CITE
15 USC Sec. 78o-7 01/08/2008EXPCITE
TITLE 15 - COMMERCE AND TRADE CHAPTER 2B - SECURITIES EXCHANGESHEAD
Sec. 78o-7. Registration of nationally recognized statistical rating organizationsSTATUTE
(a) Registration procedures (1) Application for registration (A) In general A credit rating agency that elects to be treated as a nationally recognized statistical rating organization for purposes of this chapter (in this section referred to as the "applicant"), shall furnish to the Commission an application for registration, in such form as the Commission shall require, by rule or regulation issued in accordance with subsection (n), and containing the information described in subparagraph (B). (B) Required information An application for registration under this section shall contain information regarding - (i) credit ratings performance measurement statistics over short-term, mid-term, and long-term periods (as applicable) of the applicant; (ii) the procedures and methodologies that the applicant uses in determining credit ratings; (iii) policies or procedures adopted and implemented by the applicant to prevent the misuse, in violation of this chapter (or the rules and regulations hereunder), of material, nonpublic information; (iv) the organizational structure of the applicant; (v) whether or not the applicant has in effect a code of ethics, and if not, the reasons therefor; (vi) any conflict of interest relating to the issuance of credit ratings by the applicant; (vii) the categories described in any of clauses (i) through (v) of section 78c(a)(62)(B) of this title with respect to which the applicant intends to apply for registration under this section; (viii) on a confidential basis, a list of the 20 largest issuers and subscribers that use the credit rating services of the applicant, by amount of net revenues received therefrom in the fiscal year immediately preceding the date of submission of the application; (ix) on a confidential basis, as to each applicable category of obligor described in any of clauses (i) through (v) of section 78c(a)(62)(B) of this title, written certifications described in subparagraph (C), except as provided in subparagraph (D); and (x) any other information and documents concerning the applicant and any person associated with such applicant as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors. (C) Written certifications Written certifications required by subparagraph (B)(ix) - (i) shall be provided from not fewer than 10 qualified institutional buyers, none of which is affiliated with the applicant; (ii) may address more than one category of obligors described in any of clauses (i) through (v) of section 78c(a)(62)(B) of this title; (iii) shall include not fewer than 2 certifications for each such category of obligor; and (iv) shall state that the qualified institutional buyer - (I) meets the definition of a qualified institutional buyer under section 78c(a)(64) of this title; and (II) has used the credit ratings of the applicant for at least the 3 years immediately preceding the date of the certification in the subject category or categories of obligors. (D) Exemption from certification requirement A written certification under subparagraph (B)(ix) is not required with respect to any credit rating agency which has received, or been the subject of, a no-action letter from the staff of the Commission prior to August 2, 2006, stating that such staff would not recommend enforcement action against any broker or dealer that considers credit ratings issued by such credit rating agency to be ratings from a nationally recognized statistical rating organization. (E) Limitation on liability of qualified institutional buyers No qualified institutional buyer shall be liable in any private right of action for any opinion or statement expressed in a certification made pursuant to subparagraph (B)(ix). (2) Review of application (A) Initial determination Not later than 90 days after the date on which the application for registration is furnished to the Commission under paragraph (1) (or within such longer period as to which the applicant consents) the Commission shall - (i) by order, grant such registration for ratings in the subject category or categories of obligors, as described in clauses (i) through (v) of section 78c(a)(62)(B) of this title; or (ii) institute proceedings to determine whether registration should be denied. (B) Conduct of proceedings (i) Content Proceedings referred to in subparagraph (A)(ii) shall - (I) include notice of the grounds for denial under consideration and an opportunity for hearing; and (II) be concluded not later than 120 days after the date on which the application for registration is furnished to the Commission under paragraph (1). (ii) Determination At the conclusion of such proceedings, the Commission, by order, shall grant or deny such application for registration. (iii) Extension authorized The Commission may extend the time for conclusion of such proceedings for not longer than 90 days, if it finds good cause for such extension and publishes its reasons for so finding, or for such longer period as to which the applicant consents. (C) Grounds for decision The Commission shall grant registration under this subsection - (i) if the Commission finds that the requirements of this section are satisfied; and (ii) unless the Commission finds (in which case the Commission shall deny such registration) that - (I) the applicant does not have adequate financial and managerial resources to consistently produce credit ratings with integrity and to materially comply with the procedures and methodologies disclosed under paragraph (1)(B) and with subsections (g), (h), (i), and (j); or (II) if the applicant were so registered, its registration would be subject to suspension or revocation under subsection (d). (3) Public availability of information Subject to section 78x of this title, the Commission shall, by rule, require a nationally recognized statistical rating organization, upon the granting of registration under this section, to make the information and documents submitted to the Commission in its completed application for registration, or in any amendment submitted under paragraph (1) or (2) of subsection (b), publicly available on its website, or through another comparable, readily accessible means, except as provided in clauses (viii) and (ix) of paragraph (1)(B). (b) Update of registration (1) Update Each nationally recognized statistical rating organization shall promptly amend its application for registration under this section if any information or document provided therein becomes materially inaccurate, except that a nationally recognized statistical rating organization is not required to amend - (A) the information required to be furnished under subsection (a)(1)(B)(i) by furnishing information under this paragraph, but shall amend such information in the annual submission of the organization under paragraph (2) of this subsection; or (B) the certifications required to be provided under subsection (a)(1)(B)(ix) by furnishing information under this paragraph. (2) Certification Not later than 90 days after the end of each calendar year, each nationally recognized statistical rating organization shall furnish to the Commission an amendment to its registration, in such form as the Commission, by rule, may prescribe as necessary or appropriate in the public interest or for the protection of investors - (A) certifying that the information and documents in the application for registration of such nationally recognized statistical rating organization (other than the certifications required under subsection (a)(1)(B)(ix)) continue to be accurate; and (B) listing any material change that occurred to such information or documents during the previous calendar year. (c) Accountability for ratings procedures (1) Authority The Commission shall have exclusive authority to enforce the provisions of this section in accordance with this chapter with respect to any nationally recognized statistical rating organization, if such nationally recognized statistical rating organization issues credit ratings in material contravention of those procedures relating to such nationally recognized statistical rating organization, including procedures relating to the prevention of misuse of nonpublic information and conflicts of interest, that such nationally recognized statistical rating organization - (A) includes in its application for registration under subsection (a)(1)(B)(ii); or (B) makes and disseminates in reports pursuant to section 78q(a) of this title or the rules and regulations thereunder. (2) Limitation The rules and regulations that the Commission may prescribe pursuant to this chapter, as they apply to nationally recognized statistical rating organizations, shall be narrowly tailored to meet the requirements of this chapter applicable to nationally recognized statistical rating organizations. Notwithstanding any other provision of law, neither the Commission nor any State (or political subdivision thereof) may regulate the substance of credit ratings or the procedures and methodologies by which any nationally recognized statistical rating organization determines credit ratings. (d) Censure, denial, or suspension of registration; notice and hearing The Commission, by order, shall censure, place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or revoke the registration of any nationally recognized statistical rating organization if the Commission finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, suspension, or revocation is necessary for the protection of investors and in the public interest and that such nationally recognized statistical rating organization, or any person associated with such an organization, whether prior to or subsequent to becoming so associated - (1) has committed or omitted any act, or is subject to an order or finding, enumerated in subparagraph (A), (D), (E), (H), or (G) of section 78o(b)(4) of this title, has been convicted of any offense specified in section 78o(b)(4)(B) of this title, or is enjoined from any action, conduct, or practice specified in subparagraph (C) of section 78o(b)(4) of this title, during the 10-year period preceding the date of commencement of the proceedings under this subsection, or at any time thereafter; (2) has been convicted during the 10-year period preceding the date on which an application for registration is furnished to the Commission under this section, or at any time thereafter, of - (A) any crime that is punishable by imprisonment for 1 or more years, and that is not described in section 78o(b)(4)(B) of this title; or (B) a substantially equivalent crime by a foreign court of competent jurisdiction; (3) is subject to any order of the Commission barring or suspending the right of the person to be associated with a nationally recognized statistical rating organization; (4) fails to furnish the certifications required under subsection (b)(2); or (5) fails to maintain adequate financial and managerial resources to consistently produce credit ratings with integrity. (e) Termination of registration (1) Voluntary withdrawal A nationally recognized statistical rating organization may, upon such terms and conditions as the Commission may establish as necessary in the public interest or for the protection of investors, withdraw from registration by furnishing a written notice of withdrawal to the Commission. (2) Commission authority In addition to any other authority of the Commission under this chapter, if the Commission finds that a nationally recognized statistical rating organization is no longer in existence or has ceased to do business as a credit rating agency, the Commission, by order, shall cancel the registration under this section of such nationally recognized statistical rating organization. (f) Representations (1) Ban on representations of sponsorship by United States or agency thereof It shall be unlawful for any nationally recognized statistical rating organization to represent or imply in any manner whatsoever that such nationally recognized statistical rating organization has been designated, sponsored, recommended, or approved, or that the abilities or qualifications thereof have in any respect been passed upon, by the United States or any agency, officer, or employee thereof. (2) Ban on representation as NRSRO of unregistered credit rating agencies It shall be unlawful for any credit rating agency that is not registered under this section as a nationally recognized statistical rating organization to state that such credit rating agency is a nationally recognized statistical rating organization registered under this chapter. (3) Statement of registration under Securities Exchange Act of 1934 provisions No provision of paragraph (1) shall be construed to prohibit a statement that a nationally recognized statistical rating organization is a nationally recognized statistical rating organization under this chapter, if such statement is true in fact and if the effect of such registration is not misrepresented. (g) Prevention of misuse of nonpublic information (1) Organization policies and procedures Each nationally recognized statistical rating organization shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of the business of such nationally recognized statistical rating organization, to prevent the misuse in violation of this chapter, or the rules or regulations hereunder, of material, nonpublic information by such nationally recognized statistical rating organization or any person associated with such nationally recognized statistical rating organization. (2) Commission authority The Commission shall issue final rules in accordance with subsection (n) to require specific policies or procedures that are reasonably designed to prevent misuse in violation of this chapter (or the rules or regulations hereunder) of material, nonpublic information. (h) Management of conflicts of interest (1) Organization policies and procedures Each nationally recognized statistical rating organization shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of the business of such nationally recognized statistical rating organization and affiliated persons and affiliated companies thereof, to address and manage any conflicts of interest that can arise from such business. (2) Commission authority The Commission shall issue final rules in accordance with subsection (n) to prohibit, or require the management and disclosure of, any conflicts of interest relating to the issuance of credit ratings by a nationally recognized statistical rating organization, including, without limitation, conflicts of interest relating to - (A) the manner in which a nationally recognized statistical rating organization is compensated by the obligor, or any affiliate of the obligor, for issuing credit ratings or providing related services; (B) the provision of consulting, advisory, or other services by a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, to the obligor, or any affiliate of the obligor; (C) business relationships, ownership interests, or any other financial or personal interests between a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, and the obligor, or any affiliate of the obligor; (D) any affiliation of a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, with any person that underwrites the securities or money market instruments that are the subject of a credit rating; and (E) any other potential conflict of interest, as the Commission deems necessary or appropriate in the public interest or for the protection of investors. (i) Prohibited conduct (1) Prohibited acts and practices The Commission shall issue final rules in accordance with subsection (n) to prohibit any act or practice relating to the issuance of credit ratings by a nationally recognized statistical rating organization that the Commission determines to be unfair, coercive, or abusive, including any act or practice relating to - (A) conditioning or threatening to condition the issuance of a credit rating on the purchase by the obligor or an affiliate thereof of other services or products, including pre-credit rating assessment products, of the nationally recognized statistical rating organization or any person associated with such nationally recognized statistical rating organization; (B) 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 nationally recognized statistical rating organization; or (C) modifying or threatening to modify a credit rating or otherwise departing from its adopted systematic procedures and methodologies in determining credit ratings, based on whether the obligor, or an affiliate of the obligor, purchases or will purchase the credit rating or any other service or product of the nationally recognized statistical rating organization or any person associated with such organization. (2) Rule of construction Nothing in paragraph (1), or in any rules or regulations adopted thereunder, may be construed to modify, impair, or supersede the operation of any of the antitrust laws (as defined in section 12 of this title, except that such term includes section 45 of this title, to the extent that such section 45 applies to unfair methods of competition). (j) Designation of compliance officer Each nationally recognized statistical rating organization shall designate an individual responsible for administering the policies and procedures that are required to be established pursuant to subsections (g) and (h), and for ensuring compliance with the securities laws and the rules and regulations thereunder, including those promulgated by the Commission pursuant to this section. (k) Statements of financial condition Each nationally recognized statistical rating organization shall, on a confidential basis, furnish to 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. (l) Sole method of registration (1) In general On and after the effective date of this section, a credit rating agency may only be registered as a nationally recognized statistical rating organization for any purpose in accordance with this section. (2) Prohibition on reliance on no-action relief On and after the effective date of this section - (A) an entity that, before that date, received advice, approval, or a no-action letter from the Commission or staff thereof to be treated as a nationally recognized statistical rating organization pursuant to the Commission rule at section 240.15c3-1 of title 17, Code of Federal Regulations, may represent itself or act as a nationally recognized statistical rating organization only - (i) during Commission consideration of the application, if such entity has furnished an application for registration under this section; and (ii) on and after the date of approval of its application for registration under this section; and (B) the advice, approval, or no-action letter described in subparagraph (A) shall be void. (3) Notice to other agencies Not later than 30 days after September 29, 2006, the Commission shall give notice of the actions undertaken pursuant to this section to each Federal agency which employs in its rules and regulations the term "nationally recognized statistical rating organization" (as that term is used under Commission rule 15c3-1 (17 C.F.R. 240.15c3-1), as in effect on September 29, 2006). (m) Rules of construction (1) No waiver of rights, privileges, or defenses Registration under and compliance with this section does not constitute a waiver of, or otherwise diminish, any right, privilege, or defense that a nationally recognized statistical rating organization may otherwise have under any provision of State or Federal law, including any rule, regulation, or order thereunder. (2) No private right of action Nothing in this section may be construed as creating any private right of action, and no report furnished by a nationally recognized statistical rating organization in accordance with this section or section 78q of this title shall create a private right of action under section 78r of this title or any other provision of law. (n) Regulations (1) New provisions Such rules and regulations as are required by this section or are otherwise necessary to carry out this section, including the application form required under subsection (a) - (A) shall be issued by the Commission in final form, not later than 270 days after September 29, 2006; and (B) shall become effective not later than 270 days after September 29, 2006. (2) Review of existing regulations Not later than 270 days after September 29, 2006, the Commission shall - (A) review its existing rules and regulations which employ the term "nationally recognized statistical rating organization" or "NRSRO"; and (B) amend or revise such rules and regulations in accordance with the purposes of this section, as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. (o) NRSROs subject to Commission authority (1) In general No provision of the laws of any State or political subdivision thereof requiring the registration, licensing, or qualification as a credit rating agency or a nationally recognized statistical rating organization shall apply to any nationally recognized statistical rating organization or person employed by or working under the control of a nationally recognized statistical rating organization. (2) Limitation Nothing in this subsection prohibits the securities commission (or any agency or office performing like functions) of any State from investigating and bringing an enforcement action with respect to fraud or deceit against any nationally recognized statistical rating organization or person associated with a nationally recognized statistical rating organization. (p) Applicability This section, other than subsection (n), which shall apply on September 29, 2006, shall apply on the earlier of - (1) the date on which regulations are issued in final form under subsection (n)(1); or (2) 270 days after September 29, 2006.SOURCE
(June 6, 1934, ch. 404, title I, Sec. 15E, as added Pub. L. 109- 291, Sec. 4(a), Sept. 29, 2006, 120 Stat. 1329.)REFERENCES IN TEXT
This chapter, referred to in subsecs. (a)(1)(A), (B)(iii), (c), (e)(2), (f)(2), (3), and (g), was in the original "this title". See References in Text note set out under section 78a of this title. The Securities Exchange Act of 1934, referred to in subsec. (f)(3), is act June 6, 1934, ch. 404, 48 Stat. 881, as amended, which is classified principally to this chapter (Sec. 78a et seq.). For complete classification of this Act to the Code, see section 78a of this title and Tables.FINDINGS
Pub. L. 109-291, Sec. 2, Sept. 29, 2006, 120 Stat. 1327, provided that: "Upon the basis of facts disclosed by the record and report of the Securities and Exchange Commission made pursuant to section 702 of the Sarbanes-Oxley Act of 2002 [Pub. L. 107-204] (116 Stat. 797), hearings before the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives during the 108th and 109th Congresses, comment letters to the concept releases and proposed rules of the Commission, and facts otherwise disclosed and ascertained, Congress finds that credit rating agencies are of national importance, in that, among other things - "(1) their ratings, publications, writings, analyses, and reports are furnished and distributed, and their contracts, subscription agreements, and other arrangements with clients are negotiated and performed, by the use of the mails and other means and instrumentalities of interstate commerce; "(2) their ratings, publications, writings, analyses, and reports customarily relate to the purchase and sale of securities traded on securities exchanges and in interstate over-the-counter markets, securities issued by companies engaged in business in interstate commerce, and securities issued by national banks and member banks of the Federal Reserve System; "(3) the foregoing transactions occur in such volume as substantially to affect interstate commerce, the securities markets, the national banking system, and the national economy; "(4) the oversight of such credit rating agencies serves the compelling interest of investor protection; "(5) the 2 largest credit rating agencies serve the vast majority of the market, and additional competition is in the public interest; and "(6) the Commission has indicated that it needs statutory authority to oversee the credit rating industry." SECURITIES AND EXCHANGE COMMISSION ANNUAL REPORT Pub. L. 109-291, Sec. 6, Sept. 29, 2006, 120 Stat. 1338, provided that: "The Commission shall submit an annual report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives that, with respect to the year to which the report relates - "(1) identifies applicants for registration under section 15E of the Securities Exchange Act of 1934 [15 U.S.C. 78o-7], as added by this Act; "(2) specifies the number of and actions taken on such applications; and "(3) specifies the views of the Commission on the state of competition, transparency, and conflicts of interest among nationally recognized statistical rating organizations."DEFINITIONS
Pub. L. 109-291, Sec. 3(b), Sept. 29, 2006, 120 Stat. 1328, provided that: "As used in this Act [see Short Title of 2006 Amendment note set out under section 78a of this title] - "(1) the term 'Commission' means the Securities and Exchange Commission; and "(2) the term 'nationally recognized statistical rating organization' has the same meaning as in section 3(a)(62) of the Securities Exchange Act of 1934 [15 U.S.C. 78c(a)(62)], as added by this Act."
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