On July 8, the Securities and Exchange Commission published a summary report of issues identified in the SEC’s examination of nationally recognized statistical rating organizations (NRSROs) in light of the subprime mortgage crisis and subsequent credit crunch. The examination upon which the report is based included a review of internal records, including more than two million emails and instant messages. Many of these communications are quoted in the report and in the judgment of the SEC, among other things, “appear to reflect struggles [by the NRSROs] to adapt to the increase in the volume and complexity of the deals”.

In addition, on July 1, the SEC published the third set of its proposed rules regarding NRSROs. As reported in the June 27, 2008 edition of Corporate and Financial Weekly Digest, these proposed rules focus on reducing the reliance upon and reference to credit ratings in the SEC’s own rules. An example of one of the important proposed changes is a rule replacing the Securities Act requirement that only investment grade asset-backed securities are eligible for Form S-3 shelf-registrations with a rule that an asset-backed securities offering would be Form S-3 eligible, regardless of credit rating, if initial and subsequent sales of the securities are made in minimum denominations of $250,000 and initial sales are made only to “qualified institutional buyers”, as defined in Rule 144A.