|
|||||
|
|
|||||
|
|||||
|
SEC credit rating plan to force more disclosures Washington
Credit rating agencies may be forced to disclose when they changed their ratings and may be required to disclose information about a structured product's underlying assets, under new rules to be proposed by the Securities and Exchange Commission on Wednesday. Currently, information about past ratings is difficult to retrieve and piece together. Forcing the credit rating agencies to disclose historical information in a systematic fashion would allow the public to evaluate their track record. "Staff plans to recommend that the commission propose requiring that credit rating agencies disclose their ratings histories, including upgrades and downgrades," said SEC spokesman John Nester. "The goal is to help investors and market participants assess the reliability of a firm's ratings," he said. The industry, dominated by Moody's Corp, Standard & Poor's and Fimalac SA's Fitch Ratings, is under fire for contributing to the credit crisis by assigning top ratings to mortgage-backed securities that later deteriorated. The three recently settled with New York state's top prosecutor and agreed to change the way they charge fees for reviewing mortgage-backed securities. The SEC proposal is also expected to require disclosure of information used to issue a rating. That would most likely require the firm issuing the product or the agency rating the product to provide all the credit rating agencies with details on a product's underlying assets. Currently, that information is usually given to the potential investors and the firm it has hired to rate the product, not to everyone. "If you are a rating agency that is not hired, it's difficult for you to compete with S&P and Moody's because you don't have all the information they have," said one source knowledgeable about the SEC's thinking. The source requested anonymity because the rules have not been proposed yet. The proposed rules are aimed at forcing more disclosures from credit raters to improve the industry's transparency. Requiring historical data for each rating, such as when the rating was initiated, when it was upgraded or downgraded, would allow investors and others to better assess its quality. The SEC's proposal will also crack down on conflicts of interest within the rating agencies, which are paid by the entities being assessed or subscribers. The SEC is expected to address how involved the rating agency can be in influencing the creation of a structured finance product. For example, when an employee at a rating agency has helped structure a product, that person will not be allowed to rate the product. The SEC is considering how to give investors a way to differentiate between structured finance products and corporate bonds. It has been considering requiring the rating agencies to issue a report attached to each structured finance rating that would highlight risks associated with the product. Wall Street and the real estate industry oppose creating a separate rating scale for structured products, saying it would scare away some investors and would ultimately hurt the credit markets. A different rating scale would bring about big changes in investment strategies by many pension funds, mutual funds and advisers that must invest in low risk securities. Currently, ratings are embedded in securities laws such as those governing money market funds, which require funds to hold securities that are investment grade. The SEC gained more oversight over the raters through a 2006 law designed to increase competition in the industry. [Source: Reuters]
|
|||||
|
Read our
disclaimer and
privacy policy |
|||||
