On September 26th, SEC voted to propose new rule amendments to codify existing exemptions for credit rating agencies registered with the SEC as nationally recognized statistical rating organizations (NRSROs).
Under the Securities Exchange Act, Rule 17g-5(a)(3) created a program to provide the necessary information to determine a structured finance product’s credit rating to NRSROs. These NRSROs were not hired by the issuer, sponsor, or underwriter of the finance product. The SEC previously granted a temporary extension prior to Rule 17g-5(a)(3)’s compliance date for certain structured finance products issued by non-US persons and offered and sold outside the US. This exemption has been extended since it was issued. The new amendments would codify the exemption as well as elaborate upon its conditions.
In addition, these proposed changes would bring in line other conditions for exemptions listed in Exchange Act Rules 17g-7(a) and 15Ga-2, making their approaches and stipulations consistent. Rule 17g-7(a) requires an NRSRO to disclose certain information when it publishes a rating action, and Rule 15Ga-2 requires an issuer or underwriter to disclose the findings and conclusions of any third-party due diligence report it obtains as related to an issue-backed security that is to be rated by an NRSRO.
Specifically, through the amendments a paragraph would be added to Rule 17g-5(a)(3) that clarifies the disclosure exemption conditions for NRSROs. The conditions would be as follows:
- The issuer of the security or money market instrument being rated is not a US person (as defined by Securities Act Rule 902(k); and
- The NRSRO has a reasonable basis to conclude that all offers and sales of this security or money market instrument by any issuer, underwriter, or sponsor will occur outside the United States.
In addition, Rule 17g-7(a) would also be amended to clarify that the application of conditions for the exemption applies differently in cases where rated obligors are involved rather than rated securities or money market instruments.
The complete set of proposed amendments and comment solicitations can be read in the full releases. You can submit comments using the form available on the SEC’s website or by e-mailing rule-comments@sec.gov with the reference number (S7-22-18) in the subject line. You can also use the Federal Rulemaking Portal to submit comments or send your comments by mail to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Again, please remember to include reference number 7-22-18.
Sources:
SEC Proposes Amendments to Codify Exemption to Credit Rating Agency Rule (www.sec.gov)
Amendments to Rules for Nationally Recognized Statistical Rating Organizations (www.sec.gov)
