By Anne Sherry, J.D.
The SEC voted to codify an existing exemption for credit rating agencies registered with the Commission as nationally recognized statistical rating organizations (NRSROs). The rule amendments make permanent the temporary conditional exemption relating to ratings of structured finance products offered outside the United States. They also clarify and harmonize the conditions applicable to similar exemptions (Release No. 34-86590, August 7, 2019).
Exchange Act Rule 17g-5(a)(3) established a program by which an NRSRO not hired by an issuer, sponsor, or underwriter of a structured finance product can obtain the same information provided to an NRSRO that is hired by the above. The rule contains certain privacy and security measures, such as requiring an NRSRO to maintain a password-protected website and to obtain written representations of the same from the applicable arranger. Prior to the June 2, 2010 compliance date for the rule, the SEC granted a temporary conditional exemption for certain offshore transactions issued by non-U.S. persons. The exemption has been extended several times and is still in effect.
The new amendment to Rule 17g-5(a)(3) now codifies this exemption by providing that the rule will not apply to an NRSRO when issuing or maintaining a credit rating for a security or money market instrument issued by an asset pool or as part of an asset-backed securities transaction if two conditions are met. First, the issuer of the security or money market instrument may not be a U.S. person as defined in Securities Act Rule 902(k). Second, the NRSRO must have a reasonable basis to conclude that all offers or sales of the security or instrument by any issuer, sponsor, or underwriter linked to it will occur outside the United States.
The amendments also make conforming changes to the conditions for exemptions to Rules 17g-7(a) and 15Ga-2. Rule 17g-7(a) requires an NRSRO to publish a disclosure form when taking a rating action, while Rule 15Ga-2 requires the issuer or underwriter of an asset-backed security to be rated to furnish a form concerning any due diligence report. The amendments also clarify that the conditions to Rule 17g-7(a) apply differently in the case of rated obligors compared to rated securities or money market instruments.
The amendments will become effective 30 days after the adopting release is published in the Federal Register.
The release is No. 34-86590.