hours.
---------------------------------------------------------------------------

    Section 15E(b)(2) of the Exchange Act requires an NRSRO to furnish
an annual certification.\544\ Rule 17g-1 requires an NRSRO to furnish
the annual certification on Form NRSRO.\545\ The Commission estimated
that the annual certification, generally, would take less time than an
amendment to Form NRSRO because it would be done on a regular basis
(albeit yearly) and, therefore, become more a matter of routine over
time. Consequently, the Commission estimated that the burden would be
similar to that of broker-dealers filing the quarterly reports required
under Rules 17h-1T and 17h-2T, which is approximately 10 hours per year
for each respondent.\546\ Therefore, the Commission estimated it would
take an NRSRO approximately 10 hours to complete the annual
certification for a total aggregate annual hour burden to the industry
of 300 hours.\547\ The Commission did not receive any comments on these
specific estimates and continues to believe that they are appropriate.
Therefore, the Commission is retaining these estimates without
revision.
---------------------------------------------------------------------------

    \544\ 15 U.S.C. 78o-7(b)(2).
    \545\ See paragraph (f) of Rule 17g-1.
    \546\ See 17 CFR 240.17h-1T and 2T.
    \547\ 10 hour x 30 NRSROs = 300 hours.
---------------------------------------------------------------------------

    Rule 17g-1 has been modified to require an NRSRO to furnish the
Commission with a withdrawal of registration on Form NRSRO.\548\ As
proposed, the Commission required a written notice without prescribing
the form of the notice. The Commission expects that the furnishing of
these withdrawals will be rare, given that only 30 credit rating
agencies are expected to register. Based on staff experience, the
Commission estimates that one NRSRO per year will withdraw its
registration. Further, the instructions to Form NRSRO provide that only
the items on the Form are required to be completed in the case of a
withdrawal; an NRSRO would not be required to update or attach any of
the information required in the Exhibits. Based on current estimates
for a broker-dealer to file a notice under Rule 17a-11, the Commission
estimates the average burden to an NRSRO to furnish the notice of
withdrawal would be one hour.\549\ Thus, the Commission estimates that
the aggregate annual burden to the industry of providing a notice of
withdrawal prior to final Commission action would be one hour per
year.\550\
---------------------------------------------------------------------------

    \548\ See paragraph (g) of Rule 17g-1.
    \549\ See Exchange Act Release No. 49830 (June 8, 2004); see
also 17 CFR 240.17a-11.
    \550\ 1 hour x 1 entity = 1 hour.
---------------------------------------------------------------------------

    Section 15E(a)(3) of the Exchange Act requires an NRSRO to make
certain information and documents submitted in its application publicly
available on its Web site, or through another comparable, readily
accessible means.\551\ Rule 17g-1 requires that this be done within 10
business days of the granting of an NRSRO's registration or the
furnishing of an amendment, annual certification, or withdrawal.\552\
The Commission believed that each NRSRO already would have a Web site
and would choose to use its Web site to comply with Section 15E(a)(3)
of the Exchange Act (15 U.S.C. 78o-7(a)(3)). Therefore, based on staff
experience, the Commission estimated that, on average, an NRSRO would
spend 30 hours to disclose the information in its initial application
on its Web site and, thereafter, 10 hours per year to disclose updated
information. Accordingly, the total aggregate one-time burden to the
industry to make Form NRSRO publicly available would be 900 hours \553\
and the total aggregate annual burden would be 300 hours.\554\ The
Commission did not receive any comments on these specific estimates and
continues to believe that they are appropriate. Therefore, the
Commission is retaining these estimates without revision.
---------------------------------------------------------------------------

    \551\ 15 U.S.C. 78o-7(a)(3).
    \552\ See Rule 17g-1(i).
    \553\ 30 hours x 30 NRSROs = 900 hours.
    \554\ 10 hours x 30 NRSROs = 300 hours.
---------------------------------------------------------------------------

2. Rule 17g-2
    Section 17(a)(1) of the Exchange Act (as amended by the Rating
Agency Act) \555\ provides the Commission with authority to require an
NRSRO to make and maintain such records as the Commission prescribes by
rule as necessary or appropriate in the public interest, for the
protection of investors, or otherwise in furtherance of the Exchange
Act.\556\ Rule 17g-2 implements this rulemaking authority by requiring
an NRSRO to make and keep current certain records relating to its
business. In addition, the rule requires an NRSRO to preserve these and
other records for certain prescribed time periods. This rule is
designed to assist the Commission in monitoring, through its
examination function, whether NRSROs are complying with the
requirements of Section 15E of the Exchange Act \557\ and the
regulations thereunder. The Commission estimated that the average one-
time burden of implementing a recordkeeping system to comply with this
rule would be approximately 300 hours. This estimate was based on the
Commission's experience with, and burden estimates for, certain
recordkeeping requirements of consolidated supervised entities
(``CSEs'') subject to Commission supervision.\558\
---------------------------------------------------------------------------

    \555\ See Section 5 of the Rating Agency Act.
    \556\ See Section 5 of the Rating Agency Act and 15 U.S.C
78q(a)(1).
    \557\ 15 U.S.C. 78o-7.
    \558\ See 17 CFR 15c3-1g.
---------------------------------------------------------------------------

    The Commission also estimated that an NRSRO might be required to
purchase recordkeeping system software to establish a recordkeeping
system in conformance with the rule. The Commission estimated that the
cost of the software would vary based on the size and complexity of the
NRSRO. Also, the Commission estimated that some NRSRO's would not
require such software because they already have adequate recordkeeping
systems or, given their small size, such software would not be
necessary. Based on these estimates, the Commission estimated that the
average cost for recordkeeping software across all NRSROs would be

approximately $1000 per firm. Therefore, the one-time cost to the
industry would be $30,000.
    Additionally, the Commission estimated that the average annual
amount of time that an NRSRO would spend to make and maintain these
records would be approximately 254 hours per year. The estimate for
annual hours was based on the Commission's present estimate for the
amount of time it would take a broker-dealer to comply with the
recordkeeping rule, Rule 17a-4.\559\ Therefore, the Commission
estimated that the one-time hour burden for making and preserving the
records under proposed Rule 17g-2 would be approximately 9,000 hours
\560\ and the total annual hour burden would be approximately 7,620
hours per year.\561\
---------------------------------------------------------------------------

    \559\ See 17 CFR 240.17a-4 (recordkeeping requirements for
broker-dealers). This rule has previously been subject to notice and
comment and has been approved by OMB. The Commission noted in the
proposing release that Rule 17g-2 is based, in part, on Exchange Act
Rules 17a-3 (17 CFR 240.17a-3) and 17a-4 (17 CFR 240.17a-4). The
annual hour burden estimate for the rule, however, was based only on
the PRA estimate for Rule 17a-4. The rule requires substantially
less records to be made and maintained than Rules 17a-3 and 17a-4.
Therefore, the Commission based its estimate only on the estimate
for Rule 17a-4 (as opposed to Rules 17a-3 and 17a-4 combined).
    \560\ 300 hours x 30 NRSROs = 9,000 hours.
    \561\ 254 hours x 30 NRSROs = 7,620 hours.
---------------------------------------------------------------------------

    Rule 17g-2 also requires an NRSRO that uses a third-party record
custodian to furnish the Commission with an undertaking from the
custodian. Based on staff experience, the Commission estimated that
approximately five NRSROs would file this undertaking on a one-time
basis. The Commission estimated, based on staff experience, it would
take an NRSRO approximately 10 hours to process an undertaking prior to
furnishing it to the Commission.\562\ Therefore, the Commission
estimated the total one-time hour burden for these undertakings would
be 50 hours.\563\
---------------------------------------------------------------------------

    \562\ The estimated 10 hours includes drafting, legal review and
receiving corporate authorization to file the undertaking with the
Commission.
    \563\ 10 hours x 5 NRSROs = 50 hours.
---------------------------------------------------------------------------

    The Commission did not receive any comments on these specific
burden estimates. The Commission notes that Rule 17g-2 has been
modified in certain respects that decrease the burden, but also in
other respects that will increase burden. For example, requirements to
make records identifying the methodology used to determine each credit
rating and how the credit rating was made readily available have been
eliminated. Further, the retention periods for all the records have
been harmonized and the requirement for a non-resident NRSRO to furnish
an undertaking has been eliminated. On the other hand, the rule now
requires an NRSRO to document its methodologies for determining credit
ratings and, if applicable, to make and retain certain records relating
to practices with respect to rating structured products. The Commission
believes that these adjustments will largely offset each other or
result in a net decrease in burden. For example, the elimination of the
requirement to identify the methodology used to determine a credit
rating would have impacted all NRSROs and required them to make a
record for each credit rating (which could be in the many thousands).
Conversely, the requirements with respect to structured products only
will impact NRSROs that rate these types of securities, which the
Commission estimates is less than five. While the Commission could
reduce its burden estimate, it is taking a conservative approach to the
net results of these changes. For these reasons, the Commission is
retaining the rule's overall burden estimates without revision.
3. Rule 17g-3
    Section 15E(k) of the Exchange Act requires an NRSRO to furnish to
the Commission, on a confidential basis and at intervals determined by
the Commission, such financial statements and information concerning
its financial condition that the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for the protection
of investors.\564\ The section also provides that the Commission may,
by rule, require that the financial statements be certified by an
independent public accountant.\565\
---------------------------------------------------------------------------

    \564\ 15 U.S.C. 78o-7(k). An applicant can request that the
Commission keep this information confidential. See 17 CFR 200.80 and
17 CFR 200.83.
    \565\ Id.
---------------------------------------------------------------------------

    Rule 17g-3 implements this statutory provision by requiring an
NRSRO to furnish financial reports to the Commission. We estimated
that, on average, it would take an NRSRO approximately 200 hours to
prepare for and file the annual financial reports. This estimate was
based on the current PRA estimates used for CSEs under Appendix G to
Exchange Act Rule 15c3-1, as well as the PRA estimates for supervised
investment bank holding companies under Rule 17i-5.\566\ Therefore, the
Commission estimated that the total annual hour burden to prepare and
furnish annual audited financial statements with the Commission would
be approximately 6,000 hours.\567\
---------------------------------------------------------------------------

    \566\ See 17 CFR 240.15c3-1g and 17 CFR 240.17i-5.
    \567\ 200 hours x 30 NRSROs = 6,000 hours.
---------------------------------------------------------------------------

    To comply with Rule 17g-3, an NRSRO would be required to engage the
services of an independent public accountant. The Commission estimated
that the cost of hiring an accountant would vary substantially based on
the size and complexity of the NRSRO. For example, the Commission noted
that, based on staff experience, the annual audit costs of a small
broker-dealer generally range from $3,000 to $5,000 per year. The
Commission estimated that the annual audit costs for a small NRSRO
would be comparable. The costs for a large NRSRO would be much greater.
However, many of these firms already are audited by a public accountant
for other regulatory purposes. For these reasons, the Commission
estimated that the average annual cost across all NRSROs to engage the
services of an independent public accountant would be approximately
$15,000. Therefore, the annual cost to the industry would be
$450,000.\568\
---------------------------------------------------------------------------

    \568\ $15,000 x 30 NRSROs = $450,000.
---------------------------------------------------------------------------

    The Commission did not receive any comments on these specific
estimates. The Commission notes that Rule 17g-3 has been modified to
decrease the burden. For example, the requirement to comply with all
provisions of Regulation S-X has been eliminated, as has the
requirement to have the information in the proposed schedules audited.
As discussed above, we developed these estimates based on the rule as
proposed. We continue to believe the estimates are appropriate for the
rule as now modified. Indeed, because we have in a variety of respects
narrowed the requirements of the rule, we believe the estimates are
likely to be conservative.
4. Rule 17g-4
    Section 15E(g)(1) of the Exchange Act \569\ requires an NRSRO to
establish, maintain, and enforce written policies and procedures to
prevent the misuse of material, nonpublic information in violation of
the Exchange Act.\570\ Section 15E(g)(2) of the Exchange Act provides
that the Commission shall adopt rules requiring an NRSRO to establish
specific policies and procedures to prevent the misuse of material,
non-public information.\571\ Rule 17g-4 implements this statutory
provision by requiring that an NRSRO's policies and procedures
established pursuant to Section 15E(g)(1) of the Exchange Act \572\
include three specific types of procedures.
---------------------------------------------------------------------------

    \569\ 15 U.S.C. 78o-7(g)(1).
    \570\ 15 U.S.C. 78a et seq.
    \571\ 15 U.S.C. 78o-7(g)(2).
    \572\ 15 U.S.C. 78o-7(g)(1).

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

    The Commission assumed that most credit rating agencies already
have procedures in place to address the specific misuses of material
nonpublic information identified in Rule 17g-4.\573\ Nonetheless, the
Commission anticipated that some NRSROs might need to modify their
procedures to comply with the rule. Based on staff experience, the
Commission estimated that it would take approximately 50 hours for an
NRSRO to establish procedures in conformance with the rule for a total
one-time burden of 1,500 hours.\574\ The Commission did not receive any
comments on these specific estimates and continues to believe that they
are appropriate. Therefore, the Commission is retaining these estimates
without revision.
---------------------------------------------------------------------------

    \573\ For example, the IOSCO Code requires credit rating
agencies to develop such procedures.
    \574\ 50 hours x 30 NRSROs = 1,500 hours.
---------------------------------------------------------------------------

E. Collection of Information Is Mandatory

    These recordkeeping and notice requirements are mandatory.

F. Confidentiality

    Pursuant to section 15E(a)(1)(B) of the Exchange Act, certain
information collected in Form NRSRO required under Rule 17g-1(a) will
not be confidential. However, credit rating agencies and NRSROs may
seek confidential treatment of information furnished to the Commission
under existing rules, and the Commission will keep this information
confidential to the extent permitted by law. The books and records
information collected under Rules 17g-2 and 17g-4 will be stored by the
NRSRO and made available to the Commission and its representatives as
required in connection with examinations, investigations, and
enforcement proceedings.
    The information collected under Rule 17g-3 (the annual financial
reports) will be generated from the internal records of the NRSRO.
Pursuant to Section 15E(k) of the Exchange Act, the annual financial
reports will be furnished to the Commission on a confidential basis, to
the extent permitted by law.\575\
---------------------------------------------------------------------------

    \575\ 15 U.S.C. 78o-7(k).
---------------------------------------------------------------------------

G. Record Retention Period

    Paragraph (c) of Rule 17g-2 requires an NRSRO to retain the records
for at least three years.

H. Request for Comment

    The Commission requested comment on the collections of information
in order to: (1) Evaluate whether the proposed collection of
information is necessary for the proper performance of the functions of
the Commission, including whether the information would have practical
utility; (2) evaluate the accuracy of the Commission's estimate of the
burden of the proposed collection of information; (3) determine whether
there are ways to enhance the quality, utility, and clarity of the
information to be collected; (4) evaluate whether there are ways to
minimize the burden of the collection of information on those who
respond, including through the use of automated collection techniques
or other forms of information technology; and (5) evaluate whether the
proposed rules would have any effects on any other collection of
information not previously identified in this section.

VI. Costs and Benefits of the Rules

    The Commission is sensitive to the costs and benefits that result
from its rules. The Commission identified certain costs and benefits
arising from these rules and requested comment on all aspects of the
cost-benefit analysis contained therein, including identification and
assessment of any costs and benefits not discussed in the
analysis.\576\ The Commission sought comment and data on the value of
the benefits identified. The Commission also elicited comment on the
accuracy of the cost estimates in each section of the cost-benefit
analysis, and requested those commenters to provide data so the
Commission could improve the cost estimates, including identification
of industry statistics relied on by commenters to reach conclusions on
cost estimates. The Commission also sought comment on the extent to
which costs were attributable to requirements set forth in Section 15E
of the Exchange Act,\577\ rather than the rules. Finally, the
Commission requested estimates and views regarding the costs and
benefits for particular types of market participants, as well as any
other costs or benefits that might result from the rules.
---------------------------------------------------------------------------

    \576\ For the purposes of this cost/benefit analysis, the
Commission is using salary data from the SIA Report on Management
and Professional Earnings in the Securities Industry 2005 (``SIA
Management Report 2005''), which provides base salary and bonus
information for middle-management and professional positions within
the securities industry. The positions in the report are divided
into the following categories: Accounting, Administration & Finance,
Compliance, Customer Service, Floor/Trading, Human Resources
Management, Internal Audit, Legal, Marketing/Corporate
Communications, New Business Development, Operations, Research,
Systems/Technology, Wealth Management, and Business Continuity
Planning. The Commission believes that the salaries for these
securities industry positions would be comparable to the salaries of
similar positions in the credit rating industry. The Commission also
notes that it is using salaries for New York-based employees, which
tend to be higher than the salaries for comparable positions located
outside of New York. This conservative approach is intended to
capture unforeseen costs. Finally, the salary costs derived from the
SIA Management Report 2005 and referenced in this cost benefit
section, are modified to account for an 1800-hour work year and
multiplied by 5.35 to account for bonuses, firm size, employee
benefits and overhead.
    \577\ 15 U.S.C. 78o-7.
---------------------------------------------------------------------------

    As discussed below, the Commission received very limited comment on
the cost-benefit analysis in the proposing release. Except as discussed
below, the Commission continues to believe that the specific estimates
are appropriate and is retaining these estimates generally without
revision.

A. Benefits

    The purposes of the Credit Rating Agency Reform Act of 2006 (the
``Rating Agency Act'') \578\ are to improve ratings quality for the
protection of investors and in the public interest by fostering
accountability, transparency, and competition in the credit rating
industry.\579\ As the Senate Report states, the Rating Agency Act
establishes ``fundamental reform and improvement of the designation
process,'' and ``eliminating the artificial barrier to entry will
enhance competition and provide investors with more choices, higher
quality ratings, and lower costs.'' \580\
---------------------------------------------------------------------------

    \578\ Pub. L. 109-291 (2006).
    \579\ See 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'').
    \580\ Id.
---------------------------------------------------------------------------

    To these ends, the Rating Agency Act establishes--through statutory
provisions and the grant of Commission rulemaking authority--a
regulatory program for credit rating agencies opting to have their
credit ratings qualify for purposes of laws and rules using the term
``NRSRO.'' Specifically, the Rating Agency Act sets out a voluntary
mechanism for credit rating agencies to register with the Commission as
an NRSRO.\581\ It requires an NRSRO to make public certain information
to help users of credit ratings assess the NRSRO's credibility and
compare the NRSRO with other NRSROs.\582\ The Rating Agency Act also
requires an NRSRO to furnish the Commission with periodic financial
reports.\583\ Further, the Rating Agency Act requires an NRSRO to
implement policies to manage the handling of material non-

public information and conflicts of interest.\584\ Pursuant to
authority under the Rating Agency Act, the Commission must prohibit
certain acts and practices the Commission finds to be unfair, coercive,
or abusive.\585\
---------------------------------------------------------------------------

    \581\ Section 15E of the Exchange Act (15 U.S.C. 78o-7).
    \582\ Sections 15E(a)(1) and (b)(1) of the Exchange Act (15
U.S.C. 78o-7(a)(1) and (b)(1)).
    \583\ Section 15E(k) of the Exchange Act (15 U.S.C. 78o-7(k)).
    \584\ Sections 15E(g) and (h) of the Exchange Act (15 U.S.C.
78o-7(g) and (h)).
    \585\ Section 15E(i) of the Exchange Act (15 U.S.C. 78o-7(i)).
---------------------------------------------------------------------------

    The rules the Commission is adopting under the Rating Agency Act
are being issued pursuant to specific statutory mandates and grants of
rulemaking authority. They are designed to further the goals of the
Rating Agency Act, including fostering ``competition in the credit
rating agency business.'' \586\ The practice of identifying NRSROs
through staff no-action letters has been criticized as a process that
lacks transparency and creates a barrier for credit rating agencies
seeking wider recognition and market share. The Commission believes
that these rules further the goal of increasing competition because
they provide credit rating agencies with a transparent process to apply
for registration as an NRSRO that does not favor a particular business
model or larger, established firms. This will make it easier for more
credit rating agencies to apply for registration. Increased competition
in the credit ratings business could lower the cost to issuers,
obligors, and underwriters of obtaining credit ratings.
---------------------------------------------------------------------------

    \586\ See 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'').
---------------------------------------------------------------------------

    In addition, the Rating Agency Act requires NRSROs to make their
credit ratings and information about themselves available to the
public. Part of the Rating Agency Act's definition of ``credit rating
agency'' is that the entity must be in the business of issuing credit
ratings on the Internet or through another readily accessible means,
for free or for a reasonable fee.\587\ Under the Rating Agency Act and
the rules adopted thereunder, an NRSRO will be required to disclose
information about its credit ratings performance statistics, its
methods for determining credit ratings, its organizational structure,
its procedures to prevent the misuse of material non-public
information, the conflicts of interest that arise from its business
activities, its code of ethics, and the qualifications of its credit
analysts and credit analyst supervisors. The Commission believes that
these disclosures will allow users of the credit ratings to compare the
credit ratings quality of different NRSROs. Although the information an
NRSRO will provide on its Form NRSRO and to comply with the rules
cannot substitute for an investor's due diligence in evaluating a
credit rating, it will aid investors by providing a publicly accessible
foundation of basic information about an NRSRO.
---------------------------------------------------------------------------

    \587\ Section 3(a)(61) of the Exchange Act (15 U.S.C.
78c(a)(61)).
---------------------------------------------------------------------------

    In addition, the rules implement provisions of the Rating Agency
Act that are designed to improve the integrity of NRSROs. For example,
the registration of a credit rating agency as an NRSRO will allow the
Commission to conduct regular examinations of the credit rating agency
to evaluate compliance with the regulatory scheme set forth in Section
15E of the Exchange Act \588\ and the rules thereunder and will subject
an NRSRO to disclosure, recordkeeping, and annual financial reporting
requirements, as well as requirements regarding the prevention of
misuse of material, nonpublic information, the management of conflicts
of interest, and certain prohibited acts and practices. Increased
confidence in the integrity of NRSROs and the credit ratings they issue
could promote participation in the securities markets. Better quality
ratings could also reduce the likelihood of an unexpected collapse of a
rated issuer or obligor, reducing risks to individual investors and to
the financial markets. In addition to improving the quality of credit
ratings, increased oversight of NRSROs could increase the
accountability of an NRSRO to its subscribers, investors, and other
persons who rely on the credibility and objectivity of credit ratings
in making an investment decision.
---------------------------------------------------------------------------

    \588\ 15 U.S.C. 78o-7.
---------------------------------------------------------------------------

    Rule 17g-1 prescribes a process for a credit rating agency to
register with the Commission as an NRSRO. The rule requires a credit
rating agency to apply for registration using Form NRSRO. Form NRSRO
requires that a credit rating agency provide information required under
Section 15E(a)(1)(B) of the Exchange Act and certain additional
information.\589\ The additional information will assist the Commission
in making the assessment regarding financial and managerial resources
required under Section 15E(a)(2)(C)(ii)(I) of the Exchange Act.\590\
This section directs the Commission to grant a credit rating agency's
application for registration as an NRSRO unless, among other things,
the Commission finds that the applicant does not have adequate
financial and managerial resources to consistently issue ratings with
integrity and to materially comply with its procedures and
methodologies disclosed under Sections 15E(a)(1)(B) of the Exchange Act
\591\ and with the requirements in Sections 15E(g), (h), (i) and (j) of
the Exchange Act.\592\ Certain other additional information required to
be made public will assist users of credit ratings in assessing the
credibility of the NRSRO and in comparing the NRSRO with other NRSROs.
---------------------------------------------------------------------------

    \589\ See Section 15E(a)(1)(B) of the Exchange Act (15 U.S.C.
78o-7(a)(1)(B)).
    \590\ See 15 U.S.C. 78o-7(a)(2)(C)(ii)(I).
    \591\ 15 U.S.C. 78o-7(a)(1)(B).
    \592\ 15 U.S.C. 78o-7(g), (h), (i) and (j).
---------------------------------------------------------------------------

    Rule 17g-2 implements the Commission's recordkeeping and rulemaking
authority under Section 17(a) of the Exchange Act \593\ by requiring an
NRSRO to make and retain certain records related to its business as a
credit rating agency. This recordkeeping rule will assist the
Commission in monitoring whether an NRSRO is complying with provisions
of Section 15E of the Exchange Act and the rules thereunder by
requiring information about each NRSRO's financial condition,
management, and operations. This information will permit the Commission
to observe differences between NRSROs and changes over time in
individual NRSROs. The information also will permit the Commission to
review whether an NRSRO is operating consistently with the
methodologies and procedures it establishes to determine credit ratings
and its policies and procedures designed to ensure the impartiality of
its credit ratings.
---------------------------------------------------------------------------

    \593\ 15 U.S.C. 78q(a)(1).
---------------------------------------------------------------------------

    Section 15E(k) of the Exchange Act requires an NRSRO to furnish to
the Commission, on a confidential basis and at intervals determined by
the Commission, such financial statements and information concerning
its financial condition that the Commission, by rule, may prescribe as
necessary or appropriate in the public interest or for the protection
of investors.\594\ The section also provides that the Commission may,
by rule, require that an independent public accountant certify the
financial statements.\595\ Rule 17g-3 implements this rulemaking
authority by requiring an NRSRO to furnish annual financial reports to
the Commission. This rule will enhance Commission oversight of an
NRSRO. Specifically, it will aid the Commission in monitoring whether
the initiation of a proceeding under Section 15E(d) of the Exchange Act
will be appropriate because the NRSRO ``fails to maintain adequate
financial and managerial resources to consistently produce credit

ratings with integrity.'' \596\ In addition, the financial reports also
will assist the Commission in monitoring potential conflicts of
interests of a financial nature arising from the operation of an
NRSRO.\597\
---------------------------------------------------------------------------

    \594\ 15 U.S.C. 78o-7(k).
    \595\ Id.
    \596\ 15 U.S.C. 78o-7(d).
    \597\ See, e.g., Rule 17g-5(c)(1) prohibiting an NRSRO from
issuing or maintaining a credit rating for a person that, in the
most recently ended fiscal year, provided the NRSRO with net revenue
equaling or exceeding 10% of the NRSRO's total revenue for the year.
---------------------------------------------------------------------------

    Section 15E(g)(1) of the Exchange Act \598\ requires an NRSRO to
establish, maintain, and enforce written policies and procedures to
prevent the misuse of material, nonpublic information in violation of
the Exchange Act.\599\ Section 15E(g)(2) of the Exchange Act provides
that the Commission shall adopt rules requiring an NRSRO to establish
specific policies and procedures to prevent the misuse of material,
nonpublic information.\600\ Rule 17g-4 implements this statutory
provision by requiring that an NRSRO's policies and procedures
established pursuant to Section 15E(g)(1) of the Exchange Act \601\
include three specific types of procedures. These specific procedures
establish a baseline for the type of procedures an NRSRO must implement
to meet the statutory requirement in Section 15E(g) of the Exchange
Act.\602\ By providing this baseline, the rule is designed to ensure
that an NRSRO establishes adequate procedures and controls to protect
material nonpublic information.
---------------------------------------------------------------------------

    \598\ 15 U.S.C. 78o-7(g)(1).
    \599\ 15 U.S.C. 78a et seq.
    \600\ 15 U.S.C. 78o-7(g)(2).
    \601\ 15 U.S.C. 78o-7(g)(1).
    \602\ 15 U.S.C. 78o-7(g).
---------------------------------------------------------------------------

    Rule 17g-5 implements Section 15E(h)(2) of the Exchange Act \603\
by requiring an NRSRO to disclose and manage certain conflicts of
interest, as well as specifically prohibiting other conflicts of
interest. This rule will promote the disclosure and management of
conflicts of interest required by Sections 15E(a)(1)(B)(vi) and 15E(h)
of the Exchange Act and mitigate potential undue influences on an
NRSRO's credit rating process.\604\
---------------------------------------------------------------------------

    \603\ 15 U.S.C. 78o-7(h)(2).
    \604\ 15 U.S.C. 78o-7(a)(1)(B)(vi) and (h).
---------------------------------------------------------------------------

    Rule 17g-6 prohibits an NRSRO from engaging in certain unfair,
abusive, or coercive acts or practices. These prohibitions are designed
to enhance the integrity of NRSROs, promote competition and fulfill a
statutory mandate.
    The Commission requested comment on available metrics to quantify
these benefits and any other benefits the commenter may identify,
including the identification of sources of empirical data that could be
used for such metrics. The Commission did not receive any comments in
response to this request.

B. Costs

    The Rating Agency Act requires that the rules and regulations that
the Commission may prescribe ``be narrowly tailored'' to meet its
requirements.\605\ The rules being adopted by the Commission are
designed to adhere to this statutory mandate and, thereby, keep
compliance costs as low as possible.
---------------------------------------------------------------------------

    \605\ 15 U.S.C. 78o-7(c)(2).
---------------------------------------------------------------------------

    The cost of compliance to a given NRSRO will depend on its size and
the complexity of its business activities. As discussed above, the size
and complexity of credit rating agencies varies significantly.
Therefore, it is difficult to quantify a cost per NRSRO. Instead, the
Commission provided estimates of the average cost per NRSRO taking into
consideration the range in size and complexity of NRSROs and the fact
that many already may have established policies, procedures, and
recordkeeping systems and processes that will comply substantially with
the requirements.
    The Commission believes that larger NRSROs generally already have
established written policies and procedures and recordkeeping systems
that will comply with a substantial portion of the requirements in the
rules. Many of the requirements in the rules are consistent with the
IOSCO Code principles, which a number of credit rating agencies
(including the largest) have implemented. These firms will be required
to augment or modify existing policies and procedures and recordkeeping
systems to comply with the rules (rather than establish new ones). Some
smaller credit rating agencies also have implemented the policies,
procedures, and recordkeeping systems necessary to comply with the
rules. Moreover, given their smaller size and simpler structure,
smaller entities will require less effort and incur less cost to comply
with a substantial portion of the requirements in these rules.
    For these reasons, the cost estimates represent the average cost
across all NRSROs (regardless of size) and take into account that many
firms will only be required to augment existing policies, procedures,
and recordkeeping systems and processes to come into compliance with
the rules. Furthermore, as discussed with respect to the Paperwork
Reduction Act of 1995 (``PRA''),\606\ the Commission is requiring
additional information in Form NRSRO beyond that prescribed in Section
15E(1)(B) of the Exchange Act.\607\ Therefore, the cost estimates for
Rule 17g-1 include estimates that arise from requirements imposed by
Section 15E of the Exchange Act.\608\ The intent is to quantify the
incremental burden of complying with these statutory requirements as a
result of the additional information that will be required under Rule
17g-1. Thus, those estimates do not seek to capture costs that are
solely attributable to requirements in Section 15E of the Exchange
Act.\609\
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    \606\ 44 U.S.C. 3501 et seq. 5 CFR 1320.11.
    \607\ 15 U.S.C. 78o-7(a)(1)(B).
    \608\ 15 U.S.C. 78o-7.
    \609\ Id.
---------------------------------------------------------------------------

    The Commission requested commenters to provide data for the costs
that would be solely attributable to the requirements of Section 15E of
the Exchange Act. The Commission received one comment from an entity
that the overall cost of complying with the rules would be
$207,515.\610\ The commenter did not provide any further detail on how
these costs would be solely attributable to the Commission's proposed
rules (as opposed to provisions of the Rating Agency Act).\611\ The
commenter also did not identify the specific costs that would arise
from each discreet rule provision.\612\ The Commission believes that
the estimated costs the commenter would incur if registered as an NRSRO
are included in the cost estimates discussed below.
---------------------------------------------------------------------------

    \610\ See Lace Letter.
    \611\ Id.
    \612\ Id.
---------------------------------------------------------------------------

    Given the estimates set forth below, the Commission estimates that
the total one-time estimated cost to NRSROs resulting from these rule
proposals would be approximately $4,936,325 \613\ and the total
estimated annual cost to NRSROs resulting from these rule proposals
would be approximately $3,955,500 per year.\614\
---------------------------------------------------------------------------

    \613\ This total is derived from the total one-time costs set
forth in the order that they appear in the text: $2,007,000 +
$480,000 + $25,625 + $241,200 + $1,845,000 + $30,000 + $307,500 =
$4,936,325.
    \614\ This total is derived from the total annual costs set
forth in the order that they appear in the text: $307,500 + $61,500
+ $80,400 + $1,562,100 + $1,494,000 + $450,000 = $3,955,500.
---------------------------------------------------------------------------

1. Rule 17g-1, Form NRSRO and Instructions to Form NRSRO
    Section 15E(a)(1) of the Exchange Act requires a credit rating
agency applying for registration with the Commission to furnish an
application containing certain specified information and such other
information as the Commission prescribes as necessary or appropriate in
the public interest or for the protection

of investors.\615\ Rule 17g-1 \616\ implements this statutory provision
by requiring a credit rating agency to furnish an initial application
on a completed Form NRSRO to apply to be registered under section 15E
of the Exchange Act.\617\
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    \615\ 15 U.S.C. 78o-7(a)(1).
    \616\ See paragraphs (a), (c) and (h) of Rule 17g-1.
    \617\ 15 U.S.C. 78o-7.
---------------------------------------------------------------------------

    NRSROs will incur costs to register under Section 15E of the
Exchange Act and Rule 17g-1.\618\ As discussed above with respect to
PRA, the Commission estimates that an NRSRO will spend approximately
300 hours to complete and furnish an initial Form NRSRO. Also, as
discussed with respect to the PRA, the Commission estimates there will
be 30 NRSROs. For these reasons, the Commission estimates that the
average one-time cost to an NRSRO will be $66,900 \619\ and the total
aggregate one-time cost to the industry will be $2,007,000.\620\
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    \618\ There is no filing fee for a Form NRSRO.
    \619\ The Commission estimates that a credit rating agency will
have a senior compliance examiner perform these responsibilities.
The SIA Management Report 2005 (Senior Compliance Examiner)
indicates that the average hourly cost for a senior compliance
examiner is $223. Therefore, the average one-time cost per NRSRO
will be approximately $66,900 [(300 hours) x ($223 per/hour)].
    \620\ 30 NRSROs x $66,900 = $2,007,000.
---------------------------------------------------------------------------

    Also, as discussed with respect to the PRA, the Commission
anticipates that an NRSRO likely will engage outside counsel to assist
in the process of completing and submitting a Form NRSRO. The amount of
time an outside attorney will spend on this work will depend on the
size and complexity of the NRSRO. Therefore, the Commission estimates
that, on average, an outside counsel will spend approximately 40 hours
assisting an NRSRO in preparing its application for registration. The
Commission further estimates that this work will be split between a
partner and associate, with an associate performing a majority of the
work. Therefore, the Commission estimates that the average hourly cost
for an outside counsel will be approximately $400 per hour. For these
reasons, the Commission estimates that the average one-time cost to an
NRSRO will be $16,000 \621\ and the one-time cost to the industry will
be $480,000.\622\
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    \621\ $400 per hour x 40 hours = $16,000.
    \622\ $16,000 x 30 NRSROs = $480,000.
---------------------------------------------------------------------------

    Under Rule 17g-1, an NRSRO applying to be registered for an
additional class of credit ratings will be required to file an amended
Form NRSRO with the Commission.\623\ As discussed with respect to the
PRA, the Commission estimates, on average, an NRSRO will spend 25 hours
completing and furnishing a Form NRSRO for this purpose. The Commission
also estimates with respect to the PRA that five of the 30 NRSROs will
apply to register for an additional class of credit ratings. For these
reasons, the Commission estimates that the average one-time cost to an
NRSRO will be $5,125 \624\ and the total aggregate one-time cost to the
industry will be $25,625.\625\
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    \623\ See paragraph (b) of Rule 17g-1.
    \624\ The Commission estimates an NRSRO will have a senior
compliance person perform these responsibilities. The SIA Management
Report 2005 (Compliance Officer) indicates that the average hourly
cost for a compliance manager is $205. Therefore, the average cost
to an NRSRO will be $5,125 [(25 hours for one year) x ($205)].
    \625\ 5 NRSROs x $5,125 = $25,625.
---------------------------------------------------------------------------

    Section 15E(b)(1) of the Exchange Act requires an NRSRO to promptly
amend its application for registration if any information or document
provided in the application becomes materially inaccurate.\626\ Rule
17g-1 requires an NRSRO to comply with this statutory requirement by
furnishing the amendment on Form NRSRO.\627\ As discussed with respect
to the PRA, the Commission estimates that an NRSRO will furnish two
amendments on Form NRSRO per year on average. The Commission also
estimates with respect to the PRA that it will take approximately 25
hours to prepare and furnish an amendment and that there will be 30
NRSROs. For these reasons, the Commission estimates that the average
annual cost to an NRSRO will be $10,250 \628\ and the total aggregate
annual cost to the industry will be $307,500.\629\
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    \626\ 15 U.S.C. 78o-7(b)(1).
    \627\ See paragraph (e) of Rule 17g-1.
    \628\ Based on the PRA estimates, an NRSRO will spend
approximately 50 hours each year updating its application on Form
NRSRO (25 hours per amendment x two amendments). The Commission
estimates an NRSRO will have a senior compliance person perform
these responsibilities. The SIA Management Report 2005 (Compliance
Officer) indicates that the average hourly cost for a compliance
manager is $205. Therefore, the total average annual cost to an
NRSRO to update its registration on Form NRSRO will be $10,250 [(50
hours per year) x ($205 per hour)].
    \629\ $10,250 x 30 NRSROs = $307,500.
---------------------------------------------------------------------------

    Section 15E(b)(2) of the Exchange Act requires an NRSRO to furnish
an annual certification.\630\ Rule 17g-1 will require an NRSRO to
furnish the annual certification on Form NRSRO.\631\ As discussed with
respect to the PRA, the Commission estimates an NRSRO will spend
approximately 10 hours per year completing and furnishing the annual
certification and that there will be 30 NRSROs. For these reasons, the
Commission estimates that the average annual cost to an NRSRO will be
$2,050 \632\ and the total aggregate annual cost to the industry will
be $61,500.\633\
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    \630\ 15 U.S.C. 78o-7(b)(2).
    \631\ See paragraph (f) Rule 17g-1.
    \632\ The Commission estimates an NRSRO will have a senior
compliance person perform these responsibilities. The SIA Management
Report 2005 (Compliance Officer) indicates that the average hourly
cost for a compliance manager is $205. Therefore, the average annual
cost will be $2,050 [(10 hours per year) x ($205 per hour)].
    \633\ $2,050 x 30 NRSROs = $61,500.
---------------------------------------------------------------------------

    Section 15E(a)(3) of the Exchange Act requires an NRSRO to make
certain information and documents submitted in its application publicly
available on its Web site, or through another comparable, readily
accessible means.\634\ Rule 17g-1 requires that this be done within 10
business days of the granting of an NRSRO's application or the
furnishing of an amendment to the form or annual certification.\635\ As
discussed with respect to the PRA, the Commission estimates that the
average hour burden for an NRSRO to disclose this information on its
Web site will be approximately 30 hours on a one-time basis and 10
hours per year. Furthermore, as discussed with respect to the PRA, the
Commission estimates that there will be 30 NRSROs. For these reasons,
the Commission estimates that an NRSRO will incur an average one-time
cost of $8,040 and an average annual cost of $2,680.\636\ Consequently,
the total aggregate one-time cost to the industry will be $241,200
\637\ and total aggregate annual cost to the industry will be $80,400
per year.\638\
    The Commission believes the requirements in Rule 17g-1 to furnish a
notice on Form NRSRO when an NRSRO withdraws its registration will
result in de minimis costs.
    The Commission requested comment on these cost estimates. We also
requested comment on whether there would be costs in addition to those
identified above, such as costs arising from systems changes. Comment
also was sought on whether these requirements would impose costs on
other market participants, including persons who use credit ratings to
make investment decisions or for regulatory purposes, and persons who
purchase services and products from NRSROs. Commenters were asked to
identify the

metrics and sources of any empirical data that supported their costs
estimates. The Commission did not receive any comments in response to
these requests.
---------------------------------------------------------------------------

    \634\ 15 U.S.C. 78o-7(a)(3).
    \635\ See paragraph (i) of Rule 17g-1.
    \636\ The Commission estimates that an NRSRO will have a Senior
Programmer perform this work. The SIA Management Report 2005 (Senior
Programmer) indicates that the average hourly cost for a senior
programmer is $268. Therefore, the average one-time cost will be
$8,040 [(30 hours) x ($268 per hour)] and the average annual cost
will be $2,680 [(10 hours per year) x ($268 per hour)].
    \637\ $8,040 x 30 NRSROs = $241,200.
    \638\ $2,680 x 30 NRSROs = $80,400.
---------------------------------------------------------------------------

2. Rule 17g-2
    Section 17(a)(1) of the Exchange Act \639\ provides the Commission
with authority to require an NRSRO to make and maintain such records as
the Commission prescribes by rule as necessary or appropriate in the
public interest, for the protection of investors, or otherwise in
furtherance of the Exchange Act.\640\ Rule 17g-2 implements this
rulemaking authority by requiring an NRSRO to make and preserve
specified records related to its credit rating business.
---------------------------------------------------------------------------

    \639\ See Section 5 of the Rating Agency Act and 15 U.S.C.
78q(a)(1).
    \640\ Id.
---------------------------------------------------------------------------

    As discussed with respect to the PRA, the Commission estimates that
an NRSRO, on average, will spend approximately 300 hours on a one-time
basis to establish a recordkeeping system and 254 hours each year
updating its books and records. For these reasons, the Commission
estimates that an NRSRO will incur an average one-time cost of $61,500
and an average annual cost of $52,070.\641\ Consequently, the total
aggregate one-time cost to the industry will be $1,845,000,\642\ and
the total aggregate annual cost to the industry will be $1,562,100 per
year.\643\
---------------------------------------------------------------------------

    \641\ The Commission estimates that an NRSRO will have a
compliance manager perform these responsibilities. The SIA
Management Report 2005 indicates that the average hourly cost for a
compliance manager is $205. Therefore, the average one-time cost
will be $61,500 [(300 hours) x ($205 per hour)] and the average
annual cost will be $52,070 [(254 hours per year) x ($205 per
hour)].
    \642\ $61,500 x 30 NRSROs = $1,845,000.
    \643\ $52,070 x 30 NRSROs = $1,562,100.
---------------------------------------------------------------------------

    Furthermore, as discussed above with respect to the PRA, the
Commission also estimates that an NRSRO may be required to purchase
recordkeeping system software to establish a recordkeeping system in
conformance with the rule. The Commission estimates that the cost of
the software will vary based on the size and complexity of the NRSRO.
Also, the Commission estimates that some NRSROs will not require such
software because they already have adequate recordkeeping systems or,
given their small size, such software will not be necessary. Based on
these estimates, the Commission estimates that the average cost for
recordkeeping software across all NRSROs will be approximately $1,000
per firm. Therefore, the one-time cost to the industry will be
$30,000.\644\
---------------------------------------------------------------------------

    \644\ $1,000 x 30 NRSROs = $30,000.
---------------------------------------------------------------------------

    The Commission requested comment on these cost estimates. We also
requested comment on whether there would be costs in addition to those
identified above, such as costs arising from restructuring business
practices. Comment also was sought on whether these rules would impose
costs on other market participants, including persons who use credit
ratings to make investment decisions or for regulatory purposes, and
persons who purchase services and products from NRSROs. Commenters were
asked to identify the metrics and sources of any empirical data that
supported their costs estimates. The Commission did not receive any
comments in response to these requests.
3. Rule 17g-3
    Section 15E(k) of the Exchange Act requires an NRSRO to furnish to
the Commission, on a confidential basis \645\ and at intervals
determined by the Commission, such financial statements and information
concerning its financial condition that the Commission, by rule, may
prescribe as necessary or appropriate in the public interest or for the
protection of investors.\646\ The section also provides that the
Commission may, by rule, require that the financial statements be
certified by an independent public accountant.\647\
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    \645\ An applicant can request that the Commission keep this
information confidential to the extent permitted by law. See 17 CFR
200.80 and 17 CFR 200.83.
    \646\ 15 U.S.C. 78o-7(k).
    \647\ Id.
---------------------------------------------------------------------------

    Rule 17g-3 implements this statutory provision by requiring an
NRSRO to furnish annual financial reports to the Commission. As
discussed above with respect to the PRA, the Commission estimates that
an NRSRO, on average, will spend approximately 200 hours per year
preparing for and furnishing these financial reports. For these
reasons, the Commission estimates that the average annual cost to an
NRSRO will be $49,800 \648\ and the total aggregate annual cost to the
industry will be $1,494,000.\649\
---------------------------------------------------------------------------

    \648\ The Commission estimates that a senior internal auditor
will perform these responsibilities. The SIA Management Report 2005
(Senior Internal Auditor) indicates that the average hourly cost for
a senior internal auditor is $249. Therefore, the average annual
cost will be $49,800 [(200 hours per year) x ($249 per hour)].
    \649\ $49,800 x 30 NRSROs = $1,494,000.
---------------------------------------------------------------------------

    As noted above, the average one-time and annual costs to NRSROs
will vary widely depending on the size and complexity of the NRSRO.
Moreover, some large credit rating agencies already prepare audited
financial statements in accordance with other regulatory requirements.
Nonetheless, these credit rating agencies may be required to make
changes to their accounting systems to comply with the requirements in
Rule 17g-3. The Commission believes these costs will vary depending on
the size and complexity of the NRSRO. The Commission sought comment on
the costs that would be incurred to make changes to their accounting
systems.
    The Commission received one comment in response to this specific
request from a large credit rating agency.\650\ The commenter stated
that it would cost between $6 and $8 million to develop a system that
could capture revenues received by the credit rating agency and its
affiliates from customers in order to create the list of large
customers that could be audited.\651\ The Commission notes, as an
initial matter, that Section 15E(a)((B)(viii) of the Exchange Act
requires an NRSRO to create this list with respect to issuers and
subscribers.\652\ Consequently, the costs of developing a system that
can capture this information can largely be attributed to the statute.
Nonetheless, Rule 17g-3 has been modified in ways that the Commission
believes will largely reduce these costs. First, an NRSRO is not
required to include revenue received by affiliates that are not part of
the credit rating organization in determining this list. Second, the
list is now a separate financial report that is not required to be
audited. Third, the definition of net revenue was modified to refer to
revenues ``earned'' by the NRSRO (as opposed to revenues ``received'').
This is designed to provide flexibility so that each NRSRO can define
``revenues'' consistent with how its accounting system recognizes
revenues. The Commission believes these modifications significantly
reduce the operational difficulties in determining the list of large
customers.
---------------------------------------------------------------------------

    \650\ See Fitch Letter.
    \651\ Id.
    \652\ 15 U.S.C. 78o-7(a)(1)(B)(viii).
---------------------------------------------------------------------------

    As discussed above with respect to the PRA, an NRSRO will be
required to engage the services of independent public accountant to
comply with Rule 17g-3. The cost of hiring an account will vary
substantially based on the size and complexity of the NRSRO. As the
noted above, based on staff experience, the annual audit costs of a
small broker-dealer generally range from $3,000 to $5,000 a year. As
the Commission estimated above, the annual audit costs for a small
NRSRO will likely be comparable to the costs incurred by a

small broker-dealer. The costs for a large NRSRO will be much greater.
However, many of these firms already are audited by a public accountant
for other regulatory purposes. For these reasons, the Commission
estimates that the average annual cost across all NRSROs to engage the
services of an independent public account will be approximately
$15,000. Therefore, the annual cost to the industry will be
$450,000.\653\
---------------------------------------------------------------------------

    \653\ $15,000 x 30 NRSROs = $450,000.
---------------------------------------------------------------------------

    The Commission requested comment on these cost estimates. We also
requested comment on whether there would be costs in addition to those
identified above. Comment was sought on whether these requirements
would impose costs on other market participants, including persons who
use credit ratings to make investment decisions or for regulatory
purposes, and persons who purchase services and products from NRSROs.
Commenters were asked to identify the metrics and sources of any
empirical data that supported their costs estimates. Other than the one
comment discussed above, the Commission did not receive any comments in
response to these requests.
4. Rule 17g-4
    Section 15E(g)(1) of the Exchange Act \654\ requires an NRSRO to
establish, maintain, and enforce written policies and procedures to
prevent the misuse of material, nonpublic information in violation of
the Exchange Act.\655\ Section 15E(g)(2) of the Exchange Act provides
that the Commission shall adopt rules requiring an NRSRO to establish
specific policies and procedures to prevent the misuse of material,
non-public information.\656\ Rule 17g-4 implements this statutory
provision by requiring that an NRSRO's policies and procedures
established pursuant to Section 15E(g)(1) of the Exchange Act \657\
include three specific types of procedures.
---------------------------------------------------------------------------

    \654\ 15 U.S.C. 78o-7(g)(1).
    \655\ 15 U.S.C. 78a et seq.
    \656\ 15 U.S.C. 78o-7(g)(2).
    \657\ 15 U.S.C. 78o-7(g)(1).
---------------------------------------------------------------------------

    As discussed above with respect to PRA, the Commission estimates
that it will take approximately 50 hours for an NRSRO to establish
procedures in conformance with the rule and that there will be 30
NRSROs. For these reasons, the Commission estimates that the average
one-time cost to an NRSRO will be $10,250 \658\ and the total aggregate
one-time cost to the industry will be $307,500.\659\
---------------------------------------------------------------------------

    \658\ The Commission estimates an NRSRO will have a senior
compliance person perform these responsibilities. The SIA Management
Report 2005 (Compliance Officer) indicates that the average hourly
cost for a compliance manager is $205. Therefore, the average one-
time cost to an NRSRO will be $10,250 [(50 hours) x ($205)].
    \659\ 30 NRSROs x $10,250 = $307,500.
---------------------------------------------------------------------------

    The Commission requested comment on these cost estimates. We also
requested comment on whether there would be costs in addition to those
identified above, such as costs arising from systems changes and
restructuring business practices. Comment also was sought on whether
these requirements would impose costs on other market participants,
including persons who use credit ratings to make investment decisions
or for regulatory purposes, and persons who purchase services and
products from NRSROs. Commenters were asked to identify the metrics and
sources of any empirical data that supported their costs estimates. The
Commission did not receive any comments in response to these requests.
5. Rules 17g-5 and 17g-6
    Rules 17g-5 and 17g-6 are conduct rules that require NRSROs
respectively to avoid certain conflicts of interest and unfair, abusive
or coercive acts and practices and, consequently, do not require an
NRSRO to make records or reports or create recordkeeping or accounting
systems. Moreover, 15E(1)(B)(vi) of the Exchange Act requires an NRSRO
to disclose any conflicts of interest. Additionally, Section 15E(h) of
the Exchange Act requires an NRSRO establish, maintain, and enforce
written policies and procedures reasonable designed to address and
manage any conflicts of interest that can arise from its business.
Therefore, the Commission does not anticipate that Rule 17g-5 will
result in any significant incremental costs.
    Rules 17g-5 and 17g-6 prohibit respectively certain conflicts of
interest and unfair, coercive and abusive acts and practices. The
Commission believes that most entities that will become NRSROs do not
engage in these types of conflicts, acts and practices. Therefore, the
Commission estimates that these rules generally will impose de minimis
costs. However, the Commission recognizes that an NRSRO may incur costs
related to training employees about the requirements in these rules. It
also is possible that the rules may require some NRSROs to restructure
their business models or activities. The Commission, therefore,
requested comment on such training and restructuring costs. The
Commission also requested comment on whether there are any other costs
associated with these rules. The Commission did not receive any
comments on these specific issues.

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

    Under Section 3(f) of the Exchange Act,\660\ the Commission must,
when engaging in rulemaking that requires the Commission to consider or
determine if an action is necessary or appropriate in the public
interest, consider whether the action will promote efficiency,
competition, and capital formation. Section 23(a)(2) of the Exchange
Act \661\ requires the Commission to consider the anticompetitive
effects of any rules the Commission adopts under the Exchange Act.
Section 23(a)(2) prohibits the Commission from adopting any rule that
would impose a burden on competition not necessary or appropriate in
furtherance of the purposes of the Exchange Act.
---------------------------------------------------------------------------

    \660\ 15 U.S.C. 78c(f).
    \661\ 15 U.S.C. 78w(a)(2).
---------------------------------------------------------------------------

    The Commission's view is that the rules will promote efficiency,
competition, and capital formation. As discussed above with respect to
the costs and benefits of the rules, the primary purpose of the Credit
Rating Agency Reform Act of 2006 (the ``Rating Agency Act'') \662\ is
to foster ``competition in the credit rating agency business.'' \663\
The practice of identifying NRSROs through staff no-action letters has
been criticized as a process that lacks transparency and creates a
barrier for credit rating agencies seeking wider recognition and market
share. The Commission believes that these rules implementing provisions
of the Rating Agency Act further the Rating Agency Act's goal of
increasing competition because they will provide credit rating agencies
with a transparent process to apply for registration as an NRSRO that
does not favor a particular business model or larger, established
firms. This will make it easier for more credit rating agencies to
apply for registration. Increased competition in the credit ratings
business may lower the cost to issuers, obligors, and underwriters of
obtaining credit ratings.
---------------------------------------------------------------------------

    \662\ Pub. L. 109-291 (2006).
    \663\ See 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'').
---------------------------------------------------------------------------

    In addition, the Rating Agency Act requires NRSROs to make their
credit ratings and information about themselves available to the
public. Part of the definition of ``credit rating agency'' in the
Rating Agency Act is that the entity must be in the business of

issuing credit ratings on the Internet or through another readily
accessible means, for free or for a reasonable fee.\664\ Under the
Rating Agency Act and the rules adopted thereunder, an NRSRO will be
required to disclose information about its credit ratings performance
statistics, its methods for determining credit ratings, its
organizational structure, its procedures to prevent the misuse of
material non-public information, the conflicts of interest that arise
from its business activities, its code of ethics, and the
qualifications of its credit analysts and credit analyst supervisors.
The Commission believes that these disclosures will allow users of the
credit ratings to compare the ratings quality of different NRSROs.
Although the information an NRSRO will provide on its Form NRSRO and to
comply with the rules cannot substitute for an investor's due diligence
in evaluating a credit rating, it will aid investors by providing a
publicly accessible foundation of basic information about an NRSRO.
---------------------------------------------------------------------------

    \664\ Section 3(a)(61) of the Exchange Act (15 U.S.C.
78c(a)(61)).
---------------------------------------------------------------------------

    In addition, the rules implement provisions of the Rating Agency
Act that are designed to improve the integrity of NRSROs. For example,
the registration of a credit rating agency as an NRSRO will allow the
Commission to conduct regular examinations of the credit rating agency
to evaluate compliance with the regulatory scheme set forth in Section
15E of the Exchange Act and the rules thereunder and will subject an
NRSRO to disclosure, recordkeeping, and annual audit requirements, as
well as requirements regarding the prevention of misuse of material,
nonpublic information, the management of conflicts of interest, and
certain prohibited acts and practices. Increased confidence in the
integrity of NRSROs and the credit ratings they issue may promote
participation in the securities markets and facilitate capital
formation. Better quality credit ratings could also reduce the
likelihood of an unexpected collapse of a rated issuer or obligor,
reducing risks to individual investors and to the financial markets. In
addition to improving the quality of credit ratings, increased
oversight of NRSROs may increase the accountability of an NRSRO to its
subscribers, investors, and other persons who rely on the credibility
and objectivity of credit ratings in making an investment decision.
    The Commission sought comment on these matters. In particular, the
Commission solicited comment on whether the rules would have an adverse
effect on competition that is neither necessary nor appropriate in
furtherance of the purposes of the Exchange Act. In addition, comment
was sought on whether the rules would promote efficiency, competition,
and capital formation. Commenters were requested to provide empirical
data and other factual support for their views, if possible.
    The Commission received several comments on how the rules will
impact competition.\665\ Many commenters weighing in on this issue
stated that the rules will further the goals of the Rating Agency Act
by fostering more competition.\666\ Other commenters stated that the
rules create undue burden and would be a barrier to entry for new or
smaller credit rating agencies.\667\ In response to this concern, the
Commission notes that the rules have been modified in ways designed to
decrease burden. Some of these modifications address specific issues
raised by the commenters. For example, one commenter stated that the
requirements to provide background information on each credit analyst
and for non-resident NRSROs to provide a special undertaking should be
eliminated.\668\ As discussed above with respect to Form NRSRO and Rule
17g-2, these requirements have been eliminated. As discussed above in
the sections on each rule, the Commission believes that the
requirements in the rules that have been retained are necessary and
narrowly tailored. The Commission believes these requirements represent
a proper balance in promoting competition and the quality and integrity
of credit ratings, and in fulfilling the Commission's statutory mandate
to create a regulatory framework for NRSROs.
---------------------------------------------------------------------------

    \665\ See, e.g., Gross Letter; AFP Letter; FSR Letter; ICI
Letter; AEI Letter.
    \666\ See, e.g., Gross Letter; AFP Letter; FSR Letter; ICI
Letter.
    \667\ See, e.g., AEI Letter.
    \668\ Id.
---------------------------------------------------------------------------

    Finally, the Commission also notes that most of the commenters that
weighed in on the prohibition in Rule 17g-6(a)(4) expressed an opinion
as to how the provision, as proposed, would impact competition. For
example, many of the commenters stated that the 85% threshold in the
proposed rule was too high and, therefore, the prohibition would not
achieve the desired goal of increasing competition insomuch as it would
maintain the status quo in which the two largest credit rating agencies
dominate the market for rating structured products.\669\ On the other
side of the issue, as discussed in the section describing Rule 17g-6,
commenters argued that the Commission has insufficient data upon which
to make a finding that a specific practice is unfair, abusive, or
coercive and, consequently, the prohibition, as proposed, would
interfere with natural market forces.\670\
---------------------------------------------------------------------------

    \669\ See, e.g., DBRS Letter; Fitch Letter; letter dated
February 13, 2007 from Janet M. Tavakoli, President, Tavakoli
Structured Finance, Inc.; letter dated February 14, 2007 from
Gregory G. Raab, Chief Executive Officer, Axon; letter dated
February 16, 2007 from Emile Van den Bol, Managing Director,
Deutsche Bank; letter dated February 16, 2007 from Kent D. Born,
Senior Managing Director, PPM America; letter dated February 23,
2007 from Patti Unti, Managing Director, Capmark Investments LP;
letter dated February 23, 2007 from David Lazarus, Managing
Director, Capmark Securities, Inc.; letter dated February 28, 2007
from Ronald E. Schrager, Chief Executive Officer, LNR Property
Corporation; letter dated March 5, 2007 from David Hynes, Partner,
Northcross Capital LLP; letter dated March 6, 2007 from S. Trezevant
Moore, Jr., President & COO, Luminent Mortgage Capital, Inc.; letter
dated March 7, 2007 from Bruce E. Stern, Chairman, Government
Affairs Committee, Association of Financial Guaranty Insurers;
letter dated March 8, 2007 from Majorie E. Gross; letter dated March
9, 2007 from Petra Spiegel, Eurohypo AG; letter dated March 9, 2007
from Landon D. Parsons, Managing Director, G-Bass; letter dated
March 9, 2007 from Pat G. Halter, Chief Executive Officer, Principal
Real Estate Investors; letter dated March 12, 2007 from Charles
Covell, Executive Vice President, Citigroup Alternative Investments;
letter dated March 12, 2007 from Rodney J. Dillman, General Counsel,
Babson Capital Management LLC; letter dated March 12, 2007 from
Louis C. Lucido, Group Managing Director, Trust Company of the West;
letter dated March 12, 2007 from Daniel Ivascyn, Managing Director,
PIMCO.
    \670\ See, e.g., S&P Letter; Moody's Letter; R&I Letter; FSR
Letter; Rutherfurd Letter; Langohr Letter; AST Letter.
---------------------------------------------------------------------------

    The Commission notes that the rule has been modified to eliminate
the 85% threshold. The rule now prohibits the practices where the
practice is engaged in for an anticompetitive purpose. In this way, the
rule is designed to prohibit conduct that inappropriately stifles
competition and, at the same time, avoid the establishment of
artificial constraints that could interfere with natural market forces.
The Commission recognizes that the two largest credit rating agencies
dominate the market for rating structured products. Consequently, the
Commission intends--aided by the enhanced recordkeeping requirements
around rating structured products--to monitor closely the practices
NRSROs employ in this area.

VIII. Final Regulatory Flexibility Analysis

    The Commission proposed Rules 17g-1, 17g-2, 17g-3, 17g-4, 17g-5,
and 17g-6 and Form NRSRO in the proposing release under Section 15E of
the Exchange Act.\671\ An Initial Regulatory

Flexibility Analysis (``IRFA'') was published in the proposing release.
The Commission has prepared the following Final Regulatory Flexibility
Analysis (FRFA), in accordance with the provisions of the Regulatory
Flexibility Act,\672\ regarding Rules 17g-1, 17g-2, 17g-3, 17g-4, 17g-
5, and 17g-6 and Form NRSRO under Section 15E of the Exchange Act.\673\
---------------------------------------------------------------------------

    \671\ 15 U.S.C. 78o-7.
    \672\ 5 U.S.C. 603.
    \673\ 15 U.S.C. 78o-7.
---------------------------------------------------------------------------

A. Need for and Objective of the Rules

    The rules implement specific provisions of the Credit Rating Agency
Reform Act of 2006 (the ``Rating Agency Act'').\674\ The Rating Agency
Act defines the term ``nationally recognized statistical rating
organization'' as a credit rating agency registered with the
Commission, provides authority for the Commission to implement
registration, recordkeeping, financial reporting, and oversight rules
with respect to registered credit rating agencies, and directs the
Commission to issue final implementing rules no later than 270 days
after its enactment.
---------------------------------------------------------------------------

    \674\ Pub. L. 109-291 (2006).
---------------------------------------------------------------------------

    The objectives of the Rating Agency Act are ``to improve ratings
quality for the protection of investors and in the public interest by
fostering accountability, transparency, and competition in the credit
rating industry.'' \675\ The rules are designed to further these
objectives and to: Assist the Commission in determining whether an
entity should be registered as an NRSRO; assist the Commission in
reviewing whether an NRSRO complies with the provisions of the Rating
Agency Act and rules thereunder; adhere to the Commission's statutory
mandate to adopt rules to implement the NRSRO regulatory program; and
provide information regarding NRSROs to the public and to users of
credit ratings.
---------------------------------------------------------------------------

    \675\ See 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'').
---------------------------------------------------------------------------

B. Significant Issues Raised by Commenters

    The Commission sought comment with respect to every aspect of the
IRFA, including comments with respect to the number of small entities
that may be affected by the proposed rules. Commenters were asked to
specify the costs of compliance with the proposed rules and suggest
alternatives that would accomplish the goals of the rules. The
Commission did not receive any specific comments on the IRFA. The
Commission did, however, receive a limited number of comments that
discussed the effect the rules might have on smaller credit rating
agencies, although these commenters did not address whether their
comments pertained to entities that would be small businesses for
purposes of Regulatory Flexibility Act analysis. For example, one
commenter stated that the rules, as proposed, created an undue burden
and would be a barrier to entry for new or smaller credit rating
agencies.\676\ Several commenters stated that the prohibition in Rule
17g-5 from having a conflict with respect to a client that has provided
10% or more of the NRSRO's annual revenues could prevent smaller credit
rating agencies from registering as NRSROs.\677\
---------------------------------------------------------------------------

    \676\ See AEI Letter.
    \677\ See, e.g., Fitch Letter; AEI Letter; AST Letter; ASF
Letter.
---------------------------------------------------------------------------

C. Legal Basis

    The Commission is adopting the rules pursuant to the Exchange Act
\678\ and, particularly, Section 15E of the Exchange Act.\679\
---------------------------------------------------------------------------

    \678\ 15 U.S.C. 78a et seq.
    \679\ 15 U.S.C. 78o-7.
---------------------------------------------------------------------------

D. Small Entities Subject to the Rule

    Paragraph (a) of Rule 0-10 provides that for purposes of the
Regulatory Flexibility Act, a small entity ``[w]hen used with reference
to an `issuer' or a `person' other than an investment company'' means
``an `issuer' or `person' that, on the last day of its most recent
fiscal year, had total assets of $5 million or less.'' \680\ The
Commission believes that an NRSRO with total assets of $5 million or
less would qualify as a ``small'' entity for purposes of the Regulatory
Flexibility Act.
---------------------------------------------------------------------------

    \680\ 17 CFR 240.0-10(a).
---------------------------------------------------------------------------

    As noted above, the Commission believes that approximately 30
credit rating agencies will be registered as NRSROs. Moreover, as also
noted above, the Senate Report accompanying the Rating Agency Act
states that the two largest credit rating agencies have about 80% of
the market share as measured by revenues. The Senate Report also states
that these two firms rate more than 99% of the debt obligations and
preferred stock issues publicly traded in the United States. Given
these figures, the Commission believes that the majority of the credit
rating agencies registered with the Commission will be ``small''
entities.\681\ Consequently, the Commission estimates that, of the
approximately 30 credit rating agencies estimated to be registered with
the Commission, approximately 20 would be ``small'' entities for
purposes of the Regulatory Flexibility Act.\682\
---------------------------------------------------------------------------

    \681\ See 17 CFR 240.0-10(a).
    \682\ Id.
---------------------------------------------------------------------------

E. Reporting, Recordkeeping, and Other Compliance Requirements

    A credit rating agency seeking to apply to the Commission for
registration as an NRSRO will apply using Form NRSRO.\683\ The Form
elicits certain information and requires the credit rating agency to
attach a number of documents as Exhibits (some of which would have to
be made publicly available) and certifications from qualified
institutional buyers. The public Exhibits consist of information about
credit ratings performance data, the credit rating agency's
organizational structure, the methods used by the credit rating agency
for issuing credit ratings, the policies used by the credit rating
agency to manage activities that could potentially risk the
impartiality of its credit ratings, and the credit rating agency's
credit analysts. To the extent permitted by law, the confidential
Exhibits consist of information about the credit rating agency's
financial condition, revenues, and credit analyst compensation.
---------------------------------------------------------------------------

    \683\ Rule 17g-1.
---------------------------------------------------------------------------

    After registration, the credit rating agency (now an NRSRO)
generally will be required to promptly update the public information on
its Form NRSRO whenever an Item or Exhibit becomes materially
inaccurate. To update information, the NRSRO must furnish the
Commission with an amendment using Form NRSRO. In addition, the NRSRO
must furnish the Commission with an annual certification on Form
NRSRO.\684\ In the annual certification, the NRSRO must represent that
all information on the Form, as amended, continues to be accurate, list
any material changes made during the previous year, and include an
update to the public Exhibit relating to the performance statistics of
its credit ratings. After its application for registration is approved,
the NRSRO must make Form NRSRO and the public Exhibits submitted to the
Commission, and all amendments, readily accessible to the public.
---------------------------------------------------------------------------

    \684\ Id.
---------------------------------------------------------------------------

    NRSROs also are subject to a recordkeeping rule.\685\ This rule
requires an NRSRO to make and retain certain records relating to the
business of issuing credit ratings. These records will assist the
Commission, through its examination process, in monitoring whether the
NRSRO continues to maintain adequate financial and

managerial resources to consistently produce credit ratings with
integrity (as required under the Rating Agency Act) and whether the
NRSRO is complying with the provisions of the Rating Agency Act, the
rules adopted thereunder, and the NRSRO's disclosed policies and
procedures.
---------------------------------------------------------------------------

    \685\ Rule 17g-2.
---------------------------------------------------------------------------

    On an annual fiscal year basis, an NRSRO must furnish the
Commission with audited financial statements.\686\ This requirement is
designed to assist the Commission in monitoring whether the NRSRO
continues to maintain adequate financial resources to consistently
produce credit ratings with integrity. It also is designed to assist
the Commission in monitoring whether the NRSRO is complying with
provisions of the Rating Agency Act and the rules adopted thereunder
regarding potential conflicts of interest arising from dealings with
large customers in terms of revenues earned.
---------------------------------------------------------------------------

    \686\ Rule 17g-3.
---------------------------------------------------------------------------

    Finally, all NRSROs will be subject to requirements designed to
protect their impartiality with respect to issuing credit ratings.
First, they must establish, maintain, and enforce specific written
policies designed to prevent the misuse of material non-public
information.\687\ Second, an NRSRO is prohibited from having certain
general conflicts unless it, as required under the Rating Agency Act,
disclosed the conflict and adopted procedures to manage the
conflict.\688\ Further certain conflicts of interest--for example,
rating a security owned by the NRSRO--are prohibited.\689\ Third,
NRSROs are prohibited from engaging in certain practices that the
Commission has found to be unfair, coercive, or abusive practices.\690\
---------------------------------------------------------------------------

    \687\ Rule 17g-4.
    \688\ Rule 17g-5.
    \689\ Id.
    \690\ Rule 17g-6.
---------------------------------------------------------------------------

F. Duplicative, Overlapping, or Conflicting Federal Rules

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

G. Significant Alternatives

    Pursuant to section 3(a) of the RFA,\691\ the Commission must
consider certain types of alternatives, including: (1) The
establishment of differing compliance or reporting requirements or
timetables that take into account the resources available to small
entities; (2) the clarification, consolidation, or simplification of
compliance and reporting requirements under the rule for small
entities; (3) the use of performance rather than design standards; and
(4) an exemption from coverage of the rule, or any part of the rule,
for small entities.
---------------------------------------------------------------------------

    \691\ 5 U.S.C. 603(c).
---------------------------------------------------------------------------

    The Commission does not believe it is appropriate to establish
different compliance or reporting requirements or timetables; clarify,
consolidate, or simplify compliance and reporting requirements under
the rules for small entities; or exempt small entities from coverage of
the rules, or any part of the rules. The Rating Agency Act and the
rules establish a voluntary program of registration and supervision
that allows all NRSROs the flexibility to develop procedures tailored
to their specific organizational structures and business models.
Further, many of the rules, as adopted, are due to a direct statutory
mandate. The Commission also does not believe that it is necessary to
consider whether small entities should be permitted to use performance
rather than design standards to comply with the rules as the rules
already propose performance standards and do not dictate for entities
of any size any particular design standards that must be employed to
achieve the objectives of the rules.
    As for the comment that the rules will be a barrier to entry for
small entities, the Commission notes that the commenter did not specify
how the rules would disproportionately burden small entities, nor did
it provide cost estimates for small entities.\692\ The Commission
believes the burden associated with the rules will impact all NRSROs in
a proportionate manner based on their size and complexity. Therefore,
the Commission does not believe it would be appropriate to prescribe
lesser requirements for small entities, nor have any commenters
suggested lesser requirements.
---------------------------------------------------------------------------

    \692\ See AEI letter.
---------------------------------------------------------------------------

    Further, the Commission notes that the rules, as adopted, have been
modified in ways designed to decrease burden. Some of these
modifications address specific issues raised by the commenter.\693\ For
example, the commenter stated that the requirements to provide
background information on each credit analyst and for non-resident
NRSROs to provide a special undertaking should be eliminated.\694\
These requirements have been eliminated. As discussed above in the
sections on each rule, the Commission believes that the requirements in
the rules that have been retained are necessary and narrowly tailored.
---------------------------------------------------------------------------

    \693\ Id.
    \694\ Id.
---------------------------------------------------------------------------

    As for the comment that the prohibition on having a conflict with
respect to a client that has provided 10% or more of the NRSRO's
revenues, the Commission notes that the commenters did not provide any
supporting data. In addition, no commenter specifically identifying
itself as a small entity raised this prohibition as an issue.\695\ The
Commission believes that it would be highly unusual for a small credit
rating agency to derive 10% or more of its revenues from a single
client and, if this was the case, that it would very difficult for the
credit rating agency to issue an impartial rating requested by the
client. The Commission notes that the smaller credit rating agencies
tend to use a subscriber fee-based business model. Thus, they are not
paid to determine specific credit ratings and, consequently, would not
be impacted by this prohibition.
---------------------------------------------------------------------------

    \695\ The Commission intends to monitor how the prohibition
operates in practice, particularly with respect to structured
products. If the prohibition interferes with how NRSROs as a matter
of course deal with structured product sponsors, the Commission will
evaluate whether the rule should be modified to accommodate this
business practice or whether an exemption would be appropriate.
---------------------------------------------------------------------------

IX. Statutory Authority

    The Commission is adopting Form NRSRO and Rules 17g-1, 17g-2, 17g-
3, 17g-4, 17g-5 and 17g-6 under the Exchange Act pursuant to the
authority conferred by the Exchange Act, including Sections 3(b), 15E,
17, 23(a) and 36.\696\
---------------------------------------------------------------------------

    \696\ 15 U.S.C. 78c(b), 78o-7, 78q, 78w, and 78mm.
---------------------------------------------------------------------------

Text of Rules

List of Subjects

17 CFR Parts 240 and 249b

    Brokers, Reporting and recordkeeping requirements, Securities.

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

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

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

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

0
2. An undesignated center heading and Sec. Sec.  240.17g-1 through
240.17g-6 are added to read as follows:

Nationally Recognized Statistical Rating Organizations

Sec.
240.17g-1 Application for registration as a nationally recognized
statistical rating organization.
240.17g-2 Records to be made and retained by nationally recognized
statistical rating organizations.
240.17g-3 Annual financial reports to be furnished by nationally
recognized statistical rating organizations.
240.17g-4 Prevention of misuse of material nonpublic information.
240.17g-5 Conflicts of interest.
240.17g-6 Prohibited acts and practices.

Nationally Recognized Statistical Rating Organizations

Sec.  240.17g-1  Application for registration as a nationally
recognized statistical rating organization.

    (a) Initial application. A credit rating agency applying to the
Commission to be registered under section 15E of the Act (15 U.S.C.
78o-7) as a nationally recognized statistical rating organization must
furnish the Commission with an initial application on Form NRSRO (Sec.
249b.300 of this chapter) that follows all applicable instructions for
the Form.
    (b) Application to register for an additional class of credit
ratings. A nationally recognized statistical rating organization
applying to register for an additional class of the credit ratings
described in section 3(a)(62)(B) of the Act (15 U.S.C. 78c(a)(62)(B))
must furnish the Commission with an application to add a class of
credit ratings on Form NRSRO that follows all applicable instructions
for the Form. The application will be subject to the requirements of
section 15E(a)(2) of the Act (15 U.S.C. 78o-7(a)(2)).
    (c) Supplementing an application prior to final action by the
Commission. An applicant must promptly furnish the Commission with a
written notice if information submitted to the Commission in an initial
application to be registered as a nationally recognized statistical
rating organization or in an application to register for an additional
class of credit ratings is found to be or becomes materially inaccurate
prior to the date of a Commission order granting or denying the
application. The notice must identify the information that was found to
be materially inaccurate. The applicant also must promptly furnish the
Commission with an application supplement on Form NRSRO that follows
all applicable instructions for the Form.
    (d) Withdrawing an application. An applicant may withdraw an
initial application to be registered as a nationally recognized
statistical rating organization or an application to register for an
additional class of credit ratings prior to the date of a Commission
order granting or denying the application. To withdraw the application,
the applicant must furnish the Commission with a written notice of
withdrawal executed by a duly authorized person.
    (e) Update of registration. A nationally recognized statistical
rating organization amending materially inaccurate information in its
application for registration pursuant to section 15E(b)(1) of the Act
(15 U.S.C. 78o-7(b)(1)) must promptly furnish the Commission with the
update of its registration on Form NRSRO that follows all applicable
instructions for the Form.
    (f) Annual certification. A nationally recognized statistical
rating organization amending its application for registration pursuant
to section 15E(b)(2) of the Act (15 U.S.C. 78o-7(b)(2)) must furnish
the Commission with the annual certification on Form NRSRO that follows
all applicable instructions for the Form not later than 90 days after
the end of each calendar year.
    (g) Withdrawal from registration. A nationally recognized
statistical rating organization withdrawing from registration pursuant
to section 15E(e)(1) of the Act (15 U.S.C. 78o-7(e)(1)) must furnish
the Commission with a notice of withdrawal from registration on Form
NRSRO that follows all applicable instructions for the Form. The
withdrawal from registration will become effective 45 calendar days
after the notice is furnished to the Commission upon such terms and
conditions as the Commission may establish as necessary in the public
interest or for the protection of investors.
    (h) Furnishing Form NRSRO. A Form NRSRO submitted under any
paragraph of this section will be considered furnished to the
Commission on the date the Commission receives a complete and properly
executed Form NRSRO that follows all applicable instructions for the
Form. Information submitted on a confidential basis and for which
confidential treatment has been requested pursuant to applicable
Commission rules will be accorded confidential treatment to the extent
permitted by law.
    (i) Public availability of Form NRSRO. A nationally recognized
statistical rating organization must make its current Form NRSRO and
information and documents submitted in Exhibits 1 through 9 to Form
NRSRO publicly available on its Web site, or through another
comparable, readily accessible means within 10 business days after the
date of the Commission order granting an initial application for
registration as a nationally recognized statistical rating organization
or an application to register for an additional class of credit ratings
and within 10 business days after furnishing a Form NRSRO to the
Commission under paragraphs (e), (f), or (g) of this section.

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

    (a) Records required to be made and retained. A nationally
recognized statistical rating organization must make and retain the
following books and records, which must be complete and current:
    (1) Records of original entry into the accounting system of the
nationally recognized statistical rating organization and records
reflecting entries to and balances in all general ledger accounts of
the nationally recognized statistical rating organization for each
fiscal year.
    (2) Records with respect to each current credit rating of the
nationally recognized statistical rating organization indicating (as
applicable):
    (i) The identity of any credit analyst(s) that participated in
determining the credit rating;
    (ii) The identity of the person(s) that approved the credit rating
before it was issued;
    (iii) Whether the credit rating was solicited or unsolicited; and
    (iv) The date the credit rating action was taken.
    (3) An account record for each person (for example, an obligor,
issuer, underwriter, or other user) that has paid the nationally
recognized statistical rating organization for the issuance or
maintenance of a credit rating indicating:
    (i) The identity and address of the person; and
    (ii) The credit rating(s) determined or maintained for the person.
    (4) An account record for each subscriber to the credit ratings
and/or credit analysis reports of the nationally recognized statistical
rating organization indicating the identity and address of the
subscriber.
    (5) A record listing the general types of services and products
offered by the nationally recognized statistical rating organization.
    (6) A record documenting the established procedures and
methodologies used by the nationally recognized statistical rating
organization to determine credit ratings.

    (7) A record that lists each security and money market instrument
and its corresponding credit rating issued by an asset pool or as part
of any asset-backed or mortgage-backed securities transaction where the
nationally recognized statistical rating organization, in determining
the credit rating for the security or money market instrument, treats
assets within such pool or as a part of such transaction that are not
subject to a credit rating of the nationally recognized statistical
rating organization by any or a combination of the following methods:
    (i) Determining credit ratings for the unrated assets;
    (ii) Performing credit assessments or determining private credit
ratings for the unrated assets;
    (iii) Determining credit ratings or private credit ratings, or
performing credit assessments for the unrated assets by taking into
consideration the internal credit analysis of another person; or
    (iv) Determining credit ratings or private credit ratings, or
performing credit assessments for the unrated assets by taking into
consideration (but not necessarily adopting) the credit ratings of
another nationally recognized statistical rating organization.
    (b) Records required to be retained. A nationally recognized
statistical rating organization must retain the following books and
records (excluding drafts of documents) that relate to its business as
a credit rating agency:
    (1) Significant records (for example, bank statements, invoices,
and trial balances) underlying the information included in the annual
financial reports furnished by the nationally recognized statistical
rating organization to the Commission pursuant to Sec.  240.17g-3.
    (2) Internal records, including nonpublic information and work
papers, used to form the basis of a credit rating issued by the
nationally recognized statistical rating organization.
    (3) Credit analysis reports, credit assessment reports, and private
credit rating reports of the nationally recognized statistical rating
organization and internal records, including nonpublic information and
work papers, used to form the basis for the opinions expressed in these
reports.
    (4) Compliance reports and compliance exception reports.
    (5) Internal audit plans, internal audit reports, documents
relating to internal audit follow-up measures, and all records
identified by the internal auditors of the nationally recognized
statistical rating organization as necessary to perform the audit of an
activity that relates to its business as a credit rating agency.
    (6) Marketing materials of the nationally recognized statistical
rating organization that are published or otherwise made available to
persons that are not associated with the nationally recognized
statistical rating organization.
    (7) External and internal communications, including electronic
communications, received and sent by the nationally recognized
statistical rating organization and its employees that relate to
initiating, determining, maintaining, changing, or withdrawing a credit
rating.
    (8) Internal documents that contain information, analysis, or
statistics that were used to develop a procedure or methodology to
treat the credit ratings of another nationally recognized statistical
rating organization for the purpose of determining a credit rating for
a security or money market instrument issued by an asset pool or part
of any asset-backed or mortgage-backed securities transaction.
    (9) For each security or money market instrument identified in the
record required to be made and retained under paragraph (a)(7) of this
section, any document that contains a description of how assets within
such pool or as a part of such transaction not rated by the nationally
recognized statistical rating organization but rated by another
nationally recognized statistical rating organization were treated for
the purpose of determining the credit rating of the security or money
market instrument.
    (10) Form NRSROs (including Exhibits and accompanying information
and documents) submitted to the Commission by the nationally recognized
statistical rating organization.
    (c) Record retention periods. The records required to be retained
pursuant to paragraphs (a) and (b) of this section must be retained for
three years after the date the record is made or received.
    (d) Manner of retention. An original, or a true and complete copy
of the original, of each record required to be retained pursuant to
paragraphs (a) and (b) of this section must be maintained in a manner
that, for the applicable retention period specified in paragraph (c) of
this section, makes the original record or copy easily accessible to
the principal office of the nationally recognized statistical rating
organization and to any other office that conducted activities causing
the record to be made or received.
    (e) Third-party record custodian. The records required to be
retained pursuant to paragraphs (a) and (b) of this section may be made
or retained by a third-party record custodian, provided the nationally
recognized statistical rating organization furnishes the Commission at
its principal office in Washington, DC with a written undertaking of
the custodian executed by a duly authorized person. The undertaking
must be in substantially the following form:

    The undersigned acknowledges that books and records it has made
or is retaining for [the nationally recognized statistical rating
organization] are the exclusive property of [the nationally
recognized statistical rating organization]. The undersigned
undertakes that upon the request of [the nationally recognized
statistical rating organization] it will promptly provide the books
and records to [the nationally recognized statistical rating
organization] or the U.S. Securities and Exchange Commission
(``Commission'') or its representatives and that upon the request of
the Commission it will promptly permit examination by the Commission
or its representatives of the records at any time or from time to
time during business hours and promptly furnish to the Commission or
its representatives a true and complete copy of any or all or any
part of such books and records.

A nationally recognized statistical rating organization that engages a
third-party record custodian remains responsible for complying with
every provision of this section.

    (f) A nationally recognized statistical rating organization must
promptly furnish the Commission or its representatives with legible,
complete, and current copies, and, if specifically requested, English
translations of those records of the nationally recognized statistical
rating organization required to be retained pursuant to paragraphs (a)
and (b) this section, or any other records of the nationally recognized
statistical rating organization subject to examination under section
17(b) of the Act (15 U.S.C. 78q(b)) that are requested by the
Commission or its representatives.

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

    (a) A nationally recognized statistical rating organization must
annually, not more than 90 calendar days after the end of its fiscal
year (as indicated on its current Form NRSRO), furnish the Commission,
at the Commission's principal office in Washington, DC, with the
following financial reports as of the end of its most recent fiscal
year:
    (1) Audited financial statements of the nationally recognized
statistical rating organization or audited consolidated financial
statements of its parent if the nationally recognized statistical
rating organization is a separately identifiable

division or department of the parent. The audited financial statements
must:
    (i) Include a balance sheet, an income statement and statement of
cash flows, and a statement of changes in ownership equity;
    (ii) Be prepared in accordance with generally accepted accounting
principles in the jurisdiction in which the nationally recognized
statistical rating organization or its parent is incorporated,
organized, or has its principal office; and
    (iii) Be certified by an accountant who is qualified and
independent in accordance with paragraphs (a), (b), and (c)(1), (2),
(3), (4), (5) and (8) of Sec.  210.2-01 of this chapter. The accountant
must give an opinion on the financial statements in accordance with
paragraphs (a) through (d) of Sec.  210.2-02 of this chapter.
    (2) If applicable, unaudited consolidating financial statements of
the parent of the nationally recognized statistical rating organization
that include the nationally recognized statistical rating organization.

    Note to paragraph (a)(2): This financial report must be
furnished only if the audited financial statements provided pursuant
to paragraph (a)(1) of this section are consolidated financial
statements of the parent of the nationally recognized statistical
rating organization.

    (3) An unaudited financial report providing information concerning
the revenue of the nationally recognized statistical rating
organization in each of the following categories (as applicable) for
the fiscal year:
    (i) Revenue from determining and maintaining credit ratings;
    (ii) Revenue from subscribers;
    (iii) Revenue from granting licenses or rights to publish credit
ratings; and
    (iv) Revenue from all other services and products (include
descriptions of any major sources of revenue).
    (4) An unaudited financial report providing the total aggregate and
median annual compensation of the credit analysts of the nationally
recognized statistical rating organization for the fiscal year.

    Note to paragraph (a)(4): In calculating total and median annual
compensation, the nationally recognized statistical rating
organization may exclude deferred compensation, provided such
exclusion is noted in the report.

    (5) An unaudited financial report listing the 20 largest issuers
and subscribers that used credit rating services provided by the
nationally recognized statistical rating organization by amount of net
revenue attributable to the issuer or subscriber during the fiscal
year. Additionally, include on the list any obligor or underwriter that
used the credit rating services provided by the nationally recognized
statistical rating organization if the net revenue attributable to the
obligor or underwriter during the fiscal year equaled or exceeded the
net revenue attributable to the 20th largest issuer or subscriber.
Include the net revenue amount for each person on the list.

    Note to paragraph (a)(5): A person is deemed to have ``used the
credit rating services'' of the nationally recognized statistical
rating organization if the person is any of the following: an
obligor that is rated by the nationally recognized statistical
rating organization (regardless of whether the obligor paid for the
credit rating); an issuer that has securities or money market
instruments subject to a credit rating of the nationally recognized
statistical rating organization (regardless of whether the issuer
paid for the credit rating); any other person that has paid the
nationally recognized statistical rating organization to determine a
credit rating with respect to a specific obligor, security, or money
market instrument; or a subscriber to the credit ratings, credit
ratings data, or credit analysis of the nationally recognized
statistical rating organization. In calculating net revenue
attributable to a person, the nationally recognized statistical
rating organization should include all revenue earned by the
nationally recognized statistical rating organization for any type
of service or product, regardless of whether related to credit
rating services, and net of any rebates and allowances paid or owed
to the person by the nationally recognized statistical rating
organization.

    (b) The nationally recognized statistical rating organization must
attach to each financial report furnished pursuant to paragraph (a) of
this section a signed statement by a duly authorized person associated
with the nationally recognized statistical rating organization that the
person has responsibility for the report and, to the best knowledge of
the person, the financial report fairly presents, in all material
respects, the financial condition, results of operations, cash flows,
revenues, and analyst compensation, as applicable, of the nationally
recognized statistical rating organization for the period presented.
    (c) The Commission may grant an extension of time or an exemption
with respect to any requirements in this section either unconditionally
or on specified terms and conditions on the written request of a
nationally recognized statistical rating organization if the Commission
finds that such extension or exemption is necessary or appropriate in
the public interest and consistent with the protection of investors.

Sec.  240.17g-4  Prevention of misuse of material nonpublic
information.

    (a) The written policies and procedures a nationally recognized
statistical rating organization establishes, maintains, and enforces to
prevent the misuse of material, nonpublic information pursuant to
section 15E(g)(1) of the Act (15 U.S.C. 78o-7(g)(1)) must include
policies and procedures reasonably designed to prevent:
    (1) The inappropriate dissemination within and outside the
nationally recognized statistical rating organization of material
nonpublic information obtained in connection with the performance of
credit rating services;
    (2) A person within the nationally recognized statistical rating
organization from purchasing, selling, or otherwise benefiting from any
transaction in securities or money market instruments when the person
is aware of material nonpublic information obtained in connection with
the performance of credit rating services that affects the securities
or money market instruments; and
    (3) The inappropriate dissemination within and outside the
nationally recognized statistical rating organization of a pending
credit rating action before issuing the credit rating on the Internet
or through another readily accessible means.
    (b) For the purposes of this section, the term person within a
nationally recognized statistical rating organization means a
nationally recognized statistical rating organization, its credit
rating affiliates identified on Form NRSRO, and any partner, officer,
director, branch manager, and employee of the nationally recognized
statistical rating organization or its credit rating affiliates (or any
person occupying a similar status or performing similar functions).

Sec.  240.17g-5  Conflicts of interest.

    (a) A person within a nationally recognized statistical rating
organization is prohibited from having a conflict of interest relating
to the issuance or maintenance of a credit rating identified in
paragraph (b) of this section, unless:
    (1) The nationally recognized statistical rating organization has
disclosed the type of conflict of interest in Exhibit 6 to Form NRSRO
in accordance with section 15E(a)(1)(B)(vi) of the Act (15 U.S.C. 78o-
7(a)(1)(B)(vi)) and Sec.  240.17g-1; and
    (2) The nationally recognized statistical rating organization has
established and is maintaining and enforcing written policies and
procedures to address and manage

conflicts of interest in accordance with section 15E(h) of the Act (15
U.S.C. 78o-7(h)).
    (b) Conflicts of interest. For purposes of this section, each of
the following is a conflict of interest:
    (1) Being paid by issuers or underwriters to determine credit
ratings with respect to securities or money market instruments they
issue or underwrite.
    (2) Being paid by obligors to determine credit ratings with respect
to the obligors.
    (3) Being paid for services in addition to determining credit
ratings by issuers, underwriters, or obligors that have paid the
nationally recognized statistical rating organization to determine a
credit rating.
    (4) Being paid by persons for subscriptions to receive or access
the credit ratings of the nationally recognized statistical rating
organization and/or for other services offered by the nationally
recognized statistical rating organization where such persons may use
the credit ratings of the nationally recognized statistical rating
organization to comply with, and obtain benefits or relief under,
statutes and regulations using the term nationally recognized
statistical rating organization.
    (5) Being paid by persons for subscriptions to receive or access
the credit ratings of the nationally recognized statistical rating
organization and/or for other services offered by the nationally
recognized statistical rating organization where such persons also may
own investments or have entered into transactions that could be
favorably or adversely impacted by a credit rating issued by the
nationally recognized statistical rating organization.
    (6) Allowing persons within the nationally recognized statistical
rating organization to directly own securities or money market
instruments of, or having other direct ownership interests in, issuers
or obligors subject to a credit rating determined by the nationally
recognized statistical rating organization.
    (7) Allowing persons within the nationally recognized statistical
rating organization to have a business relationship that is more than
an arms length ordinary course of business relationship with issuers or
obligors subject to a credit rating determined by the nationally
recognized statistical rating organization.
    (8) Having a person associated with the nationally recognized
statistical rating organization that is a broker or dealer engaged in
the business of underwriting securities or money market instruments.
    (9) Any other type of conflict of interest relating to the issuance
of credit ratings by the nationally recognized statistical rating
organization that is material to the nationally recognized statistical
rating organization and that is identified by the nationally recognized
statistical rating organization in Exhibit 6 to Form NRSRO in
accordance with section 15E(a)(1)(B)(vi) of the Act (15 U.S.C. 78o-
7(a)(1)(B)(vi)) and Sec.  240.17g-1.
    (c) Prohibited conflicts. A nationally recognized statistical
rating organization is prohibited from having the following conflicts
of interest relating to the issuance or maintenance of a credit rating
as a credit rating agency:
    (1) The nationally recognized statistical rating organization
issues or maintains a credit rating solicited by a person that, in the
most recently ended fiscal year, provided the nationally recognized
statistical rating organization with net revenue (as reported under
Sec.  240.17g-3) equaling or exceeding 10% of the total net revenue of
the nationally recognized statistical rating organization for the
fiscal year;
    (2) The nationally recognized statistical rating organization
issues or maintains a credit rating with respect to a person (excluding
a sovereign nation or an agency of a sovereign nation) where the
nationally recognized statistical rating organization, a credit analyst
that participated in determining the credit rating, or a person
responsible for approving the credit rating, directly owns securities
of, or has any other direct ownership interest in, the person that is
subject to the credit rating;
    (3) The nationally recognized statistical rating organization
issues or maintains a credit rating with respect to a person associated
with the nationally recognized statistical rating organization; or
    (4) The nationally recognized statistical rating organization
issues or maintains a credit rating where a credit analyst who
participated in determining the credit rating, or a person responsible
for approving the credit rating, is an officer or director of the
person that is subject to the credit rating.
    (d) For the purposes of this section, the term person within a
nationally recognized statistical rating organization means a
nationally recognized statistical rating organization, its credit
rating affiliates identified on Form NRSRO, and any partner, officer,
director, branch manager, and employee of the nationally recognized
statistical rating organization or its credit rating affiliates (or any
person occupying a similar status or performing similar functions).

Sec.  240.17g-6  Prohibited acts and practices.

    (a) Prohibitions. A nationally recognized statistical rating
organization is prohibited from engaging in any of the following
unfair, coercive, or abusive practices:
    (1) Conditioning or threatening to condition the issuance of a
credit rating on the purchase by an obligor or issuer, or an affiliate
of the obligor or issuer, of any other services or products, including
pre-credit rating assessment products, of the nationally recognized
statistical rating organization or any person associated with the
nationally recognized statistical rating organization.
    (2) Issuing, or offering or threatening to issue, a credit rating
that is not determined in accordance with the nationally recognized
statistical rating organization's established procedures and
methodologies for determining credit ratings, based on whether the
rated person, or an affiliate of the rated person, purchases or will
purchase the credit rating or any other service or product of the
nationally recognized statistical rating organization or any person
associated with the nationally recognized statistical rating
organization.
    (3) Modifying, or offering or threatening to modify, a credit
rating in a manner that is contrary to the nationally recognized
statistical rating organization's established procedures and
methodologies for modifying credit ratings based on whether the rated
person, or an affiliate of the rated person, purchases or will purchase
the credit rating or any other service or product of the nationally
recognized statistical rating organization or any person associated
with the nationally recognized statistical rating organization.
    (4) Issuing or threatening to issue a lower credit rating, lowering
or threatening to lower an existing credit rating, refusing to issue a
credit rating, or withdrawing or threatening to withdraw a credit
rating, with respect to securities or money market instruments issued
by an asset pool or as part of any asset-backed or mortgage-backed
securities transaction, unless all or a portion of the assets within
such pool or part of such transaction also are rated by the nationally
recognized statistical rating organization, where such practice is
engaged in by the nationally recognized statistical rating organization
for an anticompetitive purpose.

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

0
3. The authority citation for part 249b continues to read in part as
follows.

    Authority: 15 U.S.C. 78a et seq., unless otherwise noted.
* * * * *

0
4. Section 249b.300 and Form NRSRO are added to read as follows:

Sec.  249b.300  FORM NRSRO, application for registration as a
nationally recognized statistical rating organization pursuant to
section 15E of the Securities Exchange Act of 1934 and Sec.  240.17g-1
of this chapter.

    This Form shall be used for an initial application for and an
application to add a class of credit ratings to, a supplement to an
initial application for and an application to add a class of credit
ratings to, an update and amendment to an application for, and a
withdrawal from a registration as a nationally recognized statistical
rating organization pursuant to section 15E of the Securities Exchange
Act of 1934 (15 U.S.C. 78o-7) and Sec.  240.17g-1 of this chapter.

    Note: The text of Form NRSRO will not appear in the Code of
Federal Regulations.

Form NRSRO--Application for Registration as a Nationally Recognized
Statistical Rating Organization (NRSRO)

OMB Approval
    OMB Number: 3235-0625.
    Expires: May 31, 2010.
    Estimated average burden hours per response: 300.
    Persons who respond to the collection of information contained in
this form are not required to respond unless the form displays a
currently valid OMB control number.
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Form NRSRO Instructions

A. General Instructions

    1. Form NRSRO is the Application for Registration as a Nationally
Recognized Statistical Rating Organization (``NRSRO'') under Section
15E of the Securities Exchange Act of 1934 (``Exchange Act'') and
Exchange Act Rule 17g-1. Exchange Act Rule 17g-1 requires an Applicant/
NRSRO to use Form NRSRO to furnish the U.S. Securities and Exchange
Commission (``Commission'') with:
     An initial application to be registered as an NRSRO;
     An application to register for an additional class of
credit ratings;
     An application supplement;
     An update of registration pursuant to Section 15E(b)(1) of
the Exchange Act;
     An annual certification pursuant to Section 15E(b)(2) of
the Exchange Act; and
     A withdrawal of registration pursuant to Section 15E(e) of
the Exchange Act.
    2. Exchange Act Rule 17g-1(c) requires that an Applicant/NRSRO
promptly provide the Commission with a written notice if information
submitted to the Commission in an initial application for registration
or in an application to register for an additional class of credit
ratings is found to be or becomes materially inaccurate before the
Commission has granted or denied the application. The notice must
identify the information found to be materially inaccurate. The
Applicant/NRSRO must also promptly furnish the Commission with accurate
and complete information as an application supplement on Form NRSRO.
    3. Pursuant to Exchange Act Rule 17g-1(i), an NRSRO must make its
current Form NRSRO and information and documents furnished in Exhibits
1 through 9 to Form NRSRO publicly available on its Web site, or
through another comparable, readily accessible means within 10 business
days after the date of the Commission Order granting an initial
application for registration as an NRSRO or an application to register
for an additional class of credit ratings and within 10 business days
after submitting an update of registration, annual certification, or
withdrawal from registration to the Commission on Form NRSRO. The
certifications from qualified institutional buyers, disclosure
reporting pages, and Exhibits 10 through 13 are not required to be made
publicly available by the NRSRO pursuant to Rule 17g-1(i). An
Applicant/NRSRO may request that the Commission keep confidential the
certifications from qualified institutional buyers, the disclosure
reporting pages, and the information and documents in Exhibits 10-13