The SEC Office of Credit Ratings ("OCR") highlighted findings from its 2019 examinations of Nationally Recognized Statistical Rating Organizations ("NRSROs").

In the 2019 Annual Report on Findings of Examinations of Each NRSRO the OCR staff reviewed NRSROs' activities and adherence to Securities Exchange Act Section 15E and Rules 17g-1 through 17g-10 ("Nationally Recognized Statistical Rating Organizations"). The OCR identified subjects and activities relevant to NRSROs based on the SEC's risk assessment process, including (i) an increase in debt rated at the lowest investment grade level, (ii) collateralized loan obligations and (iii) municipal bond ratings.

According to the 2019 Report to Congress on NRSROs, the number of ratings recently issued by NRSROs may provide a "clearer picture of competition" than the total ratings an NRSRO currently has outstanding. Notably, the SEC staff reported that:

  • larger NRSROs generally achieved the highest market shares with respect to ratings of non-agency U.S. CMBS transactions, while smaller NRSROs have also obtained significant market shares;
  • there is a high degree of competition among larger and smaller NRSROs with respect to the ratings of agency CMBS transactions;
  • larger NRSROs had the highest market shares in the U.S. CLO segment;
  • smaller NRSROs have gained market share in certain asset-backed securities types (i.e., newer or esoteric asset types); and
  • smaller NRSROs reached a significant market share for certain residential mortgage-backed securities.

SEC staff noted that while smaller NRSROs have progressed in gaining market share in some types of asset-backed securities in the last couple of years, barriers to entry still pose competitive challenges.

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