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contract to $.0045 per contract.12 The III. Date of Effectiveness of the business days between the hours of 10 new ORF was to take effect on January Proposed Rule Change and Timing for a.m. and 3 p.m. Copies of the filing also 3, 2011, therefore the old ORF rate of Commission Action will be available for inspection and $.004 per contract was not removed The foregoing rule change has become copying at the principal office of the from Section 12(A) of the Fees Schedule effective pursuant to Section Exchange. All comments received will at that time. The Exchange proposes to 19(b)(3)(A)(ii) of the Act 16 and be posted without change; the delete the reference to the old rate of subparagraph (f)(2) of Rule 19b–4.17 At Commission does not edit personal $.004 per contract from Section 12(A) of any time within 60 days of the filing of identifying information from the Fees Schedule. the proposed rule change, the submissions. You should submit only information that you wish to make The proposed fee changes will take Commission summarily may temporarily suspend such rule change if available publicly. All submissions effect on May 2, 2011. it appears to the Commission that such should refer to File Number SR–CBOE– 2. Statutory Basis action is necessary or appropriate in the 2011–043 and should be submitted on public interest, for the protection of or before June 6, 2011. The Exchange believes the proposed investors, or otherwise in furtherance of For the Commission, by the Division of rule change is consistent with Section the purposes of the Act. Trading and Markets, pursuant to delegated 6(b) of the Securities Exchange Act of authority.18 IV. Solicitation of Comments 1934 (‘‘Act’’),13 in general, and furthers Cathy H. Ahn, the objectives of Section 6(b)(4) 14 of the Interested persons are invited to Deputy Secretary. submit written data, views, and Act in particular, in that it is designed [FR Doc. 2011–11838 Filed 5–13–11; 8:45 am] arguments concerning the foregoing, to provide for the equitable allocation of BILLING CODE 8011–01–P reasonable dues, fees, and other charges including whether the proposed rule among CBOE Trading Permit Holders change is consistent with the Act. and other persons using its facilities. Comments may be submitted by any of SECURITIES AND EXCHANGE the following methods: The Exchange believes the proposed COMMISSION rule change is equitable, reasonable and Electronic Comments not unfairly discriminatory in that it • Use the Commission’s Internet [Release No. 34–64456; File No. 4–629] would further lower fees for market comment form (http://www.sec.gov/ participants that trade these strategies rules/sro.shtml); or Solicitation of Comment To Assist in by expanding the fee cap for reversal, • Send an e-mail to rule- Study on Assigned Credit Ratings conversion and jelly roll strategies to [email protected]. Please include File AGENCY: Securities and Exchange Number SR–CBOE–2011–043 on the apply to all options classes traded on Commission. the Exchange except those which are subject line. ACTION: Request for comment. subject to the Index License surcharge Paper Comments fee. In addition, the proposed rule • SUMMARY: The Securities and Exchange change would allow the Exchange to Send paper comments in triplicate to Elizabeth M. Murphy, Secretary, Commission (‘‘Commission’’) requests remain competitive with other Securities and Exchange Commission, public comment to assist it in carrying exchanges that offer similar fee cap out a study on, among other matters, the 15 100 F Street, NE., Washington, DC programs. The proposed rule change 20549–1090. feasibility of establishing a system in would also clarify portions of the Fees All submissions should refer to File which a public or private utility or a Schedule relating to the strategy fee cap Number SR–CBOE–2011–043. This file self-regulatory organization (‘‘SRO’’) program and the Options Regulatory number should be included on the assigns nationally recognized statistical Fee. subject line if e-mail is used. To help the rating organizations (‘‘NRSROs’’) to B. Self-Regulatory Organization’s Commission process and review your determine credit ratings for structured Statement on Burden on Competition comments more efficiently, please use finance products. This study, and a only one method. The Commission will resulting report to Congress, are CBOE does not believe that the post all comments on the Commission’s required by Section 939F of the Dodd- proposed rule change will impose any Internet Web site (http://www.sec.gov/ Frank Wall Street Reform and Consumer burden on competition that is not rules/sro.shtml). Copies of the Protection Act of 2010 (the ‘‘Dodd-Frank necessary or appropriate in furtherance submission, all subsequent Act’’). of purposes of the Act. amendments, all written statements DATES: The Commission will accept with respect to the proposed rule comments on matters related to the C. Self-Regulatory Organization’s change that are filed with the study on or before September 13, 2011. Statement on Comments on the Commission, and all written Proposed Rule Change Received From communications relating to the ADDRESSES: Comments may be Members, Participants, or Others proposed rule change between the submitted by any of the following Commission and any person, other than methods: No written comments were solicited those that may be withheld from the Electronic Comments or received with respect to the proposed public in accordance with the • rule change. provisions of 5 U.S.C. 552, will be Use the Commission’s Internet available for Web site viewing and comment form (http://www.sec.gov/ rules/other.shtml); or 12 printing in the Commission’s Public See Securities Exchange Act Release No. 63524 • (December 10, 2010), 75 FR 78780 (December 16, Reference Room, 100 F Street, NE., Send an e-mail to rule- 2010). Washington, DC 20549, on official [email protected]. Please include File 13 15 U.S.C. 78f(b). Number 4–629 on the subject line. 14 15 U.S.C. 78f(b)(4). 16 15 U.S.C. 78s(b)(3)(a)(ii). 15 Supra footnote 6. 17 17 CFR 240.19b–4(f)(2). 18 17 CFR 200.30–3(a)(12).

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Paper Comments Section 939F provides that the provisions of Section 15E(w) of the • Send paper comments in triplicate Commission, in carrying out the study, Securities Exchange Act of 1934, as that to Elizabeth M. Murphy, Secretary, shall address four areas. One, the credit provision would have been added by Securities and Exchange Commission, rating process for structured finance Section 939D of H.R. 4173 (111th 100 F Street, NE., Washington, DC products and the conflicts of interest Congress), as passed by the Senate on ‘‘ 20549–1090. All submissions should associated with the issuer-pay and the May 20, 2010 (the Section 15E(w) 3 ’’ refer to File Number 4–629. This file subscriber-pay models. Two, the Provisions ), and shall implement the number should be included on the feasibility of establishing a system in system described in such Section 939D ‘‘ ’’ subject line if e-mail is used. To help us which a public or private utility or an (the Section 15E(w) System ) unless process and review your comments SRO assigns NRSROs to determine the the Commission determines that an credit ratings for structured finance more efficiently, please use only one alternative system would better serve products, including: (1) An assessment method. The Commission will post all the public interest and the protection of of potential mechanisms for 8 comments on the Commission’s Internet investors. determining fees for NRSROs for In carrying out the study required by Web site (http://www.sec.gov). structured finance products; (2) Section 939F, the Commission believes Comments are also available for Web appropriate methods for paying fees to that comments, proposals, data, and site viewing and printing in the NRSROs to rate structured finance analysis from interested parties Commission’s Public Reference Room, products; (3) the extent to which the representing a wide range views of, and 100 F Street, NE., Washington, DC creation of such a system would be involvement in, the market for 20549, on official business days viewed as the creation of moral hazard structured finance products and the role between the hours of 10 a.m. and 3 p.m. by the Federal Government; and (4) any of NRSROs in that market would All comments received will be posted constitutional or other issues provide valuable assistance. In this without change; we do not edit personal concerning the establishment of such a regard, the Commission seeks comment identifying information from system.4 Three, the range of metrics one from: (1) Investors and other persons submissions. You should submit only could use to determine the accuracy of who use credit ratings; (2) participants information that you wish to make credit ratings for structured finance in pensions funds and other retirement available publicly. products.5 Four, alternative means for vehicles that may hold structured FOR FURTHER INFORMATION CONTACT: compensating NRSROs that would finance products; (3) portfolio and fund Randall W. Roy, Assistant Director, at create incentives for accurate credit managers; (4) investment advisers; (5) (202) 551–5522; Alan A. Dunetz, Branch ratings for structured finance products.6 insurance companies; (6) credit rating Chief, at (212) 336–0072; Kevin S. In addition, Section 939F provides agencies; (7) financial institutions; (8) Davey, Securities Compliance Examiner, that, after submission of the report to originators of financial assets that are at (212) 336–0075; Kristin A. Devitto, Congress resulting from the study, the securitized into structured finance Securities Compliance Examiner, at Commission shall, by rule, as the products (including, but not limited to, (212) 336–0038; Diane Audino, Commission determines is necessary or originators of residential and Securities Compliance Examiner, at appropriate in the public interest or for commercial real estate loans, corporate (212) 336–0076, or Timothy C. Fox, at the protection of investors, establish a loans, student loans, credit card (202) 551–5687, Special Counsel, system for the assignment of NRSROs to receivables, consumer loans and leases, Division of Trading and Markets, determine the initial credit ratings of auto loans and leases, auto floor plans, Securities and Exchange Commission, structured finance products, in a equipment loans and leases, and any 100 F Street, NE., Washington, DC manner that prevents the issuer, other financial assets that are 20549–7010. sponsor, or underwriter of the securitized); (9) issuers, underwriters, structured finance product from I. Background sponsors, and depositors involved in the selecting the NRSRO that will determine issuance of structured finance products; On July 21, 2010, President Obama the initial credit ratings and monitor (10) regulators; (11) members of the 1 7 signed the Dodd-Frank Act into law. such credit ratings. In issuing any rule, academic community; and (12) any Under Section 939F of the Dodd-Frank the Commission is required to give other persons who have views ‘‘ ’’ Act ( Section 939F ), the Commission thorough consideration to the concerning, and involvement in, the must submit to the Committee on market for structured finance products Banking, Housing, and Urban Affairs of by Section 941 of the Dodd-Frank Act (15 U.S.C. 78c(a)(77)), and any structured product based on an and the role of NRSROs in that market. the Senate and the Committee on In addition, given the complexity of the Financial Services of the House of asset-backed security, as determined by the Commission, by rule. For the purposes of this issues surrounding the matters to be Representatives, not later than 24 solicitation of comment, the term ‘‘structured addressed in the study, the Commission months after the date of enactment of finance product’’ means an ‘‘asset-backed security’’ as defined in Section 3(a)(77) of the Exchange Act believes an extended comment period of the Dodd-Frank Act, a report containing: 120 days is appropriate in order to (1) The findings of a study on matters and, to the extent not included in that definition, any security or money market instrument issued by provide sufficient opportunity for all related to assigning credit ratings for an asset pool or as part of any asset-backed or interested parties to consider and mortgage-backed securities transaction. See, e.g., 17 structured finance products; and (2) any respond to the questions and provide recommendations for regulatory or CFR 240.17g–2(a)(2)(iii), (a)(7), and (b)(9), 17 CFR 240.17g–3(a)(6), 17 CFR 240.17g–5(a)(3) and (b)(9), any additional comments, proposals, statutory changes that the Commission and 17 CFR 17g–6(a)(4). See also Amendments to data, and analysis they believe germane determines should be made to Rules for Nationally Recognized Statistical Rating to the study. implement the findings of the study.2 Organizations, Exchange Act Release No. 61050 (Nov. 23, 2009), 74 FR at 63832 (Dec. 4, 2009), at II. Request for Comment 74 FR 63832, footnote 3. 1 Public Law 111–203, 124 Stat. 1376, H.R. 4173 3 The Commission requests that (2010). See Public Law 111–203 § 939F(b)(1). 4 2 See Section 939F. Section 939F(a) provides that, See Public Law 111–203 § 939F(b)(2)(A) through interested parties provide comments, for purposes of Section 939F, the term ‘‘structured (B). finance product’’ means an ‘‘asset-backed security,’’ 5 See Public Law 111–203 § 939F(b)(3). 8 Id. For ease of reference, the Section 15E(w) as defined in Section 3(a)(77) of the Securities 6 See Public Law 111–203 § 939F(b)(4). Provisions are attached as an Appendix to this Exchange Act of 1934 (‘‘Exchange Act’’), as added 7 See Public Law 111–203 § 939F(d). solicitation of comments.

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proposals, data, and analysis in The GAO notes that this framework including alternatives not identified in response to the questions below, as could be used by the Commission to this release.13 appropriate, given their views of, and ‘‘evaluate current proposals for Finally, the Commission notes that 10 involvement in, the market for compensating NRSROs, develop new credit rating agencies currently are structured finance products and the role proposals, and identify trade-offs among registered as NRSROs, eight of which of NRSROs in that market.9 In this them’’ in carrying out the study required are registered in the class of credit rating regard, the Commission requests that by Section 939F.12 Consequently, the for issuers of asset-backed securities.14 interested parties address the topics and Commission requests in Sections II.B Based on information disclosed by these questions set forth in three sections and II.C that interested parties use the eight NRSROs in their most recently below. Section II.A seeks comment on GAO Framework to evaluate, updated Form NRSROs, the the credit rating process for structured respectively, the Section 15E(w) System Commission estimates that finance products and the conflicts of and potential alternatives to that system, approximately 94% of the outstanding interest associated with the issuer-pay credit ratings for structured finance and the subscriber-pay models.10 factors are: (1) Independence (the ability for the products were determined by the three compensation model to mitigate conflicts of interest 15 Section II.B seeks comment on the inherent between the entity paying for the rating largest NRSROs (see Figure 1 below). Section 15E(w) System for assigning and the NRSRO); (2) accountability (the ability of The Commission requests that NRSROs to determine credit ratings for the compensation model to promote NRSRO interested parties, in responding to the structured finance products. Finally, responsibility for the accuracy and timeliness of topics and questions below address, as their ratings); (3) competition (the extent to which Section II.C seeks comment on potential the compensation model creates an environment in applicable, the likely impact the alternatives to the Section 15E(w) which NRSROs compete for customers by proposals would have on the System. producing higher-quality ratings at competitive concentration of issuance of credit prices); (4) transparency (the accessibility, usability, In addition, the General and clarity of the compensation model and the ratings for structured finance products Accountability Office (‘‘GAO’’) has dissemination of information on the model to among NRSROs. developed a framework (‘‘GAO market participants); (5) feasibility (the simplicity Framework’’) for Congress and others to and ease with which the compensation model can 13 In addition, Section 939F requires the be implemented in the securities market); (6) Commission to address specific matters with use in evaluating or crafting alternative market acceptance and choice (the willingness of 11 respect to the Section 15E(w) System. See Public compensation models for NRSROs. the securities market to accept the compensation Law 111–203 § 939F. While these matters may be model, the ratings produced under that model, and covered broadly by the GAO Framework, the 9 The Commission has received a comment that any new market players established by the Commission requests, in Section II.B, that relates to matters in this solicitation of comment as compensation model); and (7) oversight (the interested parties address these matters through a part of its general request for public input on evaluation of the model to help ensure it works as series of additional targeted questions. intended). Section 939E of the Dodd-Frank requires regulatory initiatives under the Dodd-Frank Act. 14 the GAO to conduct a study on alternative means The classes of credit ratings for which an See letter from Anne Simpson of CalPERS dated for compensating NRSROs in order to create NRSRO can be registered are enumerated in the October 4, 2010. This comment and others relating incentives for NRSROs to provide more accurate definition of ‘‘nationally recognized statistical rating to credit rating agencies are available at: http:// credit ratings, including any statutory changes that organization’’ in Section 3(a)(62) of the Exchange www.sec.gov/comments/df-title-ix/credit-rating- would be required to facilitate the use of an Act: (1) Financial institutions, brokers, or dealers; agencies/credit-rating-agencies.shtml. alternative means of compensation. See Public Law (2) insurance companies; (3) corporate issuers; (4) 10 Section 939F(b)(1) requires the Commission to 111–203 § 939E. Section 939E further requires the issuers of asset-backed securities (as that term is address these matters in carrying out the study. See GAO to provide the Committee on Banking, defined in Section 1101(c) of part 229 of Title 17, Public Law 111–203 § 939F(b)(1). Housing, and Urban Affairs of the Senate and the Code of Federal Regulations, as in effect on the date 11 See Securities and Exchange Commission: Committee on Financial Services of the House of of enactment of this paragraph); and (5) issuers of Action Needed to Improve Rating Agency Representatives, not later than 18 months after the government securities, municipal securities, or Registration Program and Performance Related date of enactment of the Dodd-Frank Act, a report securities issued by a foreign government. 15 U.S.C. Disclosures, GAO Report 10–782 (September 2010) on the results of the study, including 78c(a)(62). (‘‘GAO Report 10–782’’) at pp. 79–93. As discussed recommendations, if any, for providing incentives 15 Item 7 of Form NRSRO requires an NRSRO to below, the GAO Framework consists of a seven to credit rating agencies to improve the credit rating provide the approximate number of credit ratings factor test to use in evaluating alternative process. Id. outstanding in each class of credit rating for which compensation models for NRSROs. Id. The seven 12 GAO Report 10–782 at pp. 92–93. the NRSRO is registered.

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A. The Credit Rating Process for collateralized loan obligation (‘‘CLO’’), including the steps that could lead to Structured Finance Products and the an asset backed security collateralized the modification of the credit rating Conflicts of Interest Associated With the by credit card receivables, auto loans, before it is published (e.g., an issuer Issuer-Pay and the Subscriber-Pay auto leases, dealer floor plan financing, ‘‘appeal’’ process). Models student loans, consumer loans, e. A description of how the processes Section 939F(b)(1) provides that the consumer leases, equipment loans, identified above and any other Commission, in carrying out the study, equipment leases, or other similar processes relating to determining and shall address the credit rating process financial assets (‘‘other ABS’’), an monitoring of structured finance for structured finance products and the issuance by an asset-backed commercial products (including absent or missing conflicts of interest associated with the paper conduit (‘‘ABCP’’), or any other process steps or other process-related issuer-pay and the subscriber-pay structured finance product), describe weaknesses) contributed, if at all, to the models. the different processes and provide any performance of credit ratings for supporting data and analysis. In structured finance products leading up Request for Comment describing the processes for these asset and during the financial crisis. If The Commission requests comments, classes, interested parties are process-related weaknesses contributed proposals, data, and analysis to assist in encouraged to describe any strengths or to the poor performance of credit ratings analyzing the credit rating process for weaknesses of such processes. for structured finance products, describe structured finance products and the Responses should include: whether and, if so, how those conflicts of interest associated with the a. A description of the process by weaknesses have been addressed. issuer-pay and the subscriber-pay which NRSROs are compensated for 2. Provide data on the number of models. In addition, the Commission determining initial credit ratings for credit ratings for structured finance requests comments, proposals, data, and structured finance products and for products initially determined by each analysis in response to the following ongoing monitoring of those ratings. NRSRO each year for the last ten years questions: b. A description of the data collection or identify sources of information where 1. Describe the processes by which an phase of the process for determining that data can be located. If possible, NRSRO determines an initial credit and monitoring credit ratings for provide data for each asset class of rating for a structured finance product structured finance products, including: structured finance products identified and, thereafter, monitors that credit The types of data collected; the sources above. rating.16 If the processes differ based on from which the data is obtained; 3. Describe the potential conflicts of the type of structured finance product whether, and, if so how, the data is interest in the issuer-pay model in (e.g., a residential mortgage backed validated; whether the data is public or rating structured finance products. For security (‘‘RMBS’’), a commercial non-public; and how, if at all, the data example, in what ways, if any, does the mortgage-backed security (‘‘CMBS’’), a is captured in the NRSRO’s systems. issuer, underwriter, or sponsor collateralized debt obligation (‘‘CDO’’), a c. A description of the analytical (‘‘arranger’’) of the structured finance phase of the process for determining product paying the NRSRO to determine 16 In responding to the questions below about and monitoring credit ratings for the credit rating create conflicts of processes, interested parties are encouraged to use flow charts, if appropriate, to illustrate the structured finance products, including interest? What are the potential impacts processes described in responses, including using the types of analyses performed (e.g., on the NRSRO and the credit ratings visual channels (‘‘swim lanes’’) to identify NRSRO cash flow, sensitivity, loss, and stress issued from these conflicts of interest? resources (e.g., entities, departments, personnel) analysis). Also, compare the potential conflicts in involved or used in each step of the process and the interactions between NRSRO personnel and d. A description of the process for rating structured finance products with internal and external parties during each step in the approving and publishing a credit rating the potential conflicts in rating other process. for a structured finance product, classes of obligors, securities, or money

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market instruments, such as issuers that investing limitations (e.g., a subscriber 15E of the Exchange Act and the are financial institutions, non-financial may only invest in structured finance Commission’s rules require NRSROs, corporations, insurance companies, and products that are rated above a certain among other things, to disclose and governments and municipalities. In this level in the rating scale of an NRSRO or manage conflicts of interest and, in regard, does the concentration of may have a long or short position that some cases, establish absolute underwriters and sponsors of structured could produce gains or losses prohibitions against having certain finance products potentially make any depending on how a product is rated) conflicts of interest.18 In addition, the conflicts more acute in this class of create conflicts of interests? If so, in goal of the Credit Rating Agency Reform credit ratings? Does having a large what manner and to what extent? Also, Act of 2006—which established a number of clients reduce risk that a do subscriber-paid NRSROs have registration and oversight program for single client could unduly influence the individual subscribers that account for a NRSROs through self-executing NRSRO? In addition, are the potential material portion of their annual provisions added to the Exchange Act conflicts of interest more acute in terms revenues? For example, a subscriber and implementing rules adopted by the of rating certain types of structured could be a large financial institution Commission under the Exchange Act as finance products as compared with that purchases multiple data feeds amended by the Rating Agency Act of other types of structured finance (subscriptions) to the NRSRO’s credit 2006—was to improve ratings quality by products? For example, do certain types ratings and analysis. If so, does this fostering accountability, transparency, of structured finance products account create a concentrated revenue source and competition in the credit rating for a larger percentage of revenues to that may make the subscriber-paid industry. Is there empirical data, NRSROs than other types of products in conflict more acute, similar to the studies, or other information that the today’s market and the market as it concentration of structured finance measures in Section 15E of the existed prior to the credit crisis? sponsors in the issuer-paid context? Exchange Act and the Commission’s 4. Is there empirical data, studies, or Also address whether the diversity of rules have or have not mitigated other information that the issuer-pay interest among the subscribers mitigates conflicts of interest in rating structured conflict of interest influenced credit the possibility that a single subscriber finance products? If so, identify and ratings issued by NRSROs? If so, can unduly influence ratings? For describe any such data, studies, or other identify and describe any such data, example, is this conflict mitigated to the information. studies, or other information. For extent that different subscribers may 12. Would government efforts to example, is there empirical data, have different interests with respect to reduce investor reliance on credit studies, or other information that initial how a particular security is rated? ratings such as through provisions in credit ratings for structured finance 7. Is there empirical data, studies, or Sections 939 and 939A of the Dodd- products determined by NRSROs other information that the subscriber- Frank Act mitigate the potential operating under the issuer-pay model pay conflict of interest influenced credit conflicts of interest in the rating of are higher than initial credit ratings ratings issued by NRSROs? If so, structured finance products? If so, how? determined by NRSROs operating under identify and describe any such data, Would the Section 15E(w) System have the subscriber-pay model? If so, identify studies, or other information. the potential to increase or mitigate the and describe any such data, studies, or 8. Describe any actions that NRSROs impact of other efforts to reduce other information. In addition, if it can have taken or internal controls that investor reliance on credit ratings? be demonstrated that conflicts NRSROs have in place, or could take or 13. Describe the benefits of the influenced the credit ratings for put in place, to mitigate the conflicts of current process for determining credit structured finance products, is there interests in the subscriber-pay model. ratings for structured finance products. empirical data, studies, or other 9. Compare the types and degree of For example, what are the incentives information that market participants conflicts of interest presented by the under the current processes to produce understood the impact, by for example, issuer-pay and subscriber-pay models. accurate credit ratings? In addition, are pricing structured finance products 10. Does reputational risk mitigate there benefits in allowing the arranger to differently than other types of securities potential conflicts of interest in the select the NRSRO to determine a credit or money market instruments with credit rating industry? If so, describe rating for a structured finance product? identical ratings? If so, identify and how? If not, describe why. In For example, do arrangers select describe any such data, studies, or other responding to these questions NRSROs based on their knowledge of information. concerning reputational risk, identify which NRSROs investors will accept as 5. Describe any actions that NRSROs and describe any supporting empirical issuing credible credit ratings? In have taken or internal controls that data, studies, or other information. addition, do arrangers select NRSROs NRSROs have in place, or could take or 11. NRSROs as such did not become based on their knowledge of which put in place, to mitigate conflicts of subject to registration and oversight NRSROs have the resources, capacity, interests in the issuer-pay model. requirements until June 2007.17 Given and technical competence to determine 6. Describe the potential conflicts of that much of the activity relating to the credit ratings for the structured finance interest in the subscriber-pay model in rating of RMBS and CDOs linked to product they are intending to bring to rating structured finance products. subprime mortgages occurred prior to market, or, do arrangers select an Subscriber-paid credit ratings that date, describe if, and how the NRSRO because they believe it will give commonly are not made available for registration and oversight requirements them the highest rating? free (and, consequently, not broadly have mitigated potential conflicts of 14. The Section 15E(w) System would disseminated to the marketplace). What interest in the rating of structured apply only to structured finance impact, if any, does this have on market finance products? For example, Section products. What are the differences, if participants’ ability to detect conflicts of any, between structured finance interest? In addition, address how the 17 See the Credit Rating Agency Reform Act of products and other products NRSROs interests of subscribers may create 2006 (Pub. L. 109–291 (2006)); see also Oversight of Credit Rating Agencies Registered as Nationally rate? Do these differences warrant a potential incentives to unduly influence Recognized Statistical Rating Organizations, an NRSRO in determining a credit Exchange Act Release No. 55857 (June 5, 2007), 72 18 See, e.g., 15 U.S.C. 78o–7(h), 17 CFR 240.17g– rating? For example, does a subscriber’s FR 33564 (June 18, 2007). 5, and Exhibit 6 to Form NRSRO (17 CFR 249b.300).

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separate system for assigning credit credit rating to the issuer.22 A Qualified Request for Comment ratings to NRSROs? If so, why? NRSRO selected to determine an initial The Commission requests comments, credit rating could refuse to accept a B. The Section 15E(w) System proposals, data, or analysis that could particular request by notifying the CRA The Section 15E(w) System, among assist in analyzing the Section 15E(w) Board of such refusal, and submitting to System. In addition, the Commission other things, would require the the CRA Board a written explanation of requests comments, proposals, data, and Commission to: (1) Establish a Credit the refusal.23 The CRA Board then analysis in response to the following Rating Agency Board (‘‘CRA Board’’), would select a different Qualified questions and, to the extent that which would be an SRO; (2) select the NRSRO to determine the initial credit responses would differ based on initial members of the CRA Board; and rating.24 Qualified NRSROs would be whether the CRA Board is an SRO, a (3) establish a schedule to ensure that able to determine fees unless the CRA public utility, or private utility, please the CRA Board begins assigning Board determines it is necessary to issue explain the differences.29 qualified NRSROs (‘‘Qualified NRSROs’’) rules on fees.25 If rules are deemed 1. Identify and describe the benefits of to provide initial ratings not later than necessary, a Qualified NRSRO would be implementing the Section 15E(w) one year after the selection of the required to charge an issuer a reasonable 19 System. members of the CRA Board. A fee as determined by the Commission.26 Qualified NRSRO would be an NRSRO The CRA Board would be required to 2. Identify and describe the costs of that the CRA Board determines to be prescribe rules by which it evaluates the implementing the Section 15E(w) qualified to issue initial credit ratings performance of each Qualified NRSRO, System. with respect to one or more categories including rules that require, at a 3. Evaluate the Section 15E(w) System of structured finance products.20 minimum, an annual evaluation of each using the GAO Framework by 30 An issuer that seeks an initial credit Qualified NRSRO.27 The CRA Board, in addressing the following factors: rating for a structured finance product conducting the annual evaluation would a. Independence—Address the ability would be prohibited from requesting be required to consider: (1) The results of the Section 15E(w) System to mitigate such a rating from an NRSRO and, of an annual examination of the conflicts of interest between the entity instead, be required to submit a request Qualified NRSRO; (2) surveillance of paying for the rating and the NRSRO.31 for the initial credit rating to the CRA credit ratings conducted by the To what extent, if any, would the Board.21 The CRA Board would select a Qualified NRSRO after the credit ratings Section 15E(w) System influence the Qualified NRSRO to provide the initial are issued, including, how the rated relationship between the NRSRO and instruments perform, the accuracy of the the entity paying for the rating? Would 19 See subparagraph (2)(A) of the Section 15E(w) ratings as compared to the other the Section 15E(w) System eliminate or Provisions. The CRA Board initially would be mitigate conflict of interests between the composed of an odd number of members selected NRSROs, and the effectiveness of the from the industry, with the total numerical methodologies used by the Qualified entity paying for the rating and the membership of the CRA Board to be determined by NRSRO; and (3) any additional factors NRSRO? If so, in what ways and to what the Commission. See subparagraph (2)(C)(i) of the the CRA Board determines to be extent? In addition, what potential Section 15E(w) Provisions. Of the members initially relevant.28 conflicts would be created by such a selected to serve on the CRA Board: (1) Not less than a majority of the members would need to be system? What controls, if any would representatives of the investor industry who do not 22 See subparagraph (5)(A) of the Section 15E(w) need to be implemented to mitigate represent issuers; (2) not less than one member Provisions. The method of selecting the Qualified these conflicts? In addition, how would would need to be a representative of the issuer NRSRO would be based on an evaluation by the the system limit conflicts of interest industry; (3) not less than one member would need CRA Board of a number of alternatives designed to to be a representative of the credit rating agency reduce the conflicts of interest that exist under the between users of ratings and the industry; and (4) not less than one member would issuer-pays model, including a lottery or rotating NRSRO, and between issuers and the need to be an independent member. See assignment system. See subparagraph (5)(B) of the NRSRO? subparagraphs (2)(C)(ii)(I) through (IV) of the Section 15E(w) Provisions. In addition, in b. Accountability—Address the ability Section 15E(w) Provisions. The initial members of evaluating the selection method, the CRA Board the CRA Board would be appointed to terms of 4 would be required to consider: (1) The information of the Section 15E(w) System to years. See subparagraph (2)(C)(i) of the Section submitted by the Qualified NRSRO in its 15E(w) Provisions. Prior to the expiration of the application to become a Qualified NRSRO regarding Section 15E(w) Provisions do not contain an terms of office of the initial CRA Board members, the institutional and technical capacity of the explicit requirement for the CRA Board to conduct the Commission would be required to establish fair Qualified NRSRO to issue credit ratings; (2) an, at an annual examination of each Qualified NRSRO. procedures for the nomination and election of least, annual evaluation of the performance of each 29 While the Section 15E(w) Provisions would future members of the Board. See subparagraph Qualified NRSRO; (3) formal feedback from require the Commission to establish a CRA Board (2)(C)(iv) of the Section 15E(w) Provisions. institutional investors; and (4) information from that is an SRO, Section 939F expands the possible 20 See subparagraphs (1)(B) and (3) of the Section items (1) and (2) to implement a mechanism which types of entities that would assign credit ratings to 15E(w) Provisions. An NRSRO seeking to become increases or decreases assignments based on past include potentially a public or private utility. performance. See subparagraph (5)(B)(ii) of the a Qualified NRSRO with respect to a category of Consequently, for the purposes of evaluating the Section 15E(w) Provisions. The CRA Board, in structured finance products would need to submit Section 15E(w) Provisions, the Commission choosing a selection method, would not be able to an application to the CRA Board. See subparagraphs requests that interested parties address how the use a method that allows for the solicitation or (3)(A) and (B) of the Section 15E(w) Provisions. The nature of each of these alternative assigning entities consideration of the preferred NRSRO of the issuer. application would need to contain: (1) Information (SRO, Public Utility, and Private Utility) might See subparagraph (5)(B)(iii) of the Section 15E(w) about the institutional and technical capacity of the change analysis in the responses to the questions Provisions. asked below. For the purposes of the questions, the NRSRO to issue credit ratings; (2) information on 23 whether the NRSRO has been exempted by the See subparagraph (5)(C)(i) of the Section Commission uses the term ‘‘CRA Board,’’ however, Commission from any requirements under Section 15E(w) Provisions. interested parties should read that term to mean 24 15E of the Exchange Act; and (3) any additional See subparagraph (5)(C)(ii) of the Section potentially an SRO, public utility, or private utility. information the Board may require. See 15E(w) Provisions. 30 The questions for each factor in the GAO subparagraphs (3)(A)(ii)(I) through (III) of the 25 See subparagraph (8)(B) of the Section 15E(w) Framework in most cases mirror questions Section 15E(w) Provisions. Provisions. contained in GAO Report 10–782. See GAO Report 21 See subparagraph (4) of the Section 15E(w) 26 See subparagraph (8)(A) of the Section 15E(w) 10–782 at pp. 85–93. Commenters are encouraged Provisions. An issuer would be permitted to request Provisions. to read the relevant sections of GAO Report 10–782 or receive additional credit ratings for the 27 See subparagraph (7)(A) of the Section 15E(w) for more details on the reasoning behind these structured finance product, if the initial credit Provisions. questions and the issues they seek to target and rating is provided using the CRA Board assignment 28 See subparagraph (7)(B) of the Section 15E(w) elicit comment on. process. See subparagraph (9) of the Section 15E(w) Provisions. While the evaluation contemplates an 31 See GAO Report 10–782 at p. 85 for a broader Provisions. annual examination of the Qualified NRSRO, the discussion of this factor in the GAO Framework.

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promote NRSRO responsibility for the iii. To what extent would the system NRSRO from the ratings industry affect accuracy and timeliness of credit allow for flexibility in the differing the system’s feasibility? What impact ratings.32 Specifically: sizes, resources, and specialties of would the system have on the financial i. How would the system create or NRSROs? viability of an NRSRO? distort economic incentives for NRSROs iv. To what extent would market f. Market acceptance and choice— to produce quality ratings over the life forces impact ratings fees under the Address the willingness of the securities of a security? system? market to accept the Section 15E(w) ii. To what extent, if any, would the v. To what extent, if any, would the System, the credit ratings produced system create political or other system incentivize NRSROs to compete under such a system, and any new influences that potentially could cause other than on the basis of the accuracy market players established by the an NRSRO to consider factors other than and quality of their ratings? system.36 Specifically: the credit characteristics of the d. Transparency—Address the i. What role, if any, would market structured finance product when accessibility, usability, and clarity of the participants have in selecting NRSROs determining a credit rating for the Section 15E(w) System and the to produce credit ratings, assessing the product? dissemination of information on the quality of credit ratings, and iii. How would NRSRO performance program to market participants.34 determining NRSRO compensation? be evaluated and by whom under the Specifically, how clear would the More specifically, what would the roles system? For example, would the system mechanics of the system be to market of issuers and investors be in these rely on market forces or third parties to participants? For example, describe the processes? Where would these roles evaluate performance? Would the level of transparency that would exist differ between the Section 15E(w) system rely on evaluations of under the system with respect to: (1) System and other potential programs performance by the CRA Board that How the NRSRO would obtain ratings and what would be the trade-offs? assigns NRSROs to provide ratings? business; (2) how ratings fees would be Would all market participants be likely ‘‘ ’’ How would quality credit ratings be determined; (3) how NRSROs would be to accept the credit ratings produced defined and what criteria would be used compensated; and (4) how the program under the Section 15E(w) System? If to assess ratings performance? would link ratings performance to not, what would be the potential iv. When an NRSRO demonstrates NRSRO compensation or the award of consequences for the securitization poor performance, what would be the economic consequences under the additional business. market? system and who would determine those e. Feasibility—Address the simplicity ii. What impact, if any, would the consequences? For example, how would and ease with which the Section 15E(w) system have on each market participant System could be implemented in the using the credit ratings? an NRSRO’s compensation or 35 opportunity for future ratings business securities market. Specifically: iii. Would market participation need be linked to ratings performance? i. Would the system be easily to be mandated, and if so, for which c. Competition—Address the extent to implemented? If not, how difficult participants? which the Section 15E(w) System would would implementing the system be? iv. To what extent, if any, might create an environment in which ii. Could the system be instituted market participants discount the quality NRSROs compete for customers by through existing regulatory or statutory and reliability of a credit rating based on producing higher-quality ratings at authority or is additional authority the system’s approach to selecting competitive prices.33 Specifically: needed? which Qualified NRSRO would rate a i. In which ways would the system iii. What would be the costs to structured finance product? encourage NRSROs to compete? To implement the system and who would g. Oversight: Address how the Section what extent would the system fund them? 15E(w) System would be evaluated to encourage competition around the iv. Which body would administer the help ensure that it works as intended.37 quality of ratings, ratings fees, and system, and would this be an Specifically: product innovation? To what extent established body? If not, how would it i. Would the system provide for an would NRSROs with higher-quality be created? independent internal control function? ratings be rewarded with additional v. What, if any, infrastructure would ii. What external oversight (from a ratings business? For example, once an be needed to implement the system? regulator or third-party auditor) would NRSRO is deemed a qualified NRSRO What information technology would be the system provide to ensure it is would it be entitled to a pro rata share required? Which body would be working as intended? In what ways to all deals brought to the CRA Board responsible for developing and would the CRA Board be held based solely on its capacity? maintaining it? accountable for its decisions? Alternatively, would the CRA Board vi. What impact would the system iii. If third-party auditors would assess the quality of the NRSRO and have on bringing new issuances to provide external oversight with respect assign business based on qualitative market and trading on the secondary to the system, how would they be metrics? market? selected, what would be their reporting ii. To what extent would the system vii. How many NRSROs would be responsibilities, and to whom would encourage new entrants and reduce required for the system to function as they report? barriers to entry in the industry? intended? How would the exit of an iv. Who would compensate the Alternatively, to what extent would the regulatory or third-party auditor for system discourage new entrants and 34 See GAO Report 10–782 at p. 88 for a broader auditing the system? How would the discussion of this factor in the GAO Framework. compensation for the regulator/auditor increase barriers to entry? The GAO notes that transparency in this context does not refer to the transparency or disclosure 32 See GAO Report 10–782 at pp. 85–86 for a regime of the NRSROs but is specific to the 36 See GAO Report 10–782 at pp. 90–91 for a broader discussion of this factor in the GAO transparency of the compensation model only. GAO broader discussion of this factor in the GAO Framework. Report 10–782 at p. 88, Footnote 112. Framework. 33 See GAO Report 10–782 at pp. 86–87 for a 35 See GAO Report 10–782 at pp. 88–90 for a 37 See GAO Report 10–782 at pp. 92–93 for a broader discussion of this factor in the GAO broader discussion of this factor in the GAO broader discussion of this factor in the GAO Framework. Framework. Framework.

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be determined? How would it be depend on the policies and procedures credit ratings business? If so, describe funded? they use to determine credit ratings? If how the mechanisms these entities use v. To what extent would a third-party so, how would this impact the to set reasonable fees could apply in the auditor allow flexibility in oversight to determination of what constitutes a assigned credit rating context. accommodate NRSROs of different reasonable fee? g. Provide any other comments, sizes? b. In determining the reasonableness proposals, data, or analysis that could 4. Assessment of potential of fees, could the fees charged by assist in assessing potential mechanisms mechanisms for determining fees for NRSROs and other credit rating agencies determining how to set reasonable fees NRSROs. Section 939F(b)(2)(A) requires to rate structured finance products for assigned structured finance credit that the Commission’s study address the outside the context of the assignment ratings. feasibility of establishing a system in process serve as a benchmark? For 5. Appropriate methods for paying which a CRA Board assigns NRSROs to example, under the Section 15E(w) fees to the NRSRO. Section determine the credit ratings for System, the issuer, after obtaining an 939F(b)(2)(B) requires the Commission’s structured finance products, including initial credit rating through the study to address the feasibility of an assessment of the potential assignment process, would be able to establishing a system in which a CRA mechanisms for determining fees for obtain additional credit ratings not Board assigns NRSROs to determine the NRSROs. Consequently, to the extent assigned by the CRA Board. Would the credit ratings for structured finance not addressed in responses to the fee charged for these unassigned credit products, including, an assessment of questions above with respect to the ratings for structured finance products appropriate methods for paying fees to GAO Framework, the Commission provide a basis to set the fees used for the NRSROs. Consequently, to the requests comment, proposals, data, and assigned credit ratings? Alternatively, extent not addressed in responses to the analysis on the following: would the fees NRSROs charge to questions above with respect to the a. Under the Section 15E(w) System, determine other classes of credit ratings GAO Framework, the Commission the CRA Board would be required to such as for financial institutions, requests comment, proposals, data, and assign which NRSRO (from a pool of corporate issuers, insurance companies, analysis on the following: Qualified NRSROs) is employed to and government issuers provide a basis a. Under the 15E(w) System, how determine the initial credit rating for a to set the fees used for the assignment should a fee be provided to the structured finance product. process? How do the fees charged to rate Qualified NRSRO selected to determine Consequently, would the fee a Qualified these types of obligors, securities, and an initial credit rating for an arranger? NRSRO could charge the arranger need money market instruments differ from For example, should the arranger to be set by rule? For example, each the fees charged to rate structured provide the fee to the CRA Board, Qualified NRSRO would be assured of finance products? which, in turn, would provide the funds being assigned a percentage of the credit c. How could the fee setter determine to the NRSRO? Would it be appropriate rating business brought to the CRA and, thereafter, monitor whether the fee for the CRA Board to receive and Board by issuers. Depending on established by rule constitutes an ‘‘above disburse funds in this manner? For capacity, certain NRSROs may be market fee’’ that over-compensates the example, the CRA Board acting as a assigned to determine more credit Qualified NRSRO (potentially imposing conduit for the funds could create ratings than other NRSROs. Therefore, unfair costs on issuers that might be potential risk in terms of appropriately in the absence of competitive market passed on to investors) or under- maintaining custody of the funds, forces, would Qualified NRSROs charge compensates the NRSRO (potentially accounting for the funds, and allocating unreasonably high fees? If so, what causing it to devote less resources to the funds to the Qualified NRSROs. In mechanism could be used to determine determining the credit rating with addition, it would require the CRA the reasonable fee? Should, for example, possible consequences in terms of the Board to have sophisticated operational arrangers be able to reject a Qualified quality of the credit rating)? capabilities in terms of having access to NRSRO that charges above market fees? d. What would be the impact if the fee systems to process financial transactions Moreover, would the amount of the fee set by rule was viewed as too low by involving hundreds of thousands of need to depend on the type of NRSROs? For example, would NRSROs dollars between potentially hundreds of structured finance product being rated refuse to apply to be Qualified NRSROs? arrangers of structured finance products or the complexity of the structured Or, would too few NRSROs apply to be and the Qualified NRSROs. For these finance product? For example, do Qualified NRSROs to implement the reasons, having the CRA Board serve as NRSROs typically charge different fees program? How would the fee setter temporary custodian of the funds paid depending on whether the structured determine the appropriate level of fee to by arrangers to Qualified NRSROs could finance product is, for example, an attract a sufficient number of NRSROs to substantially increase the costs of RMBS, a CMBS, a CDO, a CLO, other the program without imposing greater operating the CRA Board. Furthermore, ABS, an issuance of ABCP, or another costs on issuers than would be the case if the CRA Board became insolvent, type of structured finance product? If so, when fees are determined through a would the arranger or the Qualified would it be appropriate to set different competitive process? NRSRO have a claim for the funds? fees on each type of structured finance e. Could setting fees by rule have Would this depend on how much work product? In addition, how would fees be negative impacts on the quality of credit the NRSRO had performed in terms of determined for new product types? ratings? For example, could it reduce determining the initial credit rating? In Furthermore, do the fees charged by incentives for NRSROs to compete this regard, should the CRA Board NRSROs depend on their business based on producing accurate credit provide the funds to the Qualified models? If so, how would this impact ratings? NRSRO when the Qualified NRSRO is the determination of what constitutes a f. Are there instances where SROs, selected to determine the credit rating or reasonable fee? In addition, would the public utilities, or private utilities set when the Qualified NRSRO issues the amount of the fee need to depend on the fees between a company and an entity initial credit rating? What is the current complexity of a structured finance providing a service to the company that practice in terms of the timing when product, independently of its type? could serve as models for how to set arrangers pay NRSROs for determining Finally, do the fees charged by NRSROs reasonable fees for purposes of assigning initial credit ratings? In addition, how

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long is the period between the time an System? For example, should the the other NRSROs; and (3) the NRSRO is hired to determine an initial Qualified NRSRO selected to determine effectiveness of the methodologies used credit rating and the time the credit the initial credit rating be allowed to by the Qualified NRSRO. Would rating is issued? Does the length of time negotiate a surveillance fee directly with investors view the CRA Board as depend on the type of structured the arranger and receive such a fee providing a ‘‘stamp of approval’’ on, or finance product being rated? If so, directly from the arranger? an endorsement of, the credit ratings describe the different time periods. Alternatively, should the fee to determined through the assignment b. Alternatively, should the arranger determine the initial credit rating process? If the Section 15E(w) System pay the fee directly to the selected include an amount to cover the cost of would increase investor reliance on Qualified NRSRO? If so, would this surveillance? If so, should the CRA credit ratings, what potential impact potentially negatively impact the goal of Board disburse the surveillance fee to would such a consequence have on the Section 15E(w) System to address the Qualified NRSRO? If so, when government efforts to reduce investor the conflict of interest arising from the should that distribution take place? In reliance on credit ratings such as issuer-pay model? addition, if the Section 15E(w) System through provisions in Sections 939 and c. Should the CRA Board allocate the only applies to the fee for the initial 939A of the Dodd-Frank Act? For fee to determine the initial credit rating credit rating, what issues would arise in example, would the system cause to the selected Qualified NRSRO over terms of finding an NRSRO to provide investors and other users of credit the term of the structured finance surveillance? For example, if the ratings to increase their reliance credit product? For example, should 50% of selected Qualified NRSRO only agreed ratings for structured finance products? the fee be paid up-front and the balance to provide the initial credit rating, what If so, how much do investors and other of the fee be distributed periodically would happen if the arranger could not users of credit ratings currently rely on until all the principal and interest find an NRSRO to perform surveillance credit ratings for structured finance outstanding on the structured finance for a reasonable fee? products and how might that level of product is paid? Moreover, if the e. Provide any other comments, reliance change if the Section 15E(w) structured finance product goes into proposals, data, or analysis that could System was implemented? default, would it be appropriate to assist in assessing appropriate methods b. Would the CRA Board, as a withhold the unpaid balance of the fee for paying fees to NRSROs. governmental or quasi-governmental from the NRSRO? Would the 6. Extent to which the creation of such entity, be susceptible to political appropriateness of withholding the fee a system would be viewed as the pressure in terms of its assignment of depend on the initial rating? For creation of moral hazard by the Federal credit ratings to Qualified NRSROs or its example, if the initial rating is in one of Government. Section 939F(b)(2)(C) other responsibilities? In addition, the highest categories (e.g., AAA or AA) requires the Commission’s study to would a Qualified NRSRO assigned to and the bond defaults, would it be more address the feasibility of establishing a determine a credit rating be susceptible appropriate to withhold the fee from the system in which a CRA Board assigns to political pressure to issue a credit NRSRO than if the initial rating were in NRSROs to determine the credit ratings rating at a level favored by the CRA a lower category (e.g., BB or CCC)? If it for structured finance products, Board in order to obtain additional would be appropriate to withhold the including, an assessment of the extent to assignments from the CRA Board? unpaid balance of the fee in the case of which the creation of such a system c. Provide any other comments, default, what entity would be legally would be viewed as the creation of proposals, data, or analysis that could entitled to the unpaid balance of the moral hazard by the Federal assist in assessing the extent to which fee? Would it be appropriate to return Government. Consequently, to the the creation of such a system would be the unpaid balance to the issuer, extent not addressed in responses to the viewed as the creation of moral hazard underwriter, or sponsor of the questions above with respect to the by the Federal Government. structured finance product? Would it be GAO Framework, the Commission 7. Constitutional or other issues appropriate to provide the unpaid requests comment, proposals, data, and concerning the establishment of such a balance to investors in the structured analysis on the following: system. Section 939F(b)(2)(D) requires finance product? The Commission notes a. Would investors and other users of the Commission’s study to address the that the fees paid to rate structured credit ratings view credit ratings for feasibility of establishing a system in finance products are a small fraction of structured finance products determined which a CRA Board assigns NRSROs to the principal amount invested in an through the CRA Board assignment determine the credit ratings for issuance of a structured finance process as more reliable than other structured finance products, including, product. Consequently, would a credit ratings and, consequently, an assessment of any constitutional or requirement to return the unpaid perform less analysis themselves before other issues concerning the amount to investors create an investing in a structured finance establishment of such a system. expectation that the investors would be product? For example, under the Consequently, to the extent not compensated for losses suffered if the Section 15E(w) System, the CRA Board addressed in responses to the questions structured finance product defaults? would determine whether an NRSRO is above with respect to the GAO The Commission notes that a program of qualified to issue initial credit ratings Framework, the Commission requests allocating the fee over the term of the with respect to one or more categories comment, proposals, data, and analysis structured finance product might of structured finance products. In on the following: require the CRA Board to serve as the addition, the CRA Board would be a. In terms of operational feasibility, conduit for the funds transferred from required to conduct an annual what is the likelihood that the number the arrangers to the Qualified NRSROs, evaluation of a Qualified NRSRO to of NRSROs applying to be treated as raising the issues about custodial consider, among other things, (1) the Qualified NRSROs would be sufficient responsibility and attendant costs surveillance of credit ratings conducted to achieve the goals of the Section discussed above. by the Qualified NRSRO after the credit 15E(w) System? For example, how many d. How should fees for performing ratings are issued, including, how the NRSROs would need to be determined surveillance of credit ratings be rated instruments perform; (2) the to be Qualified NRSROs for the system addressed under the Section 15E(w) accuracy of the ratings as compared to to operate as envisioned? What would

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be the metric or process for measuring NRSRO devotes fewer resources to provide legal analysis supporting their or determining the number of NRSROs rating structured finance products in conclusions, including identifying necessary for the system to function? order to accept more assignments or relevant statutory authority. Interested For example, how would the system accepts an assignment to rate a type of parties who believe existing authority is match the number of structured finance structured finance product for which it not sufficient to implement such a product issuances with the necessary lacks adequate technical expertise? If so, system should provide legal analysis capacity, resources, and expertise to rate how could these issues be addressed? supporting their conclusions. In the products in a competent and timely d. In terms of operational feasibility, addition, interested parties are manner? What would be the how would the CRA Board under the encouraged to recommend statutory implications for the securitization Section 15E(w) System perform the amendments that could provide the markets if an insufficient number of annual evaluation of each qualified authority necessary for the Commission NRSROs are determined to be Qualified NRSRO? Would an annual evaluation be to implement such a system. NRSROs (either because not enough sufficient to determine which Qualified applied or because the applicants did NRSROs are selected on an on-going i. In terms of the potential to mitigate not satisfy the criteria to be treated as basis to determine initial credit ratings? conflicts, would a Qualified NRSRO Qualified NRSROs)? For example, what if a Qualified NRSRO assigned to determine a credit rating for b. In terms of operational feasibility, undergoes material changes between a structured finance product under the what level of staffing would be evaluations that would impact its ability Section 15E(w) System potentially have necessary for the CRA Board to carry out to determine credit ratings? How would the incentive to provide a favorable its responsibilities? In addition, what this be brought to the CRA Board’s credit rating to obtain future business would be the necessary expertise and attention? from arrangers to determine credit qualifications of the CRA Board e. In terms of market effects, how ratings outside the process of the members and staff to carry out the CRA would the Section 15E(w) System Section 15E(w) System? The Board’s responsibilities? How could the impact the securitization markets? For Commission notes that under the CRA Board ensure that it has the example, how would it impact the Section 15E(w) System an arranger can necessary staffing and that its staff has origination of residential mortgages, obtain additional credit ratings from the necessary expertise and commercial mortgages, commercial NRSROs after obtaining an initial credit qualifications? loans, credit card receivables, auto rating through the CRA Board selection c. In terms of operational feasibility, loans, auto leases, dealer floor-plans, process. If this potential conflict would could the process by which the CRA student loans, consumer loans, be in the Section 15E(w) System, how Board selects a Qualified NRSRO consumer leases, equipment loans, could it be addressed? Would the materially delay the issuance of a equipment leases, asset-backed annual evaluations of the Qualified structured finance product and commercial paper, or any other NRSROs by the CRA Board, as required diminish the quality of the credit ratings financial assets that are securitized? For under the Section 15E(w) Provisions, determined through the assignment example, would the uncertainty over identify an NRSRO that was unduly process? For example, how would the which Qualified NRSRO would be influenced by this conflict? CRA Board monitor which Qualified selected to determine the initial credit j. In terms of the potential to mitigate NRSROs have current capacity to rating or when the initial credit rating conflicts, would an arranger be able to undertake the determination of a credit might be issued cause originators to select more favorable credit ratings rating sought by an arranger? If the CRA finance the origination of these assets (‘‘rating shop’’) notwithstanding the Board selects a Qualified NRSRO that through means other than securitizing implementation of the Section 15E(w) refuses to rate the structured finance them? If so, what would be the product because, for example, it has implications for these markets? For System? If so, how? reached its capacity to determine initial example, would it cause originators to k. In terms of the potential to mitigate credit ratings, how long would it take extend less credit? If so, how would this conflicts, to what extent, if any, might for the CRA Board to select another impact the economy? Alternatively, market participants be able to create Qualified NRSRO? In addition, how would the 15E(w) System give investors securities or money market instruments, would the CRA Board address situations greater confidence in the integrity of or otherwise finance the assets where a Qualified NRSRO misjudges its credit ratings for structured finance underlying or linked to a structured ability to undertake the assignment to products? Would that increased finance product, so that the transaction determine an initial credit rating? For confidence facilitate the flow of credit? does not fit within the definition of example, the Qualified NRSRO, in order f. In terms of legal feasibility, would ‘‘structure finance product’’ and thereby to increase revenues, might agree to the establishment of a CRA Board to avoid having to submit the deal to more assignments than it is capable of assign credit ratings for structured Section 15E(w) System? In addition, handling or to an assignment to rate a finance products raise legal issues under how would it be determined whether type of structured finance product it the U.S. Constitution? Please provide products fall within the definition of does not have the technical expertise to legal analysis explaining any such ‘‘structured finance product’’? rate. Could this circumstance issues. l. Provide any other comments, potentially put the arranger in a g. In terms of legal feasibility, would proposals, data, or analysis that could situation where it must wait far longer the role of the Commission in assist in assessing Constitutional or to obtain a credit rating than would overseeing the CRA Board raise legal other issues concerning the normally be the case because the issues? Please provide legal analysis establishment of such a system. Qualified NRSRO spends time explaining any such issues? attempting to determine the initial h. In terms of legal feasibility, do the 8. Range of metrics that could be used credit rating before ultimately refusing securities laws provide the Commission to determine the accuracy of credit the assignment? Moreover, could the with authority to implement the Section ratings. Section 939F(b)(3) requires that quality of the credit ratings determined 15E(w) System? Interested parties who the Commission’s study address the through the assignment process be believe existing authority is sufficient to range of metrics that could be used to compromised because the Qualified implement such a system should determine the accuracy of credit

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ratings.38 Consequently, to the extent securities? Should ratings be evaluated and analyzed using the GAO not addressed in responses to the for accuracy at specific points in time? Framework. questions above with respect to the If accuracy should be evaluated at 1. The Rule 17g–5 Program GAO Framework, the Commission specific points in time, should those requests comment, proposals, data, and times relate to events experienced by The Commission has adopted analysis on the following: the security, or be unrelated to the requirements codified in Rule 17g–5 a. How should the performance of security (e.g., calendar-related only)? designed to create a mechanism for an credit ratings be measured in terms of Could using a specific time horizon NRSRO that is not hired to determine a accuracy? distort how Qualified NRSROs credit rating for a structured finance b. Section 3(a)(60) of the Exchange determine credit ratings? For example, if product to nonetheless obtain the same Act defines the term ‘‘credit rating’’ to the time horizon is longer, could information the hired NRSRO receives mean ‘‘an assessment of the Qualified NRSROs determine credit from the arranger to determine the creditworthiness of an obligor as an ratings at lower levels in the their rating initial credit rating and at the same time entity or with respect to specific scales in order to lessen the chance that such information is provided to the securities or money market the credit rating would be downgraded hired NRSRO (the ‘‘Rule 17g–5 instruments.’’ 39 How should the term during the period? Alternatively, if the Program’’).41 The goal is to create a ‘‘accuracy’’ as applied to credit ratings time horizon is short, could Qualified means for an NRSRO not hired to rate be defined? For example, could there be NRSROs be more prone to determine the structured finance product to a standard definition of ‘‘accuracy’’ that credit ratings at higher levels in their nonetheless determine an initial credit could be applied across all credit rating rating scales? rating at the same time the hired NRSRO agencies that determine credit ratings f. Could the method of measuring determines an initial credit rating and for structured finance products? How accuracy create disincentives for conduct surveillance on that credit feasible is such a definition given the Qualified NRSROs to determine credit rating along with the hired NRSRO.42 In differences in the procedures and ratings for certain types of products? For other words, similar to the goal of methodologies NRSROs use to example, could Qualified NRSROs Section 939F, the Rule 17g–5 Program is determine credit ratings and the ratings refuse to rate structured finance intended to prevent the arranger of the scales they use to denote relative products that are inherently more structured finance product from creditworthiness? For example, some volatile in terms of potential credit risk? selecting the NRSRO or NRSROs that NRSROs may employ highly If so, how could this impact capital exclusively can determine the initial quantitative models under which the formation? credit rating for the structured finance credit ratings are particularly sensitive g. Provide any other comments, product.43 When adopting the Rule 17g– to real-time information and, therefore, proposals, data, or analysis that could adjust frequently. Other NRSROs may 41 assist in assessing the range of metrics 17 CFR 240.17g–5(a)(3) and (b)(9). The employ qualitative approaches that that could be used to determine the Commission notes that it granted a conditional result in credit ratings that remain more exemption to NRSROs from Rule 17g–5(a)(3) with accuracy of credit ratings. stable. respect to credit ratings where: (1) The issuer of the ‘‘ ’’ structured finance product is a non-U.S. person; c. Could the definition of accuracy C. Alternative Means for Compensating and (2) the NRSRO has a reasonable basis to be based on whether the structured NRSROs That Would Create Incentives conclude that the structured finance product will be finance product goes into default? For for Accurate Credit Ratings offered and sold upon issuance, and that any example, defaults may be very rare for arranger linked to the structured finance product Section 939F(b)(4) requires the some classes of structured finance will effect transactions in the structured finance Commission’s study to address product after issuance, only in transactions that products. For these classes, how would alternative means for compensating occur outside the U.S. These conditions are a definition of ‘‘accuracy’’ based on designed to confine the exemption’s application to NRSROs that would create incentives default work? credit ratings of structured finance products issued d. Depending on how an interested for accurate credit ratings. in, and linked to, financial markets outside the U.S. party defines ‘‘accuracy,’’ what metrics Consequently, the Commission requests See Exchange Act Release 62120 (May 19, 2010) 75 interested parties to provide comments, FR 28825 (May 24, 2010); see also Exchange Act could be used to measure accuracy? For Release 63363 (Nov. 23, 2010) 75 FR 73137 (Nov. example, could transition and default proposals, data, and analysis on any 29, 2010). rates be used to measure accuracy? With potential alternatives to the Section 42 The Commission noted when adopting the Rule respect to transition and default rates, 15E(w) System. In this regard, several 17g–5 Program that ‘‘when an NRSRO is hired to models that would establish alternative rate a structured finance product, some of the how would their effectiveness in information it relies on to determine the rating is measuring the ‘‘accuracy’’ of the credit means for compensating NRSROs are generally not made public. As a result, structured 40 ratings be impacted by favorable or identified below. The Commission finance products frequently are issued with ratings benign economic conditions? For requests comment on these models. In from only one or two NRSROs that have been hired addition, the Commission requests by the arranger, with the attendant conflict of example, in favorable economic interest. The [Rule 17g–5 Program is] designed to conditions the ratings for structured comment on models not identified increase the number of credit ratings extant for a finance products may remain stable and below that an interested party believes given structured finance product and, in particular, the number of defaults may be would achieve the objective of creating to promote the issuance of credit ratings by incentives for accurate credit ratings. NRSROs that are not hired by the arranger.’’ See statistically insignificant. Amendments to Rules for Nationally Recognized e. Over what time horizons should the Any such model should be described Statistical Rating Organizations, 74 FR at 63844 accuracy of credit ratings be measured? (Dec. 4, 2009). For example, should it be measured 40 Aside from the Rule 17g–5 Program, the 43 See Public Law 111–203 § 939F(d) (‘‘After over a period of years, or the life of the alternatives identified below are drawn from GAO submission of the report under subsection (c), the Report 10–782 at pp. 79–84. The first alternative in Commission shall, by rule, as the Commission the GAO Report (the ‘‘Random Selection Model’’) is determines is necessary or appropriate in the public 38 As noted above the CRA Board would be not identified below because it is similar to the interest or for the protection of investors, establish required to evaluate ‘‘the accuracy of the ratings Section 15E(w) System. Commenters are a system for the assignment of [NRSROs] to provided by the qualified [NRSRO] as compared to encouraged to read the relevant sections of GAO determine the initial credit ratings of structured other [NRSROs].’’ See subparagraph (7)(B)(ii)(II) of Report 10–782 for more details about these finance products, in a manner that prevents the Section 15E(w) Provisions. proposed alternative payment models and their issuer, sponsor, or underwriter of the structured 39 See 15 U.S.C. 78c(a)(60). goals and objectives. Continued

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5 Program, the Commission stated that among other things, that it will maintain Request for Comment it was designed to make it more difficult a password-protected Internet Web site The Commission requests interested for arrangers to exert influence over the that other NRSROs can access.49 parties to provide comments, proposals, NRSROs they hire because any Further, the arranger must represent that data, and analysis on whether the Rule inappropriate rating could be exposed to it will post on this Web site all 17g–5 Program provides a reasonable the market through the unsolicited information the arranger provides to the alternative to the Section 15E(w) System ratings issued by NRSROs not hired to hired NRSRO, or contracts with a third in terms of objectives and goals. In rate the structured finance product.44 party to provide to the hired NRSRO, for addition, the Commission requests The Commission also notes that the purpose of determining the initial comments, proposals, data, and analysis investors seeking a credit rating from an credit rating and undertaking credit in response to the following questions: NRSRO not hired to rate the structured rating surveillance.50 The arranger also 1. Interested parties are asked to finance product can pay an NRSRO of must represent that this information provide a comparative evaluation of the their choosing to rate the structured will be posted to the Internet Web site Section 15E(w) System with the Rule finance product using the Rule 17g–5 at the same time such information is 17g–5 Program using the GAO Program. Thus, it provides a mechanism provided to the hired NRSRO.51 Framework. for investors to select an NRSRO to rate 2. If an interested party believes the a structured finance product they are The Commission notes that the Rule Rule 17g–5 Program would not be a considering purchasing or have 17g–5 Program is but one aspect of the reasonable alternative to the Section purchased. current registration and oversight 15E(w) System in terms of objectives The Rule 17g–5 Program operates by program for NRSROs designed to and goals, could the Rule 17g–5 requiring an NRSRO hired to determine address conflicts of interest, including Program be modified to bridge the gap? initial credit ratings for structured provisions designed to promote If so, describe how? In addition, identify finance products to maintain a transparency and competition. Among any additional benefits and costs that password-protected Internet Web site other things, NRSROs currently are would result from such modifications. containing a list of each such structured required to establish, maintain, and 3. To the extent not addressed in finance product for which it currently is enforce written policies and procedures responding to the questions above, in the process of determining an initial reasonably designed to address conflicts describe how the Rule 17g–5 Program currently is being used to determine credit rating.45 The list must be in of interest that can arise from their credit ratings for structured finance chronological order and identify the business.52 In addition, NRSROs are products. For example, is there type of security or money market required to disclose the types of instrument, the name of the issuer of the sufficient time between when potential conflicts of interest relating to information about a pending transaction structured finance product, the date the the issuance of credit ratings and the rating process was initiated, and the is posted on the arranger’s Internet Web policies and procedures they have site and the transaction closes for an Internet Web site address where the established to address those conflicts of arranger of the structured finance NRSRO not hired to rate the structured interest.53 Moreover, NRSROs are finance product to determine an initial product represents that information prohibited from having conflicts of provided to the hired NRSRO can be credit rating? If not, how could this interest unless they have disclosed them accessed by other NRSROs.46 The hired issue be addressed to provide a and established policies and procedures NRSRO must provide free and sufficient amount of time? For example, unlimited access to the Web site to any reasonably designed to address them should there be a mandatory time other NRSRO that provides it with a and, with respect to some conflicts, are period before a credit rating can be copy of a certification stating, among prohibited from having the conflict in issued by the hired NRSRO? In addition, 54 other things, that it is accessing the Web all circumstances. Furthermore, are NRSROs seeking to determine site solely for the purpose of NRSROs are required to disclose unsolicited credit ratings using the Rule determining or monitoring credit information about the performance of 17g–5 Program being asked to agree to ratings.47 their credit ratings and about their terms and conditions that are not required of the hired NRSROs? If so, In addition, the hired NRSRO must procedures and methodologies for determining credit ratings.55 These what is the rationale for requiring such obtain a written representation from the different terms and conditions? arranger of the structured finance requirements are designed to mitigate product that the NRSRO can reasonably potential conflicts of interest, and allow 2. Investor-Owned Credit Rating Agency rely on.48 The arranger must represent, market participants to assess the quality Model of an NRSRO’s ratings process and the Under the Investor-Owned Credit finance product from selecting the [NRSRO] that ability of the NRSRO to address Rating Agency Model, sophisticated will determine the initial credit ratings and monitor potential conflicts. The goal is to investors would establish and operate such credit ratings.’’). improve ratings quality by fostering 44 See Amendments to Rules for Nationally an NRSRO that would produce credit Recognized Statistical Rating Organizations, 74 FR accountability, transparency, and ratings for structured finance at 63844 (Dec. 4, 2009). competition. products.56 Issuers would be required to 45 See 17 CFR 240.17g–5(a)(3)(i). obtain two ratings: One from the 46 Id. for Nationally Recognized Statistical Rating investor-owned credit rating agency and 47 See 17 CFR 240.17g–5(a)(3)(ii). Organizations, 74 FR at 63847 (December 4, 2009). the second from their choice of NRSRO. 48 See 17 CFR 240.17g–5(a)(3)(iii). When adopting 49 See 17 CFR 240.17g–5(a)(3)(iii). the Rule 17g–5 Program, the Commission stated that 50 Id. Request for Comment the ‘‘question of whether reliance was reasonable 51 Id. will depend on the facts and circumstances of a The Commission requests interested 52 See 15 U.S.C. 78o–7(h)(1). given situation. Factors relevant to this analysis parties to provide comments, proposals, would include, but not be limited to: (1) Ongoing 53 See Exhibits 6 and 7 to Form NRSRO and the or prior failures by the arranger to adhere to the Instructions for those Exhibits. data, and analysis on whether the representations; or (2) a pattern of conduct by the 54 See 17 CFR 240.17g–5. arranger where it fails to promptly correct breaches 55 See Exhibits 1 and 2 to Form NRSRO and the 56 See GAO Report 10–782 at p. 82 for a more of its representations.’’ See Amendments to Rules Instructions for those Exhibits. detailed description of this model.

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Investor-Owned Credit Rating Agency whether the Commission could 2. If an interested party believes the Model provides a reasonable alternative implement such a program using Designation Model would be a to the Section 15E(w) System in terms existing authority in the securities laws reasonable alternative to the Section of objectives and goals. In addition, the or whether statutory amendments 15E(w) System in terms of objectives Commission requests comments, would be necessary. Finally, identify and goals, explain how such a program proposals, data, and analysis in the benefits and costs of implementing could be implemented by the response to the following questions: such a program. Commission. In addition, analyze 1. Interested parties are asked to 4. Designation Model whether the Commission could provide a comparative evaluation of the implement such a program using Section 15E(w) System with the Under the designation model, all existing authority in the securities laws Investor-Owned Credit Rating Agency NRSROs would have the option of or whether statutory amendments Model using the GAO Framework. rating a new structured finance product would be necessary. Finally, identify 2. If an interested party believes the issuance, and security holders would the benefits and costs of implementing Investor-Owned Credit Rating Agency direct, or designate, fees to the NRSROs such a program. Model would be a reasonable alternative of their choice, based on the proportion to the Section 15E(w) System in terms of securities that they owned.58 The 5. User-Pay Model of objectives and goals, explain how issuer would be required to provide all Under the User-Pay Model, issuers such a program could be implemented interested NRSROs with the information would not pay for credit ratings of by the Commission. Could investors be to rate the structured finance product structured finance products.60 Instead, required to participate? Should they be and pay the rating fees to a third-party all ‘‘users’’ of structured finance credit required to participate? In addition, administrator, which would manage the ratings would be required to enter into analyze whether the Commission could designation process. When the a contract with the NRSRO and pay for implement such a program using structured finance product was issued, the rating service of an NRSRO. Users existing authority in the securities laws the security holders would designate would be defined as ‘‘any entity that or whether statutory amendments which of the NRSROs that rated the included a rated security, loan, or would be necessary. Finally, identify structured finance product should contract as an element of its assets or the benefits and costs of implementing receive fees, based on their perception liabilities as recorded in an audited of research underlying the ratings. The such a program. financial statement.’’ 61 Users would also security holders could designate one or include holders of long or short 3. Stand-Alone Model several NRSROs. After the initial credit positions in fixed-income instruments, rating, the issuer would continue to pay Under the Stand-Alone Model, an as well as parties that refer to a credit maintenance rating fees to the third- NRSRO would be compensated through rating in contractual commitments or party administrator, which bond holders transaction fees imposed on original that are parties to derivative products also would allocate through the issuance and on secondary market that rely on rated securities or entities.62 57 designation process every quarter over transactions. Part of the fee would be The model would rely on third-party the life of the security. Additionally, paid by the issuer or secondary-market auditors to ensure that NRSROs receive under the Designation Model investors seller and the other portion of the fee by payment from users of credit ratings. the investors purchasing the security in would review the quality of the work of either the primary or secondary markets. the NRSROs and designate which firms Request for Comment should be compensated based on that Further, the NRSRO would be The Commission requests interested review.59 compensated over the life of the security parties to provide comments, proposals, based on these transaction fees. Request for Comment data, and analysis on whether the User- Request for Comment The Commission requests interested Pay Model provides a reasonable The Commission requests interested parties to provide comments, proposals, alternative to the Section 15E(w) System parties to provide comments, proposals, data, and analysis on whether the in terms of objectives and goals. In data, and analysis on whether the Designation Model provides a addition, the Commission requests Stand-Alone Model provides a reasonable alternative to the Section comments, proposals, data, and analysis reasonable alternative to the Section 15E(w) System in terms of objectives in response to the following questions: 15E(w) System in terms of objectives and goals. In addition, the Commission 1. Interested parties are asked to and goals. In addition, the Commission requests comments, proposals, data, and provide a comparative evaluation of the requests comments, proposals, data, and analysis in response to the following Section 15E(w) System with the User- analysis in response to the following questions: Pay Model using the GAO Framework. questions: 1. Interested parties are asked to 2. If an interested party believes the 1. Interested parties are asked to provide a comparative evaluation of the User-Pay Model would be a reasonable provide a comparative evaluation of the Section 15E(w) System with the alternative to the Section 15E(w) System Section 15E(w) System with the Stand- Designation Model using the GAO in terms of objectives and goals, explain Alone Model using the GAO Framework. how such a program could be Framework. implemented by the Commission. In 2. If an interested party believes the 58 See GAO Report 10–782 at pp. 83–84 for a more addition, analyze whether the Stand-Alone Model would be a detailed description of this model. Commission could implement such a 59 Id; see also Clark, Mayree and Andrew Jones reasonable alternative to the Section ‘‘A Free Approach to Rating Agency Function,’’ SEC program using existing authority in the 15E(w) System in terms of objectives Roundtable to Examine Oversight of Credit Rating securities laws or whether statutory and goals, explain how such a program Agencies (April 15, 2009). A variation of the amendments would be necessary. could be implemented by the Designation Model would include imposing a moratorium between the issuance of a security and Commission. In addition, analyze the publication of a rating by an NRSRO; see ‘‘Wait 60 See GAO Report 10–782 at p. 84 for a more to Rate: How to Save the Rating Agencies (and the detailed description of this model. 57 See GAO Report 10–782 at pp. 82–83 for a more Capital Markets)’’ presentation by Pershing Square 61 Id. detailed description of this model. Capital Management, L.P. (May 26, 2010). 62 Id.

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Finally, identify the benefits and costs and goals. In addition, the Commission securities laws or whether statutory of implementing such a program. requests comments, proposals, data, and amendments would be necessary. analysis in response to the following Finally, identify the benefits and costs 6. Other Alternative Models questions: of implementing such a program. Interested parties are encouraged to 1. Interested parties are asked to III. Conclusion identify any other model that could provide a comparative evaluation of the serve as a reasonable alternative to the Section 15E(w) System with the other All interested parties are invited to Section 15E(w) System in terms of model. submit their views, in writing, on these objectives and goals. 2. If an interested party believes the questions. By the Commission. Request for Comment other model would be a reasonable alternative to the Section 15E(w) System Dated: May 10, 2011. The Commission requests interested in terms of objectives and goals, explain Elizabeth M. Murphy, parties to provide comments, proposals, how such a program could be Secretary. data, and analysis on any other model implemented by the Commission. In APPENDIX—TEXT OF SECTION that they believe would provide a addition, analyze whether the 63 reasonable alternative to the Section Commission could implement such a 15E(w) PROVISIONS 15E(w) System in terms of objectives program using existing authority in the BILLING CODE 8011–01–P

63 Section 15(w) of the Securities Exchange Act of 1934, as that provision would have been added by Section 939D of H.R. 4173 (111th Congress), as passed by the Senate on May 20, 2010.

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BILLING CODE 8011–01–C including the use of automated consider your comments, we must [FR Doc. 2011–11877 Filed 5–13–11; 8:45 am] collection techniques or other forms of receive them no later than July 15, 2011. BILLING CODE 8011–01–C information technology. Mail, e-mail, or Individuals can obtain copies of the fax your comments and collection instruments by calling the recommendations on the information SSA Reports Clearance Officer at 410– SOCIAL SECURITY ADMINISTRATION collection(s) to the OMB Desk Officer 965–8783 or by writing to the above and SSA Reports Clearance Officer at e-mail address. Agency Information Collection the following addresses or fax numbers. 1. Application for Supplemental Activities: Proposed Request and (OMB) Security Income (SSI)—20 CFR 416.207 Comment Request and 416.305–416–335, Subpart C— The Social Security Administration Office of Management and Budget, 0960–0229. The SSI program provides (SSA) publishes a list of information Attn: Desk Officer for SSA, Fax: 202– aged, blind, and disabled individuals, collection packages requiring clearance 395–6974, E-mail address: who have little or no income, funds for by the Office of Management and [email protected]. food, clothing, and shelter. Individuals complete Form SSA–8000 to apply for Budget (OMB) in compliance with (SSA) Public Law 104–13, the Paperwork SSI. SSA uses information from Form Reduction Act of 1995, effective October Social Security Administration, SSA–8000 and its electronic Intranet 1, 1995. This notice includes revisions DCBFM, Attn: Reports Clearance counterpart, the Modernized SSI Claims of OMB-approved information Officer, 1333 Annex Building, 6401 System (MSSICS), to determine: collections. Security Blvd., Baltimore, MD 21235, (1) Whether SSI claimants meet all SSA is soliciting comments on the Fax: 410–965–6400, E-mail address: statutory and regulatory eligibility accuracy of the agency’s burden [email protected]. requirements and (2) SSI payment estimate; the need for the information; I. The information collections below amounts. The respondents are its practical utility; ways to enhance its are pending at SSA. SSA will submit applicants for SSI. quality, utility, and clarity; and ways to them to OMB within 60 days from the Type of Request: Revision of an OMB- minimize burden on respondents, date of this notice. To be sure we approved information collection.

Average Number of Frequency of burden per Total annual Type of response respondents response response burden (minutes) (hours)

Paper Form ...... 26,548 1 36 15,929 MSSICS ...... 143,095 1 34 81,087 MSSICS/w Signature Proxy ...... 1,157,767 1 34 656,068

Totals ...... 1,327,410 ...... 753,084

2. Disability Update Report—20 CFR warrant referring the case for a full Type of Request: Revision of an OMB- 404.1589–404.1595 and 416.988– medical Continuing Disability Review approved information collection. 416.996—0960–0511. SSA periodically (CDR); (2) the beneficiary’s impairment Number of Respondents: 1,100,000. reviews current disability beneficiaries’ is unchanged or only slightly changed, Frequency of Response: 1. cases to determine if they should precluding the need for a CDR; or (3) Average Burden per Response: 15 continue to receive disability payments. there are unresolved work-related minutes. SSA uses Form SSA–455 to determine issues. The respondents are recipients of Estimated Annual Burden: 275,000 if: (1) There is enough evidence to Social Security disability benefits. hours.

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