs about new deals and direct
them to the Internet Web site of the arranger where information to
determine initial ratings and monitor the ratings can be accessed.
Consequently, upon publication of the initial rating, the NRSRO can
remove the information about the security or money market instrument
from the list it maintains on the Internet Web site. Similarly, if the
arranger decides to terminate the rating process before a hired NRSRO
publishes an initial rating, the NRSRO would be permitted to remove the
information from the list. As discussed in more detail below, however,
the representations a hired NRSRO will be required to obtain from an
arranger include a representation that once an instrument is rated, the
arranger will be required to post on its password-protected Internet
Web site any information provided to the hired NRSRO for surveillance
purposes.
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    \151\ See February 2009 Proposing Release, 74 FR at 6493.
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    The Commission is making clarifying changes to the text of new
paragraphs (a)(3)(ii) and (a)(3)(iii) of Rule 17g-5 as proposed. As
discussed above, that paragraph requires an NRSRO subject to the
conflict set forth in new paragraph (b)(9) of Rule 17g-5 to provide
free and unlimited access to such password-protected Internet Web site
during the applicable calendar year to any NRSRO that provides it with
a copy of the certification described in new paragraph (e) of Rule 17g-
5 (discussed below) that covers that calendar year. The Commission is
revising the proposed amendment to clarify that the hired NRSRO need
only provide access to its password-protected Internet Web site to a
non-hired NRSRO whose certification indicates that it has either (1)
determined and maintained credit ratings for at least 10% of the issued
securities and money market instruments for which it accessed
information pursuant to Rule 17g-5(a)(3) as amended in the calendar
year prior to the year covered by the certification, if it accessed
such information for 10 or more issued securities or money market
instruments; or (2) has not accessed information pursuant to Rule 17g-
5(a)(3) as amended 10 or more times in the calendar year prior to the
year covered by the certification. This revision ensures that hired
NRSROs will only be required to provide access to their password-
protected Internet Web sites to non-hired NRSROs that have met the
requirements set forth in the certification to be provided to the
Commission pursuant to new paragraph (e) of Rule 17g-5 as amended. The
Commission is further clarifying that a non-hired NRSRO would not be
precluded from accessing the hired-NRSRO's Internet Web site if at some
point prior to the most recently ended calendar year the NRSRO accessed
the Web site 10 or more times. For example, if a non-hired NRSRO
accessed the Web site 10 or more times in year 1, but did not access
the Web site in year 2, the non-hired NRSRO would then be permitted to
access the Internet Web site in year 3.
    Accordingly, the Commission is adopting the amendments establishing
new paragraphs (a)(3)(i) and (ii) of Rule 17a-5 substantially as
proposed, with the revisions to the text as proposed as discussed
above.
    New paragraph (a)(3)(iii) of Rule 17g-5, adopted substantially as
proposed, requires an NRSRO subject to the conflict set forth in new
paragraph (b)(9) to obtain four representations from an arranger that
hires it to rate a structured finance product: (1) Pursuant to
paragraph (a)(3)(iii)(A) the arranger must represent that it will
maintain the information described in paragraphs (a)(3)(iii)(C) and
(a)(3)(iii)(D) of Rule 17g-5 available on an identified password-
protected Internet Web site that presents the information in a manner
indicating which information currently should be relied on to determine
or monitor the credit rating; (2) pursuant to paragraph (a)(3)(iii)(B)
of Rule 17g-5 the arranger must represent that it will provide access
to that password-protected Internet Web site to any NRSRO that provides
it with a copy of the certification described in new paragraph (e) of
Rule 17g-5 (discussed below) that covers the current calendar year; (3)
pursuant to paragraph (a)(3)(iii)(C) of Rule 17g-5 the arranger must
represent that it will post on that password-protected Internet Web
site all information the arranger provides to the NRSRO for the purpose
of determining the initial credit rating for the security or money
market instrument, including information about the characteristics of
the assets underlying or referenced by the security or money market
instrument, and the legal structure of the security or money market
instrument, at the same time such information is provided to the NRSRO;
\152\ and (4) pursuant to paragraph (a)(3)(iii)(D) of Rule 17g-5 the