E-Mail
                                February 7, 1997



Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Stop 6-9
Washington, D.C. 20549

                        File No. S7-31-96
                Rules Implementing Amendments to
               the Investment Advisers Act of 1940
                       Release No. IA-1601

Dear Mr. Katz:

   In Investment Advisers Act Release No. IA-1601 (Dec. 20,
1996) [1996 SEC LEXIS 3470] (the "Release"), the Securities and
Exchange Commission (the "Commission") proposes, among other
things, to exempt nationally recognized statistical rating
organizations ("NRSROs") from the prohibition on registration
with the Commission now contained in Section 203(A)(a) of the
Investment Advisers Act of 1940, as amended by Investment
Advisers Supervision Coordination Act (the "Coordination Act")
constituting Title III of the National Securities Markets
Improvement Act of 1996. Fitch Investors Service, L.P. ("Fitch"),
an NRSRO, strongly supports this proposal, which would restore
the Federal regulatory framework existing with respect to NRSROs
prior to the Act while clarifying the applicability of state
investment adviser regulation.

   First, as the Commission observes in the Release, ratings
issued by NRSROs have "a significant effect on the national
securities markets and the operation of federal securities laws";
therefore, "it would be inconsistent with the purposes of the
Coordination Act for this type of entity to be regulated by the
states rather than by the Commission." Release at 33 (citing
Exchange Act Rel. No. 34616 (Aug. 31, 1994) [59 FR 46314 (Sept.
7, 1994)]. While it is true that NRSROs do not have assets under
management and therefore do not meet the Coordination Act's $25
million threshold for Commission registration, Fitch alone has
outstanding ratings on well over $25 billion of securities
(usually sold in national or international public offerings and
often listed on national or international securities exchanges)
of several thousand issuers in every state and many foreign
countries; its publications are distributed to investors in
almost every state and many foreign countries. This national and
international activity, which in the absence of Commission
registration would be "likely to be subject to multiple state
registration requirements," is precisely the type of activity
that, as noted by the Commission, Congress intended to be
regulated by the Commission rather than by the individual states.
See Release at 10.

   Moreover, the individual states probably would have little
interest in regulating NRSRO activity. Indeed, many states exempt
from, or provide certain benefits to, securities meeting
specified rating requirements of state securities or investment
laws. Furthermore, the states' interest in protection of
investors is probably directed to advice either of a personal
nature as to the suitability of a security for a particular
investor or addressed to natural persons or "retail" investors.
See Release at 50-53 (discussing definition of "investment
adviser representative). NRSROs do not provide such advice or
address their publications to a "retail" audience; instead, they
provide general ratings of securities and publish general reports
describing the bases for such ratings.

   Finally, many state as well as Federal statutes and
regulations refer to NRSROs as defined by the Commission.
Consequently, even if rating agencies were to be regulated by the
individual states, the Commission would continue to designate
certain rating agencies as NRSROs. As a result, Commission
registration or supervision in some form would most likely
continue to be required for those entities qualifying for
designation as NRSROs, at least to ensure that NRSROs registered
in different states would meet consistent standards acceptable to
the Commission. This would result in dual Federal and state
regulation for NRSROs, which would be inconsistent with the
purposes of the Coordination Act. Registration of NRSROs with the
Commission, on the other hand, would eliminate the possibility of
incompatible state regulation and would facilitate Commission
supervision.

   For the reasons stated by the Commission, Fitch also supports
the Commission's proposed definition of the term "investment
adviser representative" to mean a "supervised person" a
"substantial portion" of whose business is "providing investment
advice to clients who are natural persons." Release at 50-53;
proposed Rule 203A-3(a)(1). Since NRSRO representatives provide
"only impersonal investment advice" "by means of written material
or oral statements that do not purport to meet the objectives or
needs of specific individuals or accounts," as required by
proposed Rule 203A-3, paragraphs (a)(1)(ii) and (a)(2)(i), they
would not normally be subject to state regulation but rather,
like the NRSRO itself, would be regulated by the Commission. To
permit Commission registration of NRSROs while allowing state
regulation of their representatives would largely frustrate the
objectives of clear allocation of regulatory responsibility and
uniformity of regulation sought to be achieved by the
Coordination Act.

   Fitch appreciates this opportunity to comment on these
matters. Please telephone (collect) Neil Baron, Vice Chairman and
General Counsel, at (212) 908-0509 or myself, at (212) 908-0626,
at any time if you have any questions or we can be of any service
to you.

                              Very truly yours,

   
   
                              Kathleen G. Cully
                              Deputy General Counsel