Duff & Phelps Credit Rating Co.
55 East Monroe Street, Suite 3500
Chicago, IL 60603
Phone: 312-368-3175
E-Mail: elsner@dcrco.com

February 28, 1998

Mr. Jonathan G. Katz, Secretary

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549

Re: Release No. 34-39457; IC-20508, International Series Release No. 706, and File No. S7-33-97 regarding Capital Requirements for Bankers or Dealers Under the Securities Exchange Act of 1934.

Dear Mr. Katz:

Duff & Phelps Credit Rating Co. (DCR) believes that nationally recognized statistical rating organizations (NRSROs) provide a valuable service to investors, issuers, and investment bankers, the users of ratings. NRSROs help facilitate capital markets activity by offering independent, informed assessments of credit quality within an established framework. NRSROs play a key role in the development of new markets and products by providing impartial services and opinions on these securities.

NRSROs rate issues based on quantitative and qualitative criteria matters, statistical or subjective information, studies of other structural details or other information. NRSROs have developed sophisticated innovative techniques to evaluate risks. Regardless of the method used to assign a rating, NRSROs perform valuable analytical services for users of ratings by assessing the likelihood that a security will pay its promised returns. It is essential, therefore, that a NRSRO inform the users of the meaning of the rating and educate users with respect to their policies and procedures developed to derive their rating conclusion.

DCR concurs with the Commission that establishing standards for recognition of a NRSRO is appropriate. We generally agree with the proposed NRSRO designation process, and the framework for determining which NRSRO’s ratings qualify for beneficial regulatory treatment and creating guidelines for the disclosure of ratings of securities.

DCR believes, however, that the standards should not only include those criteria currently listed in the captioned NRSRO release, but include additional attributes or expansion of proposed attributes that DCR believes are appropriate:

1. Consistency in the use of rating symbols or designations that are comparable with other NRSROs to eliminate confusion among users and to ensure that the ratings fit within the regulatory framework of the Commission and other regulators which use ratings in order to facilitate an orderly market use of ratings.

This requirement should be incorporated into the qualification process. The comparability of ratings is of importance in that when investors evaluate ratings assigned by several rating agencies, which is the common practice in the US capital markets for public issues of securities, the term should convey a risk assessment comparable with other securities possessing NRSROs ratings. Comparability also acts to ensure that the ratings fit into the regulatory framework of the Commission and other regulators which incorporate rating assessments in their regulations

2. Public disclosure of ratings and rationale for the ratings assigned.

NRSROs have procedures for the prompt, public dissemination of ratings or rating changes. This is typically accomplished through press releases, research reports and rating guides disseminated either electronically or through hard copy publication. Pursuant to these procedures, ratings are announced by NRSROs and are reflected in the prices at which buyers and sellers are willing to conduct transactions. Ratings changes normally follow after a watch list status, the announcement of which may cause pricing impact. The market should have access to such ratings data and, more importantly, the underlying data to support the "rationale" of the rating, and this information is significantly more accurate, accessible and timely as provided by NRSROs which have access to a wide range of data to support the rating assigned.

Surveillance is also a critical characteristic of a rating if it is to have more than limited significance. A formal relationship ensures that there is incentive to assign the necessary resources to monitor the issues’ performance.

3. Publicized standards to provide the users of the ratings with sufficient information to fairly and accurately evaluate the nature of assigned ratings.

A NRSRO should be required to publicize its rating policies for rating securities. These publications will ensure that investors can fairly and accurately evaluate the nature of the ratings assigned and compare the rating methodologies of the NRSRO’s active in the public markets.

4. Breath of experience over a wide range of markets and industries in the US capital markets to ensure the NRSRO has sufficient understanding to incorporate a wide variety of issues in its ratings of securities.

A NRSRO designation should require not only the establishment of a team of analysts and announcement of business activity, but also a track record of experience. It is DCR’s view that a NRSRO should have been active in the market for a sufficiently long period of time in order to acquire the expertise to rate securities. Also, an NRSRO should issue ratings on a broad basis of markets and industries to users of ratings to insure market understanding of the NRSROs rating philosophy and practices as provided in their research and publications. The NRSRO should demonstrate a history of reliability of ratings issued to support recognition for regulatory purposes and is recognized as a credible provider of securities ratings by users in the market place.

5. Disclosure of ratings issued without the cooperation of the issuer and recognition for regulatory purposes of ratings only issued with contact with management of issuers.

Having access to the issuer and confidential information at the time of issuance and on going, is one of the strengths of an NRSRO securities rating. Regulatory consequences from initial ratings and monitoring of issues should flow only from informed ratings based on public information, as well as information that is not publicly available necessary for issuance of a rating. A rating agency that has access to key management or that has full access to critical underlying information essential for issuing a rating, has the ability to produce an informed rating. Only such informed ratings should be classified as "complete" ratings to qualify for regulatory purposes.

Uncooperative ratings are often referred to as "unsolicited" ratings. Such ratings issued without the cooperation of management should not be recognized as qualified ratings for regulatory purposes.

We hope these comments are helpful to the Commission in its evaluation of proposed regulations to establish recognition attributes for qualifying NRSROs.

DCR would be pleased to discuss our views further with the Commission. Please feel free to contact me at 312-368-3175 if you have any other questions, or Paul J. McCarthy, Chairman and CEO, or Philip T. Maffei, President and COO at 212-908-0200.

Very truly yours,

Ernest T. Elsner
Executive Vice President and
General Counsel