17g-9--would require the NRSRO, when establishing the standards of
training, experience, and competence, to consider if the credit rating
procedures and methodologies used by the individual involve
quantitative analysis, the technical expertise necessary to understand
any models and model inputs that are a part of the procedures

and methodologies.\635\ The Commission intends proposed paragraph
(b)(2) to require the NRSRO to consider the fact that quantitative
analysis relies, in large part, on mathematical techniques and,
consequently, credit analysts using quantitative models would need to
have relevant technical expertise.
---------------------------------------------------------------------------

    \635\ See proposed paragraph (b)(2) of new Rule 17g-9.
---------------------------------------------------------------------------

    The third factor--identified in proposed paragraph (b)(3) of Rule
17g-9--would require the NRSRO, when establishing the standards of
training, experience, and competence, to consider the classes and
subclasses of credit ratings for which each individual participates in
determining credit ratings and the factors relevant to such classes and
subclasses, including the geographic location, sector, industry,
regulatory and legal framework, and underlying assets, applicable to
the obligors or issuers in the classes and subclasses.\636\ The
Commission intends proposed paragraph (b)(3) to require the NRSRO to
consider the fact that different types of obligors and issuers have
unique characteristics that may be relevant to the creditworthiness of
the obligor or the issuer. For example, the knowledge and competence
necessary to rate an operating company is different from that necessary
to rate an asset-backed security or a municipal security. Moreover,
there may be differences within classes of credit ratings. For example,
rating an RMBS requires different knowledge than rating a CMBS, and
rating a company in the oil industry requires different knowledge than
rating a company in the telecommunications industry.
---------------------------------------------------------------------------

    \636\ See proposed paragraph (b)(3) of new Rule 17g-9.
---------------------------------------------------------------------------

    The fourth factor--identified in proposed paragraph (b)(4) of Rule
17g-9--would require the NRSRO to consider, when establishing the
standards of training, experience, and competence, the complexity of
the obligors, securities, or money market instruments being rated by
the individual.\637\ The Commission intends proposed paragraph (b)(4)
to require the NRSRO to consider the fact that obligors and securities
it rates may vary widely in terms of complexity. For example, more
experience and competence may be necessary to rate a synthetic CDO as
opposed to a typical RMBS or a global financial company as opposed to a
community bank.
---------------------------------------------------------------------------

    \637\ See proposed paragraph (b)(4) of new Rule 17g-9.
---------------------------------------------------------------------------

Request for Comment
    The Commission generally requests comment on all aspects of
proposed paragraph (b) of new Rule 17g-9. The Commission also seeks
comment on the following:
    1. Are there any other factors in addition to, or as an alternative
to, the four factors identified in paragraphs (b)(1) through (4) an
NRSRO should consider when establishing standards of training,
experience, and competence? For example, should the proposed rule
require an NRSRO to consider the number of initial credit ratings the
individual is expected to participate in determining annually and the
number of credit ratings the individual is expected to participate in
monitoring annually? If so, how should these factors be taken into
consideration? Identify any additional or alternative factors and
provide suggested rule text.
    2. Should the factor identified in proposed paragraph (b)(1) of
Rule 17g-9 (i.e., if the credit rating procedures and methodologies
used by the individual involve qualitative analysis, the knowledge
necessary to effectively evaluate and process the data relevant to the
creditworthiness of the obligor being rated or the issuer of the
securities or money market instruments being rated) be considered when
the NRSRO designs its standards of training, experience, and competence
for the individuals it employs to determine credit ratings? If not,
should proposed paragraph (b)(1) be modified to provide better guidance
for designing the standards? If so, how should it be modified?
Alternatively, should it be omitted from the rule? If so, explain why.
    3. Should the factor identified in proposed paragraph (b)(2) of
Rule 17g-9 (i.e., if the credit rating procedures and methodologies
used by the individual involve quantitative analysis, the technical
expertise necessary to understand any models and model inputs that are
a part of the procedures and methodologies) be considered when the
NRSRO designs its standards of training, experience, and competence for
the individuals it employs to determine credit ratings? If not, should
proposed paragraph (b)(2) be modified to provide better guidance for
designing the standards? If so, how should it be modified?
Alternatively, should it be omitted from the rule? If so, explain why.
    4. Should the factor identified in proposed paragraph (b)(3) of
Rule 17g-9 (i.e., the classes and subclasses of credit ratings for
which the individual participates in determining credit ratings and the
factors relevant to such classes and subclasses, including the
geographic location, sector, industry, regulatory and legal framework,
and underlying assets, applicable to the obligors or issuers in the
classes and subclasses) be considered when the NRSRO designs its
standards of training, experience, and competence for the individuals
it employs to determine credit ratings? If not, should proposed
paragraph (b)(3) be modified to provide better guidance for designing
the standards? If so, how should it be modified? Alternatively, should
it be omitted from the rule? If so, explain why.
    5. Should the factor identified in proposed paragraph (b)(4) of
Rule 17g-9 (i.e., the complexity of the obligors, securities, or money
market instruments being rated by the individuals) be considered when
the NRSRO designs its standards of training, experience, and competence
for the individuals it employs to determine credit ratings? If not,
should proposed paragraph (b)(4) be modified to provide better guidance
for designing the standards? If so, how should it be modified?
Alternatively, should it be omitted from the rule? If so, explain why.
c. Proposed Paragraph (c)
    Proposed paragraph (c) of new Rule 17g-9 would prescribe two
requirements that an NRSRO must incorporate into its standards of
training, experience, and competence.\638\ The first requirement would
be prescribed in proposed paragraph (c)(1) of new Rule 17g-9.\639\ This
paragraph would provide that the standards of training, experience, and
competence must include a requirement for periodic testing of the
individuals employed by the NRSRO to determine credit ratings on their
knowledge of the procedures and methodologies used by the NRSRO to
determine credit ratings in the classes or subclasses of credit ratings
for which the individual participates in determining credit
ratings.\640\ The Commission is proposing this requirement to implement
Section 936(2) of the Dodd-Frank Act, which provides that the
Commission shall issue rules that are reasonably designed to ensure
that any person employed by an NRSRO to perform credit ratings is
tested for knowledge of the credit rating process.\641\ The Commission
preliminarily believes that the frequency and manner of testing should
be established by the NRSRO. For example, the frequency and manner of
testing may depend on whether an NRSRO employs a large number of

analysts with varying levels of experience to rate a wide range of
obligors, securities, and money market instruments. In this case,
testing may need to be more frequent, particularly with respect to more
junior analysts. On the other hand, an NRSRO that employs few analysts
who focus on rating a specific type of obligor, security, or money
market instrument may need less frequent testing, particularly if the
analysts are experienced. However, the Commission notes that the
testing program--as with all aspects of the standards--would need to be
reasonably designed to achieve the objective that the credit analysts
produce accurate credit ratings in the classes of credit ratings for
which the NRSRO is registered.\642\ Consequently, an NRSRO would need
to establish a training schedule that is consistent with achieving this
objective.
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    \638\ See proposed paragraphs (c)(1) and (2) of new Rule 17g-9.
    \639\ See proposed paragraph (c)(1) of new Rule 17g-9.
    \640\ Id.
    \641\ See Public Law 111-203 Sec.  936(2).
    \642\ See proposed paragraph (a) of new Rule 17g-9.
---------------------------------------------------------------------------

    The second requirement would be prescribed in proposed paragraph
(c)(2) of new Rule 17g-9.\643\ This paragraph would provide that the
standards of training, experience, and competence must include a
requirement that at least one individual with three years or more
experience in performing credit analysis participates in the
determination of a credit rating.\644\ The Commission preliminarily
believes three years of experience is appropriate because, among other
things, being in business as a credit rating agency for three years was
a minimum prerequisite to being treated as an NRSRO under the Rating
Agency Act of 2006.\645\ Specifically, prior to being amended by the
Dodd-Frank Act, the first prong of the definition of ``nationally
recognized statistical rating organization,'' provided that the entity
``has been in business as a credit rating agency for at least the 3
consecutive years immediately preceding the date of its application for
registration under Section 15E.'' \646\ Moreover, Section
15E(a)(1)(B)(ix) of the Exchange Act requires a credit rating agency
applying for registration as an NRSRO to submit certifications from
qualified institutional buyers (``QIBs'') as specified in Section
15E(a)(1)(C) of the Exchange Act.\647\ Sections 15E(a)(1)(C)(i) through
(iii) of the Exchange Act provide, among other things, that the
applicant must furnish certifications from a minimum of 10 QIBs,
including certifications from no less than two QIBs for each category
of obligor for which the applicant intends to be registered.\648\
Section 15E(a)(1)(C)(iv) provides, among other things, that the
certification must state that the entity meets the definition of a QIB
and has used the credit ratings of the applicant for at least the three
years immediately preceding the date of the certification in the
subject category or categories.\649\
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    \643\ See proposed paragraph (c)(2) of new Rule 17g-9.
    \644\ Id.
    \645\ See Section 3(a)(61)(A) of the Exchange Act, as added by
Section 3(a) of the Rating Agency Act of 2006. See Public Law 109-
291 Sec.  3. Section 932(b) of the Dodd-Frank Act struck
subparagraph (A) of Section 3(a)(61) of the Exchange Act and re-
designated paragraph (B) as paragraph (A). See Public Law 111-203
Sec.  932(b). While the Dodd-Frank Act eliminated the ``three-year''
prong from the definition of NRSRO, the Commission does not believe
this evidences a view that the credit analysts who work for a credit
rating agency need not have any experience. In fact, as noted above,
Section 936(1) of the Dodd-Frank Act, among other things, provides
that the Commission shall issue rules that are reasonably designed
to ensure that any person employed by an NRRSRO to perform credit
ratings meets standards of training, experience, and competence
necessary to produce accurate ratings for the categories of issuers
whose securities the person rates. See Public Law 111-203 Sec.
936(1).
    \646\ Id.
    \647\ See 15 U.S.C. 78o-7(a)(1)(B)(ix) and 15 U.S.C. 78o-
7(a)(1)(C).
    \648\ See 15 U.S.C. 78o-7(a)(1)(C)(i)-(iii).
    \649\ See 15 U.S.C. 78o-7(a)(1)(C)(iv).
---------------------------------------------------------------------------

    The Commission considered these former and current provisions of
Section 15E of the Exchange Act in developing the proposed three-year
requirement in paragraph (c)(2) of new Rule 17g-9. The Commission
preliminarily believes that having at least one person participate in
the determination of a credit rating who has at least three years
experience in performing credit analysis would establish an appropriate
baseline requirement that could be implemented by NRSROs without
causing them to hire new staff or re-allocate staff resources. For
example, in terms of participating in the credit rating, the Commission
preliminarily believes an NRSRO's standard could require that at least
one person with at least three years experience serve on a committee
that votes to approve the credit rating or that reviews and approves a
credit rating action proposed by a junior analyst. Moreover, the
Commission notes that performing credit analysis is not synonymous with
determining credit ratings. Many financial institutions have credit
risk departments staffed by individuals who analyze the
creditworthiness of existing and future counterparties and borrowers.
The Commission preliminarily intends that this type of work would
qualify a credit analyst to meet the three-year requirement in proposed
paragraph (c)(2) of new Rule 17g-9. Consequently, if an NRSRO employed
an individual who performed credit analysis for a financial institution
for more than three years, that individual would qualify for purposes
of the proposed ``three-year'' requirement.
Request for Comment
    The Commission generally requests comment on all aspects of
proposed paragraph (c) of new Rule 17g-9. The Commission also seeks
comment on the following:
    1. Would proposed paragraph (c)(1) of new Rule 17g-9 (which would
provide that the standards of training, experience, and competence must
include a requirement for periodic testing of the individuals employed
by the NRSRO to determine credit ratings on their knowledge of the
procedures and methodologies used by the NRSRO to determine credit
ratings in the classes and subclasses of credit ratings for which the
individual is responsible for determining credit ratings) appropriately
implement Section 936(2) of the Dodd-Frank Act? If not, how should
proposed paragraph (c)(1) be modified to better achieve the objective
of Section 936(2)?
    2. Should the Commission prescribe the frequency of the periodic
testing that would be mandated under proposed paragraph (c)(1) of new
Rule 17g-9? For example, should an NRSRO be required to administer
testing every six months, every year, every two years?
    3. Would proposed paragraph (c)(2) of new Rule 17g-9 (which would
provide that the standards of training, experience, and competence must
include a requirement that at least one individual with three years or
more experience in performing credit analysis participates in the
determination of a credit rating) be an appropriate measure in terms of
implementing Section 936 of the Dodd-Frank Act? If not, how should
proposed paragraph (c)(2) be modified to better achieve the objective
of Section 936? For example, should the Commission establish a
different minimum number of years such as 1 or 2 years experience or 4,
5, 6, 7, or some larger number of years? Alternatively, should this
proposal be omitted from the rule? If so, explain why?
2. Proposed Amendment to Rule 17g-2
    For the reasons discussed in Section II.A.2 of this release, the
Commission preliminarily believes that the standards of training,
experience, and competence an NRSRO would be required, among other
things, to document pursuant to proposed paragraph (a) of new Rule 17g-
9 should be subject to the recordkeeping requirements of Rule

17g-2.\650\ Consequently, the Commission proposes adding new paragraph
(b)(15) to Rule 17g-2 to identify the standards of training,
experience, and competence the NRSRO must establish, maintain, enforce,
and document pursuant to proposed new Rule 17g-9 as a record that must
be retained.\651\ As a result, the standards would be subject to the
record retention and production requirements in paragraphs (c) through
(f) of Rule 17g-2.\652\
---------------------------------------------------------------------------

    \650\ 17 CFR 240.17g-2.
    \651\ See proposed new paragraph (b)(15) to Rule 17g-2; see also
Section 17(a)(1) of the Exchange Act, which requires an NRSRO to
make and keep such records, and make and disseminate such reports,
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. 15 U.S.C. 78q(a)(1).
    \652\ See 17 CFR 240.17g-2.
---------------------------------------------------------------------------

Request for Comment
    The Commission generally requests comment on all aspects of
proposed new paragraph (b)(15) of Rule 17g-2.

J. Universal Rating Symbols

    Section 938(a) of the Dodd-Frank Act provides that the Commission
shall require, by rule, each NRSRO to establish, maintain, and enforce
written policies and procedures that: (1) Assess the probability that
an issuer of a security or money market instrument will default, fail
to make timely payments, or otherwise not make payments to investors in
accordance with the terms of the security or money market instrument;
\653\ (2) clearly define and disclose the meaning of any symbol used by
the NRSRO to denote a credit rating; \654\ and (3) apply any symbol
described in item (2) in a manner that is consistent for all types of
securities and money market instruments for which the symbol is
used.\655\ Section 938(b) of the Dodd-Frank Act provides that nothing
in Section 938 shall prohibit an NRSRO from using distinct sets of
symbols to denote credit ratings for different types of securities or
money market instruments.\656\
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    \653\ See Public Law 111-203 Sec.  938(a)(1).
    \654\ See Public Law 111-203 Sec.  938(a)(2).
    \655\ See Public Law 111-203 Sec.  938(a)(3).
    \656\ See Public Law 111-203 Sec.  938(b).
---------------------------------------------------------------------------

    The Commission proposes to implement Section 938(a) of the Dodd-
Frank Act by proposing paragraph (b) of new Rule 17g-8 and by amending
Rule 17g-2.\657\
---------------------------------------------------------------------------

    \657\ See proposed paragraph (b) of Rule new 17g-8 and proposed
new paragraph (b)(14) of Rule 17g-2. As discussed earlier, the
Commission is proposing that rule requirements specifying policies
and procedures be consolidated in new Rule 17g-8.
---------------------------------------------------------------------------

1. Proposed Paragraph (b) of New Rule 17g-8
    The Commission preliminarily believes that Section 938(a) of the
Dodd-Frank Act is explicit in prescribing the policies and procedures
the Commission shall require, by rule, of each NRSRO.\658\
Consequently, the Commission proposes that the rule text of proposed
paragraph (b) of new Rule 17g-8 mirror the statutory text.
---------------------------------------------------------------------------

    \658\ See Public Law 111-203 Sec.  936(a).
---------------------------------------------------------------------------

    The prefatory text of proposed paragraph (b) of new Rule 17g-8
would provide that an NRSRO must establish, maintain, enforce, and
document policies and procedures that are reasonably designed to
achieve three objectives, which would be identified in paragraphs
(b)(1), (2), and (3).\659\ This proposed provision would mirror the
prefatory text of Section 938(a) of the Dodd-Frank Act except that the
proposed rule text would add the requirement that the NRSRO
``document'' the policies and procedures.\660\ The Commission
preliminarily believes it would be appropriate to add a documentation
requirement because it would mean that an NRSRO would need to put its
policies and procedures into writing. This requirement, coupled with
the Commission's proposal discussed next to apply the record retention
and production provisions of Rule 17g-2 to the policies and procedures,
would be designed to make them more readily available to Commission
examiners. In addition, the Commission believes it is a sound practice
for any organization to document its policies and procedures to promote
better understanding of them among the individuals within the
organization and, therefore compliance with such policies and
procedures.
---------------------------------------------------------------------------

    \659\ See prefatory text of proposed paragraph (b) of new Rule
17g-8.
    \660\ Compare prefatory text of Public Law 111-203 Sec.  938(a),
with prefatory text of proposed paragraph (b) of new Rule 17g-8.
---------------------------------------------------------------------------

    Proposed paragraph (b)(1) of new Rule 17g-8 would require the NRSRO
to have policies and procedures reasonably designed to assess the
probability that an issuer of a security or money market instrument
will default, fail to make timely payments, or otherwise not make
payments to investors in accordance with the terms of the security or
money market instrument.\661\ This proposed provision would mirror the
text of Section 938(a)(1) of the Dodd-Frank Act.\662\ The Commission
also notes that Section 15E(s)(3)(B)(ii) of the Exchange Act provides
that the Commission's rule requiring an NRSRO to generate a form to
disclose information with the publication of a credit rating requires
disclosure of information on the content of the credit rating,
including: (1) The historical performance of the credit rating; and (2)
the expected probability of default and the expected loss in the event
of default.\663\ As discussed above in Section II.G.3 of this release,
the Commission is proposing to implement this requirement in proposed
new paragraph (a)(1)(ii)(L) of Rule 17g-7.\664\ The Commission
preliminarily believes proposed paragraph (b)(1) of new Rule 17g-8
would work in conjunction the requirement in proposed new paragraph
(a)(1)(ii)(L) of Rule 17g-7 insomuch as the policies and procedures
proposed to be required by the former would assist the NRSRO in making
the disclosure proposed to be required in the latter.
---------------------------------------------------------------------------

    \661\ See proposed paragraph (b)(1) of new Rule 17g-8.
    \662\ Compare text of Public Law 111-203 Sec.  938(a)(1), with
text of proposed paragraph (b)(1) of new Rule 17g-8.
    \663\ See 15 U.S.C. 78o-7(s)(3)(B)(ii).
    \664\ See proposed new paragraph (a)(1)(ii)(L) of Rule 17g-7.
---------------------------------------------------------------------------

    Proposed paragraph (b)(2) of new Rule 17g-8 would require the NRSRO
to have policies and procedures reasonably designed to clearly define
each symbol, number, or score in the rating scale used by the NRSRO to
denote a credit rating category and notches within a category for each
class and subclass of credit ratings for which the NRSRO is registered
and to include such definitions in Exhibit 1 to Form NRSRO.\665\ This
proposed provision would implement Section 938(a)(2) of the Dodd-Frank
Act.\666\ In addition, it would mirror text in the proposed revisions
to the Instructions to Exhibit 1 to Form NRSRO as well as work in
conjunction with the requirements in those instructions.\667\ As
discussed above in Section II.E.1.a of this release, the Commission is
proposing to amend the Instructions for Exhibit 1. One of the proposed
amendments would require the NRSRO to clearly define in Exhibit 1 the
meaning of each symbol, number, or score in the rating scale used by
the applicant or NRSRO to denote a credit rating category and notches
within a category in any Transition/Default Matrix presented in the
Exhibit.\668\ Consequently, taken together, the proposals would require
an NRSRO to have policies and procedures that clearly define the
meaning of each

symbol, number, or score used by the NRSRO to denote a credit rating
and to disclose those meanings in Exhibit 1 where investors and other
users of credit ratings can find them.
---------------------------------------------------------------------------

    \665\ See proposed paragraph (b)(2) of new Rule 17g-8.
    \666\ Compare text of Public Law 111-203 Sec.  938(a)(2), with
text of proposed paragraph (b)(2) of new Rule 17g-8.
    \667\ See Instructions to Exhibit 1 to Form NRSRO.
    \668\ See proposed amendments to Instructions to Exhibit 1 to
Form NRSRO.
---------------------------------------------------------------------------

    Proposed paragraph (b)(3) of new Rule 17g-8 would require the NRSRO
to have policies and procedures reasonably designed to apply any
symbol, number, or score defined pursuant to paragraph (b)(2) of Rule
17g-8 in a manner that is consistent for all types of obligors,
securities, and money market instruments for which the symbol, number,
or score is used.\669\ This proposed provision would mirror the text of
Section 938(a)(3) of the Dodd-Frank Act, except that the proposed rule
text would add the term ``obligors.'' \670\ The Commission proposes
this addition in order to apply the provisions of proposed paragraph
(b)(3) of new Rule 17g-8 to credit ratings of obligors as entities in
addition to credit ratings of securities and money market
instruments.\671\
---------------------------------------------------------------------------

    \669\ See proposed paragraph (b)(1) of new Rule 17g-8.
    \670\ Compare text of Public Law 111-203 Sec.  938(a)(3), with
text of proposed paragraph (b)(3) of new Rule 17g-8.
    \671\ See, e.g., the definition of ``credit rating'' in Section
3(a)(60) of the Exchange Act (``The term `credit rating' means an
assessment of the creditworthiness of an obligor as an entity or
with respect to specific securities or money market instruments.'').
15 U.S.C. 78o-7(a)(60).
---------------------------------------------------------------------------

Request for Comment
    The Commission generally requests comment on all aspects of
proposed paragraph (b) of new Rule 17g-8. The Commission also seeks
comment on the following:
    1. Is proposed paragraph (b)(1) of new Rule 17g-8 sufficiently
explicit in terms of the objective that the policies and procedures be
reasonably designed to assess the probability that an issuer of a
security or money market instrument will default, fail to make timely
payments, or otherwise not make payments to investors in accordance
with the terms of the security or money market instrument)? If not,
what additional detail should the Commission provide in terms of the
clarifying the objective?
    2. Is proposed paragraph (b)(2) of new Rule 17g-8 sufficiently
explicit in terms of the objective that the policies and procedures be
reasonably designed to clearly define the meaning of each symbol,
number, or score used by the NRSRO to denote a credit rating category
and notches within a category in the rating scale for each class and
subclass of credit ratings for which the NRSRO is registered and to
include such definitions in Exhibit 1 to Form NRSRO? If not, what
additional detail should the Commission provide in terms of the
clarifying the objectives?
    3. Is proposed paragraph (b)(3) of new Rule 17g-8 sufficiently
explicit in terms of the objective that the policies and procedures be
reasonably designed to apply any symbol, number, or score defined in a
manner that is consistent for all types of obligors, securities, and
money market instruments for which the symbol, number, or score is
used? If not, what additional detail should the Commission provide in
terms of the clarifying the objective?
2. Proposed Amendment to Rule 17g-2
    For the reasons discussed in Section II.A.2 of this release, the
Commission preliminarily believes that the policies and procedures an
NRSRO would be required, among other things, to document pursuant to
proposed paragraph (b) of new Rule 17g-8 should be subject to the
recordkeeping requirements of Rule 17g-2.\672\ Consequently, the
Commission proposes adding new paragraph (b)(14) to Rule 17g-2 to
identify the policies and procedures an NRSRO must establish, maintain,
enforce, and document pursuant to proposed paragraph (b) of new Rule
17g-8 as a record that must be retained.\673\ As a result, the policies
and procedures would be subject to the record retention and production
requirements in paragraphs (c) through (f) of Rule 17g-2.\674\
---------------------------------------------------------------------------

    \672\ 17 CFR 240.17g-2.
    \673\ See proposed new paragraph (b)(14) to Rule 17g-2; see also
Section 17(a)(1) of the Exchange Act, which requires an NRSRO to
make and keep such records, and make and disseminate such reports,
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. 15 U.S.C. 78q(a)(1).
    \674\ See 17 CFR 240.17g-2.
---------------------------------------------------------------------------

Request for Comment
    The Commission generally requests comment on all aspects of
proposed new paragraph (b)(14) of Rule 17g-2.

K. Annual Report of Designated Compliance Officer

    Section 932(a)(5) of the Dodd-Frank Act amended Section 15E(j) of
the Exchange Act to re-designate paragraph (j) as paragraph (j)(1) and
to add new paragraphs (j)(2) through (j)(5).\675\ Section 15E(j)(1) of
the Exchange Act contains a self-executing provision that an NRSRO
designate an individual (the ``designated compliance officer'')
responsible for administering the policies and procedures that are
required to be established pursuant to Sections 15E(g) and (h) of the
Exchange Act,\676\ and for compliance with the securities laws and the
rules and regulations thereunder, including those promulgated by the
Commission under Section 15E of the Exchange Act.\677\ Sections
15E(j)(2) through (4) prescribe self-executing requirements with
respect to, among other things, the activities, duties, and
compensation of the designated compliance officer.\678\
---------------------------------------------------------------------------

    \675\ See Public Law 111-203 Sec.  932(a)(5) and 15 U.S.C. 78o-
7(j)(1) though (5).
    \676\ See 15 U.S.C 780-7(g) and (h).
    \677\ See 15 U.S.C. 78o-7(j)(1).
    \678\ See 15 U.S.C. 78o-7(j)(1) though (4).
---------------------------------------------------------------------------

    Section 15E(j)(5)(A) of the Exchange Act requires the designated
compliance officer to submit to the NRSRO an annual report on the
compliance of the NRSRO with the securities laws and the policies and
procedures of the NRSRO that includes: (1) A description of any
material changes to the code of ethics and conflict of interest
policies of the NRSRO; and (2) a certification that the report is
accurate and complete.\679\ Section 15E(j)(5)(B) of the Exchange Act
provides that the NRSRO shall file the report required pursuant to
Section 15E(j)(5)(A) together with the financial report that is
required to be submitted to the Commission under Section 15E of the
Exchange Act.\680\
---------------------------------------------------------------------------

    \679\ See 15 U.S.C. 78o-7(j)(5)(A).
    \680\ See 15 U.S.C. 78o-7(j)(5)(B).
---------------------------------------------------------------------------

    Consequently, Section 15E(j)(5)(B) of the Exchange Act contains a
self-executing provision requiring the NRSRO to file the annual report
of the designated compliance officer ``with the financial report that
is required to be submitted to the Commission under this section.''
\681\ The Commission notes that Section 15E(k) of the Exchange Act
provides that each NRSRO shall, on a confidential basis, file with the
Commission, at intervals determined by the Commission, such financial
statements, certified (if required by the rules or regulations of the
Commission) by an independent public accountant, and information
concerning its financial condition, as the Commission, by rule may
prescribe as necessary or appropriate in the public interest or for the
protection of investors.\682\ The Commission implemented Section 15E(k)
by adopting Rule 17g-3.\683\ Therefore, under the self-executing
provisions in Section 15E(j)(5)(B) of the Exchange Act, an NRSRO must
file the

report of the designated compliance officer with the reports required
to be submitted pursuant to Rule 17g-3.\684\
---------------------------------------------------------------------------

    \681\ Id.
    \682\ The Dodd-Frank Act replaced the words ``furnish to the
Commission'' with the words ``file with the Commission'' in Section
15E(k) of the Exchange Act. See 15 U.S.C. 78o-7(k).
    \683\ See 17 CFR 240.17g-3; see also Oversight of Credit Rating
Agencies Registered as Nationally Recognized Statistical Rating
Organizations, 72 FR at 33590-33593 (June 18, 2007).
    \684\ See 15 U.S.C. 78o-7(j)(5)(B), 15 U.S.C. 78o-7(k), and 17
CFR 240.17g-3.
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    As discussed above in Section II.A.3 of this release, Rule 17g-3
requires an NRSRO to furnish five or, in certain cases, six separate
reports not more than 90 days after the end of the NRSRO's fiscal
year.\685\ In order to further clarify the self-executing requirement
in Section 15E(j)(5)(B) of the Exchange Act, the Commission is
proposing to amend Rule 17g-3 to identify the annual report of the
designated compliance officer as one of the reports that must be filed
with the Commission.\686\ Specifically, the Commission proposes adding
a new paragraph (a)(8) to Rule 17g-3 to identify the report on the
compliance of the NRSRO with the securities laws and the policies and
procedures of the NRSRO required to be filed with the Commission
pursuant to Section 15E(j)(5)(B) of the Exchange Act.\687\ New
paragraph (a)(8) would provide that the report need not be audited.
Furthermore, the Commission preliminarily does not intend to prescribe
how the report must be certified because Section 15E(j)(5)(A)(ii) of
the Exchange Act already provides that the designated compliance
officer must certify that the report is accurate and complete.\688\
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    \685\ See 17 CFR 240.17g-3(a)(1)-(6). As discussed above in
Section II.A.3 of this release, the Commission is proposing that
Rule 17g-3 be amended to add a new paragraph (a)(7) to implement
Section 15E(c)(3)(B) of the Exchange Act by requiring an NRSRO to
file the annual report on the NRSRO's internal control structure
with the annual reports. See 15 U.S.C. 78o-7(c)(3)(B).
    \686\ See proposed new paragraph (a)(8) of Rule 17g-3.
    \687\ Id.
    \688\ See 15 U.S.C. 78o-7(j)(5)(A)(ii). Paragraph (b) of Rule
17g-3 provides that the NRSRO must attach to the reports required to
be submitted pursuant to Rule 17g-3 a signed statement by a duly
authorized person that the person has responsibility for the reports
and, to the best knowledge of the person, the reports fairly
present, in all material respects, the information contained in the
reports. See 17 CFR 240.17g-3(b).
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Request for Comment
    The Commission generally requests comment on all aspects of
proposed new paragraph (a)(8) of Rule 17g-3. The Commission also seeks
comment on the following:
    1. Should an NRSRO be required to attach to the annual report a
signed statement by a duly authorized person (e.g., the designated
compliance officer) stating explicitly that the person has
responsibility for the reports and, to the best knowledge of the
person, the reports fairly present, in all material respects, the
information contained in the reports? For example, because the
designated compliance officer is providing the report to the NRSRO and
the NRSRO, in turn, is submitting the report to the Commission, would
it be appropriate for the Commission to require an additional
certification addressing the submission of the report from the NRSRO to
the Commission?

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

    An NRSRO currently submits the Form NRSROs required under Rule 17g-
1 and the annual reports required under Rule 17g-3 to the Commission in
paper form. The Commission proposes amending Rule 17g-1, the
Instructions to Form NRSRO, Rule 17g-3, and Regulation S-T to require
an NRSRO to use the Commission's EDGAR system to: (1) Electronically
file or furnish, as applicable, Form NRSRO and the information and
documents contained in Exhibits 1 through 9 of Form NRSRO if the
submission is made pursuant to paragraph (e), (f) or (g) of Rule 17g-1
(i.e., an update of registration, an annual certification, or a
withdrawal from registration, respectively) \689\ and (2)
electronically file or furnish, as applicable, the annual reports
required by Rule 17g-3.\690\
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    \689\ See 17 CFR 240.17g-1(e), (f), and (g). The electronic
submissions of Form NRSRO and Exhibits 1 through 9 of Form NRSRO
would be made available to the public immediately upon filing.
    \690\ See 17 CFR 240.17g-3. An NRSRO is not required to make the
Rule 17g-3 annual reports publicly available and the reports would
not be available to the public on EDGAR. The information collected
pursuant to Rule 17g-3 is, and would continue to be, kept
confidential to the extent permitted by the Freedom of Information
Act (``FIOA''). See 15 U.S.C. 552 et seq.
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    Under this proposal, however, an applicant or NRSRO would continue
to submit in paper format Form NRSROs pursuant to paragraphs (a), (b),
(c), and (d) of Rule 17g-1 (initial applications for registration,
applications to register for an additional class of credit ratings,
supplements to an initial application or application to register for an
additional class of credit ratings, and withdrawals of initial
applications or applications to register for an additional class of
credit ratings, respectively).\691\ The Commission preliminarily
believes that these materials are appropriately received in paper form
because of the iterative nature of the NRSRO application process. For
example, an applicant often will have a number of phone conferences and
meetings with the Commission staff during the application process to
clarify the information submitted in the application. These
interactions may result in applicants informally providing additional
information relating to the application and informally amending or
augmenting information provided in the Form and its Exhibits. The
Commission preliminarily believes paper submissions facilitate this
type of iterative process.
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    \691\ Paragraph (i) of Rule 17g-1 requires an NRSRO to make Form
NRSRO and information and documents submitted in Exhibits 1 through
9 publicly available within 10 business days of the Commission order
granting an initial application for registration or an application
to register for an additional class of credit ratings. 17 CFR
240.17g-1(i). The initial application for registration contains
information and documents the NRSRO is not required to make publicly
available. This includes Exhibits 10 through 13 to Form NRSRO,
disclosure reporting pages to Form NRSRO, and certifications from
QIBs under Section 15E(a)(1)(C) of the Exchange Act (15 U.S.C. 780-
7(a)(1)(C)).
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    In terms of requiring the electronic submission of Form NRSROs
submitted pursuant to paragraph (e), (f), or (g) of Rule 17g-1, the
Commission notes that one of the primary goals of the EDGAR system is
to facilitate the rapid dissemination of financial and business
information in connection with filings the Commission receives.
Although paragraph (i) of Rule 17g-1 currently requires NRSROs to make
the public portions of their current Form NRSROs publicly available
within 10 business days after submission to the Commission, the
Commission believes having all such information available immediately
in one location would make the information more easily available and
searchable to investors and other users of credit ratings. Further, the
Commission believes submissions to the Commission are more valuable to
investors and other users of credit ratings if they are available in
electronic format and that adding the Form NRSRO submissions to the
EDGAR database would provide a more complete picture for the public.
The Commission preliminarily believes that, as a result of the
proposals, the EDGAR page of the Commission's Internet Web site \692\
and the NRSRO page of the Commission's Internet Web site \693\ would be
a comprehensive source containing most public information submitted to
the Commission, as well as other information, related to NRSROs. The
Commission preliminarily believes that the electronic submission of
Form NRSROs would benefit investors and other users of credit ratings
by

increasing the efficiency of retrieving and comparing NRSRO public
submissions and enabling the investors and other users of credit
ratings to access information more quickly. An investor or other user
of credit ratings would be able to find and review a Form NRSRO on any
computer with an Internet connection by accessing EDGAR data on the
Commission's Internet Web site or through a third party.
---------------------------------------------------------------------------

    \692\ http://www.sec.gov/investor/pubs/edgarguide.htm.
    \693\ http://www.sec.gov/divisions/marketreg/ratingagency.htm.
---------------------------------------------------------------------------

    In addition, while the Rule 17g-3 annual reports would not be made
public through the EDGAR system, having these reports and the Form
NRSROs available on EDGAR could assist the Commission in its oversight
of NRSROs. For example, Commission examiners could retrieve more easily
the Form NRSROs and annual reports of a specific NRSRO to prepare for
an examination. Moreover, having these records submitted and stored
through the EDGAR system (i.e., in a centralized location) would assist
the Commission from a records management perspective by establishing a
more automated storage process and creating efficiencies in terms of
reducing the volume of paper submissions that must be manually
processed and stored.
    Moreover, the Commission preliminarily believes that the electronic
submission of Form NRSRO and Rule 17g-3 annual reports would benefit
NRSROs. For example, NRSROs would avoid the uncertainties, delay, and
expense related to the manual delivery of paper submissions. Further,
NRSROs would benefit from no longer having to submit multiple paper
copies of these forms and reports to the Commission.
    As with other entities that make submissions through the EDGAR
systems, these submissions would be subject to the provisions of
Regulation S-T \694\ and the EDGAR Filer Manual. Regulation S-T
includes detailed rules concerning mandatory and permissive electronic
EDGAR submissions. It also provides that requests for confidential
treatment must be made in paper form.\695\ The EDGAR Filer Manual
contains detailed technical specifications concerning EDGAR
submissions. The EDGAR Filer Manual also provides technical guidance
concerning how to begin making submissions on EDGAR by submitting Form
ID to obtain a CIK number \696\ and confidential access codes and how
to maintain and update company data (e.g., how to change company names
and contact information).\697\
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    \694\ For a comprehensive discussion of Regulation S-T and
electronic filing, see ``Electronic Filing and the EDGAR System: A
Regulatory Overview,'' available on the Commission's Internet Web
site.
    \695\ See 17 CFR 232.101.
    \696\ As noted earlier, a CIK number is a ten-digit number
uniquely identifying the person submitting the form or report.
    \697\ In the case of name changes, the changes must be made via
the EDGAR filing Internet Web site in advance and the new name would
be reflected in the next EDGAR submission. The name on past
submissions would not change.
---------------------------------------------------------------------------

    One technical specification the EDGAR Filer Manual includes is the
electronic ``submission type'' for each submission made through the
EDGAR system. The Commission expects the EDGAR electronic submission
types for these documents would be designed to facilitate and expedite
the submission and review of these submissions. Consistent with this
proposal, the Commission preliminarily intends the EDGAR Filer Manual
and the EDGARLink software would provide for two EDGAR electronic
submission types: one for the submission of Form NRSRO and one for the
submission of the annual reports pursuant to Rule 17g-3. The Commission
also preliminarily intends that Form NRSRO would become an electronic,
fillable, form and that the Exhibits would be submitted with the Form.
    As noted above, an NRSRO is not required to make the Rule 17g-3
annual reports public. Therefore, the Rule 17g-3 annual reports would
be submitted through the EDGAR system on a confidential basis and would
not be made available to the public to the extent permitted by law. The
Commission anticipates that the EDGAR Filer Manual would provide
guidance for choosing the correct submission type.
    Amendments to Rule 17g-1. To implement the electronic submission
through EDGAR of a Form NRSRO submitted to the Commission pursuant to
paragraph (e), (f), or (g) of Rule 17g-1, the Commission proposes to
amend each of those paragraphs to add a second sentence providing that
a Form NRSRO and the information and documents in Exhibits 1 through 9,
filed or furnished, as applicable, under the paragraph must be
submitted electronically to the Commission in the format required by
the EDGAR Filer Manual, as defined in Rule 11 of Regulation S-T.\698\
Furthermore, the Commission proposes amending paragraphs (a), (b), (c),
and (d) of Rule 17g-1 to provide that an NRSRO should file ``two paper
copies'' of the Form NRSROs filed pursuant to those paragraphs. This
would be designed to clarify that these filings should continue to be
made in paper. In addition, in the past, some NRSROs have submitted
more than two paper copies of their Form NRSRO submissions. The
Commission believes that the filing of two paper copies is sufficient.
---------------------------------------------------------------------------

    \698\ See proposed amendments to paragraphs (e), (f), and (g) of
Rule 17g-1.
---------------------------------------------------------------------------

    Amendments to the Instructions to Form NRSRO. To further implement
the electronic submission through the EDGAR system of Form NRSROs
submitted to the Commission pursuant to paragraphs (e), (f), or (g) of
Rule 17g-1, the Commission proposes amending Instruction A.8 to Form
NRSRO to distinguish between Form NRSRO submissions under paragraph
(a), (b), (c), or (d) of Rule 17g-1 (which would continue to be
submitted in paper form) and submissions under paragraphs (e), (f), or
(g) of Rule 17g-1 (which would be submitted electronically through the
EDGAR system). Currently, Instruction A.8 simply provides the address
where a Form NRSRO submitted under paragraph (a), (b), (c), (d), (e),
(f), or (g) of Rule 17g-1 must be submitted (i.e., the headquarters of
the Commission). The Commission proposes amending Instruction 8.A to
add above the address a sentence that would instruct an applicant to
submit to the Commission at the address indicated below two paper
copies of a Form NRSRO submitted pursuant to paragraph (a), (b), (c),
or (d) of Rule 17g-1.\699\ The Commission further proposes adding a
sentence below the address providing that after registration, an NRSRO
must submit Form NRSRO electronically to the Commission in the format
required by the EDGAR Filer Manual, as defined in Rule 11 of Regulation
S-T, if the submission is made pursuant to paragraphs (e), (f), or (g)
of Rule 17g-1.\700\
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    \699\ See proposed amendments to Instruction A.8 of Form NRSRO.
    \700\ Id.
---------------------------------------------------------------------------

    Finally, the Commission proposes amending Instruction A.9 to Form
NRSRO, which currently provides that a Form NRSRO 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.\701\ The Commission proposes amending the
instruction to read as follows: ``A Form NRSRO will be considered filed
with or furnished to, as applicable, the Commission on the date the
Commission receives a complete and properly executed Form NRSRO that

follows all applicable instructions for the Form, including the
instructions in Item A.8 with respect to how a Form NRSRO must be filed
with or furnished to the Commission.'' \702\ This instruction would be
designed to clarify that a Form NRSRO submitted pursuant to paragraph
(e), (f), or (g) of Rule 17g-1 must be submitted electronically.
---------------------------------------------------------------------------

    \701\ See Instruction A.9 to Form NRSRO.
    \702\ See proposed amendments to Instruction A.9 to Form NRSRO.
---------------------------------------------------------------------------

    Proposed Amendments to Rule 17g-3. To implement the electronic
submission through the EDGAR system of the Rule 17g-3 annual reports,
the Commission proposes adding two new paragraphs to Rule 17g-3:
paragraphs (d) and (e).\703\ Similar to the proposed amendments to
paragraphs (e), (f), and (g) of Rule 17g-1, proposed new paragraph (d)
of Rule 17g-3 would provide that the reports required by the rule must
be submitted electronically with the Commission in the format required
by the EDGAR Filer Manual, as defined in Rule 11 of Regulation S-
T.\704\ In addition, because the Rule 17g-3 annual reports are not
required to be made public, the Commission proposes adding new
paragraph (e) to Rule 17g-3.\705\ Proposed new paragraph (e) would, in
the first sentence, instruct an NRSRO that 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.\706\ Proposed
new paragraph (e) of Rule 17g-3 would, in the second sentence, instruct
an NRSRO that confidential treatment may be requested by marking each
page ``Confidential Treatment Requested'' and by complying with
Commission rules governing confidential treatment.\707\
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    \703\ See proposed new paragraphs (d) and (e) of Rule 17g-3.
    \704\ See proposed new paragraph (d) of Rule 17g-3.
    \705\ See proposed new paragraph (e) of Rule 17g-3.
    \706\ See the first sentence of proposed new paragraph (e) of
Rule 17g-3.
    \707\ See the second sentence of proposed new paragraph (e) of
Rule 17g-3.
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    Proposed Amendments to Regulation S-T. Regulation S-T requires the
electronic filing of any amendments and related correspondence and
supplemental information pertaining to a document that is the subject
of mandated EDGAR submission.\708\ The Commission proposes amending
Rule 101 of Regulation S-T \709\ by adding a new paragraph
(a)(1)(xiv).\710\ Proposed new paragraph (a)(1)(xiv) would identify the
Form NRSROs and the information and documents submitted in Exhibits 1
through 9 of Form NRSRO submitted to the Commission pursuant to
paragraphs (e), (f), and (g) of Rule 17g-1 and the annual reports
submitted pursuant to Rule 17g-3 as submissions that must be made in
electronic format.\711\
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    \708\ See 17 CFR 232.101(a)(1).
    \709\ 17 CFR 232.101(a)(1).
    \710\ See proposed paragraph (a)(1)(xiv) of Rule 101 under
Regulation S-T.
    \711\ Related correspondence and supplemental information are
not automatically disseminated publicly through the EDGAR system but
are immediately available to the Commission staff.
---------------------------------------------------------------------------

    The Commission also is proposing an amendment to Rule 201 of
Regulation S-T.\712\ Rules 201 and 202 \713\ of Regulation S-T address
hardship exemptions from EDGAR filing requirements, and paragraph (b)
of Rule 13 of Regulation S-T \714\ addresses the related issue of
filing date adjustments. Under Rule 201, if an electronic filer
experiences unanticipated technical difficulties that prevent the
timely preparation and submission of an electronic filing, the filer
may file a properly legended paper copy \715\ of the filing under cover
of Form TH no later than one business day after the date on which the
filing was made.\716\ A filer who files in paper form under the
temporary hardship exemption must submit an electronic copy of the
filed paper document within six business days of the filing of the
paper document.\717\
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    \712\ 17 CFR 232.201
    \713\ 17 CFR 232.202.
    \714\ 17 CFR 232.13(b).
    \715\ See 17 CFR 232.201(a).
    \716\ 17 CFR 239.65, 249.447, 269.10, and 274.404.
    \717\ See 17 CFR 232.201(b).
---------------------------------------------------------------------------

    In addition, an electronic filer may apply for a continuing
hardship exemption under Rule 202 if it cannot file all or part of a
filing without undue burden or expense.\718\ The application must be
made at least 10 business days before the due date of the filing. In
contrast to the self-executing temporary hardship exemption process, a
filer can obtain a continuing hardship exemption only by submitting a
written application, upon which the Commission, or the Commission staff
pursuant to delegated authority, must then act. Under paragraph (b) of
Rule 13 of Regulation S-T, if an electronic filer in good faith
attempts to file a document, but the filing is delayed due to technical
difficulties beyond the filer's control, the filer may request that the
Commission grant an adjustment of the filing date.
---------------------------------------------------------------------------

    \718\ See 17 CFR 232.202(a).
---------------------------------------------------------------------------

    The Commission is proposing to make the temporary hardship
exemption in Rule 201 unavailable for the submissions of Form NRSRO and
the information and documents submitted in Exhibits 1 through 9 of Form
NRSRO under paragraph (e), (f), or (g) of Rule 17g-1 and the annual
reports required under Rule 17g-3.\719\ Specifically, the Commission is
proposing to amend paragraph (a) of Rule 201 of Regulation S-T to add
this group of submissions to the list of submissions for which the
temporary hardship exemption is unavailable.\720\ An NRSRO would
continue to have the ability to apply for a continuing hardship
exemption under Rule 202 if it could not submit all or part of an
application without undue burden or expense or for an adjustment of the
due date under paragraph (b) of Rule 13 if there were technical
difficulties beyond the NRSRO's control.
---------------------------------------------------------------------------

    \719\ The Commission previously has made unavailable the ability
for filers to use the temporary hardship exemption for EDGAR
submissions of beneficial ownership reports filed by officers,
directors and principal security holders under Section 16(a) of the
Exchange Act. See Securities Act Release No. 8230 (May 7, 2003), 68
FR 25788 (May 13, 2010).
    \720\ See proposed amendment to paragraph (a) of Rule 201 of
Regulation S-T.
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    For the foregoing reasons, the Commission proposes amending
Regulation S-T: (1) to provide for the mandatory electronic submission
of Form NRSRO and the information and documents contained in Exhibits 1
through 9 of Form NRSRO pursuant to paragraphs (e), (f), or (g) of Rule
17g-1 and the annual reports pursuant to Rule 17g-3;\721\ and (2) to
amend paragraph (a) of Rule 201 to make the temporary hardship
exemption unavailable for submissions of Form NRSROs and the
information and documents contained in Exhibits 1 through 9 under
paragraphs (e), (f), or (g) of Rule 17g-1 and the annual reports under
Rule 17g-3.\722\
---------------------------------------------------------------------------

    \721\ See proposed new paragraph (a)(1)(xiv) to Rule 101 of
Regulation S-T.
    \722\ See proposed amendment to paragraph (a) of Rule 201 of
Regulation S-T.
---------------------------------------------------------------------------

Request for Comment
    The Commission generally requests comment on all aspects of these
proposals to require the electronic submission of Form NRSRO under
paragraphs (e), (f), and (g) of Rule 17g-1 and the annual reports under
Rule 17g-3. The Commission also seeks comment on the following:
    1. Should applicants be required to submit Form NRSRO
electronically under paragraph (a), (b), (c), or (d) of Rule 17g-1?
    2. What would be the impact of making the Form NRSROs required
under paragraphs (e), (f), and (g) of Rule

17g-1 and the annual reports required under Rule 17g-3 mandatory
electronic submissions? Are there additional burdens or costs that
would result from requiring these submissions to be made
electronically?
    3. Are there any other difficulties and considerations unique to
these proposed requirements? If so, what aspect of the proposed
requirements would be burdensome? Are there other alternatives that
would be less burdensome? Provide specific details and alternative
approaches.
    4. Should NRSROs be required to submit the financial information in
Form NRSRO and the information and documents contained in Exhibits 1
through 9 and the Rule 17g-3 annual reports using the XBRL format?
Should NRSROs be required to use eXtensible Markup Language (XML) for
EDGAR for non-financial information? Provide detailed information on
any difficulties and considerations as well as benefits concerning such
requirements.
    5. Should the temporary hardship exemption be available for
submission of these filings?

M. Other Amendments

    The Commission is proposing additional amendments to several of the
NRSRO rules in response to amendments the Dodd-Frank Act made to
sections of the Exchange Act that authorize or otherwise are relevant
to these rules.
1. Changing ``Furnish'' to ``File''
    Section 932(a) of the Dodd-Frank Act amended Section 15E of the
Exchange Act to replace the word ``furnish'' with the word ``file'' in
paragraphs (b), (d), (k), and (l).\723\ In addition, Section 932(a) of
the Dodd-Frank Act amended paragraph (j) of Section 15E of the Exchange
to, among other things, add a requirement that an NRSRO ``file'' a
report of the designated compliance officer.\724\ The Dodd-Frank Act,
however, did not replace the word ``furnish'' with the word ``file'' in
Section 15E(a) (which governs the submission of initial applications
for registration as an NRSRO), Section 15E(e) (which governs the
submission of voluntary withdrawals from registration), and Section
17(a)(1) (which provides the Commission with authority to, among other
things, require NRSROs to furnish reports).\725\ Consistent with the
amendments to Section 15E described above, the Commission is proposing
to amend Rule 17g-1 and Rule 17g-3 to treat certain of the submissions
required in those rules as ``filings'' rather than ``furnishings.''
\726\ The Commission also is proposing to make corresponding amendments
to Form NRSRO and the Instructions to Form NRSRO.
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    \723\ See Public Law 111-203 Sec.  932(a) and 15 U.S.C. 78o-
7(b), (d), (k), and (l).
    \724\ See Public Law 111-203 Sec.  932(a) and 15 U.S.C. 78o-
7(j)(5).
    \725\ See 15 U.S.C. 78o-7(e) and 15 U.S.C. 78q(a)(1).
    \726\ Among other things, an application, report, or document
``filed'' with the Commission pursuant to the Exchange Act or the
rules thereunder is subject to the provisions of Section 18 of the
Exchange Act. See 15 U.S.C. 78o-7r.
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    The Commission proposes amending paragraphs (a), (b), (c), and (d)
of Rule 17g-1 to treat Form NRSROs submitted pursuant to those
provisions as ``filings'' rather than ``furnishings.'' \727\ These
paragraphs govern the submissions of initial applications for
registration as an NRSRO. The Commission notes that the Dodd-Frank Act
did not replace the word ``furnish'' with the word ``file'' in Section
15E(a) of the Exchange Act, which addresses the submission of initial
applications for registration. The Commission, however, preliminarily
believes that this was an inadvertent omission. For example, Section
15E(b)(1) refers to information ``required to be filed'' under Section
15E(a)(1)(B)(i) of the Exchange Act (emphasis added).\728\ Similarly,
Section 15E(d)(1)(B) of the Exchange Act refers to ``the date on which
an application for registration is filed with the Commission''
(emphasis added).\729\ In addition, the legislative history of Section
932(a) states that ``[Title IX, Subtitle C, of the Dodd-Frank Act]
requires all references to `furnish' be replaced with the word `file'
in existing law.'' \730\ For these reasons, the Commission proposes to
amend paragraphs (a), (b), (c), and (d) of Rule 17g-1 to treat the
submissions pursuant to those paragraphs as ``filings.''
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    \727\ See proposed amendments to paragraphs (a), (b), (c), and
(d) of Rule 17g-1.
    \728\ See 15 U.S.C. 78o-7(a)(1)(B)(i).
    \729\ See 15 U.S.C. 78o-7(d)(1)(B).
    \730\ See Conference Report, H.R. 4173 (June 29, 2010), p. 872.
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    The Commission proposes amending paragraphs (e) and (f) of Rule
17g-1 to treat Form NRSROs submitted pursuant to those provisions as
``filings'' rather than ``furnishings.'' \731\ As noted above, Section
932(a) of the Dodd-Frank Act amended Section 15E(b) of the Exchange Act
to replace the word ``furnish'' with the word ``file.'' \732\ Section
15E(b) of the Exchange Act addresses updating Form NRSRO to keep it
current and the submission of the annual certification.\733\ Paragraphs
(e) and (f) of Rule 17g-1 govern the submission of updated Form NRSROs
and annual certifications, respectively.\734\ Consequently, the
Commission proposes amending these paragraphs to treat the submissions
of an updated Form NRSRO and an annual certification, respectively, as
``filings'' rather than ``furnishings.'' \735\
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    \731\ See proposed amendments to paragraphs (e) and (f) of Rule
17g-1.
    \732\ See Public Law 111-203 Sec.  932(a)(1) and 15 U.S.C. 78o-
7(b).
    \733\ See 15 U.S.C. 78o-7(b)(1) and (2).
    \734\ See 17 CFR 240.17g-1(e) and (f).
    \735\ See proposed amendments to paragraphs (e) and (f) of Rule
17g-1.
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    The Commission is not proposing to amend paragraph (g) of Rule 17g-
1 to replace the word ``furnish'' with the word ``file.'' This
paragraph implemented Section 15E(e) of the Exchange Act, which
addresses the submission by an NRSRO of a written notice to voluntarily
withdraw a registration.\736\ The Commission preliminarily believes
that it is not necessary to subject a notice of withdrawal of
registration to the higher standards of a ``filing.''
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    \736\ See 15 U.S.C. 78o-7(e) and 17 CFR 240.17g-1(g).
---------------------------------------------------------------------------

    Given the proposed amendments to paragraphs (a), (b), (c), (d),
(e), and (f) of Rule 17g-1, the Commission proposes amending paragraphs
(h) and (i) of Rule 17g-1 to reflect that a Form NRSRO would be
``filed'' with the Commission under the proposed amendments to
paragraphs (a), (b), (c), (d), (e), and (f) of Rule 17g-1 and
``furnished'' to the Commission under paragraph (g) of Rule 17g-1.
    The Commission is proposing to amend paragraphs (a)(1) through
(a)(5) of Rule 17g-3 to treat the reports submitted pursuant to those
provisions as ``filings'' rather than ``furnishings.'' \737\ As noted
above, Section 932(a) of the Dodd-Frank Act amended Section 15E(k) of
the Exchange Act to replace the word ``furnish'' with the word
``file.'' \738\ Section 15E(k) of the Exchange Act provides the
Commission with authority to require NRSROs to submit annual financial
reports.\739\ The Commission adopted paragraphs (a)(1) through (a)(5)
of Rule 17g-3 under Section 15E(k).\740\ Consequently, the Commission
proposes amending Rule 17g-3 to treat the reports identified in
paragraphs (a)(1) through (a)(5) as ``filings'' rather than
``furnishings.'' \741\
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    \737\ See proposed amendments to paragraphs (a)(1) through (5)
of Rule 17g-3.
    \738\ See Public Law 111-203 Sec.  932(a)(6) and 15 U.S.C. 78o-
7(k).
    \739\ See 15 U.S.C. 78o-7(k).
    \740\ See Oversight of Credit Rating Agencies Registered as
Nationally Recognized Statistical Rating Organizations, 72 FR at
33590-33593 (June 18, 2007).
    \741\ See 15 U.S.C. 78o-7(k) and proposed amendments to
paragraphs (a)(1)-(5) of Rule 17g-3.

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    In addition, the Commission proposes that the new report on
internal controls discussed in Section II.A.3 of this release and the
new report of the designated compliance officer discussed in Section
II.K of this release be treated as ``filings'' rather than
``furnishings.'' \742\ Section 15E(c)(3)(B) of the Exchange Act
provides, among other things, that the Commission shall prescribe rules
requiring NRSROs to ``submit'' to the Commission an internal controls
report.\743\ In addition, Section 15E(j)(5)(B) of the Exchange Act,
``Submission of reports to the Commission,'' provides that an NRSRO
``shall file'' the report of the designated compliance officer together
with the financial report that is required to be ``submitted'' to the
Commission under Section 15E of the Exchange Act.\744\ As discussed in
Section II.K of this release, the financial reports are submitted
pursuant to Rule 17g-3, which was adopted under Section 15E(k).\745\
Moreover, as noted above, the Section 932(a)(6) of the Dodd-Frank Act
amended Section 15E(k) of the Exchange Act to replace the word
``furnish'' with the word ``file.'' \746\ Consequently, given the
interchangeable use of the word ``submit'' with the word ``file'' in
Section 15E(j)(5)(B) and the legislative history discussed above, the
Commission proposes to treat the new report on internal controls as a
``filing.'' \747\ As noted above, Section 15E(j)(5)(B) of the Exchange
Act explicitly provides that an NRSRO ``shall file'' the report of the
designated compliance officer.\748\ Therefore, the Commission proposes
to use the term ``file'' in proposed new paragraph (a)(8) of Rule 17g-
3.\749\
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    \742\ See proposed new paragraphs (a)(7) and (a)(8) of Rule 17g-
3.
    \743\ See 15 U.S.C. 78o-7(c)(3)(B).
    \744\ See 15 U.S.C. 78o-7(j)(5)(B).
    \745\ See 15 U.S.C. 78o-7(k) and 17 CFR 240.17g-3; see also
Oversight of Credit Rating Agencies Registered as Nationally
Recognized Statistical Rating Organizations, 72 FR at 33590-33593
(June 18, 2007).
    \746\ See Public Law 111-203 Sec.  932(a)(6) and 15 U.S.C. 78o-
7(k).
    \747\ See proposed new paragraph (a)(7) of Rule 17g-3.
    \748\ See 15 U.S.C. 78o-7(j)(5)(B).
    \749\ See proposed new paragraph (a)(8) of Rule 17g-3.
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    The Commission does not propose to amend paragraph (a)(6) of Rule
17g-3 to treat the report identified in that paragraph as a filing.
This paragraph was adopted under Section 17(a)(1) of the Exchange
Act.\750\ Section 17(a)(1) of the Exchange Act provides that any report
an NRSRO ``is required by Commission rules under this paragraph to make
and disseminate to the Commission shall be deemed furnished to the
Commission.'' \751\ As noted above, the Dodd-Frank Act did not change
this provision to make the report a ``filing.''
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    \750\ See Amendments to Rules for Nationally Recognized
Statistical Rating Organizations, 74 FR at 6464-65 (Feb. 9, 2009).
    \751\ See 15 U.S.C. 78o-7q(a)(1).
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    The Commission is proposing to amend Form NRSRO and the
Instructions to Form NRSRO to conform the Form and its Instructions to
the proposed amendments discussed above.\752\ Under the proposed
amendments, the Commission would replace the word ``furnish'' with the
word ``file'' when referring to a Form NRSRO submitted under paragraphs
(a), (b), (c), (d), (e), and (f) of Rule 17g-1. In addition, in some
cases, the Commission proposes using the term ``submit'' when referring
to a Form NRSRO that may have been submitted prior to enactment of the
Dodd-Frank Act when the submission would have been ``furnished to'' as
opposed to ``filed with'' the Commission. The Commission intends the
word ``submit'' as used in this context to mean the submission was
either ``furnished'' or ``filed'' depending on the applicable
securities laws in effect at the time of the submission.
---------------------------------------------------------------------------

    \752\ See proposed amendments to Form NRSRO and the Instructions
to Form NRSRO.
---------------------------------------------------------------------------

Request for Comment
    The Commission generally requests comment on all aspects of these
proposals to replace the word ``furnish'' with the word ``file'' in the
Commission's NRSRO rules.
2. Amended Definition of NRSRO
    As discussed above in Section II.I.1.c of this release, the first
prong of the definition of ``nationally recognized statistical rating
organization'' in Section 3(a)(62) of the Exchange Act, prior to being
amended by the Dodd-Frank Act, provided that the entity ``has been in
business as a credit rating agency for at least the 3 consecutive years
immediately preceding the date of its application for registration
under Section 15E.'' \753\ Section 932(b) of the Dodd-Frank Act deleted
this prong of the definition.\754\ Instruction F.4 to Form NRSRO
contains a definition of ``NRSRO'' that incorporates the Section
3(a)(62) definition as originally enacted. The Commission proposes
amending this definition to conform it to the Section 3(a)(62)
definition as amended by the Dodd-Frank Act.\755\
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    \753\ See Section 3(a)(62)(A) of the Exchange Act (15 U.S.C.
78c(a)(62)(A) added by the Rating Agency Act of 2006.
    \754\ See Public Law 111-203 Sec.  932(b).
    \755\ See proposed amendment to Instruction F.4 to Form NRSRO.
---------------------------------------------------------------------------

Request for Comment
    The Commission generally requests comment on all aspects of this
proposal to amend the definition of NRSRO in Instruction F.4 to Form
NRSRO.
3. Definition of Asset-Backed Security
    Several of the Commission's NRSRO rules impose requirements
specific to credit ratings for structured finance products by providing
that the rules apply to credit ratings with respect to ``a security or
money market instrument issued by an asset pool or as part of any
asset-backed or mortgage-backed-securities transaction.'' \756\ This
language mirrors the text of Section 15E(i) of the Exchange Act, which
provides the Commission with authority to prohibit an NRSRO from the
practice of ``lowering or threatening to lower a credit rating on, or
refusing to rate, securities or money market instruments issued by an
asset pool or as part of any asset-backed or mortgage-backed securities
transaction, unless a portion of the assets within such pool or part of
such transaction, as applicable, also is rated by the [NRSRO].'' \757\
As noted earlier, with respect to this language, the Commission has
provided the following interpretation,
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    \756\ See paragraphs (a)(2)(iii), (a)(7), and (b)(9) of Rule
17g-2; paragraph (a)(6) of Rule 17g-3; paragraphs (a)(3) and (b)(9)
of Rule 17g-5; and paragraph (a)(4) of Rule 17g-6.

    \757\ See 15 U.S.C. 78o-7(i).

The term ``structured finance product'' as used throughout this
release refers broadly to any security or money market instrument
issued by an asset pool or as part of any asset-backed or mortgage-
backed securities transaction. This broad category of financial
instrument includes, but is not limited to, asset-backed securities
such as residential mortgage-backed securities (``RMBS'') and to
other types of structured debt instruments such as collateralized
debt obligations (``CDOs''), including synthetic and hybrid CDOs, or
collateralized loan obligations (``CLOs'').\758\
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    \758\ Amendments to Rules for Nationally Recognized Statistical
Rating Organizations, 74 FR at 63832, footnote 3 (Dec. 4, 2009).

    Section 941(a) of the Dodd-Frank Act amended Section 3 of the
Exchange Act to add paragraph (a)(77), which defines the term ``asset-
backed security.'' \759\ The Exchange Act definition of ``asset-backed
security,'' includes a ``collateralized mortgage obligation.'' \760\
Consequently, the Commission preliminarily believes that the current
identification of structured finance products in the Commission's rules
(i.e., ``a security or money market instrument

issued by an asset pool or as part of any asset-backed or mortgage-
backed securities transaction'') may have redundant terms insomuch as
given the new definition of ``asset-backed security'' in Section
3(a)(77) of the Exchange Act an ``asset-backed securities transaction''
would include a ``mortgage-backed securities transaction.'' \761\
Accordingly, the Commission is proposing to delete the term ``or
mortgage-backed'' from the identification of structured finance
products in these rules.\762\ The term ``asset-backed security[y]'' as
used in the proposed new NRSRO rule definition would mean an ``asset-
backed security'' as defined in Section 3(a)(77) of the Exchange Act.
The term ``security or money market instrument issued by an asset pool
or as part of any asset-backed securities transaction'' would include
an asset-backed security as defined in Section 3(a)(77) of the Exchange
Act and other structured finance products relating to asset-backed
securities such as synthetic CDOs.
---------------------------------------------------------------------------

    \759\ See Public Law 111-203 Sec.  941(a) and 15 U.S.C.
78c(a)(77).
    \760\ See 15 U.S.C. 78c(a)(77)(A)(i).
    \761\ See 15 U.S.C. 78c(a)(77)(A).
    \762\ See proposed amendments to paragraphs (a)(2)(iii), (a)(7),
and (b)(9) of Rule 17g-2; paragraph (a)(6) of Rule 17g-3; paragraphs
(a)(3) and (b)(9) of Rule 17g-5; and paragraph (a)(4) of Rule 17g-6.
---------------------------------------------------------------------------

Request for Comment
    The Commission generally requests comment on all aspects of these
proposals to delete the term ``or mortgage-backed'' from the
identification of structured finance products in the NRSRO rules. The
Commission also seeks comment on the following:
    1. Would the proposal to delete the term ``or mortgage-backed''
from the identification of structured finance products in the NRSRO
rules change the requirements of these rules in any way? For example,
would it exclude certain types of structured finance products that
currently are within the scope of these rules by narrowing the
definition? Alternatively, would it add certain types of structured
finance products that currently are outside the scope of these rules by
broadening the definition?
4. Other Amendments to Form NRSRO
    The Commission is proposing additional amendments to the
Instructions to Form NRSRO to clarify certain requirements because the
instructions, as written, have created some confusion among NRSROs.
a. Clarification With Respect to Items 6 and 7
    The Commission is proposing amendments to Form NRSRO and the
Instructions for Form NRSRO to remove potential ambiguity as to how an
applicant and NRSRO must determine the approximate number of credit
ratings outstanding for the purposes of Items 6 and 7. In addition, the
Commission is seeking comment on how certain types of obligors,
securities, and money market instruments should be classified for the
purposes of Items 6 and 7.
    Item 6 requires a credit rating agency applying to be registered as
an NRSRO or an NRSRO applying to be registered in a new class of credit
ratings to provide, among other things, the approximate number of
credit ratings it has outstanding as of the date of the application in
each class of credit ratings for which it is seeking registration.\763\
Item 7 requires an NRSRO submitting a Form NRSRO for the purpose of
updating information in the Form, making the annual certification, or
withdrawing a registration to provide, among other things, the
approximate number of credit ratings it had outstanding as of the end
of the most recently ended calendar year in each class of credit
ratings for which it is registered.\764\ As noted earlier, the classes
of credit ratings for which an NRSRO can be registered are: (1)
financial institutions, brokers, or dealers; \765\ (2) insurance
companies; \766\ (3) corporate issuers; \767\ (4) issuers of asset-
backed securities (as that term is defined in Section 1101(c) of part
229 of Title 17, Code of Federal Regulations, as in effect on the date
of enactment of this paragraph); \768\ and (5) issuers of government
securities, municipal securities, or securities issued by a foreign
government.\769\
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    \763\ See Item 6 of Form NRSRO and Instructions B, C, D, and H
(as it relates to Item 6) to Form NRSRO.
    \764\ See Item 7 of Form NRSRO and Instructions E, F, G, and H
(as it relates to Item 7) to Form NRSRO.
    \765\ See 15 U.S.C. 78c(a)(62)(A)(i).
    \766\ See 15 U.S.C. 78c(a)(62)(A)(ii).
    \767\ See 15 U.S.C. 78c(a)(62)(A)(iii).
    \768\ See 15 U.S.C. 78c(a)(62)(A)(iv).
    \769\ See 15 U.S.C. 78c(a)(62)(A)(v).
---------------------------------------------------------------------------

    NRSROs have raised questions about how they should count the number
of credit ratings outstanding in a given class of credit ratings for
the purposes of Form NRSRO.\770\ For example, in some classes, certain
NRSROs count the number of issuers rated but not the number of
securities or money market instruments rated.\771\ Other NRSROs count
the number of securities or money market instruments rated (but do
include the number of rated obligors in the total).\772\ Finally, some
NRSROs count the number of obligors, securities, and money market
instruments rated.\773\
---------------------------------------------------------------------------

    \770\ See, e.g., GAO Report 10-782, pp. 46-47.
    \771\ Id.
    \772\ Id.
    \773\ Id.
---------------------------------------------------------------------------

    The Commission's intent in Items 6 and 7 is to elicit the total
number of obligors, securities, and money market instruments in a given
class of credit ratings for which the applicant or NRSRO has assigned a
credit rating that was outstanding as of the applicable date (i.e., the
date of the application in the case of Item 6 and the date of the most
recent calendar year-end in the case of Item 7). Consequently, to make
the Commission's expectations more clear, the Commission is proposing
to amend the text in Items 6.A and 7.A of Form NRSRO to clarify that an
applicant or NRSRO must provide the approximate number of obligors,
securities, and money market instruments in each class of credit
ratings for which the applicant or NRSRO has an outstanding credit
rating.\774\ The text in Items 6.A and 7.A currently provides that the
applicant or NRSRO must provide the approximate number of credit
ratings outstanding. Consequently, the amendment would clarify that the
applicant or NRSRO must provide the number of ``obligors, securities,
and money market instruments'' in the given class for which the
applicant or NRSRO assigned a credit rating that was outstanding as of
the applicable date.
---------------------------------------------------------------------------

    \774\ See proposed amendments to the text in Items 6.A and 7.A
respectively.
---------------------------------------------------------------------------

    In addition, the Commission is proposing to amend Instruction H to
Form NRSRO (as it relates to Items 6.A and 7.A) in four ways. First, in
conformity with the proposed amendments to the text of Items 6.A and
7.A in the Form, the Instructions would be amended to provide that the
applicant or NRSRO must, for each class of credit ratings, provide in
the appropriate box the approximate number of obligors, securities, and
money market instruments in that class for which the applicant or NRSRO
presently has a credit rating outstanding as of the date of the
application (Item 6.A) or had a credit rating outstanding as of the
most recently ended calendar year (Item 7.A).
    Second, Instruction H would be amended to provide that the
applicant or NRSRO must treat as a separately rated security or money
market instrument each individually rated security and money market
instrument that, for example, is assigned a distinct CUSIP or other
unique identifier, has distinct credit enhancement features as compared
with other securities or money market instruments of the same

issuer, or has a different maturity date as compared with other
securities or money market instruments of the same issuer. This
proposed instruction would be designed to clarify that each security or
money market instrument of an issuer must be included in the count if
it is assigned a credit rating by the applicant or NRSRO. For example,
if the issuer is in the structured finance class, each tranche of the
structured finance product that is assigned a credit rating must be
included in the count. In addition, if an issuer issues securities or
money market instruments that have different maturities, the applicant
or NRSRO must include each such security in the count if the NRSRO
assigns a credit rating to the security or money market instrument.
    Third, Instruction H would be amended to provide that the applicant
or NRSRO must not include an obligor, security, or money market
instrument in more than one class of credit rating. In other words, the
applicant or NRSRO cannot double count an obligor, security, or money
market instrument by including it in the totals for two or more classes
of credit ratings. For example, some securities have characteristics
that could cause an applicant or NRSRO to classify them as municipal
securities or structured finance products.\775\ Nonetheless, the
applicant or NRSRO would need to select the most appropriate class for
the security or money market instrument and include it in the count for
that class. Because some obligors, securities, and money market
instruments have characteristics that could cause them to be assigned
more than one class, the Commission is seeking comment below on which
class would be the most appropriate for these types of obligors,
securities, and money market instruments. Based on the comments
received, the Commission may decide to prescribe by rule or identify
through guidance how certain types of obligors, securities, and money
market instruments should be classified.\776\
---------------------------------------------------------------------------

    \775\ For example, tax exempt housing bonds share
characteristics of both municipal securities and structured finance
products.
    \776\ As noted above in Sections II.E.1 and II.E.2 of this
release, the comments also could inform Commission rulemaking or
guidance with respect to the performance statistics that would need
to be disclosed pursuant to the proposed enhancements to Exhibit 1
to Form NRSRO and the ratings history information that would need to
be disclosed pursuant to new paragraph (b) of Rule 17g-7. The goal
would be to have consistent disclosures in Items 6 and 7 of Form
NRSRO, Exhibit 1 to Form NRSRO, and in the information about credit
ratings histories that would be required under proposed new
paragraph (b) of Rule 17g-7. The Commission notes other requirements
in the securities laws may be triggered based on the type of
obligor, security, or money market instrument being rated. See,
e.g., 17 CFR 240.17g-5(a)(3) (which applies when an NRSRO issues or
maintains 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). The Commission, in eliciting
comment, is not suggesting that an obligor, security, or money
market instrument having shared characteristics of, for example, a
structured finance product and a municipal security, would not be
subject to these other requirements because the most appropriate
classification for purposes of Items 6 and 7 of Form NRSRO, Exhibit
1 to Form NRSRO, and proposed new paragraph (b) of Rule 17g-7 would
be to classify it as a type of obligor, security, or money market
instrument not subject to the other requirements.
---------------------------------------------------------------------------

    Fourth, Instruction H would be amended to provide that the
applicant or NRSRO must include in the class of credit ratings
described in Section 3(a)(62)(B)(iv) of the Exchange Act (issuers of
asset-backed securities) to the extent not described in Section
3(a)(62)(B)(iv), any rated security or money market instrument issued
by an asset pool or as part of any asset-backed securities transaction.
As discussed above in Section II.M.3 of this release, Section
3(a)(62)(B)(iv) contains a narrower definition of ``asset-backed
security'' than the Commission uses for the purposes of its NRSRO
rules.\777\ In fact, the definition is narrower than the new definition
of ``asset-backed security'' in Section 3(a)77 of the Exchange
Act.\778\ The Commission expects an applicant and NRSRO to use the
broader definition that captures all structured finance products when
providing the number of credit ratings outstanding in this class. The
proposed amendments to Instruction H to Form NRSRO would be designed to
make this expectation more clear.
---------------------------------------------------------------------------

    \777\ Compare 15 U.S.C. 78c(a)(62)(B)(iv), with: Instructions
for Exhibit 1 to Form NRSRO; paragraphs (a)(2)(iii), (a)(7), and
(b)(9) of Rule 17g-2; paragraph (a)(6) of Rule 17g-3; paragraphs
(a)(3) and (b)(9) of Rule 17g-5; and paragraph (a)(4) of Rule 17g-6.
    \778\ Compare 15 U.S.C. 78c(a)(62)(B)(iv), with 15 U.S.C.
78c(a)(77).
---------------------------------------------------------------------------

Request for Comment
    The Commission generally requests comment on all aspects of this
proposal to amend Form NRSRO Items 6.A and 7.A and Instruction H to
Form NRSRO as it relates to Items 6.A and 7.A. The Commission also
seeks comment on the following:
    1. Would the proposed amendments to Items 6.A and 7.A and
Instruction H to Form NRSRO as it relates to Items 6.A and 7.A make the
Commission's expectations sufficiently clear in terms of providing the
approximate number of credit ratings outstanding in each class for
which an applicant is seeking registration and an NRSRO is registered?
If not, how could the proposed amendments be modified to provide
greater clarity?
    2. How should tax-exempt housing bonds be classified for the
purposes of Items 6 and 7? For example, should they be classified as:
(1) Issuers of asset-backed securities identified in Section
3(a)(62)(A)(iv) of the Exchange Act as broadened to include any rated
security or money market instrument issued by an asset pool or as part
of any asset-backed securities transaction; or (2) issuers of
government securities, municipal securities, or securities issued by a
foreign government identified in Section 3(a)(62)(A)(v) of the Exchange
Act? Is there another more appropriate classification? Commenters
should provide explanations for their choices.
    3. How should project finance issuances be classified for the
purposes of Items 6 and 7? For example, should they be classified as:
(1) Corporate issuers identified in Section 3(a)(62)(A)(iii) of the
Exchange Act; (2) issuers of asset-backed securities identified in
Section 3(a)(62)(A)(iv) of the Exchange Act as broadened to include any
rated security or money market instrument issued by an asset pool or as
part of any asset-backed securities transaction; or (3) issuers of
government securities, municipal securities, or securities issued by a
foreign government identified in Section 3(a)(62)(A)(v) of the Exchange
Act? Is there another more appropriate classification? Commenters
should provide explanations for their choices.
    4. How should supra-national issuers (e.g., the World Bank) be
classified for the purposes of Items 6 and 7? For example, should they
be classified as: (1) Financial institutions, brokers, or dealers
identified in Section 3(a)(62)(A)(i) of the Exchange Act; or (2)
issuers of government securities, municipal securities, or securities
issued by a foreign government identified in Section 3(a)(62)(A)(v) of
the Exchange Act? Is there another more appropriate classification?
Commenters should provide explanations for their choices.
    5. How should covered bonds be classified? For example, should they
be classified as: (1) Financial institutions, brokers, or dealers
identified in Section 3(a)(62)(A)(i) of the Exchange Act; or (2)
issuers of asset-backed securities identified in Section
3(a)(62)(A)(iv) of the Exchange Act as broadened to include any rated
security or money market instrument issued by an asset pool or as part
of any asset-backed securities transaction? Is there another more
appropriate classification?

Commenters should provide explanations for their choices.
    6. How should municipal structured finance issuers be classified?
For example, should they be classified as: (1) Issuers of asset-backed
securities identified in Section 3(a)(62)(A)(iv) of the Exchange Act as
broadened to include any rated security or money market instrument
issued by an asset pool or as part of any asset-backed securities
transaction; or (2) issuers of government securities, municipal
securities, or securities issued by a foreign government identified in
Section 3(a)(62)(A)(v) of the Exchange Act? Is there another more
appropriate classification? Commenters should provide explanations for
their choices.
    7. How should for-profit health care companies (e.g., hospitals,
assisted living facilities, nursing homes) be treated if a municipality
issues securities on behalf of the company? For example, should they be
classified as: (1) Corporate issuers identified in Section
3(a)(62)(A)(iii) of the Exchange Act; or (2) issuers of government
securities, municipal securities, or securities issued by a foreign
government identified in Section 3(a)(62)(A)(v) of the Exchange Act? Is
there another more appropriate classification? Commenters should
provide explanations for their choices.
    8. How should securitizations of health care receivables be
classified? For example, should they be classified as: (1) Issuers of
asset-backed securities identified in Section 3(a)(62)(A)(iv) of the
Exchange Act as broadened to include any rated security or money market
instrument issued by an asset pool or as part of any asset-backed
securities transaction; or (2) issuers of government securities,
municipal securities, or securities issued by a foreign government
identified in Section 3(a)(62)(A)(v) of the Exchange Act? Is there
another more appropriate classification? Commenters should provide
explanations for their choices.
    9. How should insurance-linked securities be classified? For
example, should they be classified as: (1) Insurance companies
identified in Section 3(a)(62)(A)(ii) of the Exchange Act; or (2)
issuers of asset-backed securities identified in Section
3(a)(62)(A)(iv) of the Exchange Act as broadened to include any rated
security or money market instrument issued by an asset pool or as part
of any asset-backed securities transaction? Is there another more
appropriate classification? Commenters should provide explanations for
their choices.
    10. Are there other types of obligors, securities, or money market
instruments that share characteristics of one or more classes of credit
ratings identified in Section 3(a)(62)(A) of the Exchange Act? If so,
identify each such type of obligor, security, or money market
instrument, provide a proposed classification, and explain the reason
for the proposed classification.
b. Clarification With Respect to Exhibit 8
    The Commission proposes to amend Instruction H to Form NRSRO as it
relates to Exhibit 8. Exhibit 8 requires an applicant and NRSRO to
provide the number of credit analysts it employs and the number of
credit analyst supervisors. The Commission is proposing two amendments
to the instructions for Exhibit 8. The first amendment would delete a
parenthesis in the instructions that provides that the applicant or
NRSRO should ``see definition below'' of the term ``credit analyst.''
There is no such definition. The second amendment would clarify that
the applicant or NRSRO, in providing the number of credit analysts,
should include the number of credit analyst supervisors. This would be
designed to ensure that the disclosures in Form NRSRO are comparable
across NRSROs by avoiding the situation in which some NRSROs include
credit analyst supervisors in the total number of credit analysts and
some NRSROs do not include credit analyst supervisors in that amount.
Request for Comment
    The Commission generally requests comment on all aspects of this
proposal to amend Instruction H to Form NRSRO as it relates to Exhibit
8.
c. Clarification With Respect to Exhibits 10 through 13
    As discussed above, paragraph (i) of Rule 17g-1 requires an NRSRO
to make its current Form NRSRO and information and documents submitted
in Exhibits 1 through 9 to Form NRSRO publicly available on its
Internet 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.\779\ An NRSRO is not
required to make Exhibits 10 through 13 of Form NRSRO publicly
available or update them after registration. Instead, an NRSRO must
provide similar information in the annual reports required to be filed
with the Commission pursuant to Rule 17g-3.\780\ An NRSRO is not
required to make the annual reports public. In the past, some NRSRO
have submitted the annual reports required by Rule 17g-3 in the form of
Exhibits 10 through 13, on a confidential basis, as part of the annual
certification. Consequently, the Commission proposes to amend
Instruction H in several places to add a ``Note'' instructing that
after registration, Exhibits 10 through 13 are not required to be made
publicly available by the NRSRO pursuant to Rule 17g-1(i) and they
should not be updated with the filing of the annual certification. The
``Note'' would further instruct that similar information must be filed
with the Commission not more than 90 days after the end of each fiscal
year pursuant to Rule 17g-3.\781\
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    \779\ See 17 CFR 240.17g-1.
    \780\ See 17 CFR 240.17g-3; also compare Exhibits 10, 11, 12,
and 13 to Form NRSRO and Instruction H of Form NRSRO (as it relates
to those Exhibits), with paragraphs (a) through (5) of Rule 17g-3.
17 CFR 240.17g-3(a)(1)-(5).
    \781\ See ``Notes'' proposed to be added to Instruction H to
Form NRSRO.
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Request for Comment
    The Commission generally requests comment on all aspects of this
proposal to amend Instruction H to Form NRSRO.

III. General Request for Comment

    In responding to the specific requests for comment above, the
Commission encourages interested persons to provide supporting data and
analysis and, when appropriate, suggest modifications to proposed rule
text. Responses that are supported by data and analysis provide great
assistance to the Commission in considering the practicality and
effectiveness of proposed new requirements as well as weighing the
benefits and costs of proposed requirements. In addition, commenters
are encouraged to identify in their responses a specific request for
comment by indicating the section number of the release and question
number within that section to which the response is directed (e.g.,
Section II.E.1.a, Question 15).
    The Commission also seeks comment on the proposals as a whole. In
this regard, the Commission seeks comment on the following:
    1. How would the proposals integrate with provisions in other
Titles and Subtitles of the Dodd-Frank Act and any regulations or
proposed regulations under those other Titles and Subtitles?
    2. How would the proposals integrate with existing requirements
applicable to NRSROs in the Exchange Act and the regulations adopted
under authority in the Exchange Act?

    3. What should the implementation timeframe be for the proposed
amendments and new rules? For example, should the compliance date be 60
days after publication in the Federal Register? Alternatively, should
the compliance date be 90, 120, 150, 180, or some other number of days
after publication? Should the proposed requirements have different time
frames before their compliance dates are triggered? For example, would
it take longer to come into compliance with certain of these proposals
than others? If so, rank the requirements in terms of the length of
time it would take to come into compliance with them and propose a
schedule of compliance dates.

IV. Paperwork Reduction Act

    Certain provisions of the proposed rule amendments and proposed new
rules would contain new ``collection of information'' requirements
within the meaning of the Paperwork Reduction Act of 1995
(``PRA'').\782\ The Commission has submitted the proposed rule
amendments and proposed new rules to the Office of Management and
Budget (``OMB'') for review in accordance with the PRA. An agency may
not conduct or sponsor, and a person is not required to comply with, a
collection of information unless it displays a currently valid OMB
control number.
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    \782\ 44 U.S.C. 3501 et seq.; 5 CFR 1320.11.
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    The titles for the collections of information are:
    (1) Rule 17g-1, Application for registration as a nationally
recognized statistical rating organization; Form NRSRO, and Form NRSRO
Instructions (OMB Control Number 3235-0625);
    (2) Rule 17g-2, Records to be made and retained by nationally
recognized statistical rating organizations (OMB Control Number 3235-
0628);
    (3) Rule 17g-3, Annual financial reports to be furnished by
nationally recognized statistical rating organizations \783\ (OMB
Control Number 3235-0626);
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    \783\ The Commission is proposing to amend the title of Rule
17g-3 to read, ``Annual financial and other reports to be filed or
furnished by nationally recognized statistical rating
organizations.''
---------------------------------------------------------------------------

    (4) Rule 17g-7, Disclosure requirements (OMB Control Number 3235-
0656);
    (5) Rule 17g-8, Policies and procedures (a proposed new collection
of information);
    (6) Rule 17g-9, Standards of training, experience, and competence
for credit analysts (a proposed new collection of information);
    (7) Rule 17g-10, Certification of providers of third-party due
diligence services in connection with asset-backed securities; Form ABS
Due Diligence-15E (a proposed new collection of information);
    (8) Form ABS-15G (OMB Control Number 3235-0675);
    (9) Rule 15Ga-2 (a proposed new collection of information);
    (10) Regulation S-T, General Rules and Regulations for Electronic
Filing (OMB Control Number 3235-0424); and
    (11) Form ID (OMB Control Number 3235-0328).
    The proposed amendments to Rule 17g-5 (discussed in Section II.B of
this release) and Rule 17g-6 (discussed in Section II.M.3 of this
release) do not contain a collection of information requirement within
the meaning of the PRA.

A. Summary of Collections of Information Under the Proposed Rules and
Rule Amendments

    In accordance with the Dodd-Frank Act and to enhance oversight, the
Commission is soliciting comment on proposed amendments to existing
rules and proposed new rules that would apply to NRSROs, providers of
third-party due diligence services for Exchange Act-ABS, and issuers
and underwriters of Exchange Act-ABS. The following proposals contain
new ``collection of information'' requirements within the meaning of
the PRA.
1. Proposed Amendments to Rule 17g-1
    The Commission is proposing to amend Rule 17g-1.\784\ First, to
implement rulemaking mandated in Section 15E(q)(2)(D) of the Exchange
Act, the Commission is proposing to amend paragraph (i) of Rule 17g-1,
which requires an NRSRO to make its current Form NRSRO and formation
and documents submitted in Exhibits 1 through 9 publicly available on
its Internet Web site or through another comparable, readily accessible
means within 10 business days of being granted an initial registration
or a registration in an additional class of credit ratings, and within
10 business days of furnishing a Form NRSRO to update information on
the Form, to provide the annual certification, and to withdraw a
registration.\785\ The Commission's proposed amendment would require an
NRSRO to make Form NRSRO and Exhibits 1 through 9 freely available on
an easily accessible portion of its corporate Internet Web site.\786\
The proposed amendment to paragraph (i) also would remove the option
for an NRSRO to make its Form NRSRO publicly available ``through
another comparable, readily accessible means'' as an alternative to Web
site disclosure.\787\ In addition, the Commission is proposing amending
paragraph (i) to provide that Exhibit 1 of Form NRSRO (the performance
measurement statistics) be made freely available in writing when
requested.\788\
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    \784\ 17 CFR 240.17g-1.
    \785\ See 15 U.S.C. 78o-7(q)(2)(D) and proposed amendments to
paragraph (i) of Rule 17g-1; see also Section II.E.1.b of this
release for a more detailed discussion of this proposal.
    \786\ See proposed amendments to paragraph (i) of Rule 17g-1.
    \787\ Id.
    \788\ Id.
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    Second, the Commission is proposing to amend paragraphs (e), (f),
and (g) of Rule 17g-1 to require NRSROs to use the Commission's EDGAR
system to electronically submit Form NRSRO and Exhibits 1 through 9
with the Commission in the format required by the EDGAR Filer Manual,
as defined in Rule 11 of Regulation S-T.\789\
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    \789\ See proposed amendments to paragraphs (e), (f), and (g) of
Rule 17g-1; see also Section II.L of this release for a more
detailed discussion of these proposals.
---------------------------------------------------------------------------

2. Proposed Amendments to Instructions for Exhibit 1 to Form NRSRO
    The Commission is proposing to amend the instructions for Exhibit 1
to Form NRSRO.\790\ The proposed amendments would be designed to
implement rulemaking mandated in Section 15E(q) of the Exchange
Act.\791\ In particular, the amendments would confine the disclosures
in the Exhibit to transition and default rates and certain limited
supplemental information.\792\ Moreover, the enhancements would
standardize the production and presentation of the transition and
default rates.\793\ Specifically, the amendments would require the
transition and default rates in Exhibit 1 to be produced using a
``single cohort approach.'' \794\ Under this approach, an applicant and
NRSRO, on an annual basis, would be required to compute how the credit
ratings assigned to obligors, securities, and money market instruments
in a particular class or subclass of credit rating outstanding on the
date 1, 3, and 10 years prior to the most recent calendar year-end

performed during respective 1, 3, and 10 year time periods.\795\
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    \790\ See Instruction H to Form NRSRO (as it relates to Exhibit
1).
    \791\ See 15 U.S.C. 78o-7(q) and proposed amendments to the
instructions for Exhibit 1; see also Section II.E.1.a of this
release for a more detailed discussion of this proposal.
    \792\ See proposed amendments to the instructions for Exhibit 1.
    \793\ Id.
    \794\ Id.
    \795\ Id.
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    Under the amendments, the proposed new instructions would be
divided into paragraphs (1), (2), (3), and (4), some of which would
have subparagraphs.\796\ The proposed new paragraphs would contain
specific instructions with respect to, among other things, how required
information should be presented in the Exhibit (including the order of
presentation) and how transition and default rates should be produced
using a single cohort approach.\797\ As with all information that must
be submitted in Form NRSRO and its Exhibits, applicants and NRSROs
would be subject to these new requirements.\798\
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    \796\ See proposed paragraphs (1)-(4) of the instructions for
Exhibit 1.
    \797\ Id.
    \798\ See, e.g., 17 CFR 240.17g-1; see also Instructions A.1, B,
C, D, E, and F to Form NRSRO.
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3. Proposed Amendments to Rule 17g-2
    The Commission proposes a number of amendments to Rule 17g-2.\799\
First, the Commission proposes adding new paragraph (a)(9) to Rule 17g-
2 to identify the policies and procedures an NRSRO is required to
establish, maintain, and enforce pursuant to Section 15E(h)(4)(A) of
the Exchange Act and paragraph (c) of Rule 17g-8 as a record that must
be made and retained.\800\ Second, the Commission proposes adding new
paragraph (b)(12) to Rule 17g-2 to identify the internal control
structure an NRSRO must establish, maintain, enforce, and document
pursuant to Section 15E(c)(3)(A) of the Exchange Act as a record that
must be retained.\801\ Third, the Commission proposes adding new
paragraph (b)(13) to Rule 17g-2 to identify the policies and procedures
an NRSRO is required to establish, maintain, enforce, and document
pursuant to proposed paragraph (a) of new Rule 17g-8 as a record that
must be retained.\802\ Fourth, the Commission proposes adding new
paragraph (b)(14) to Rule 17g-2 to identify the policies and procedures
an NRSRO must establish, maintain, enforce, and document pursuant to
proposed paragraph (b) of new Rule 17g-8 as record that must be
retained.\803\ Fifth, the Commission proposes adding new paragraph
(b)(15) to Rule 17g-2 to identify the standards of training,
experience, and competence an NRSRO must establish, maintain, enforce,
and document pursuant to proposed new Rule 17g-9 as a record that must
be retained.\804\
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    \799\ 17 CFR 240.17g-2.
    \800\ See proposed new paragraph (a)(9) to Rule 17g-2(a)(9); see
also Section II.C.2 of this release for a more detailed discussion
of this proposal.
    \801\ See proposed new paragraph (b)(12) of Rule 17g-2; see also
Section II.A.2 of this release for a more detailed discussion of
this proposal.
    \802\ See proposed new paragraph (b)(13) to Rule 17g-2; see also
Section II.F.2 of this release for a more detailed discussion of
this proposal.
    \803\ See proposed new paragraph (b)(14) to Rule 17g-2; see also
Section II.J.2 of this release for a more detailed discussion of
this proposal.
    \804\ See proposed new paragraph (b)(15) to Rule 17g-2; see also
Section II.I.2 of this release for a more detailed discussion of
this proposal.
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4. Proposed Amendments to Rule 17g-3
    The Commission proposes amending Rule 17g -3.\805\ First, the
Commission proposes amending paragraphs (a) and (b) of Rule 17g-3 to
implement the rulemaking mandated by Section 15E(c)(3)(B) of the
Exchange Act.\806\ The proposed amendment to paragraph (a) would add a
new paragraph (a)(7) to require an NRSRO to include an additional
report--the report on the NRSRO's internal control structure--with its
annual submission of reports pursuant to Rule 17g-3.\807\ Similar to
the reports currently identified in paragraphs (a)(2) through (a)(6) of
Rule 17g-3, the report identified in new paragraph (a)(7) would be
unaudited.\808\ The proposed amendment to paragraph (b) of Rule 17g-3
would implement Section 15E(c)(3)(B)(iii) of the Exchange Act, which
provides that the annual internal controls report must contain an
attestation of the NRSRO's CEO, or equivalent individual.\809\
Specifically, the Commission proposes amending paragraph (b) of Rule
17g-3 to require that the NRSRO's CEO or, if the firm does not have a
CEO, an individual performing similar functions, provide a signed
statement that would be attached to the report.\810\
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    \805\ 17 CFR 240.17g-3.
    \806\ See 15 U.S.C. 78o-7(c)(3)(B) and proposed new paragraphs
(a)(7) and (b)(2) of Rule 17g-3; see also Section II.A.3 of this
release for a for a more detailed discussion of this proposal.
    \807\ See proposed new paragraph (a)(7) of Rule 17g-3.
    \808\ See 17 CFR 240.17g-3(a)(2)-(6).
    \809\ 15 U.S.C. 78o-7(c)(3)(B)(iii).
    \810\ See proposed new paragraph (b)(2) of Rule 17g-3.
---------------------------------------------------------------------------

    Second, the Commission is proposing that all the annual reports
required to be submitted to the Commission pursuant to Rule 17g-3 be
submitted through the EDGAR system.\811\ To implement this requirement,
the Commission proposes, among other amendments, to add new paragraph
(d) to Rule 17g-3. Proposed new paragraph (d) would provide that the
reports required by the rule must be submitted electronically with the
Commission in the format required by the EDGAR Filer Manual, as defined
in Rule 11 of Regulation S-T.\812\
---------------------------------------------------------------------------

    \811\ See proposed new paragraph (d) of Rule 17g-3; see also
Section II.L of this release for a more detailed discussion of this
proposal.
    \812\ See proposed new paragraph (d) of Rule 17g-3.
---------------------------------------------------------------------------

    Third, the Commission is proposing to add a new paragraph (a)(8) to
Rule 17g-3 to identify the report of the NRSRO's designated compliance
officer that an NRSRO is required to file with the Commission pursuant
to Section 15E(j)(5)(B) of the Exchange Act as a report that must be
filed with the other annual reports.\813\ Section 15E(j)(5)(B) further
provides that the NRSRO ``shall file'' this report with the financial
report required to be submitted to the Commission under Section 15E of
the Exchange Act (i.e., the Rule 17g-3 annual reports).\814\ The
Commission's proposal is intended to clarify how an NRSRO must adhere
to the self-executing provisions in Section 15E(j)(5)(B) of the
Exchange Act. Consequently, the Commission preliminary believes this
requirement would not result in a collection of information requirement
under the PRA because the requirement to file the report with the other
annual reports required under Rule 17g-3 derives exclusively from
Section 15E(j)(5)(B) of the Exchange Act (i.e., not from Commission
rulemaking).\815\ Moreover, the Commission is not proposing to add any
additional requirements with respect to the filing other than the
proposed requirement that this report and the other annual reports be
submitted through the EDGAR system, which is addressed separately in
this PRA.\816\
---------------------------------------------------------------------------

    \813\ See proposed new paragraph (a)(8) of Rule 17g-3; see also
Section II.K of this release for a more detailed discussion of this
proposal.
    \814\ See 15 U.S.C. 78o-7(j)(5)(B). Section 15E(k) of the
Exchange Act provides that each NRSRO shall, on a confidential
basis, file with the Commission, at intervals determined by the
Commission, such financial statements, certified (if required by the
rules or regulations of the Commission) by an independent public
accountant, and information concerning its financial condition, as
the Commission, by rule may prescribe as necessary or appropriate in
the public interest or for the protection of investors. See 15
U.S.C. 78o-7(k). The Commission implemented Section 15E(k) by
adopting Rule 17g-3. See 17 CFR 240.17g-3; see also Oversight of
Credit Rating Agencies Registered as Nationally Recognized
Statistical Rating Organizations, 72 FR at 33590-33593 (June 18,
2007).
    \815\ See 15 U.S.C. 78o-7(j)(5)(B).
    \816\ Compare 15 U.S.C. 78o-7(j)(5)(B), with proposed new
paragraph (a)(8) of Rule 17g-3.

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5. Proposed Amendments to Rule 17g-7
    The Commission proposes to amend Rule 17g-7.\817\ First, the
Commission is proposing to add new paragraphs (a)(1) and (2) to Rule
17g-7 to implement rulemaking mandated in Sections 15E(s)(1), (2), (3),
and (4)(D) of the Exchange Act.\818\ Proposed new paragraphs (a)(1) and
(2) of Rule 17g-2 would require, respectively, an NRSRO when taking a
rating action to publish a form containing information about the credit
rating resulting from or subject to the rating action; and any
certification of a provider third-party due diligence services received
by the NRSRO that relates to the credit rating.\819\ Proposed paragraph
(a)(1) of Rule 17g-7 would contain three primary components: paragraph
(a)(1)(i) prescribing the format of the form; \820\ paragraph
(a)(1)(ii) prescribing the content of the form; \821\ and paragraph
(a)(1)(iii) prescribing an attestation requirement for the form.\822\
Proposed paragraph (a)(2) of Rule 17g-7 would identify a certification
from a provider of third-party due diligence services as an item that
must be published with a rating action.\823\
---------------------------------------------------------------------------

    \817\ 17 CFR 240.17g-7.
    \818\ See 15 U.S.C. 78o-7(s)(1), (2), (3), and (4)(D) and
proposed new paragraph (a) of Rule 17g-7; see also Sections II.G.1
through G.5 of this release for a more detailed discussion of this
proposal.
    \819\ See proposed new paragraphs (a)(1) and (2) of Rule 17g-7.
    \820\ See Section II.G.2 of this release for a detailed
discussion of this proposal.
    \821\ See Section II.G.3 of this release for a detailed
discussion of this proposal.
    \822\ See Section II.G.4 of this release for a detailed
discussion of this proposal.
    \823\ See Section II.G.5 of this release for a detailed
discussion of this proposal.
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    Second, the Commission is proposing to add new paragraph (b) to
Rule 17g-7. This proposed amendment would implement rulemaking mandated
in Section 15E(q) of the Exchange Act by: (1) Re-codifying in paragraph
(b) of Rule 17g-7 requirements currently contained in paragraph (d)(3)
of Rule 17g-2; and (2) substantially enhancing those requirements.\824\
More specifically, paragraph (d)(3) of Rule 17g-2 requires an NRSRO to,
among other things, make publicly available on its corporate Internet
Web site in an XBRL format the information required to be documented
pursuant to paragraph (a)(8) of the rule with respect to any credit
rating initially determined by the NRSRO on or after June 26, 2007, the
effective date of the Rating Agency Act of 2006.\825\
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    \824\ See 15 U.S.C. 78o-7(q) and proposed new paragraph (b) of
Rule 17g-7; see also Section II.E.2 of this release for a more
detailed discussion of this proposal.
    \825\ 17 CFR 240.17-2(d)(3)(i)(A). Paragraph (a)(8) of Rule 17g-
2 requires an NRSRO to make and retain a record that, ``for each
outstanding credit rating, shows all rating actions and the date of
such actions from the initial credit rating to the current credit
rating identified by the name of the rated security or obligor and,
if applicable, the CUSIP of the rated security or the Central Index
Key (``CIK'') number of the rated obligor.'' 17 CFR 240.17-2(a)(8).
---------------------------------------------------------------------------

    These requirements would be enhanced in four ways. The first
enhancement would make the disclosure easier for investors and other
users of credit ratings to locate. Specifically, new proposed paragraph
(b)(1) of Rule 17g-7 would require the NRSRO, among other things, to
publicly disclose the ratings history information for free on an easily
accessible portion of its corporate Internet Web site.\826\
---------------------------------------------------------------------------

    \826\ See proposed new paragraph (b)(1) of Rule 17g-7.
---------------------------------------------------------------------------

    The second enhancement would broaden the scope of credit ratings
subject to the disclosure requirements. Specifically, proposed new
paragraph (b)(1)(i) of Rule 17g-7 would require an NRSRO to disclose
each credit rating assigned to an obligor, security, and money market
instrument in every class of credit ratings for which the NRSRO is
registered that was outstanding as of June 26, 2007 and any subsequent
upgrades or downgrades of a credit rating assigned to the obligor,
security, or money market instrument (including a downgrade to, or
assignment of, default), any placements of a credit rating assigned to
the obligor, security, or money market instrument on watch or review,
any affirmation of a credit rating assigned to the obligor, security,
or money market instrument, and a withdrawal of a credit rating
assigned to the obligor, security, or money market instrument.\827\
With respect to credit ratings initially determined on or after June
26, 2007, the amendments would clarify that the disclosure of the
rating history information would be triggered when an NRSRO publishes
any expected or preliminary credit rating assigned to an obligor,
security, or money market instrument before the publication of an
initial credit rating, and any subsequent upgrades or downgrades of a
credit rating assigned to the obligor, security, or money market
instrument (including a downgrade to, or assignment of, default), any
placements of a credit rating assigned to the obligor, security, or
money market instrument on watch or review, any affirmation of a credit
rating assigned to the obligor, security, or money market instrument,
and a withdrawal of a credit rating assigned to the obligor, security,
or money market instrument.\828\
---------------------------------------------------------------------------

    \827\ See proposed new paragraph (b)(1)(i) of Rule 17g-7.
    \828\ See proposed new paragraph (b)(1)(ii) of Rule 17g-7.
---------------------------------------------------------------------------

    The third enhancement would increase the scope of information that
must be disclosed about a rating action. Specifically, proposed
paragraph (b)(2) of Rule 17g-7 would identify 7 categories of data that
would need to be disclosed when a credit rating action is published
pursuant to proposed new paragraph (b)(1) of Rule 17g-7.\829\ The
fourth enhancement would be to require that a rating history not be
removed from the disclosure until 20 years after the NRSRO withdraws
the credit rating assigned to the obligor, security, or money market
instrument.\830\
---------------------------------------------------------------------------

    \829\ See proposed new paragraph (b)(2) of Rule 17g-7.
    \830\ See proposed new paragraph (b)(5) of Rule 17g-7.
---------------------------------------------------------------------------

6. Proposed New Rule 17g-8
    The Commission is proposing new Rule 17g-8 that would have
paragraphs (a), (b), and (c) (each paragraph would have sub-
paragraphs). Proposed paragraph (a) of new Rule 17g-8 would implement
rulemaking mandated in Section 15E(r) of the Exchange Act by requiring
an NRSRO to have policies and procedures with respect to the procedures
and methodologies the NRSRO uses to determine credit ratings.\831\ In
particular, proposed paragraph (a)(1) would require the NRSRO to have
policies and procedures that are reasonably designed to ensure that the
procedures and methodologies, including qualitative and quantitative
data and models, the NRSRO uses to determine credit ratings are
approved by its board of directors or, if the NRSRO does not have a
board of directors, a body performing a function similar to that of a
board of directors.\832\ Proposed paragraph (a)(2) would require an
NRSRO to have policies and procedures that are reasonably designed to
ensure that the procedures and methodologies, including qualitative and
quantitative data and models, the NRSRO uses to determine credit
ratings are developed and modified in accordance with the policies and
procedures of the NRSRO.\833\ Proposed paragraph (a)(3)(i) would
require an NRSRO to have policies and procedures that are reasonably
designed to ensure that material changes to the procedures and

methodologies, including changes to qualitative and quantitative data
and models, the NRSRO uses to determine credit ratings are applied
consistently to all credit ratings to which the changed procedures or
methodologies apply.\834\ Proposed paragraph (a)(3)(ii) would require
the NRSRO to have policies and procedures that are reasonably designed
to ensure that material changes to the procedures and methodologies,
including changes to qualitative and quantitative data and models, the
NRSRO uses to determine credit ratings are, to the extent that the
changes are to surveillance or monitoring procedures and methodologies,
applied to then-current credit ratings within a reasonable period of
time taking into consideration the number of ratings impacted, the
complexity of the procedures and methodologies used to determine the
credit ratings, and the type of obligor, security, or money market
instrument being rated.\835\ Proposed paragraph (a)(4)(i) would require
the NRSRO to have policies and procedures that are reasonably designed
to ensure that the NRSRO promptly publishes on an easily accessible
portion of its corporate Internet Web site material changes to the
procedures and methodologies, including to qualitative models or
quantitative inputs, the NRSRO uses to determine credit ratings, the
reason for the changes, and the likelihood the changes will result in
changes to any current ratings.\836\ Proposed paragraph (a)(4)(ii)
would require the NRSRO to have policies and procedures that are
reasonably designed to ensure the NRSRO promptly publishes on an easily
accessible portion of its corporate Internet Web site significant
errors identified in a procedure or methodology, including a
qualitative or quantitative model, the NRSRO uses to determine credit
ratings that may result in a change in current credit ratings.\837\
Finally, proposed paragraph (a)(5) would require the NRSRO to have
policies and procedures that are reasonably designed to ensure that it
discloses the version of a credit rating procedure or methodology,
including the qualitative methodology or quantitative inputs, used with
respect to a particular credit rating.\838\