Credit-rating agencies to be subjected to tough new rules

mansoor munir

من:                                               mansoor munir [mansoor_munir_ahmed@hotmail.com]

تاريخ الإرسال:                             Tuesday, October 20, 2009 5:23 AM

إلى:                                               umer

الموضوع:                                    Credit-rating agencies to be subjected to tough new rules

 

 

The Telegraph reported:

 

“The US Securities and Exchange Commission (SEC) has voted to accept a number of new rules to make the sector's workings not only clearer but also to ensure that investors are not over-reliant on such ratings when making decisions.

 

The sector – whose leading lights include Moody's Investors Service, Standard & Poor's and Fitch Ratings – has been heavily criticised for the role it played in legitimising complex debt instruments by giving them healthy credit ratings when they turned out to be packed full of sub-prime mortgages and other questionable assets.” (http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6207062/SEC-to-set-tough-rules-on-rating-agencies.html )

 

What are the new rules?

 

“Under the new rules, the agencies will be forced to disclose more of their ratings history in order to allow investors to compare relative performance. In addition, banks will have to share data used to rank financial products with all agencies, and, in an attempt to stop banks "shopping" for the best rating for a certain product, will be forced to publish all the preliminary "test" ratings they receive from credit agencies.”

 

The SEC will also remove references to ratings from some of its own rules and forms in an attempt to make investors less dependent on agencies' actions.” (http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6207062/SEC-to-set-tough-rules-on-rating-agencies.html )

 

Two excellent measure taken by SEC (that is if it really becomes a law) are:

 

Rating agencies will also have to disclose who paid for their ratings and whether it or any of its linked companies provided services to the company or bank receiving the rating.

 

Meanwhile, the SEC also took the first step to banning flash orders – orders sent to a small group of high-frequency traders fractions of a second before being publicly disclosed – with a final vote expected later in the autumn.” (http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/6207062/SEC-to-set-tough-rules-on-rating-agencies.html )

 

While all the above is fine, no mention has been made of the creation of an ‘independentnew office to oversee, supervise and discipline the ratings industry.

 


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