Earlier this year, the Commission proposed to amend Rules 2a-7, 3a-7, 5b-3 and 10f-3 under the Investment Company Act and Rule 206(3)-3T under the Investment Advisors Act to remove references to, and eliminate reliance on, credit rating agencies, or NRSROs. The Commission recently adopted most of those rule proposals, those relating to an investment company’s ability to purchase refunded securities and securities in underwritings in which an affiliate is participating, along with rules eliminating certain references to credit ratings issued by NRSROs under the Securities Exchange Act of 1934 (related to the regulation of self-regulatory organizations and alternative trading systems). The Commission has postponed finalizing any amendments eliminating references to NRSROs in Rule 2a-7, however, and has extended the comment period on this topic.
The Commission's move to gather more information from commenters is likely a result of the SEC's wider discussions and proposals about reform of money market mutual funds. As we reported in June 2009, as part of the SEC's proposal on money market fund reform, the agency requested further comment on whether to eliminate the use of NRSRO ratings in Rule 2a-7. The Commission also asked whether it should adopt other alternatives to encourage more independent credit risk analysis, including whether the rule’s use of ratings should be reformulated by requiring a money market fund’s directors to designate specific NRSROs that the board determines issue ratings that are sufficiently reliable. One example is an approach under which a money market fund’s board would designate three (or more) NRSROs that the fund would look to for all purposes under Rule 2a-7 in monitoring whether a security held by a fund continues to be an “eligible security” for purposes of Rule 2a-7.
The extended comment period will end 60 days after the release is published in the Federal Register, likely mid-December.
The full text of the Commission's release extending the comment period is available at: http://www.sec.gov/rules/proposed/2009/33-9069.pdf
- “SEC Publishes Money Market Reform Proposals,” July 6, 2009
- “SEC Proposes Money Market Reform Options,” June 24, 2009
- “Forum Comments on Potential Money Market Reforms,” June 1, 2009