[House Report 109-550]
[From the U.S. Government Publishing Office]






109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     109-550

======================================================================



 
PROVIDING FOR CONSIDERATION OF H.R. 2990, CREDIT RATING AGENCY DUOPOLY 
                           RELIEF ACT OF 2006

                                _______
                                

   July 10, 2006.--Referred to the House Calendar and ordered to be 
                                printed

                                _______
                                

   Mrs. Capito, from the Committee on Rules, submitted the following

                              R E P O R T

                       [To accompany H. Res. 906]

    The Committee on Rules, having had under consideration 
House Resolution 906, by a nonrecord vote, report the same to 
the House with the recommendation that the resolution be 
adopted.

                SUMMARY OF PROVISIONS OF THE RESOLUTION

    The resolution provides for consideration of H.R. 2990, the 
Credit Rating Agency Duopoly Relief Act of 2006, under a 
structured rule. The rule provides one hour of general debate 
equally divided and controlled by the chairman and ranking 
minority member of the Committee on Financial Services. The 
rule waives all points of order against consideration of the 
bill.
    The rule provides that the amendment in the nature of a 
substitute recommended by the Committee on Financial Services 
now printed in the bill shall be considered as an original bill 
for the purpose of amendment and shall be considered as read.
    The rule makes in order only those amendments printed in 
this report. The rule provides that the amendments printed in 
this report may be offered only in the order printed in this 
report, may be offered only by a Member designated in this 
report, shall be considered as read, shall be debatable for the 
time specified in this report equally divided and controlled by 
the proponent and an opponent, shall not be subject to 
amendment, and shall not be subject to a demand for division of 
the question in the House or in the Committee of the Whole.
    The rule waives all points of order against the amendments 
printed in this report. Finally, the rule provides one motion 
to recommit with or without instructions.

                         EXPLANATION OF WAIVERS

    The waiver of all points of order against consideration of 
the bill includes a waiver of clause 4(a) of rule XIII 
(requiring a three-day layover of the committee report). The 
waiver is necessary because the Committee on Financial Services 
filed its report (H. Rept. 109-546) with the House on Friday, 
July 7, 2006, and the bill may be considered by the House as 
early as Tuesday, July 11, 2006.
    The waiver of all points of order against the amendments 
made in order under the rule is prophylactic in nature.

                  SUMMARY OF AMENDMENTS MADE IN ORDER

    1. Oxley (OH): Manager's Amendment. Clarifies that there is 
no private right of action for rating agencies registered as 
``Nationally Recognized Statistical Rating Organizations'' or 
``NRSROs'' under the Securities Exchange Act of 1934. Allots to 
the Securities and Exchange Commission (SEC) an additional six 
months for a total of one year to review and, if necessary, 
revise its regulations that use the term ``NRSRO.'' Makes a 
number of technical amendments clarifying definitions, 
findings, and disclosure requirements. (10 minutes)
    2. Kanjorski (PA): Amendment in the Nature of a Substitute. 
Establishes a globally consistent, market-based approach to 
rating agency oversight and protects investors by maintaining 
quality as a factor in identifying Nationally Recognized 
Statistical Rating Organizations (NRSRO). Requires the SEC to 
complete its definitional rulemaking on what constitutes an 
NRSRO within 60 days of enactment and establish public 
guidelines about the process used to identify new NRSROs within 
180 days of enactment. Encourages participating parties to 
expedite and complete their ongoing discussions over the 
Voluntary Framework, consistent with the European Commission's 
adoption of the International Organization of Securities 
Commissions' self-regulatory model, to improve market 
discipline and enhance rating quality. Would require annual 
hearings for five years on rating agencies before the House 
Financial Services Committee to explore the effectiveness of 
the prior two reforms and determine the need for further 
action. (20 minutes)

                    TEXT OF AMENDMENTS MADE IN ORDER

 1. An Amendment To Be Offered by Representative Oxley of Ohio, or His 
                   Designee, Debatable for 10 Minutes

  Page 3, line 20, insert ``staff'' after ``its''.
  Page 4, line 1, strike ``will'' and insert ``would''.
  Page 4, line 16, insert ``but does not include a commercial 
credit reporting company'' after ``fee''.
  Page 5, line 3, strike ``for at least three'' and insert ``as 
a credit rating agency for at least the past 3''.
  Page 6, line 1, strike ``filing'' and insert ``furnishing''.
  Page 6, line 5, strike ``filing with'' and insert 
``furnishing to''.
  Page 6, line 21, insert ``(as applicable)'' after 
``periods''.
  Page 7, line 9, strike ``filing'' and insert ``furnishing''.
  Page 7, line 20, strike ``filing'' and insert ``furnishing''.
  Page 8, line 11, strike ``subsection (b)'' and insert 
``subsection (d)''.
  Page 8, line 17, strike ``filed with'' and insert ``furnished 
to''.
  Page 8, line 18, strike ``filed'' and insert ``furnished''.
  Page 8, line 19, strike ``the website or'' and insert ``its 
website or through another''.
  Page 8, beginning on line 20, strike ``of such nationally 
recognized statistical rating organization''.
  Page 9, line 4, strike ``filed'' and insert ``furnished''.
  Page 9, line 5, strike ``a filing'' and insert ``an amendment 
furnished''.
  Page 9, line 7, strike ``filing'' and insert ``amendment 
furnished''.
  Page 9, beginning on line 11, strike ``file with'' and insert 
``furnish to''.
  Page 11, line 20, strike ``filing of'' and insert 
``furnishing''.
  Page 12, line 12, strike ``filing a written notice of 
withdrawal with'' and insert ``furnishing a written notice of 
withdrawal to''.
  Page 18, line 23, strike ``file with'' and insert ``furnish 
to''.
  Page 19, line 5, insert ``Staff's'' after ``Commission''.
  Page 19, line 9, insert ``staff'' after ``Commission''.
  Page 19, line 15, insert ``staff'' after ``Commission''.
  Page 20, line 6, strike ``180 days'' and insert ``360 days''.
  Page 23, strike lines 3 through 6 and insert the following:

SEC. 5. ANNUAL AND OTHER REPORTS.

  Section 17(a)(1) (15 U.S.C. 78q(a)(1)) is amended--
          (1) by inserting ``nationally recognized statistical 
        rating organization,'' after ``registered transfer 
        agent,''; and
          (2) by adding at the end the following: ``Any report 
        a nationally recognized statistical rating organization 
        may be required by Commission rules under this 
        paragraph to make and disseminate to the Commission 
        shall be deemed furnished to the Commission.''
                              ----------                              


     2. An Amendment To Be Offered by Representative Kanjorski of 
        Pennsylvania, or His Designee, Debatable for 20 Minutes

  Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

  This act may be cited as the ``Credit Ratings Accountability 
and Transparency Act of 2006''.

SEC. 2. FINDINGS.

  Congress finds the following:
          (1) Credit rating agencies play an important role in 
        the United States capital markets by opining on the 
        creditworthiness of certain entities, securities, and 
        money market instruments.
          (2) Institutional and retail investors utilize 
        ratings issued by credit rating agencies in connection 
        with evaluating credit risk and making investment 
        decisions.
          (3) The Securities and Exchange Commission staff, 
        through the no action letter process, has identified 
        certain credit rating agencies as Nationally Recognized 
        Statistical Rating Organizations or NRSROs.
          (4) Many Federal and State regulators and 
        legislatures require the use of NRSRO ratings in 
        regulations and statutes, including those concerning 
        capital requirements for regulated financial 
        institutions and portfolio quality standards, to ensure 
        the utilization of high quality ratings.
          (5) The Commission staff's process for identifying 
        NRSROs should be more transparent and efficient, while 
        maintaining a high level of quality among NRSROs.
          (6) Increased competition among credit rating 
        agencies seeking to be identified as a NRSRO is 
        desirable, so long as it is consistent with efforts to 
        ensure high quality ratings.

SEC. 3. RULEMAKING ON NRSRO DEFINITION.

  (a) NRSRO Definition.--Within 60 days after the date of 
enactment of this Act, the Commission shall finalize its 
proposed rulemaking to define a NRSRO, published in the Federal 
Register on April 25, 2005 (70 Fed. Reg. 21306 et seq.).
  (b) Publication of Guidelines.--Within 180 days after the 
date of enactment of the Act, the Commission shall publish 
guidelines concerning the process by which Commission staff 
issues no-action letters regarding NRSROs, including guidelines 
concerning the staff's determinations in such no-action 
letters.

SEC. 4. SENSE OF CONGRESS ON NRSRO VOLUNTARY FRAMEWORK.

  (a) Findings.--Congress finds the following:
          (1) The existing NRSROs in the United States have 
        entered into discussions to improve current oversight 
        of their activities via the adoption of a voluntary 
        framework.
          (2) These discussions have sought to apply the self-
        regulatory model approved by the International 
        Organization of Securities Commissions (in this section 
        referred to as ``IOSCO'') of which the Commission is a 
        participant.
          (3) The European Commission policy on credit rating 
        agencies set out in December 2005 used compliance with 
        the IOSCO code as a central component in ensuring the 
        proper functioning of rating agencies in the capital 
        markets.
          (4) The Chairman of the Commission has testified 
        before the Financial Services Committee of the House of 
        Representatives that Commission staff are continuing to 
        review drafts of a voluntary framework developed by the 
        NRSROs and offer advice about its provisions and 
        contents.
          (5) The adoption of a voluntary framework by NRSROs 
        in the United States based on the IOSCO self-regulatory 
        model and paralleling the regulatory regime adopted by 
        the European Commission would enhance market 
        discipline, advance investor protection, and facilitate 
        the harmonization of international standards in the 
        area of credit ratings.
  (b) Sense of Congress.--In light of the findings set forth in 
subsection (a), it is the sense of the Congress that--
          (1) all interested parties involved in establishing a 
        voluntary framework for self-regulation in the United 
        States, which is similar to the self-regulatory regime 
        recently adopted by the European Commission that is 
        based upon the IOSCO-approved code for overseeing 
        credit rating agencies, should complete discussions and 
        implement a self-regulatory model as soon as 
        practicable;
          (2) such voluntary framework should be developed in 
        consultation with the Commission and include adoption 
        of any and all rules, regulations, policies, and 
        practices deemed necessary and appropriate for the 
        protection of investors and in the public interest, 
        including the disclosure of written policies and 
        procedures of NRSROs in the United States designed to--
                  (A) address conflicts of interest relating 
                to--
                          (i) relationships between NRSROs and 
                        rated entities;
                          (ii) relationships between NRSROs and 
                        underwriters; and
                          (iii) fee structures of the NRSROs;
                  (B) prevent the misuse of confidential 
                information by a NRSRO or any person associated 
                with a NRSRO;
                  (C) ensure compliance with all relevant 
                Federal securities laws;
                  (D) ensure that each NRSRO is capable of 
                issuing independent, predictive, consistent, 
                and reliable ratings; and
                  (E) provide performance data, including 
                default rates for its ratings, for the 
                immediately preceding 4 years, or if in 
                existence less than 4 years, for the life of 
                the entity.

SEC. 5. ANNUAL TESTIMONY ON IMPROVING THE CREDIT RATING INDUSTRY.

  The Chairperson of the Commission, or a designee of the 
Chairperson, shall annually provide oral testimony beginning in 
2007, and for 5 years thereafter, to the Committee on Financial 
Services of the House of Representatives regarding efforts to 
improve the transparency and accountability of the credit 
rating industry, including--
          (1) the designation of NRSROs;
          (2) the status and the effectiveness of the voluntary 
        framework described in section 4;
          (3) the quality of ratings issued by NRSROs;
          (4) the state of competition among NRSROs; and
          (5) the appropriateness, need, and form of any 
        potential legislation in the area of credit ratings.

SEC. 6. DEFINITIONS.

  As used in this Act--
          (1) the term ``Commission'' means the Securities and 
        Exchange Commission; and
          (2) the term ``NRSRO'' means a Nationally Recognized 
        Statistical Rating Organization as determined by the 
        Commission.

                                  
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