[United States Statutes at Large, Volume 120, 109th Congress, 2nd Session]
[From the U.S. Government Publishing Office, www.gpo.gov]

120 STAT. 1327

Public Law 109-291
109th Congress

An Act


 
To improve ratings quality for the protection of investors and in the
public interest by fostering accountability, transparency, and
competition in the credit rating agency industry. NOTE: Sept. 29,
2006 -  [S. 3850]

Be it enacted by the Senate and House of Representatives of the
United States of America in Congress NOTE: Credit Rating Agency Reform
Act of 2006. 15 USC 78a note. assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ``Credit Rating Agency Reform Act of
2006''.

SEC. 2. NOTE: 15 USC 78o-7 note. FINDINGS.

Upon the basis of facts disclosed by the record and report of the
Securities and Exchange Commission made pursuant to section 702 of the
Sarbanes-Oxley Act of 2002 (116 Stat. 797), hearings before the
Committee on Banking, Housing, and Urban Affairs of the Senate and the
Committee on Financial Services of the House of Representatives during
the 108th and 109th Congresses, comment letters to the concept releases
and proposed rules of the Commission, and facts otherwise disclosed and
ascertained, Congress finds that credit rating agencies are of national
importance, in that, among other things--
(1) their ratings, publications, writings, analyses, and
reports are furnished and distributed, and their contracts,
subscription agreements, and other arrangements with clients are
negotiated and performed, by the use of the mails and other
means and instrumentalities of interstate commerce;
(2) their ratings, publications, writings, analyses, and
reports customarily relate to the purchase and sale of
securities traded on securities exchanges and in interstate
over-the-counter markets, securities issued by companies engaged
in business in interstate commerce, and securities issued by
national banks and member banks of the Federal Reserve System;
(3) the foregoing transactions occur in such volume as
substantially to affect interstate commerce, the securities
markets, the national banking system, and the national economy;
(4) the oversight of such credit rating agencies serves the
compelling interest of investor protection;
(5) the 2 largest credit rating agencies serve the vast
majority of the market, and additional competition is in the
public interest; and
(6) the Commission has indicated that it needs statutory
authority to oversee the credit rating industry.

[[Page 1328]]
120 STAT. 1328

SEC. 3. DEFINITIONS.

(a) Securities Exchange Act of 1934.--Section 3(a) of the Securities
Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the end
the following new paragraphs:
``(60) Credit rating.--The term `credit rating' means an
assessment of the creditworthiness of an obligor as an entity or
with respect to specific securities or money market instruments.
``(61) Credit rating agency.--The term `credit rating
agency' means any person--
``(A) engaged in the business of issuing credit
ratings on the Internet or through another readily
accessible means, for free or for a reasonable fee, but
does not include a commercial credit reporting company;
``(B) employing either a quantitative or qualitative
model, or both, to determine credit ratings; and
``(C) receiving fees from either issuers, investors,
or other market participants, or a combination thereof.
``(62) Nationally recognized statistical rating
organization.--The term `nationally recognized statistical
rating organization' means a credit rating agency that--
``(A) has been in business as a credit rating agency
for at least the 3 consecutive years immediately
preceding the date of its application for registration
under section 15E;
``(B) issues credit ratings certified by qualified
institutional buyers, in accordance with section
15E(a)(1)(B)(ix), with respect to--
``(i) financial institutions, brokers, or
dealers;
``(ii) insurance companies;
``(iii) corporate issuers;
``(iv) issuers of asset-backed securities (as
that term is defined in section 1101(c) of part
229 of title 17, Code of Federal Regulations, as
in effect on the date of enactment of this
paragraph);
``(v) issuers of government securities,
municipal securities, or securities issued by a
foreign government; or
``(vi) a combination of one or more categories
of obligors described in any of clauses (i)
through (v); and
``(C) is registered under section 15E.
``(63) Person associated with a nationally recognized
statistical rating organization.--The term `person associated
with' a nationally recognized statistical rating organization
means any partner, officer, director, or branch manager of a
nationally recognized statistical rating organization (or any
person occupying a similar status or performing similar
functions), any person directly or indirectly controlling,
controlled by, or under common control with a nationally
recognized statistical rating organization, or any employee of a
nationally recognized statistical rating organization.
``(64) Qualified institutional buyer.--The term `qualified
institutional buyer' has the meaning given such term in section
230.144A(a) of title 17, Code of Federal Regulations, or any
successor thereto.''.

(b) NOTE: 15 USC 78o-7 note. Applicable Definitions.--As used in
this Act--

[[Page 1329]]
120 STAT. 1329

(1) the term ``Commission'' means the Securities and
Exchange Commission; and
(2) the term ``nationally recognized statistical rating
organization'' has the same meaning as in section 3(a)(62) of
the Securities Exchange Act of 1934, as added by this Act.

SEC. 4. REGISTRATION OF NATIONALLY RECOGNIZED STATISTICAL RATING
ORGANIZATIONS.

(a) Amendment.--The Securities Exchange Act of 1934 is amended by
inserting after section 15D (15 U.S.C. 78o-6) the following new section:

``SEC. 15E. NOTE: 15 USC 78o-7. REGISTRATION OF NATIONALLY
RECOGNIZED STATISTICAL RATING ORGANIZATIONS.

``(a) Registration Procedures.--
``(1) Application for registration.--
``(A) In general.--A credit rating agency that
elects to be treated as a nationally recognized
statistical rating organization for purposes of this
title (in this section referred to as the `applicant'),
shall furnish to the Commission an application for
registration, in such form as the Commission shall
require, by rule or regulation issued in accordance with
subsection (n), and containing the information described
in subparagraph (B).
``(B) Required information.--An application for
registration under this section shall contain
information regarding--
``(i) credit ratings performance measurement
statistics over short-term, mid-term, and long-
term periods (as applicable) of the applicant;
``(ii) the procedures and methodologies that
the applicant uses in determining credit ratings;
``(iii) policies or procedures adopted and
implemented by the applicant to prevent the
misuse, in violation of this title (or the rules
and regulations hereunder), of material, nonpublic
information;
``(iv) the organizational structure of the
applicant;
``(v) whether or not the applicant has in
effect a code of ethics, and if not, the reasons
therefor;
``(vi) any conflict of interest relating to
the issuance of credit ratings by the applicant;
``(vii) the categories described in any of
clauses (i) through (v) of section 3(a)(62)(B)
with respect to which the applicant intends to
apply for registration under this section;
``(viii) on a confidential basis, a list of
the 20 largest issuers and subscribers that use
the credit rating services of the applicant, by
amount of net revenues received therefrom in the
fiscal year immediately preceding the date of
submission of the application;
``(ix) on a confidential basis, as to each
applicable category of obligor described in any of
clauses (i) through (v) of section 3(a)(62)(B),
written certifications described in subparagraph
(C), except as provided in subparagraph (D); and
``(x) any other information and documents
concerning the applicant and any person associated
with

[[Page 1330]]
120 STAT. 1330

such applicant as the Commission, by rule, may
prescribe as necessary or appropriate in the
public interest or for the protection of
investors.
``(C) Written certifications.--Written
certifications required by subparagraph (B)(ix)--
``(i) shall be provided from not fewer than 10
qualified institutional buyers, none of which is
affiliated with the applicant;
``(ii) may address more than one category of
obligors described in any of clauses (i) through
(v) of section 3(a)(62)(B);
``(iii) shall include not fewer than 2
certifications for each such category of obligor;
and
``(iv) shall state that the qualified
institutional buyer--
``(I) meets the definition of a
qualified institutional buyer under
section 3(a)(64); and
``(II) has used the credit ratings
of the applicant for at least the 3
years immediately preceding the date of
the certification in the subject
category or categories of obligors.
``(D) Exemption from certification requirement.--A
written certification under subparagraph (B)(ix) is not
required with respect to any credit rating agency which
has received, or been the subject of, a no-action letter
from the staff of the Commission prior to August 2,
2006, stating that such staff would not recommend
enforcement action against any broker or dealer that
considers credit ratings issued by such credit rating
agency to be ratings from a nationally recognized
statistical rating organization.
``(E) Limitation on liability of qualified
institutional buyers.--No qualified institutional buyer
shall be liable in any private right of action for any
opinion or statement expressed in a certification made
pursuant to subparagraph (B)(ix).
``(2) Review of application.--
``(A) Initial determination.--
Not NOTE: Deadline. later than 90 days after the
date on which the application for registration is
furnished to the Commission under paragraph (1) (or
within such longer period as to which the applicant
consents) the Commission shall--
``(i) by order, grant such registration for
ratings in the subject category or categories of
obligors, as described in clauses (i) through (v)
of section 3(a)(62)(B); or
``(ii) institute proceedings to determine
whether registration should be denied.
``(B) Conduct of proceedings.--
``(i) Content.--Proceedings referred to in
subparagraph (A)(ii) shall--
``(I) include notice of the grounds
for denial under consideration and an
opportunity for hearing; and
``(II) be concluded not later than
120 days after the date on which the
application for registration is
furnished to the Commission under
paragraph (1).

[[Page 1331]]
120 STAT. 1331

``(ii) Determination.--At the conclusion of
such proceedings, the Commission, by order, shall
grant or deny such application for registration.
``(iii) Extension authorized.--The Commission
may extend the time for conclusion of such
proceedings for not longer than 90 days, if it
finds good cause for such extension and publishes
its reasons for so finding, or for such longer
period as to which the applicant consents.
``(C) Grounds for decision.--The Commission shall
grant registration under this subsection--
``(i) if the Commission finds that the
requirements of this section are satisfied; and
``(ii) unless the Commission finds (in which
case the Commission shall deny such registration)
that--
``(I) the applicant does not have
adequate financial and managerial
resources to consistently produce credit
ratings with integrity and to materially
comply with the procedures and
methodologies disclosed under paragraph
(1)(B) and with subsections (g), (h),
(i), and (j); or
``(II) if the applicant were so
registered, its registration would be
subject to suspension or revocation
under subsection (d).
``(3) Public availability of information.--Subject to
section 24, the Commission shall, by rule, require a nationally
recognized statistical rating organization, upon the granting of
registration under this section, to make the information and
documents submitted to the Commission in its completed
application for registration, or in any amendment submitted
under paragraph (1) or (2) of subsection (b), publicly available
on its website, or through another comparable, readily
accessible means, except as provided in clauses (viii) and (ix)
of paragraph (1)(B).

``(b) Update of Registration.--
``(1) Update.--Each nationally recognized statistical rating
organization shall promptly amend its application for
registration under this section if any information or document
provided therein becomes materially inaccurate, except that a
nationally recognized statistical rating organization is not
required to amend--
``(A) the information required to be furnished under
subsection (a)(1)(B)(i) by furnishing information under
this paragraph, but shall amend such information in the
annual submission of the organization under paragraph
(2) of this subsection; or
``(B) the certifications required to be provided
under subsection (a)(1)(B)(ix) by furnishing information
under this paragraph.
``(2) Certification.--Not NOTE: Deadline. later than 90
days after the end of each calendar year, each nationally
recognized statistical rating organization shall furnish to the
Commission an amendment to its registration, in such form as the
Commission, by rule, may prescribe as necessary or appropriate
in the public interest or for the protection of investors--

[[Page 1332]]
120 STAT. 1332

``(A) certifying that the information and documents
in the application for registration of such nationally
recognized statistical rating organization (other than
the certifications required under subsection
(a)(1)(B)(ix)) continue to be accurate; and
``(B) listing any material change that occurred to
such information or documents during the previous
calendar year.

``(c) Accountability for Ratings Procedures.--
``(1) Authority.--The Commission shall have exclusive
authority to enforce the provisions of this section in
accordance with this title with respect to any nationally
recognized statistical rating organization, if such nationally
recognized statistical rating organization issues credit ratings
in material contravention of those procedures relating to such
nationally recognized statistical rating organization, including
procedures relating to the prevention of misuse of nonpublic
information and conflicts of interest, that such nationally
recognized statistical rating organization--
``(A) includes in its application for registration
under subsection (a)(1)(B)(ii); or
``(B) makes and disseminates in reports pursuant to
section 17(a) or the rules and regulations thereunder.
``(2) Limitation.--The rules and regulations that the
Commission may prescribe pursuant to this title, as they apply
to nationally recognized statistical rating organizations, shall
be narrowly tailored to meet the requirements of this title
applicable to nationally recognized statistical rating
organizations. Notwithstanding any other provision of law,
neither the Commission nor any State (or political subdivision
thereof) may regulate the substance of credit ratings or the
procedures and methodologies by which any nationally recognized
statistical rating organization determines credit ratings.

``(d) Censure, Denial, or Suspension of Registration; Notice and
Hearing.--The Commission, by order, shall censure, place limitations on
the activities, functions, or operations of, suspend for a period not
exceeding 12 months, or revoke the registration of any nationally
recognized statistical rating organization if the Commission finds, on
the record after notice and opportunity for hearing, that such censure,
placing of limitations, suspension, or revocation is necessary for the
protection of investors and in the public interest and that such
nationally recognized statistical rating organization, or any person
associated with such an organization, whether prior to or subsequent to
becoming so associated--
``(1) has committed or omitted any act, or is subject to an
order or finding, enumerated in subparagraph (A), (D), (E), (H),
or (G) of section 15(b)(4), has been convicted of any offense
specified in section 15(b)(4)(B), or is enjoined from any
action, conduct, or practice specified in subparagraph (C) of
section 15(b)(4), during the 10-year period preceding the date
of commencement of the proceedings under this subsection, or at
any time thereafter;
``(2) has been convicted during the 10-year period preceding
the date on which an application for registration is furnished
to the Commission under this section, or at any time thereafter,
of--

[[Page 1333]]
120 STAT. 1333

``(A) any crime that is punishable by imprisonment
for 1 or more years, and that is not described in
section 15(b)(4)(B); or
``(B) a substantially equivalent crime by a foreign
court of competent jurisdiction;
``(3) is subject to any order of the Commission barring or
suspending the right of the person to be associated with a
nationally recognized statistical rating organization;
``(4) fails to furnish the certifications required under
subsection (b)(2); or
``(5) fails to maintain adequate financial and managerial
resources to consistently produce credit ratings with integrity.

``(e) Termination of Registration.--
``(1) Voluntary withdrawal.--A nationally recognized
statistical rating organization may, upon such terms and
conditions as the Commission may establish as necessary in the
public interest or for the protection of investors, withdraw
from registration by furnishing a written notice of withdrawal
to the Commission.
``(2) Commission authority.--In addition to any other
authority of the Commission under this title, if the Commission
finds that a nationally recognized statistical rating
organization is no longer in existence or has ceased to do
business as a credit rating agency, the Commission, by order,
shall cancel the registration under this section of such
nationally recognized statistical rating organization.

``(f) Representations.--
``(1) Ban on representations of sponsorship by united states
or agency thereof.--It shall be unlawful for any nationally
recognized statistical rating organization to represent or imply
in any manner whatsoever that such nationally recognized
statistical rating organization has been designated, sponsored,
recommended, or approved, or that the abilities or
qualifications thereof have in any respect been passed upon, by
the United States or any agency, officer, or employee thereof.
``(2) Ban on representation as nrsro of unregistered credit
rating agencies.--It shall be unlawful for any credit rating
agency that is not registered under this section as a nationally
recognized statistical rating organization to state that such
credit rating agency is a nationally recognized statistical
rating organization registered under this title.
``(3) Statement of registration under securities exchange
act of 1934 provisions.--No provision of paragraph (1) shall be
construed to prohibit a statement that a nationally recognized
statistical rating organization is a nationally recognized
statistical rating organization under this title, if such
statement is true in fact and if the effect of such registration
is not misrepresented.

``(g) Prevention of Misuse of Nonpublic Information.--
``(1) Organization policies and procedures.--Each nationally
recognized statistical rating organization shall establish,
maintain, and enforce written policies and procedures reasonably
designed, taking into consideration the nature of the business
of such nationally recognized statistical rating organization,
to prevent the misuse in violation of this title, or the rules
or regulations hereunder, of material, nonpublic information by
such nationally recognized statistical rating

[[Page 1334]]
120 STAT. 1334

organization or any person associated with such nationally
recognized statistical rating organization.
``(2) Commission authority.--
The NOTE: Regulations. Commission shall issue final rules in
accordance with subsection (n) to require specific policies or
procedures that are reasonably designed to prevent misuse in
violation of this title (or the rules or regulations hereunder)
of material, nonpublic information.

``(h) Management of Conflicts of Interest.--
``(1) Organization policies and procedures.--Each nationally
recognized statistical rating organization shall establish,
maintain, and enforce written policies and procedures reasonably
designed, taking into consideration the nature of the business
of such nationally recognized statistical rating organization
and affiliated persons and affiliated companies thereof, to
address and manage any conflicts of interest that can arise from
such business.
``(2) Commission authority.--
The NOTE: Regulations. Commission shall issue final rules in
accordance with subsection (n) to prohibit, or require the
management and disclosure of, any conflicts of interest relating
to the issuance of credit ratings by a nationally recognized
statistical rating organization, including, without limitation,
conflicts of interest relating to--
``(A) the manner in which a nationally recognized
statistical rating organization is compensated by the
obligor, or any affiliate of the obligor, for issuing
credit ratings or providing related services;
``(B) the provision of consulting, advisory, or
other services by a nationally recognized statistical
rating organization, or any person associated with such
nationally recognized statistical rating organization,
to the obligor, or any affiliate of the obligor;
``(C) business relationships, ownership interests,
or any other financial or personal interests between a
nationally recognized statistical rating organization,
or any person associated with such nationally recognized
statistical rating organization, and the obligor, or any
affiliate of the obligor;
``(D) any affiliation of a nationally recognized
statistical rating organization, or any person
associated with such nationally recognized statistical
rating organization, with any person that underwrites
the securities or money market instruments that are the
subject of a credit rating; and
``(E) any other potential conflict of interest, as
the Commission deems necessary or appropriate in the
public interest or for the protection of investors.

``(i) Prohibited Conduct.--
``(1) Prohibited acts and practices.--
The NOTE: Regulations. Commission shall issue final rules in
accordance with subsection (n) to prohibit any act or practice
relating to the issuance of credit ratings by a nationally
recognized statistical rating organization that the Commission
determines to be unfair, coercive, or abusive, including any act
or practice relating to--
``(A) conditioning or threatening to condition the
issuance of a credit rating on the purchase by the
obligor or an affiliate thereof of other services or
products, including pre-credit rating assessment
products, of the nationally recognized statistical
rating organization or any

[[Page 1335]]
120 STAT. 1335

person associated with such nationally recognized
statistical rating organization;
``(B) lowering or threatening to lower a credit
rating on, or refusing to rate, securities or money
market instruments issued by an asset pool or as part of
any asset-backed or mortgage-backed securities
transaction, unless a portion of the assets within such
pool or part of such transaction, as applicable, also is
rated by the nationally recognized statistical rating
organization; or
``(C) modifying or threatening to modify a credit
rating or otherwise departing from its adopted
systematic procedures and methodologies in determining
credit ratings, based on whether the obligor, or an
affiliate of the obligor, purchases or will purchase the
credit rating or any other service or product of the
nationally recognized statistical rating organization or
any person associated with such organization.
``(2) Rule of construction.--Nothing in paragraph (1), or in
any rules or regulations adopted thereunder, may be construed to
modify, impair, or supersede the operation of any of the
antitrust laws (as defined in the first section of the Clayton
Act, except that such term includes section 5 of the Federal
Trade Commission Act, to the extent that such section 5 applies
to unfair methods of competition).

``(j) Designation of Compliance Officer.--Each nationally recognized
statistical rating organization shall designate an individual
responsible for administering the policies and procedures that are
required to be established pursuant to subsections (g) and (h), and for
ensuring compliance with the securities laws and the rules and
regulations thereunder, including those promulgated by the Commission
pursuant to this section.
``(k) Statements of Financial Condition.--Each NOTE: Confidential
information. nationally recognized statistical rating organization
shall, on a confidential basis, furnish to the Commission, at intervals
determined by the Commission, such financial statements, certified (if
required by the rules or regulations of the Commission) by an
independent public accountant, and information concerning its financial
condition, as the Commission, by rule, may prescribe as necessary or
appropriate in the public interest or for the protection of investors.

``(l) Sole Method of Registration.--
``(1) In general.--On and after the effective date of this
section, a credit rating agency may only be registered as a
nationally recognized statistical rating organization for any
purpose in accordance with this section.
``(2) Prohibition on reliance on no-action relief.--On and
after the effective date of this section--
``(A) an entity that, before that date, received
advice, approval, or a no-action letter from the
Commission or staff thereof to be treated as a
nationally recognized statistical rating organization
pursuant to the Commission rule at section 240.15c3-1 of
title 17, Code of Federal Regulations, may represent
itself or act as a nationally recognized statistical
rating organization only--
``(i) during Commission consideration of the
application, if such entity has furnished an
application for registration under this section;
and

[[Page 1336]]
120 STAT. 1336

``(ii) on and after the date of approval of
its application for registration under this
section; and
``(B) the advice, approval, or no-action letter
described in subparagraph (A) shall be void.
``(3) Notice to other agencies.--
Not NOTE: Deadline. later than 30 days after the date of
enactment of this section, the Commission shall give notice of
the actions undertaken pursuant to this section to each Federal
agency which employs in its rules and regulations the term
`nationally recognized statistical rating organization' (as that
term is used under Commission rule 15c3-1 (17 C.F.R. 240.15c3-
1), as in effect on the date of enactment of this section).

``(m) Rules of Construction.--
``(1) No waiver of rights, privileges, or defenses.--
Registration under and compliance with this section does not
constitute a waiver of, or otherwise diminish, any right,
privilege, or defense that a nationally recognized statistical
rating organization may otherwise have under any provision of
State or Federal law, including any rule, regulation, or order
thereunder.
``(2) No private right of action.--Nothing in this section
may be construed as creating any private right of action, and no
report furnished by a nationally recognized statistical rating
organization in accordance with this section or section 17 shall
create a private right of action under section 18 or any other
provision of law.

``(n) Regulations.--
``(1) New provisions.--Such rules and regulations as are
required by this section or are otherwise necessary to carry out
this section, including the application form required under
subsection (a)--
``(A) NOTE: Deadline. shall be issued by the
Commission in final form, not later than 270 days after
the date of enactment of this section; and
``(B) NOTE: Effective date. shall become
effective not later than 270 days after the date of
enactment of this section.
``(2) Review of existing regulations.--
Not NOTE: Deadline. later than 270 days after the date of
enactment of this section, the Commission shall--
``(A) review its existing rules and regulations
which employ the term `nationally recognized statistical
rating organization' or `NRSRO'; and
``(B) amend or revise such rules and regulations in
accordance with the purposes of this section, as the
Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors.

``(o) NRSROs Subject to Commission Authority.--
``(1) In general.--No provision of the laws of any State or
political subdivision thereof requiring the registration,
licensing, or qualification as a credit rating agency or a
nationally recognized statistical rating organization shall
apply to any nationally recognized statistical rating
organization or person employed by or working under the control
of a nationally recognized statistical rating organization.
``(2) Limitation.--Nothing in this subsection prohibits the
securities commission (or any agency or office performing like
functions) of any State from investigating and bringing an

[[Page 1337]]
120 STAT. 1337

enforcement action with respect to fraud or deceit against any
nationally recognized statistical rating organization or person
associated with a nationally recognized statistical rating
organization.

``(p) Applicability.--This NOTE: Effective date. section, other
than subsection (n), which shall apply on the date of enactment of this
section, shall apply on the earlier of--
``(1) the date on which regulations are issued in final form
under subsection (n)(1); or
``(2) 270 days after the date of enactment of this
section.''.

(b) Conforming Amendments.--
(1) Securities exchange act of 1934.--The Securities
Exchange Act of 1934 (15 U.S.C. 78 et seq.) is amended--
(A) in section 15(b)(4) (15 U.S.C. 78o(b)(4))--
(i) in subparagraph (B)(ii), by inserting
``nationally recognized statistical rating
organization,'' after ``transfer agent,''; and
(ii) in subparagraph (C), by inserting
``nationally recognized statistical rating
organization,'' after ``transfer agent,''; and
(B) in section 21B(a) (15 U.S.C. 78u-2(a)), by
inserting ``15E,'' after ``15C,''.
(2) Investment company act of 1940.--The Investment Company
Act of 1940 (15 U.S.C. 80a et seq.) is amended--
(A) in section 2(a) (15 U.S.C. 80a-2(a)), by adding
at the end the following new paragraph:
``(53) The term `credit rating agency' has the same meaning
as in section 3 of the Securities Exchange Act of 1934.''; and
(B) in section 9(a) (15 U.S.C. 80a-9(a))--
(i) in paragraph (1), by inserting ``credit
rating agency,'' after ``transfer agent,''; and
(ii) in paragraph (2), by inserting ``credit
rating agency,'' after ``transfer agent,''.
(3) Investment advisers act of 1940.--The Investment
Advisers Act of 1940 (15 U.S.C. 80b et seq.) is amended--
(A) in section 202(a) (15 U.S.C. 80b-2(a)), by
adding at the end the following new paragraph:
``(28) The term `credit rating agency' has the same meaning
as in section 3 of the Securities Exchange Act of 1934.'';
(B) in section 202(a)(11) (15 U.S.C. 80b-2(a)(11)),
by striking ``or (F)'' and inserting the following:
``(F) any nationally recognized statistical rating
organization, as that term is defined in section
3(a)(62) of the Securities Exchange Act of 1934, unless
such organization engages in issuing recommendations as
to purchasing, selling, or holding securities or in
managing assets, consisting in whole or in part of
securities, on behalf of others; or (G)''; and
(C) in section 203(e) (15 U.S.C. 80b-3(e))--
(i) in paragraph (2)(B), by inserting ``credit
rating agency,'' after ``transfer agent,''; and
(ii) in paragraph (4), by inserting ``credit
rating agency,'' after ``transfer agent,''.
(4) Housing and community development act of 1992.--Section
1319 of the Housing and Community Development Act of 1992 (12
U.S.C. 4519) is amended by striking ``effectively'' and all that
follows through ``broker-dealers'' and inserting

[[Page 1338]]
120 STAT. 1338

``that is a nationally recognized statistical rating
organization, as such term is defined in section 3(a) of the
Securities Exchange Act of 1934''.
(5) Higher education act of 1965.--Section 439(r)(15)(A) of
the Higher Education Act of 1965 (20 U.S.C. 1087-2(r)(15)(A)) is
amended by striking ``means any entity recognized as such by the
Securities and Exchange Commission'' and inserting ``means any
nationally recognized statistical rating organization, as that
term is defined in section 3(a) of the Securities Exchange Act
of 1934''.
(6) Title 23.--Section 181(11) of title 23, United States
Code, is amended by striking ``identified by the Securities and
Exchange Commission as a nationally recognized statistical
rating organization'' and inserting ``registered with the
Securities and Exchange Commission as a nationally recognized
statistical rating organization, as that term is defined in
section 3(a) of the Securities Exchange Act of 1934''.

SEC. 5. ANNUAL AND OTHER REPORTS.

Section 17(a)(1) of the Securities Exchange Act of 1934 (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 that a
nationally recognized statistical rating organization is
required by Commission rules under this paragraph to make and
disseminate to the Commission shall be deemed furnished to the
Commission.''.

SEC. 6. NOTE: 15 USC 78o-7 note. COMMISSION ANNUAL REPORT.

The Commission shall submit an annual report to the Committee on
Banking, Housing, and Urban Affairs of the Senate and the Committee on
Financial Services of the House of Representatives that, with respect to
the year to which the report relates--
(1) identifies applicants for registration under section 15E
of the Securities Exchange Act of 1934, as added by this Act;
(2) specifies the number of and actions taken on such
applications; and
(3) specifies the views of the Commission on the state of
competition, transparency, and conflicts of interest among
nationally recognized statistical rating organizations.

SEC. 7. GAO STUDY AND REPORT REGARDING NATIONALLY RECOGNIZED STATISTICAL
RATING ORGANIZATIONS.

(a) Study Required.--The Comptroller General of the United States
shall conduct a study--
(1) to determine the impact of this Act and the amendments
made by this Act on--
(A) the quality of credit ratings issued by
nationally recognized statistical ratings organizations;
(B) the financial markets;
(C) competition among credit rating agencies;
(D) the incidence of inappropriate conflicts of
interest and sales practices by nationally recognized
statistical rating organizations;
(E) the process for registering as a nationally
recognized statistical rating organization; and

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120 STAT. 1339

(F) such other matters relevant to the
implementation of this Act and the amendments made by
this Act, as the Comptroller General deems necessary to
bring to the attention of the Congress;
(2) to identify problems, if any, that have resulted from
the implementation of this Act and the amendments made by this
Act; and
(3) to recommend solutions, including any legislative or
regulatory solutions, to any problems identified under
paragraphs (1) and (2).

(b) Report Required.--Not NOTE: Deadline. earlier than 3 years
nor later than 4 years after the date of enactment of this Act, the
Comptroller General shall submit a report on the results of the study
required by this section to the Committee on Banking, Housing, and Urban
Affairs of the Senate and the Committee on Financial Services of the
House of Representatives.

Approved September 29, 2006.

LEGISLATIVE HISTORY--S. 3850:
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SENATE REPORTS: No. 109-326 (Comm. on Banking, Housing, and Urban
Affairs).
CONGRESSIONAL RECORD, Vol. 152 (2006):
Sept. 22, considered and passed Senate.
Sept. 27, considered and passed House.