I 111th CONGRESS 1st Session H. R. 2549 IN THE HOUSE OF REPRESENTATIVES May 21, 2009 Mr. Capuano (for himself, Mr. Maffei, Mr. Kanjorski, Mr. Frank of Massachusetts, Mr. Cleaver, Mr. Baca, Mr. Moran of Virginia, Mr. Andrews, and Mr. Connolly of Virginia) introduced the following bill; which was referred to the Committee on Financial Services A BILL To ensure uniform and accurate credit rating of municipal bonds and provide for a review of the municipal bond insurance industry.

1.

Short title

This Act may be cited as the Municipal Bond Fairness Act.

2.

Preservation of authority to prevent discrimination

Section 15E of the Securities Exchange Act of 1934 (15 U.S.C. 78o–7) is amended— (1)by redesignating subsection (p) as subsection (q); and (2)by inserting after subsection (o) the following new subsection: (p)

Ratings Clarity and Consistency

(1)

Commission obligation

Subject to paragraphs (2) and (3), the Commission shall require each nationally recognized statistical rating organization that is registered under this section to establish, maintain, and enforce written policies and procedures reasonably designed— (A)to establish and maintain credit ratings with respect to securities and money market instruments designed to assess the risk that investors in securities and money market instruments may not receive payment in accordance with the terms of issuance of such securities and instruments; (B)to define clearly any rating symbol used by that organization; and (C)to apply such rating symbol in a consistent manner for all types of securities and money market instruments. (2)

Additional credit factors

Nothing in paragraph (1)(A), (B), or (C)— (A)prohibits a nationally recognized statistical rating organization from using additional credit factors that are documented and disclosed by the organization and that have a demonstrated impact on the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance; (B)prohibits a nationally recognized statistical rating organization from considering credit factors that are unique to municipal securities that are not backed by the issuer’s full faith and credit in its assessment of the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance; or (C)prohibits a nationally recognized statistical rating organization from using an additional symbol with respect to the ratings described in paragraph (1)(A) for the purpose of distinguishing the ratings of a certain type of security or money market instrument from ratings of any other types of securities or money market instruments. (3)

Complementary ratings

The Commission shall not impose any requirement under paragraph (1) that prevents nationally recognized statistical rating organizations from establishing ratings that are complementary to the ratings described in paragraph (1)(A) and that are created to measure a discrete aspect of the security’s or instrument’s risk. (4)

Review

(A)

Performance measures

The Commission shall, by rule, establish performance measures that the Commission shall consider when deciding whether to initiate a review concerning whether a nationally recognized statistical rating organization has failed to adhere to such organization’s stated procedures and methodologies for issuing ratings on securities or money market instruments. (B)

Consideration of evidence

Performance measures the Commission may consider in initiating a review of an organization’s ratings in each of the categories described in clauses (i) through (v) of section 3(a)(62)(B) during an appropriate interval (as determined by the Commission) include the transition and default rates of its in discrete asset classes. .

3.

Implementation

The Securities and Exchange Commission shall prescribe rules to implement the amendments made by section 101 within 270 days after the date of enactment of this Act.