Currently, 10 credit rating agencies are registered with the Commission as NRSROs
The Credit Rating Agency Reform Act makes that possible by changing the requirements for SEC designation of NRSROs
and making the whole process more transparent.
The scarcity of NRSROs
and the ambiguity surrounding the designation criteria have left these incumbents with a distinct competitive edge.
The SEC itself has proposed a change in the way it designates NRSROs
as a means of answering criticism that its very tight criteria severely limit NRSRO
membership to the disadvantage of investors.
Ratings by NRSROs
are used as benchmarks in federal and state legislation, financial regulations and private financial contracts.
Morningstar Credit Ratings' rankings, forecasts, and assessments contained in this press release are evaluations and opinions of non-credit-related risks and, therefore, are not credit ratings within the meaning of Section 3 of the Securities Exchange Act of 1934 ("Exchange Act") or credit ratings subject to the Exchange Act requirements and regulations promulgated thereunder with respect to credit ratings issued by NRSROs
Section 15E(s)(4)(D) requires that the SEC adopt rules requiring NRSROs
at the time a rating is produced to disclose the certification to the public in a manner that allows the public to determine the adequacy and level of due diligence services provided by a third party.
The report notes that the staff made various recommendations to the NRSROs
to address the staff's concerns and that in some cases the NRSROs
have already taken steps to address such concerns.
If specific NRSROs
are named in the guidelines, we ask the investors to consider loosening that configuration.
The Reform Act creates a new Section 15E of the Securities Exchange Act of 1934 (Exchange Act), requiring all current and future NRSROs
to file a detailed registration application with the SEC.
At issue is an SEC-proposed rule from July that would eliminate reference to NRSROs
in a couple of rules, such as SEC Rule 2a-7, which now requires a money market fund's portfolio investments to have received credit ratings from the NRSROs
in one of the two highest short-term rating categories.
Hybrids are rated by NRSROs
, and each of the rating agencies evaluates each issue and reflects varying levels of "debt-like" risks and "equity-like" risks.