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The SEC’s “Arranger-Paid Rule” for Ratings of Structured Finance Products: Arrangers will be held to a "hire" standard

The SEC's Rule 17g-5 under the Securities Exchange Act of 1934 addresses conflicts of interest that the SEC believes affect debt ratings issued by nationally recognized statistical rating organizations, or NRSROs. Rule 17g-5, which we call the Ratings Conflict Rule, identifies potential conflicts and specifies how those conflicts are to be managed. Some conflicts are simply prohibited, such as the ownership by a rating agency employee of securities of an issuer for whom the employee has responsibility. Other conflicts are permitted so long as the NRSRO makes suitable disclosure in SEC filings or manages the conflict appropriately.