15 U.S.C. § 78o–9: Study and rulemaking on…

Summary

Require the SEC to study how credit ratings are made for structured finance products and the problems caused when the rating firm is paid by the issuer or by subscribers. A "structured finance product" means an asset-backed security and related structured products. The study must look at the rating process and conflicts of interest; whether a public or private utility or a self-regulatory group could assign nationally recognized statistical rating organizations (NRSROs) to do ratings and how fees would be set and paid; whether such a system would create a federal moral hazard or raise constitutional issues; what measures could show rating accuracy; and other ways to pay NRSROs that would encourage accurate ratings. The SEC must send a report with its findings and any recommendations to the Senate Banking Committee and the House Financial Services Committee within 24 months after July 21, 2010. After that report, the SEC must write rules to create a system that assigns NRSROs to give the initial credit ratings and to monitor them, and that prevents the issuer, sponsor, or underwriter from picking the rater. The SEC must carefully consider the Senate proposal of May 20, 2010 (section 939D of H.R. 4173) and follow it unless a different system better protects investors. This does not limit the SEC’s other rulemaking powers.

Title 15, §78o–9

Commerce and Trade, Source: USLM XML via OLRC

(a)Definition

In this section, the term “structured finance product” means an asset-backed security, as defined in section 3(a)(77) of the Securities Exchange Act of 1934 [15 U.S.C. 78c(a)(79)], as added by section 941, and any structured product based on an asset-backed security, as determined by the Commission, by rule.

(b)Study

The Commission shall carry out a study of— (1)

(2)the feasibility of establishing a system in which a public or private utility or a self-regulatory organization assigns nationally recognized statistical rating organizations to determine the credit ratings of structured finance products, including—

(A)an assessment of potential mechanisms for determining fees for the nationally recognized statistical rating organizations;

(B)appropriate methods for paying fees to the nationally recognized statistical rating organizations;

(C)the extent to which the creation of such a system would be viewed as the creation of moral hazard by the Federal Government; and

(D)any constitutional or other issues concerning the establishment of such a system;

(3)the range of metrics that could be used to determine the accuracy of credit ratings; and

(4)alternative means for compensating nationally recognized statistical rating organizations that would create incentives for accurate credit ratings.

(c)Report and recommendation

Not later than 24 months after July 21, 2010, the Commission shall submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report that contains—

(1)the findings of the study required under subsection (b); and

(2)any recommendations for regulatory or statutory changes that the Commission determines should be made to implement the findings of the study required under subsection (b).

(d)Rulemaking

(1)Rulemaking

After submission of the report under subsection (c), the Commission shall, by rule, as the Commission determines is necessary or appropriate in the public interest or for the protection of investors, establish a system for the assignment of nationally recognized statistical rating organizations to determine the initial credit ratings of structured finance products, in a manner that prevents the issuer, sponsor, or underwriter of the structured finance product from selecting the nationally recognized statistical rating organization that will determine the initial credit ratings and monitor such credit ratings. In issuing any rule under this paragraph, the Commission shall give thorough consideration to the provisions of section 15E(w) of the Securities Exchange Act of 1934, as that provision would have been added by section 939D of H.R. 4173 (111th Congress), as passed by the Senate on May 20, 2010, and shall implement the system described in such section 939D unless the Commission determines that an alternative system would better serve the public interest and the protection of investors.

(2)Rule of construction

Nothing in this subsection may be construed to limit or suspend any other rulemaking authority of the Commission.

Notes & Related Subsidiaries

Editorial Notes

References in Text

section 3(a)(77) of the Securities Exchange Act of 1934, referred to in subsec. (a), was redesignated section 3(a)(79) of that Act by Pub. L. 112–106, title I, § 101(b)(1), Apr. 5, 2012, 126 Stat. 307, and is classified to section 78c(a)(79) of this title. section 941, referred to in subsec. (a), means section 941 of Pub. L. 111–203. section 15E of the Securities Exchange Act of 1934, referred to in subsec. (d)(1), is classified to section 78o–7 of this title. H.R. 4173, referred to in subsec. (d)(1), became Pub. L. 111–203. As enacted, section 939D of Pub. L. 111–203 did not add a subsec. (w) to section 15E of the Securities Exchange Act of 1934 (15 U.S.C. 78o–7) but enacted provisions set out as a note below. For the provisions of section 15E(w) of the Securities Exchange Act of 1934, as that provision would have been added by section 939D of H.R. 4173 (111th Congress), as passed by the Senate on

May 20, 2010, see 156 Cong. Rec. 80 at pp. S4338, S4339 (daily ed.

May 25, 2010). Codification Section was enacted as part of the Investor Protection and Securities Reform Act of 2010 and also as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and not as part of the Securities Exchange Act of 1934 which comprises this chapter.

Statutory Notes and Related Subsidiaries

Effective Date

Section effective 1 day after

July 21, 2010, except as otherwise provided, see section 4 of Pub. L. 111–203, set out as a note under section 5301 of Title 12, Banks and Banking. Government Accountability Office Study on Alternative Business Models Pub. L. 111–203, title IX, § 939D,

July 21, 2010, 124 Stat. 1888, provided that: “(a) Study.—The Comptroller General of the United States shall conduct a study on alternative means for compensating nationally recognized statistical rating organizations in order to create incentives for nationally recognized statistical rating organizations to provide more accurate credit ratings, including any statutory changes that would be required to facilitate the use of an alternative means of compensation. “(b) Report.—Not later than 18 months after the date of enactment of this Act [

July 21, 2010], the Comptroller General shall submit to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives a report on the results of the study conducted under subsection (a), including recommendations, if any, for providing incentives to credit rating agencies to improve the credit rating process.” [For definition of “nationally recognized statistical rating organization” as used in section 939D of Pub. L. 111–203, set out above, see section 5301 of Title 12, Banks and Banking.] Definitions For definitions of terms used in this section, see section 5301 of Title 12, Banks and Banking.

§78o–9 Study and Rulemaking on Assigned Credit Ratings