Securities Lawyer's Deskbook                          published by The University of Cincinnati College of Law

Rule 17g-3 -- Annual Financial Reports to be Furnished by Nationally Recognized Statistical Rating Organizations

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1. A nationally recognized statistical rating organization must annually, not more than 90 calendar days after the end of its fiscal year (as indicated on its current Form NRSRO), furnish the Commission, at the Commission's principal office in Washington, DC, with the following financial reports as of the end of its most recent fiscal year:
   
   
   1. Audited financial statements of the nationally recognized statistical rating organization or audited consolidated financial statements of its parent if the nationally recognized statistical rating organization is a separately identifiable division or department of the parent. The audited financial statements must:
      
      
      1. Include a balance sheet, an income statement and statement of cash flows, and a statement of changes in ownership equity;
         
         
      2. Be prepared in accordance with generally accepted accounting principles in the jurisdiction in which the nationally recognized statistical rating organization or its parent is incorporated, organized, or has its principal office; and
         
         
      3. Be certified by an accountant who is qualified and independent in accordance with paragraphs (a), (b), and (c)(1), (2), (3), (4), (5) and (8) of Rule 210.2-01 of this chapter. The accountant must give an opinion on the financial statements in accordance with paragraphs (a) through (d) of Rule 210.2-02 of this chapter.
         
         
   2. If applicable, unaudited consolidating financial statements of the parent of the nationally recognized statistical rating organization that include the nationally recognized statistical rating organization.
      
      

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      Note to paragraph (a)(2):
      
      This financial report must be furnished only if the audited financial statements provided pursuant to paragraph (a)(1) of this section are consolidated financial statements of the parent of the nationally recognized statistical rating organization.
      

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   3. An unaudited financial report providing information concerning the revenue of the nationally recognized statistical rating organization in each of the following categories (as applicable) for the fiscal year:
      
      
      1. Revenue from determining and maintaining credit ratings;
         
         
      2. Revenue from subscribers;
         
         
      3. Revenue from granting licenses or rights to publish credit ratings; and
         
         
      4. Revenue from all other services and products (include descriptions of any major sources of revenue).
         
         
   4. An unaudited financial report providing the total aggregate and median annual compensation of the credit analysts of the nationally recognized statistical rating organization for the fiscal year.
      
      

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      Note to paragraph (a)(4):
      
      In calculating total and median annual compensation, the nationally recognized statistical rating organization may exclude deferred compensation, provided such exclusion is noted in the report.
      

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   5. An unaudited financial report listing the 20 largest issuers and subscribers that used credit rating services provided by the nationally recognized statistical rating organization by amount of net revenue attributable to the issuer or subscriber during the fiscal year. Additionally, include on the list any obligor or underwriter that used the credit rating services provided by the nationally recognized statistical rating organization if the net revenue attributable to the obligor or underwriter during the fiscal year equaled or exceeded the net revenue attributable to the 20th largest issuer or subscriber. Include the net revenue amount for each person on the list.
      
      

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      Note to paragraph (a)(5):
      
      A person is deemed to have "used the credit rating services" of the nationally recognized statistical rating organization if the person is any of the following: an obligor that is rated by the nationally recognized statistical rating organization (regardless of whether the obligor paid for the credit rating); an issuer that has securities or money market instruments subject to a credit rating of the nationally recognized statistical rating organization (regardless of whether the issuer paid for the credit rating); any other person that has paid the nationally recognized statistical rating organization to determine a credit rating with respect to a specific obligor, security, or money market instrument; or a subscriber to the credit ratings, credit ratings data, or credit analysis of the nationally recognized statistical rating organization. In calculating net revenue attributable to a person, the nationally recognized statistical rating organization should include all revenue earned by the nationally recognized statistical rating organization for any type of service or product, regardless of whether related to credit rating services, and net of any rebates and allowances paid or owed to the person by the nationally recognized statistical rating organization.
      

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2. The nationally recognized statistical rating organization must attach to each financial report furnished pursuant to paragraph (a) of this section a signed statement by a duly authorized person associated with the nationally recognized statistical rating organization that the person has responsibility for the report and, to the best knowledge of the person, the financial report fairly presents, in all material respects, the financial condition, results of operations, cash flows, revenues, and analyst compensation, as applicable, of the nationally recognized statistical rating organization for the period presented.
   
   
3. The Commission may grant an extension of time or an exemption with respect to any requirements in this section either unconditionally or on specified terms and conditions on the written request of a nationally recognized statistical rating organization if the Commission finds that such extension or exemption is necessary or appropriate in the public interest and consistent with the protection of investors.
   
   

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