Order Extending Temporary Conditional Exemption for Nationally Recognized Statistical Rating Organizations From Requirements of Rule 17g-5 Under the Securities Exchange Act of 1934 and Request for Comment, 73137-73139 [2010-29929]

Download as PDF Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices need a reasonable accommodation to participate in these public meetings, or need this meeting notice or the transcript or other information from the public meetings in another format (e.g. braille, large print), please notify Angela Bolduc, Chief, Employee/Labor Relations and Work Life Branch, at 301– 492–2230, TDD: 301–415–2100, or by e-mail at angela.bolduc@nrc.gov. Determinations on requests for reasonable accommodation will be made on a case-by-case basis. * * * * * This notice is distributed electronically to subscribers. If you no longer wish to receive it, or would like to be added to the distribution, please contact the Office of the Secretary, Washington, DC 20555 (301–415–1969), or send an e-mail to darlene.wright@nrc.gov. Dated: November 22, 2010. Rochelle C. Bavol, Policy Coordinator, Office of the Secretary. [FR Doc. 2010–30093 Filed 11–24–10; 4:15 pm] BILLING CODE 7590–01–P SECURITIES AND EXCHANGE COMMISSION Proposed Collection; Comment Request Upon Written Request, Copies Available From: Securities and Exchange Commission, Office of Investor Education and Advocacy, Washington, DC 20549–0213. mstockstill on DSKH9S0YB1PROD with NOTICES Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange Commission (‘‘Commission’’) is soliciting comments on the collection of information summarized below. The Commission plans to submit this existing collection of information to the Office of Management and Budget for extension and approval. Rule 701 (17 CFR 230.701) under the Securities Act of 1933 (‘‘Securities Act’’) (15 U.S.C. 77a et seq.) provides an exemption for certain issuers from the registration requirements of the Securities Act for limited offerings and sales of securities issued under compensatory benefit plans or contracts. The purpose of Rule 701 is to ensure that a basic level of information is available to employees and others when substantial amounts of securities are issued in compensatory arrangements. Approximately 300 companies annually 17:57 Nov 26, 2010 Jkt 223001 Dated: November 22, 2010. Elizabeth M. Murphy, Secretary. [FR Doc. 2010–29889 Filed 11–26–10; 8:45 am] BILLING CODE 8011–01–P Extension: Rule 701, OMB Control No. 3235–0522, SEC File No. 270–306. VerDate Mar<15>2010 rely on the Rule 701 exemption. The Rule 701 disclosure takes an estimated 2 hours per response to prepare for a total annual burden of 600 hours. We estimate that 25% of the 2 hours per response (0.5 hours) is prepared by the company for a total annual reporting burden of 150 hours (0.5 hours per response × 300 responses). Written comments are invited on: (a) Whether this collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency’s estimate of the burden imposed by the collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to Thomas Bayer, Chief Information Officer, Securities and Exchange Commission, C/O Remi Pavlik-Simon, 6432 General Green Way, Alexandria, Virginia 22312; or send an e-mail to: PRA_Mailbox@sec.gov. SECURITIES AND EXCHANGE COMMISSION [Release No. 34–63363; File No. S7–04–09] Order Extending Temporary Conditional Exemption for Nationally Recognized Statistical Rating Organizations From Requirements of Rule 17g–5 Under the Securities Exchange Act of 1934 and Request for Comment November 23, 2010. I. Introduction On May 19, 2010, the Securities and Exchange Commission (‘‘Commission’’) conditionally exempted, with respect to certain credit ratings and until December 2, 2010, nationally recognized statistical rating organizations (‘‘NRSROs’’) from certain requirements in Rule 17g–5(a)(3) 1 under the Securities Exchange Act of 1934 1 See PO 00000 17 CFR 240.17g–5(a)(3). Frm 00111 Fmt 4703 Sfmt 4703 73137 (‘‘Exchange Act’’), which had a compliance date of June 2, 2010.2 Pursuant to the Order, an NRSRO is not required to comply with Rule 17g– 5(a)(3) until December 2, 2010 with respect to credit ratings where: (1) The issuer of the structured finance product is a non-U.S. person; and (2) the NRSRO has a reasonable basis to conclude that the structured finance product will be offered and sold upon issuance, and that any arranger linked to the structured finance product will effect transactions of the structured finance product after issuance, only in transactions that occur outside the U.S. (‘‘covered transactions’’).3 The Commission is extending the temporary conditional exemption exempting NRSROs from complying with Rule 17g–5(a)(3) with respect to rating covered transactions until December 2, 2011. II. Background Rule 17g–5 identifies, in paragraphs (b) and (c) of the rule, a series of conflicts of interest arising from the business of determining credit ratings.4 Paragraph (a) of Rule 17g–5 5 prohibits an NRSRO from issuing or maintaining a credit rating if it is subject to the conflicts of interest identified in paragraph (b) of Rule 17g–5 unless the NRSRO has taken the steps prescribed in paragraph (a)(1) (i.e., disclosed the type of conflict of interest in Exhibit 6 to Form NRSRO in accordance with Section 15E(a)(1)(B)(vi) of the Exchange Act 6 and Rule 17g–1) 7 and paragraph (a)(2) (i.e., established and is maintaining and enforcing written policies and procedures to address and manage conflicts of interest in accordance with Section 15E(h) of the Exchange Act).8 Paragraph (c) of Rule 17g–5 specifically prohibits seven types of conflicts of interest. Consequently, an NRSRO is prohibited from issuing or maintaining a credit rating when it is subject to these conflicts regardless of whether it had disclosed them and established procedures reasonably designed to address them. In December 2009, the Commission adopted subparagraph (a)(3) to Rule 17g–5. This provision requires an NRSRO that is hired by an arranger to determine an initial credit rating for a structured finance product to take 2 See Securities Exchange Act Release No. 62120 (May 19, 2010), 75 FR 28825 (May 24, 2010) (‘‘Order’’). 3 See id. at 28827–28 (setting forth conditions of relief). 4 17 CFR 240.17g–5(b) and (c). 5 17 CFR 240.17g–5(a). 6 15 U.S.C. 78o–7(a)(1)(B)(vi). 7 17 CFR 240.17g–1. 8 15 U.S.C. 78o–7(h). E:\FR\FM\29NON1.SGM 29NON1 73138 Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices mstockstill on DSKH9S0YB1PROD with NOTICES certain steps designed to allow an NRSRO that is not hired by the arranger to nonetheless determine an initial credit rating—and subsequently monitor that credit rating—for the structured finance product.9 In particular, under Rule 17g–5(a)(3), an NRSRO is prohibited from issuing or maintaining a credit rating when it is subject to the conflict of interest identified in paragraph (b)(9) of Rule 17g–5 (i.e., being hired by an arranger to determine a credit rating for a structured finance product) 10 unless it has taken the steps prescribed in paragraphs (a)(1) and (2) of Rule 17g–5 (discussed above) and the steps prescribed in new paragraph (a)(3) of Rule 17g–5.11 Rule 17g–5(a)(3), among other things, requires that the NRSRO must: • Maintain on a password-protected Internet Web site a list of each structured finance product for which it currently is in the process of determining an initial credit rating in chronological order and identifying the type of structured finance product, the name of the issuer, the date the rating process was initiated, and the Internet Web site address where the arranger represents the information provided to the hired NRSRO can be accessed by other NRSROs; • Provide free and unlimited access to such password-protected Internet Web site during the applicable calendar year to any NRSRO that provides it with a copy of the certification described in paragraph (e) of Rule 17g–5 that covers that calendar year; 12 and 9 See 17 CFR 240.17g–5(a)(3); see also Securities Exchange Act Release No. 61050 (November 23, 2009), 74 FR 63832 (‘‘Adopting Release’’) at 63844– 45. 10 Paragraph (b)(9) of Rule 17g–5 identifies the following conflict of interest: issuing or maintaining a credit rating for a security or money market instrument issued by an asset pool or as part of any asset-backed or mortgage-backed securities transaction that was paid for by the issuer, sponsor, or underwriter of the security or money market instrument. 17 CFR 240.17g–5(b)(9). 11 17 CFR 240.17g–5(a)(3). 12 Paragraph (e) of Rule 17g–5 requires that an NRSRO seeking to access the hired NRSRO’s Internet website during the applicable calendar year must furnish the Commission with the following certification: The undersigned hereby certifies that it will access the Internet Web sites described in 17 CFR 240.17g–5(a)(3) solely for the purpose of determining or monitoring credit ratings. Further, the undersigned certifies that it will keep the information it accesses pursuant to 17 CFR 240.17g–5(a)(3) confidential and treat it as material nonpublic information subject to its written policies and procedures established, maintained, and enforced pursuant to section 15E(g)(1) of the Act (15 U.S.C. 78o–7(g)(1)) and 17 CFR 240.17g–4. Further, the undersigned certifies that it will determine and maintain credit ratings for at least 10% of the issued securities and money market instruments for which it accesses information pursuant to 17 CFR 240.17g–5(a)(3)(iii), if it accesses such information VerDate Mar<15>2010 17:57 Nov 26, 2010 Jkt 223001 • Obtain from the arranger a written representation that can reasonably be relied upon that the arranger will, among other things, disclose on a password-protected Internet web site the information it provides to the hired NRSRO to determine the initial credit rating (and monitor that credit rating) and provide access to the web site to an NRSRO that provides it with a copy of the certification described in paragraph (e) Rule 17g–5.13 The Commission stated in the Adopting Release that subparagraph Rule 17g–5(a)(3) is designed to address for 10 or more issued securities or money market instruments in the calendar year covered by the certification. Further, the undersigned certifies one of the following as applicable: (1) In the most recent calendar year during which it accessed information pursuant to 17 CFR 240.17g–5(a)(3), the undersigned accessed information for [Insert Number] issued securities and money market instruments through Internet Web sites described in 17 CFR 240.17g–5(a)(3) and determined and maintained credit ratings for [Insert Number] of such securities and money market instruments; or (2) The undersigned previously has not accessed information pursuant to 17 CFR 240.17g–5(a)(3) 10 or more times during the most recently ended calendar year. 13 In particular, under paragraph (a)(3)(iii) of Rule 17g–5, the arranger must represent to the hired NRSRO that it will: (1) Maintain the information described in paragraphs (a)(3)(iii)(C) and (a)(3)(iii)(D) of Rule 17g–5 available at an identified password-protected Internet Web site that presents the information in a manner indicating which information currently should be relied on to determine or monitor the credit rating; (2) Provide access to such password-protected Internet Web site during the applicable calendar year to any NRSRO that provides it with a copy of the certification described in paragraph (e) of Rule 17g–5 that covers that calendar year, provided that such certification indicates that the nationally recognized statistical rating organization providing the certification either: (i) Determined and maintained credit ratings for at least 10% of the issued securities and money market instruments for which it accessed information pursuant to paragraph (a)(3)(iii) of Rule 17g–5 in the calendar year prior to the year covered by the certification, if it accessed such information for 10 or more issued securities or money market instruments; or (ii) has not accessed information pursuant to paragraph (a)(3) of Rule 17g–5 10 or more times during the most recently ended calendar year. (3) Post on such password-protected Internet Web site all information the arranger provides to the NRSRO, or contracts with a third party to provide to the NRSRO, for the purpose of determining the initial credit rating for the security or money market instrument, including information about the characteristics of the assets underlying or referenced by the security or money market instrument, and the legal structure of the security or money market instrument, at the same time such information is provided to the NRSRO; and (4) Post on such password-protected Internet Web site all information the arranger provides to the NRSRO, or contracts with a third party to provide to the NRSRO, for the purpose of undertaking credit rating surveillance on the security or money market instrument, including information about the characteristics and performance of the assets underlying or referenced by the security or money market instrument at the same time such information is provided to the NRSRO. PO 00000 Frm 00112 Fmt 4703 Sfmt 4703 conflicts of interest and improve the quality of credit ratings for structured finance products by making it possible for more NRSROs to rate structured finance products.14 For example, the Commission noted that when an NRSRO is hired to rate a structured finance product, some of the information it relies on to determine the rating is generally not made public.15 As a result, structured finance products frequently are issued with ratings from only the one or two NRSROs that have been hired by the arranger, with the attendant conflict of interest that creates.16 The Commission stated that subparagraph Rule 17g–5(a)(3) was designed to increase the number of credit ratings extant for a given structured finance product and, in particular, to promote the issuance of credit ratings by NRSROs that are not hired by arrangers.17 The Commission’s goal in adopting the rule was to provide users of credit ratings with more views on the creditworthiness of structured finance products.18 In addition, the Commission stated that Rule 17g–5(a)(3) was designed to reduce the ability of arrangers to obtain better than warranted ratings by exerting influence over NRSROs hired to determine credit ratings for structured finance products.19 Specifically, by opening up the rating process to more NRSROs, the Commission intended to make it easier for the hired NRSRO to resist such pressure by increasing the likelihood that any steps taken to inappropriately favor the arranger could be exposed to the market through the credit ratings issued by other NRSROs.20 Rule 17g–5(a)(3) became effective on February 2, 2010, and the compliance date for Rule 17g–5(a)(3) was June 2, 2010. III. Extension of Conditional Temporary Extension In the Order, the Commission requested comment generally, but also on a number of specific issues.21 The Commission received six comments in response to this solicitation of comment.22 The commenters continue 14 Adopting Release at 63844. 15 Id. 16 Id. 17 Id. 18 Id. 19 Id. 20 Id. 21 See Order, supra note 2, at 28828. from Masamichi Kono, Vice Commissioner for International Affairs, Financial Services Agency, Japan, to Elizabeth Murphy, Secretary, Commission, dated Nov. 12, 2010 (‘‘Japan FSA Letter’’); Letter from Masaru Ono, Executive Director, Securitization Forum of Japan, to Elizabeth Murphy, Secretary, Commission, dated 22 Letter E:\FR\FM\29NON1.SGM 29NON1 Federal Register / Vol. 75, No. 228 / Monday, November 29, 2010 / Notices to express concern that the extraterritorial application of Rule 17g– 5(a)(3) could, in the commenter’s view, among other things, disrupt local securitization markets,23 inhibit the ability of local firms to raise capital,24 and conflict with local laws.25 Several commenters also requested that the conditional temporary exemption be extended or made permanent.26 Given the continued concerns about potential disruptions of local securitization markets, and because the Commission’s consideration of the issues raised will benefit from additional time to engage in further dialogue with interested parties and to monitor market and regulatory developments, the Commission believes extending the conditional temporary exemption until December 2, 2011 is necessary or appropriate in the public interest, and is consistent with the protection of investors. IV. Request for Comment The Commission believes that it would be useful to continue to provide interested parties opportunity to comment. Comments may be submitted by any of the following methods: Electronic Comments mstockstill on DSKH9S0YB1PROD with NOTICES • Use the Commission’s Internet comment form (https://www.sec.gov/ rules/exorders.shtml); or • Send an e-mail to rulecomments@sec.gov. Please include File Number S7–04–09 on the subject line; or Nov. 12, 2010 (‘‘SFJ Letter’’); Letter from Rick Watson, Managing Director, Association for Financial Markets in Europe/European Securitisation Forum, to Elizabeth Murphy, Secretary, Commission, dated Nov. 11, 2010 (‘‘AFME Letter’’); Letter from Jack Rando, Director, Capital Markets, Investment Industry Association of Canada, to Randall Roy, Assistant Director, Division, Commission, dated Sep. 22, 2010 (‘‘IIAC Letter’’); Letter from Christopher Dalton, Chief Executive Officer, Australian Securitisation Forum, to Randall Roy, Assistant Director, Division, Commission, dated Jun. 27, 2010 (‘‘AuSF Letter’’); Letter from Takefumi Emori, Managing Director, Japan Credit Rating Agency, Ltd. (‘‘JCR’’) to Elizabeth Murphy, Secretary, Commission, dated Jun. 25, 2010 (‘‘JCR Letter’’). 23 See Japan FSA Letter; SFJ Letter; AFME Letter; JCR Letter, AuSF Letter. 24 See AFME Letter; JCR Letter; AuSF Letter. 25 See Japan FSA Letter; AFME Letter; JCR Letter; AuSF Letter; IIAC Letter. With respect to local laws, we note that the European Commission in recent months has issued a relevant proposal for amendments to the European Union Regulation on Credit Ratings. See ‘‘Regulation of the European Parliament and of the Counsel on amending Regulation (EC) No 1060/2009 on credit rating agencies’’ (available at https://ec.europa.eu/ internal_market/securities/docs/agencies/ 100602_proposal_en.pdf). 26 See Japan FSA Letter; SFJ Letter; AFME Letter; JCR Letter. VerDate Mar<15>2010 17:57 Nov 26, 2010 Jkt 223001 73139 • Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments. By the Commission. Elizabeth M. Murphy, Secretary. Paper Comments [FR Doc. 2010–29929 Filed 11–26–10; 8:45 am] • Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F St., NE., Washington, DC 20549– 1090. BILLING CODE 8011–01–P All submissions should refer to File Number S7–04–09. This file number should be included on the subject line if e-mail is used. To help us process and review your comments more efficiently, please use only one method. The Commission will post all comments on the Commission’s Internet website (https://www.sec.gov/rules/ exorders.shtml). Comments are also available for website viewing and printing in the Commission’s Public Reference Room, 100 F St. NE., Washington, DC 20549 on official business days between the hours of 10 a.m. and 3 p.m. All comments received will be posted without change; the Commission does not edit personal identifying information from submissions. You should submit only information that you wish to make available publicly. Sunshine Act Meeting V. Conclusion For the foregoing reasons, the Commission believes it would be necessary or appropriate in the public interest and consistent with the protection of investors to extend the conditional temporary exemption exempting NRSROs from complying with Rule 17g–5(a)(3) with respect to rating covered transactions until December 2, 2011. Accordingly It is hereby ordered, pursuant to Section 36 of the Exchange Act, that a nationally recognized statistical rating organization is exempt until December 2, 2011 from the requirements in Rule 17g–5(a)(3) (17 CFR 240.17g–5(a)(3)) for credit ratings where: (1) The issuer of the security or money market instrument is not a U.S. person (as defined under Securities Act Rule 902(k)); and (2) The nationally recognized statistical rating organization has a reasonable basis to conclude that the structured finance product will be offered and sold upon issuance, and that any arranger linked to the structured finance product will effect transactions of the structured finance product after issuance, only in transactions that occur outside the U.S. PO 00000 Frm 00113 Fmt 4703 Sfmt 9990 SECURITIES AND EXCHANGE COMMISSION Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94–409, that the Securities and Exchange Commission will hold a Closed Meeting on Thursday, December 2, 2010 at 2 p.m. Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters also may be present. The General Counsel of the Commission, or his designee, has certified that, in his opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR 200.402(a)(3), (5), (7), 9(ii) and (10), permit consideration of the scheduled matters at the Closed Meeting. Commissioner Casey, as duty officer, voted to consider the items listed for the Closed Meeting in a closed session. The subject matter of the Closed Meeting scheduled for Thursday, December 2, 2010 will be: Institution and settlement of injunctive actions; Institution and settlement of administrative proceedings; An adjudicatory matter; and Other matters relating to enforcement proceedings. At times, changes in Commission priorities require alterations in the scheduling of meeting items. For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact: The Office of the Secretary at (202) 551–5400. Dated: November 24, 2010. Elizabeth M. Murphy, Secretary. [FR Doc. 2010–30055 Filed 11–24–10; 11:15 am] BILLING CODE 8011–01–P E:\FR\FM\29NON1.SGM 29NON1

Agencies

[Federal Register Volume 75, Number 228 (Monday, November 29, 2010)]
[Notices]
[Pages 73137-73139]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-29929]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-63363; File No. S7-04-09]


Order Extending Temporary Conditional Exemption for Nationally 
Recognized Statistical Rating Organizations From Requirements of Rule 
17g-5 Under the Securities Exchange Act of 1934 and Request for Comment

November 23, 2010.

I. Introduction

    On May 19, 2010, the Securities and Exchange Commission 
(``Commission'') conditionally exempted, with respect to certain credit 
ratings and until December 2, 2010, nationally recognized statistical 
rating organizations (``NRSROs'') from certain requirements in Rule 
17g-5(a)(3) \1\ under the Securities Exchange Act of 1934 (``Exchange 
Act''), which had a compliance date of June 2, 2010.\2\ Pursuant to the 
Order, an NRSRO is not required to comply with Rule 17g-5(a)(3) until 
December 2, 2010 with respect to credit ratings where: (1) The issuer 
of the structured finance product is a non-U.S. person; and (2) the 
NRSRO has a reasonable basis to conclude that the structured finance 
product will be offered and sold upon issuance, and that any arranger 
linked to the structured finance product will effect transactions of 
the structured finance product after issuance, only in transactions 
that occur outside the U.S. (``covered transactions'').\3\ The 
Commission is extending the temporary conditional exemption exempting 
NRSROs from complying with Rule 17g-5(a)(3) with respect to rating 
covered transactions until December 2, 2011.
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    \1\ See 17 CFR 240.17g-5(a)(3).
    \2\ See Securities Exchange Act Release No. 62120 (May 19, 
2010), 75 FR 28825 (May 24, 2010) (``Order'').
    \3\ See id. at 28827-28 (setting forth conditions of relief).
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II. Background

    Rule 17g-5 identifies, in paragraphs (b) and (c) of the rule, a 
series of conflicts of interest arising from the business of 
determining credit ratings.\4\ Paragraph (a) of Rule 17g-5 \5\ 
prohibits an NRSRO from issuing or maintaining a credit rating if it is 
subject to the conflicts of interest identified in paragraph (b) of 
Rule 17g-5 unless the NRSRO has taken the steps prescribed in paragraph 
(a)(1) (i.e., disclosed the type of conflict of interest in Exhibit 6 
to Form NRSRO in accordance with Section 15E(a)(1)(B)(vi) of the 
Exchange Act \6\ and Rule 17g-1) \7\ and paragraph (a)(2) (i.e., 
established and is maintaining and enforcing written policies and 
procedures to address and manage conflicts of interest in accordance 
with Section 15E(h) of the Exchange Act).\8\ Paragraph (c) of Rule 17g-
5 specifically prohibits seven types of conflicts of interest. 
Consequently, an NRSRO is prohibited from issuing or maintaining a 
credit rating when it is subject to these conflicts regardless of 
whether it had disclosed them and established procedures reasonably 
designed to address them.
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    \4\ 17 CFR 240.17g-5(b) and (c).
    \5\ 17 CFR 240.17g-5(a).
    \6\ 15 U.S.C. 78o-7(a)(1)(B)(vi).
    \7\ 17 CFR 240.17g-1.
    \8\ 15 U.S.C. 78o-7(h).
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    In December 2009, the Commission adopted subparagraph (a)(3) to 
Rule 17g-5. This provision requires an NRSRO that is hired by an 
arranger to determine an initial credit rating for a structured finance 
product to take

[[Page 73138]]

certain steps designed to allow an NRSRO that is not hired by the 
arranger to nonetheless determine an initial credit rating--and 
subsequently monitor that credit rating--for the structured finance 
product.\9\ In particular, under Rule 17g-5(a)(3), an NRSRO is 
prohibited from issuing or maintaining a credit rating when it is 
subject to the conflict of interest identified in paragraph (b)(9) of 
Rule 17g-5 (i.e., being hired by an arranger to determine a credit 
rating for a structured finance product) \10\ unless it has taken the 
steps prescribed in paragraphs (a)(1) and (2) of Rule 17g-5 (discussed 
above) and the steps prescribed in new paragraph (a)(3) of Rule 17g-
5.\11\ Rule 17g-5(a)(3), among other things, requires that the NRSRO 
must:
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    \9\ See 17 CFR 240.17g-5(a)(3); see also Securities Exchange Act 
Release No. 61050 (November 23, 2009), 74 FR 63832 (``Adopting 
Release'') at 63844-45.
    \10\ Paragraph (b)(9) of Rule 17g-5 identifies the following 
conflict of interest: issuing or maintaining a credit rating for a 
security or money market instrument issued by an asset pool or as 
part of any asset-backed or mortgage-backed securities transaction 
that was paid for by the issuer, sponsor, or underwriter of the 
security or money market instrument. 17 CFR 240.17g-5(b)(9).
    \11\ 17 CFR 240.17g-5(a)(3).
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     Maintain on a password-protected Internet Web site a list 
of each structured finance product for which it currently is in the 
process of determining an initial credit rating in chronological order 
and identifying the type of structured finance product, the name of the 
issuer, the date the rating process was initiated, and the Internet Web 
site address where the arranger represents the information provided to 
the hired NRSRO can be accessed by other NRSROs;
     Provide free and unlimited access to such password-
protected Internet Web site during the applicable calendar year to any 
NRSRO that provides it with a copy of the certification described in 
paragraph (e) of Rule 17g-5 that covers that calendar year; \12\ and
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    \12\ Paragraph (e) of Rule 17g-5 requires that an NRSRO seeking 
to access the hired NRSRO's Internet website during the applicable 
calendar year must furnish the Commission with the following 
certification:
    The undersigned hereby certifies that it will access the 
Internet Web sites described in 17 CFR 240.17g-5(a)(3) solely for 
the purpose of determining or monitoring credit ratings. Further, 
the undersigned certifies that it will keep the information it 
accesses pursuant to 17 CFR 240.17g-5(a)(3) confidential and treat 
it as material nonpublic information subject to its written policies 
and procedures established, maintained, and enforced pursuant to 
section 15E(g)(1) of the Act (15 U.S.C. 78o-7(g)(1)) and 17 CFR 
240.17g-4. Further, the undersigned certifies that it will determine 
and maintain credit ratings for at least 10% of the issued 
securities and money market instruments for which it accesses 
information pursuant to 17 CFR 240.17g-5(a)(3)(iii), if it accesses 
such information for 10 or more issued securities or money market 
instruments in the calendar year covered by the certification. 
Further, the undersigned certifies one of the following as 
applicable: (1) In the most recent calendar year during which it 
accessed information pursuant to 17 CFR 240.17g-5(a)(3), the 
undersigned accessed information for [Insert Number] issued 
securities and money market instruments through Internet Web sites 
described in 17 CFR 240.17g-5(a)(3) and determined and maintained 
credit ratings for [Insert Number] of such securities and money 
market instruments; or (2) The undersigned previously has not 
accessed information pursuant to 17 CFR 240.17g-5(a)(3) 10 or more 
times during the most recently ended calendar year.
---------------------------------------------------------------------------

     Obtain from the arranger a written representation that can 
reasonably be relied upon that the arranger will, among other things, 
disclose on a password-protected Internet web site the information it 
provides to the hired NRSRO to determine the initial credit rating (and 
monitor that credit rating) and provide access to the web site to an 
NRSRO that provides it with a copy of the certification described in 
paragraph (e) Rule 17g-5.\13\
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    \13\ In particular, under paragraph (a)(3)(iii) of Rule 17g-5, 
the arranger must represent to the hired NRSRO that it will:
    (1) Maintain the information described in paragraphs 
(a)(3)(iii)(C) and (a)(3)(iii)(D) of Rule 17g-5 available at an 
identified password-protected Internet Web site that presents the 
information in a manner indicating which information currently 
should be relied on to determine or monitor the credit rating;
    (2) Provide access to such password-protected Internet Web site 
during the applicable calendar year to any NRSRO that provides it 
with a copy of the certification described in paragraph (e) of Rule 
17g-5 that covers that calendar year, provided that such 
certification indicates that the nationally recognized statistical 
rating organization providing the certification either: (i) 
Determined and maintained credit ratings for at least 10% of the 
issued securities and money market instruments for which it accessed 
information pursuant to paragraph (a)(3)(iii) of Rule 17g-5 in the 
calendar year prior to the year covered by the certification, if it 
accessed such information for 10 or more issued securities or money 
market instruments; or (ii) has not accessed information pursuant to 
paragraph (a)(3) of Rule 17g-5 10 or more times during the most 
recently ended calendar year.
    (3) Post on such password-protected Internet Web site all 
information the arranger provides to the NRSRO, or contracts with a 
third party to provide to the NRSRO, for the purpose of determining 
the initial credit rating for the security or money market 
instrument, including information about the characteristics of the 
assets underlying or referenced by the security or money market 
instrument, and the legal structure of the security or money market 
instrument, at the same time such information is provided to the 
NRSRO; and
    (4) Post on such password-protected Internet Web site all 
information the arranger provides to the NRSRO, or contracts with a 
third party to provide to the NRSRO, for the purpose of undertaking 
credit rating surveillance on the security or money market 
instrument, including information about the characteristics and 
performance of the assets underlying or referenced by the security 
or money market instrument at the same time such information is 
provided to the NRSRO.
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    The Commission stated in the Adopting Release that subparagraph 
Rule 17g-5(a)(3) is designed to address conflicts of interest and 
improve the quality of credit ratings for structured finance products 
by making it possible for more NRSROs to rate structured finance 
products.\14\ For example, the Commission noted that when an NRSRO is 
hired to rate a structured finance product, some of the information it 
relies on to determine the rating is generally not made public.\15\ As 
a result, structured finance products frequently are issued with 
ratings from only the one or two NRSROs that have been hired by the 
arranger, with the attendant conflict of interest that creates.\16\ The 
Commission stated that subparagraph Rule 17g-5(a)(3) was designed to 
increase the number of credit ratings extant for a given structured 
finance product and, in particular, to promote the issuance of credit 
ratings by NRSROs that are not hired by arrangers.\17\ The Commission's 
goal in adopting the rule was to provide users of credit ratings with 
more views on the creditworthiness of structured finance products.\18\ 
In addition, the Commission stated that Rule 17g-5(a)(3) was designed 
to reduce the ability of arrangers to obtain better than warranted 
ratings by exerting influence over NRSROs hired to determine credit 
ratings for structured finance products.\19\ Specifically, by opening 
up the rating process to more NRSROs, the Commission intended to make 
it easier for the hired NRSRO to resist such pressure by increasing the 
likelihood that any steps taken to inappropriately favor the arranger 
could be exposed to the market through the credit ratings issued by 
other NRSROs.\20\
---------------------------------------------------------------------------

    \14\ Adopting Release at 63844.
    \15\ Id.
    \16\ Id.
    \17\ Id.
    \18\ Id.
    \19\ Id.
    \20\ Id.
---------------------------------------------------------------------------

    Rule 17g-5(a)(3) became effective on February 2, 2010, and the 
compliance date for Rule 17g-5(a)(3) was June 2, 2010.

III. Extension of Conditional Temporary Extension

    In the Order, the Commission requested comment generally, but also 
on a number of specific issues.\21\ The Commission received six 
comments in response to this solicitation of comment.\22\ The 
commenters continue

[[Page 73139]]

to express concern that the extraterritorial application of Rule 17g-
5(a)(3) could, in the commenter's view, among other things, disrupt 
local securitization markets,\23\ inhibit the ability of local firms to 
raise capital,\24\ and conflict with local laws.\25\ Several commenters 
also requested that the conditional temporary exemption be extended or 
made permanent.\26\ Given the continued concerns about potential 
disruptions of local securitization markets, and because the 
Commission's consideration of the issues raised will benefit from 
additional time to engage in further dialogue with interested parties 
and to monitor market and regulatory developments, the Commission 
believes extending the conditional temporary exemption until December 
2, 2011 is necessary or appropriate in the public interest, and is 
consistent with the protection of investors.
---------------------------------------------------------------------------

    \21\ See Order, supra note 2, at 28828.
    \22\ Letter from Masamichi Kono, Vice Commissioner for 
International Affairs, Financial Services Agency, Japan, to 
Elizabeth Murphy, Secretary, Commission, dated Nov. 12, 2010 
(``Japan FSA Letter''); Letter from Masaru Ono, Executive Director, 
Securitization Forum of Japan, to Elizabeth Murphy, Secretary, 
Commission, dated Nov. 12, 2010 (``SFJ Letter''); Letter from Rick 
Watson, Managing Director, Association for Financial Markets in 
Europe/European Securitisation Forum, to Elizabeth Murphy, 
Secretary, Commission, dated Nov. 11, 2010 (``AFME Letter''); Letter 
from Jack Rando, Director, Capital Markets, Investment Industry 
Association of Canada, to Randall Roy, Assistant Director, Division, 
Commission, dated Sep. 22, 2010 (``IIAC Letter''); Letter from 
Christopher Dalton, Chief Executive Officer, Australian 
Securitisation Forum, to Randall Roy, Assistant Director, Division, 
Commission, dated Jun. 27, 2010 (``AuSF Letter''); Letter from 
Takefumi Emori, Managing Director, Japan Credit Rating Agency, Ltd. 
(``JCR'') to Elizabeth Murphy, Secretary, Commission, dated Jun. 25, 
2010 (``JCR Letter'').
    \23\ See Japan FSA Letter; SFJ Letter; AFME Letter; JCR Letter, 
AuSF Letter.
    \24\ See AFME Letter; JCR Letter; AuSF Letter.
    \25\ See Japan FSA Letter; AFME Letter; JCR Letter; AuSF Letter; 
IIAC Letter. With respect to local laws, we note that the European 
Commission in recent months has issued a relevant proposal for 
amendments to the European Union Regulation on Credit Ratings. See 
``Regulation of the European Parliament and of the Counsel on 
amending Regulation (EC) No 1060/2009 on credit rating agencies'' 
(available at https://ec.europa.eu/internal_market/securities/docs/agencies/100602_proposal_en.pdf).
    \26\ See Japan FSA Letter; SFJ Letter; AFME Letter; JCR Letter.
---------------------------------------------------------------------------

IV. Request for Comment

    The Commission believes that it would be useful to continue to 
provide interested parties opportunity to comment. Comments may be 
submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (https://www.sec.gov/rules/exorders.shtml); or
     Send an e-mail to rule-comments@sec.gov. Please include 
File Number S7-04-09 on the subject line; or
     Use the Federal eRulemaking Portal (https://www.regulations.gov). Follow the instructions for submitting comments.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F St., NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number S7-04-09. This file number 
should be included on the subject line if e-mail is used. To help us 
process and review your comments more efficiently, please use only one 
method. The Commission will post all comments on the Commission's 
Internet website (https://www.sec.gov/rules/exorders.shtml). Comments 
are also available for website viewing and printing in the Commission's 
Public Reference Room, 100 F St. NE., Washington, DC 20549 on official 
business days between the hours of 10 a.m. and 3 p.m. All comments 
received will be posted without change; the Commission does not edit 
personal identifying information from submissions. You should submit 
only information that you wish to make available publicly.

V. Conclusion

    For the foregoing reasons, the Commission believes it would be 
necessary or appropriate in the public interest and consistent with the 
protection of investors to extend the conditional temporary exemption 
exempting NRSROs from complying with Rule 17g-5(a)(3) with respect to 
rating covered transactions until December 2, 2011.

Accordingly

    It is hereby ordered, pursuant to Section 36 of the Exchange Act, 
that a nationally recognized statistical rating organization is exempt 
until December 2, 2011 from the requirements in Rule 17g-5(a)(3) (17 
CFR 240.17g-5(a)(3)) for credit ratings where:
    (1) The issuer of the security or money market instrument is not a 
U.S. person (as defined under Securities Act Rule 902(k)); and
    (2) The nationally recognized statistical rating organization has a 
reasonable basis to conclude that the structured finance product will 
be offered and sold upon issuance, and that any arranger linked to the 
structured finance product will effect transactions of the structured 
finance product after issuance, only in transactions that occur outside 
the U.S.

By the Commission.
Elizabeth M. Murphy,
Secretary.
[FR Doc. 2010-29929 Filed 11-26-10; 8:45 am]
BILLING CODE 8011-01-P
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