Rule 17g-4 Supporting Statement

SUPPORTING STATEMENT
for the Paperwork Reduction Act Information Collection Submission
“Rule 17g-4: Prevention of Misuse of Material Nonpublic Information”
A.

JUSTIFICATION
1.

Necessity of Information Collection

Section 15E of the Securities Exchange Act of 1934 (“Exchange Act”), 1 added to the
Exchange Act by the Credit Rating Agency Reform Act of 2006 (“Rating Agency Act”) 2 and
amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank
Act”) enacted in 2010, 3 sets forth the regulatory framework for credit rating agencies that
register as nationally recognized statistical rating organizations (“NRSROs”). Section 15E
imposes self-executing requirements and authorizes the Commission to adopt implementing
rules, including rules requiring the establishment of policies and procedures governing the use of
material, nonpublic information.
Section 15E(g)(1) of the Exchange Act 4 requires each NRSRO to establish, maintain,
and enforce written policies and procedures to prevent the misuse of material, nonpublic
information. Section 15E(g)(2) 5 directs the Commission to issue rules to require specific policies
and procedures that are reasonably designed to prevent the misuse of material, non-public
information.
Rule 17g-4, which contains the collection of information requirements subject to the
request for renewal discussed herein, implements Section 15E(g) by requiring an NRSRO to
establish, maintain, and enforce written policies and procedures that are reasonably designed to
prevent the following: (1) the inappropriate dissemination of material nonpublic information
obtained in connection with the performance of credit rating services; (2) a person within the
NRSRO from trading or otherwise benefiting on material nonpublic information; and (3) the
inappropriate dissemination of a pending credit rating action. 6 These policies and procedures

1

15 U.S.C. 78o-7.

2

Pub. L. No. 109-291 (2006).

3

Pub. L. No. 111-203, 124 Stat. 1376, H.R. 4173 (2010).

4

15 U.S.C. 78o-7(g)(1) (requiring an NRSRO to establish, maintain, and enforce written policies and
procedures to prevent misuse of material, nonpublic information).

5

15 U.S.C. 78o-7(g)(2) (providing the Commission’s authority to issue final rules to require specific policies
or procedures that are reasonably designed to prevent the misuse of material, nonpublic information).

6

See 17 CFR 240.17g-4(a)(1) through (a)(3); Release No. 34-55231 (Feb. 2, 2007), 72 FR 6378 (Feb. 9,
2007); Release No. 34-55857 (June 5, 2007), 72 FR 33564 (June 18, 2007).

must be attached as Exhibit 3 to Form NRSRO, 7 which must be retained for three years after the
date the record is made or received. 8
Rule 17g-4 contains “collection of information” requirements within the meaning of the
Paperwork Reduction Act of 1995. 9 The collection of information is mandatory for credit rating
agencies that register as NRSROs and is necessary to prevent the misuse of material, nonpublic
information in the context of NRSROs’ rating activities. The collection of information has been
approved and extended by the Office of the Management and Budget (“OMB”) under control
number OMB 3235-0627 (expiring March 31, 2025).
2.

Purpose and Use of the Information Collection

The information collection in Rule 17g-4 assists the Commission in making the findings
required under Section 15E(a)(2)(c) of the Exchange Act with respect to whether an applicant
should be granted registration as an NRSRO. Specifically, the collection of information allows
the Commission to determine whether a credit rating agency seeking to register as an NRSRO
satisfies Section 15E(g)(1), which requires NRSROs to establish policies and procedures that are
reasonably designed to prevent the misuse of material, nonpublic information obtained in
connection with the performance of credit ratings services. 10
Further, the collection of information pursuant to Rule 17g-4 assists the Commission in
effectively monitoring, through its examinations function, whether an NRSRO is conducting its
activities in accordance with Section 15E of the Exchange Act and the Commission’s rules
thereunder. 11 Collectively, this collection of information provides users of credit ratings with
information that assists them in comparing NRSROs and understanding how a given NRSRO
conducts its activities. 12
3.

Consideration Given to Information Technology

Rule 17g-4 requires NRSROs to establish, maintain, and enforce policies and procedures
to prevent the misuse of material nonpublic information. In addition, Rule 17g-4 requires the
documentation of policies or procedures adopted pursuant to the rule. These records could be
made, retained, and updated electronically, which could reduce the potential burden of
compliance.
4.

Duplication

7

See Form NRSRO available at http://www.sec.gov/about/forms/formnrsro.pdf.

8

See 17 CFR 240.17g-2(c); 17 CFR 240.17g-2(b)(11).

9

44 U.S.C. 3501, et seq.

10

Release No. 34-55857 (June 5, 2007), 72 FR 33564 (June 18, 2007).

11

See id. at 33606.

12

See id.

2

Commission staff has not identified any duplication with respect to the information required
by Rule 17g-4.
5.

Effect on Small Entities

One of the currently registered NRSROs, which are subject to the collections of
information under Rule 17g-4, meets the definition of small entity. 13 The rules permit NRSROs
to tailor and scale their policies or procedures to their organizational structure and business
activities, reducing the impact of the rules on smaller NRSROs.
6.

Consequences of Not Conducting Collection

Without the collection of information under Rule 17g-4, the objectives of Section 15E(g)
of the Exchange Act may not be achieved. Rule 17g-4 implements Section 15E(g) by requiring
that an NRSRO’s policies and procedures established specific procedures to address three areas
where material, nonpublic information could be inappropriately disclosed or used. 14 These
procedures represent a baseline for the type of procedures an NRSRO must implement to meet
the statutory requirement in Section 15E(g) of the Exchange Act. 15
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

There are no special circumstances. This collection is consistent with the guidelines in 5
CFR 1320.5(d)(2).
8.

Consultations Outside the Agency

The SEC’s Office of Credit Ratings (“OCR”), which administers Rule 17g-4, conducts
annual examinations of NRSROs under Section 15E(p)(3)(A) of the Exchange Act and engages
representatives of the NRSRO industry through meetings and information exchanges. This
provides OCR staff with the opportunity to determine, and act upon, paperwork burdens imposed
upon by the rules.
The required notice with a 60-day comment period soliciting comments on this collection
of information was published in the Federal Register on December 13, 2024. 16 The Commission
did not receive comments on its estimates of the paperwork burdens associated with Rule 17g-4.

13

See 17 CFR 240.0-10 [Small entities under the Securities Exchange Act for purposes of the Regulatory
Flexibility Act] (defining “small business or small organization” as a person that, on the last day of its most
recent fiscal year, had total assets of $5 million or less).

14

Release No. 34-55857 (June 5, 2007), 72 FR 33613 (June 18, 2007).

15

See id. at 33613.

16

See Proposed Collection; Comment Request; Extension: Rule 17g-4, X FR X (X).

3

9.

Payment or Gift

The Commission did not provide any payment or gift to respondents in connection with
Rule 17g-4.
10.

Confidentiality

The written policies and procedures required by Rule 17g-4 are not confidential and will
be made available to the Commission and its representatives as required in connection with
examinations, investigations, and enforcement proceedings.
The information collection under Rule 17g-4 does not collect any Personally Identifiable
Information (PII). The Systems of Record Notice may be reviewed at
https://www.sec.gov/oit/system-records-notices. The Privacy Impact Assessment document for
Electronic Data Gathering Analysis and Retrieval may be reviewed at
https://www.sec.gov/about/privacy/pia/pia-edgar.pdf.
11.

Sensitive Questions
Not applicable.

12.

Burden of Information Collection

For purposes of the Paperwork Reduction Act, Commission staff estimates the burden
related to Rule 17g-4 based on the number of NRSROs and the number of hours each NRSRO
would spend complying with the rule. There are 10 NRSROs currently registered with the SEC.
Based on staff experience, an NRSRO is estimated to spend an average of approximately 10
hours per year reviewing policies and procedures required by Rule 17g-4, updating the policies
and procedures (if necessary), and enforcing them, for an industry-wide annual recordkeeping
burden of approximately 100 hours. 17

13.

Costs to Respondents

17

10 hours x 10 NRSROs = 100 hours.

9

10

4

+1

90

Change

Previously
approved

Requested

Annual Time Burden (Hrs.)

Change

IC1

Prevention of
misuses of material
nonpublic
information

Annual No. of Responses
Requested

IC Title

Previously
approved

IC

100

+10

The Commission believes that there will be no additional reporting costs associated with
the rule.
14.

Cost to Federal Government

Commission staff does not anticipate any costs to the Federal Government associated with
the information collections under Rule 17g-4.
15.

Changes in Burden

The hour burden for Rule 17g-4 has increased due to an increase in the number of
NRSROs from 9 to 10.
16.

Information Collection Planned for Statistical Purposes
Not applicable. The information collection is not used for statistical purposes.

17.

Display of OMB Approval Date
Commission staff is not seeking approval to omit the expiration date.

18.

Exceptions to Certifications for Paperwork Reduction Act Submissions
This collection complies with the requirements in 5 CFR 1320.9.

B.

Collections of Information Employing Statistical Methods

The collection of information does not employ statistical methods or analyze the
information for the Commission.

5