Alert December 15, 2009

SEC Publishes Formal Releases for Proposed and Final Credit Rating Agency Regulations

The SEC issued formal releases adopting amendments, and proposing additional amendments, to its rules regulating credit rating agencies registered as Nationally Recognized Statistical Rating Organizations (“NRSROs”).  The releases, which are briefly described below, relate to action taken at the SEC’s September 17, 2009 meeting when the SEC acted on a number of other proposals relating to its rules governing NRSROs (as discussed in the September 22, 2009 Alert).  (Formal releases relating to other action taken at the September 17, 2009 meeting were discussed in the October 20. 2009 Alert.)

Final Rules – Additional Disclosure and Conflict of Interest Requirements.  The SEC issued a formal release adopting amendments to Rules 17g‑2 and 17g‑5 under the Securities Exchange Act of 1934 that require broader disclosure of credit ratings history information, including disclosure of all ratings actions histories in eXtensible Business Reporting Language for ratings initially determined on or after June 26, 2007.  In addition, NRSROs that are hired by an issuer, sponsor or underwriter of a structured finance product (an “arranger”) to determine an initial rating must (1) disclose to non‑hired NRSROs that the arranger is in the process of determining such a credit rating and (2) must obtain representations from the arranger that the arranger will provide the information given to the hired NRSRO to non‑hired NRSROs so long as the non-hired NRSROs have filed certain certifications with the SEC.  The amendments also accommodate disclosures contemplated under the SEC’s NRSRO regulatory scheme by revising Regulation FD to permit the disclosure of material non-public information to an NRSRO regardless of whether the NRSRO makes its ratings publicly available.  The compliance date for the final rules is June 2, 2010.

Proposed Rules – Annual Report and Disclosures for NRSROs.  The SEC issued a formal release proposing rule amendments that would impose additional disclosure requirements on NRSROs.  The revised proposed rules would require NRSROs to (1) provide an annual report to the SEC describing the steps taken by the firm during the fiscal year with respect to compliance matters, (2) disclose additional information about sources of revenues on Form NRSRO, and (3) make publicly available on its website a consolidated report containing information about revenues of the NRSRO attributable to persons paying the NRSRO for the issuance or maintenance of a credit rating.  In the release, the SEC also announced that it is deferring consideration of a proposed rule that would have required an NRSRO to include with any published credit rating for a structured finance product, a report describing how the credit ratings procedures and methodologies and credit risk characteristics for structured finance products differ from those for other types of rated instruments, or, alternatively, to use distinct ratings symbols for structured finance products differentiating them from credit ratings for other types of financial instruments.  The SEC also solicited comment regarding alternative means of differentiating structured finance credit ratings from the credit ratings for other types of financial instruments.  Comments are due no later than February 2, 2010.