[15866]
April 7, 2003
TO: FIXED-INCOME ADVISORY COMMITTEE No. 7-03
MONEY MARKET FUNDS ADVISORY COMMITTEE No. 6-03
RE: SEC STAFF NO-ACTION LETTER REGARDING NEW NRSRO DESIGNATION
The staff of the Securities and Exchange Commission’s Division of Market Regulation
has provided no-action relief to Dominion Bond Rating Service Limited regarding its credit
ratings service.1 Specifically, the staff’s letter states that it will not recommend enforcement
action to the Commission if Dominion is considered by broker-dealers to be a nationally
recognized statistical rating organization (“NRSRO”) for purposes of Rule 15c3-1 under the
Securities Exchange Act of 1934 (the “net capital rule”). The staff’s relief is conditioned on
Dominion not representing in any of its ratings, marketing, or similar literature that the
Commission considers it to be recognized as an NRSRO. A copy of the staff’s letter is attached.
The staff cited several factors in granting Dominion’s no-action request. First, the staff
noted that Dominion, an investment adviser registered under the Investment Advisers Act of
1940, does not directly or indirectly control any financial institution, is not controlled by any
such institution, and maintains its independence from any company it rates.
Second, the staff noted that Dominion’s ratings process incorporates an analysis and
review of an issuer’s annual reports, financial statements, prospectuses, and year-to-date
interim results, and uses the same categories and definitions as are used by Standard & Poors
and Fitch, Inc. In addition, all ratings decisions require approval by a Dominion rating
committee, which consists of analysts and senior management.
Finally, the staff noted that Dominion maintains internal procedures to prevent misuse
of information, including: (1) prohibiting staff from investing in or advising on securities of any
company or subsidiary that Dominion rates or benchmarks; (2) instructing staff not to inform an
issuer of any definite rating action prior to a decision by Dominion’s rating committee;
(3) prohibiting staff from discussing nonpublic information with non-Dominion staff; and
(4) requiring staff and consultants to annually review and sign Dominion’s code of conduct and
ethics policy.
Barry E. Simmons
Associate Counsel
Attachment (in .pdf format)
1 Dominion Bond Rating Service Ltd., SEC No-Action Letter, avail. February 24, 2003.