Nationally Recognized Statistical Ratings Organization

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Nationally Recognized Statistical Ratings Organization

A credit rating agency that the Securities and Exchange Commission in the United States uses for regulatory purposes. Credit rating agencies provide assessments of an investment's risk. The issuers of investments, especially debt securities, pay credit rating agencies to provide them with ratings. Investments must receive a high rating from two or more nationally recognized statistical ratings organizations before banks in the United States may purchase them. There are 10 nationally recognized statistical ratings organization; Fitch, S&P, and Moody's are the three most prominent.
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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.