Subject: File No. S7-04-05
From: Don Campbell
Affiliation: President, First Southwest Company

June 9, 2005

First Southwest Company is a full service investment banking firm based in Dallas Texas. We currently provide securities clearing services for 71 introducing firms and are active in municipal underwriting and financial advisory services as well. Many of our introducing firms are also involved in those businesses.

We appreciate the opportunity to comment to the Commission on its proposed rule defining Nationally Recognized Statistical Rating Organizations NRSRO. Specifically, we direct our comments to the proposals discussed in Section III B. 1.a., Publicly Available Credit Ratings. Within this discussion, the Commission asks the following questions: How should it be determined whether an NRSRO is making its credit ratings readily available on a widespread basis? Should our rule specify the manner and methods that must be used to distribute ratings? Should internet posting itself be sufficient?

In April of 2004, our firm was approached by a representative from Moodys Investor Services and questioned about our use of ratings in our business. We informed them that a frequent use of the ratings was by display on investors trade confirmations and periodic account statements. Also, in the course of our municipal underwriting activities, ratings would be included in the issuers official statement. Moodys concluded that for our firm to continue to use their ratings as described, we would need to obtain and maintain an annual license. Subsequently, they advised us that there were three levels of licensing available from Moodys: one designated Department was available for an annual license fee of 27,700.00; another designated Site carried an annual license fee of 52,800.00; and a Division license would cost 91,700.00 each year. These fees applied separately for taxable and tax-exempt products, so the amounts would double if used in both product lines. Under threat of having access to the rating information denied to us, First Southwest Company agreed to purchase a Department license, under protest.

We oppose the concept of these licensing fees as applied to our usage. Our reasoning is straight-forward. In the underwriting preparation work, an issuer will seek a rating from one or more rating agencies. The issuer pays for that service at that time. Once obtained, the rating becomes part of the securities description. Investors tend to rely heavily on these ratings, so that the disclosure of that information in any offering is absolutely mandatory under the securities laws. In the case of municipal securities, any change in a rating represents a reportable material event under the provisions of SEC Rule 15c2-12. There are numerous other circumstances under which our firm and others in the industry is required to use or disclose the ratings of a particular security. Making broker/dealers such as First Southwest Company pay license fees to unregulated entities for usage which is required by the securities laws seems highly inappropriate, particularly since the rating agencies are in a position to charge for such usage which they do in providing the ratings to issuers in the first instance. It certainly is highly irregular for a rating agency to attempt to license or otherwise charge for use of information for which they have already been compensated. If they feel they are not being properly compensated, that would seem to be a matter for them to take up with the issuer, the party benefiting from the rating.

In our experience, Moodys has been the most aggressive in pursuit of these licensing or other distribution fees, but we understand other NRSROs may have similar efforts underway. Clearly, charging significant licensing fees is inconsistent with the concept of making the credit ratings readily available on a widespread basis.

In our view, the final rule should specify the manner and methods that must be used to distribute ratings to insure reasonable accessibility in a format that is centralized and organized. For these reasons, we do not consider that Internet posting would be an acceptable means of availability.