Nationally Recognized Statistical Rating Organization - Explained
What is the Nationally Recognized Statistical Rating Organization?
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Table of ContentsWhat is the Nationally Recognized Statistical Ratings Organization?How Does the Nationally Recognized Statistical Rating Organization Work?
What is the Nationally Recognized Statistical Ratings Organization?
Credit rating agencies asses the creditworthiness of a firm or financial instrument. The credit rating agencies that are registered with the Securities and Exchange Commission of the United States and whose ratings are authorized to be used for certain regulatory purposes are called the nationally recognized statistical rating organization (NRSRO).
How Does the Nationally Recognized Statistical Rating Organization Work?
As of December 2018, there are 10 NRSROs operating in the United States. Those are; (i)A.M. Best Rating Services, Inc. (formerly known as A.M. Best Company, Inc, (ii) DBRS, Inc., (iii)Fitch Ratings, Inc., (iv)Japan Credit Rating Agency, Ltd., (v)HR Ratings de Mxico, S.A. de C.V., (vi)Kroll Bond Rating Agency, Inc. (formerly known as Lace Financial Corp.), (vii) Moody's Investors Service, Inc. (viii)Morningstar Credit Ratings, LLC (formerly known as Realpoint LLC), (ix)S&P Global Ratings (formerly known as Standard & Poor's Ratings Services) and (x) Egan-Jones Ratings Co. The rules relating to the NRSROs are administered by the SECs Office of Credit. The Securities and Exchange Commission reviews whether a credit agency provides reliable and credible credit rating and whether it is nationally known before granting the registration to a credit rating agency. The financial resources of the agency, its operational credibility and size are also taken into consideration by the SEC. The federal government uses the ratings provided by these agencies for various regulatory purposes. These ratings are also used by various federal and state agencies as standards. Investors also rely on the ratings provided by these agencies to make their investment decisions.