Overview of SEC Rule 17g-5

Background on the rule and its requirements for issuers, underwriters and NRSROs.

What is SEC Rule 17g-5?

In a step toward mitigating the inherent conflicts of interest created by hired ratings and to improve rating transparency, in December 2009, the SEC amended Rule 17g-5 under the Securities Exchange Act of 1934. This amendment was part of the comprehensive regulatory reform introduced after the 2008 financial crisis.

The amended rule imposed additional disclosure and conflict of interest requirements on nationally recognized statistical rating organizations ("NRSROs") and, by extension, additional disclosure requirements on issuers, sponsors, and underwriters (collectively, "arrangers") of structured finance products.

To download the amended rule, see Additional Resources below.

What types of securities are covered under SEC Rule 17g-5?

The rule is intended to cover the full range of structured finance products including ABCP, ABS, CDOs, CLOs, CMBS, RMBS, "other Structured Finance Products" and any "security or money market instrument issued by an asset pool or as part of any asset‐backed or mortgage‐backed securities transaction."

It is important to note that this includes not just public offerings but also exempt offerings and securities, including Rule 144a transactions, private placements, and municipal student loan transactions.

Regarding international transactions: a general rule of thumb is that if the transaction involves a U.S. originator or is made available/offered to U.S. investors, then it should abide by Rule 17g-5.

What are the basic requirements of SEC Rule 17g-5?

Among its various provisions, there are two key requirements of SEC Rule 17g-5:

A hired NRSRO must set up a password‐protected "Ratings in Process" web site that offers "free and unlimited" access to other non-hired NRSROs containing a list of:

  • All transactions for which the hired NRSRO is in the process of determining an initial rating
  • The web site address to get the Issuer Information [described below]

A hired NRSRO must receive a commitment from the Issuer to maintain a password‐protected web site whereby: Issuer must post on the web site all information provided to the hired NRSRO for purpose of:

  • Determining the initial rating
  • Undertaking rating surveillance
  • Information must be posted at the same time the information is provided to the hired NRSRO
  • Issuer must provide eligible NRSROs access to the web site

What is the scope of information required under SEC Rule 17g-5?

Arrangers are required to post all information (e.g., documents, files and email communication) provided to the hired NRSRO for the purpose of:

  • Determining an initial rating
  • Undertaking rating surveillance
  • Note that the rule does not say: "all material information." Additionally, NRSROs have taken varied stances with respect to audio communication (e.g., recorded conference calls).

All data rooms on 17g5.com have a dedicated email address and recorded conference line to facilitate posting this information.

What conditions do non-hired NRSROs have in accessing the Issuer’s web site?

Upon request, non-hired NRSROs must be given unrestricted and unlimited access to the issuer’s 17g-5 data room. By accessing this information, a non-hired NRSRO must adhere to:

  • 10 times / 10% test
  • The non-hired NRSRO will not access information on any Issuer web site more than 10 times in any calendar year without providing a credit rating
  • The non-hired NRSRO will determine and maintain credit ratings for at least 10% of the issued securities for which it accesses information
  • Must provide annual certification to the SEC for the current year that attests:
  • Access to the Issuer’s web sites is solely for purposes of determining and monitoring credit ratings
  • It will keep all access information confidential
  • It met last year and will meet this year the 10 times / 10% test

Additional Resources on SEC Rule 17g-5

If you have additional questions on how 17g5.com meets these requirements or for more information on SEC Rule 17g-5, please contact us at +1 (888) 997-6610 or support@17g5.com

SEC’s Nationally Recognized Statistical Rating Organizations (NRSROs)

SEC’s ‘Spotlight on NRSROs’ Resource Page

SEC Final Rules: Amendments to Rules for Nationally Recognized Statistical Rating Organizations (Rule 17g-5) – December 4, 2009

Please note that the following information is provided for explanatory purposes only and should not be construed as legal advice. Please seek the advice of counsel where appropriate.

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