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.
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.
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:
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:
Arrangers are required to post all information (e.g., documents, files and email communication) provided to the hired NRSRO for the purpose of:
All data rooms on 17g5.com have a dedicated email address and recorded conference line to facilitate posting this information.
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:
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 email@example.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