Nationally Recognized Statistical Ratings Organization

(redirected from NRSRO)
Also found in: Acronyms.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
A few years later, the Credit Rating Agency Reform Act of 2006 provided the SEC with statutory authority to regulate credit ratings firms and required the SEC to clarify the guidelines for obtaining the NRSRO designation.
The report notes that despite changes by some of the examined credit rating agencies to improve their operations, Commission staff identified concerns at each of the NRSROs. These concerns included apparent failures in some instances to follow ratings methodologies and procedures, to make timely and accurate disclosures, to establish effective internal control structures for the rating process and to adequately manage conflicts of interest.
Chicago-based Morningstar Inc., which made its name in mutual fund ratings, acquired credit ratings firm Real-point LLC, an NRSRO, in early 2010.
Reiss says there has been a rush of rating agencies joining the NRSRO club, but "none have taken away much market share from the big players."
Until recently, the black hole surrounding NRSRO licensing helped the Big Three retain their market hold.
(75) Generally, most investors just trusted the letter grade rating, looking primarily to rating agencies for informational guidance for which products were safe bets.76 Reasonable or not, the reality is that investors relied heavily on NRSRO credit ratings in making their investment decisions.
Since 1975, the Securities and Exchange Commission has limited competition in the market for credit ratings by anointing only certain firms as ''Nationally Recognized Statistical Rating Organizations'' (NRSROs).
Compounding the problem was the SEC's lack of transparency in the NRSRO designation process.
The system afforded substantial advantages to the handful of credit rating agencies that received the NRSRO designation.
In light of recent Congressional hearings calling for the Securities and Exchange Commission (SEC) to initiate regulation that addresses the conflicts of interest found among credit rating agencies, or nationally recognized statistical rating organizations (NRSROs), Weiss has made the following recommendations to the SEC:
"It is a conflict of interest if an NRSRO allows its personnel to directly own securities or money market instruments or have direct ownership interests in issuers or obligors subject to a credit rating determined by that NRSRO," states the SEC report.
SEC's proposed rules would require that the NRSRO include a description of how the representations, warranties and enforcement mechanisms differ from those in issuances of similar securities.