SEC may propose diminishing credit rating role
WASHINGTON (Reuters) - The role of credit rating agencies may be diminished as the U.S. Securities and Exchange Commission considers rules to reduce reliance on securities ratings at a meeting on Wednesday.
The SEC is weighing reforms to the rating industry following the subprime mortgage crisis which was partly fueled by top ratings given to mortgage-backed securities that later soured.
The SEC may propose eliminating a requirement that money market funds hold securities that are highly rated, putting more responsibility on the fund manager to analyze securities before buying them.
"The commission will consider proposing to eliminate the rating requirement from rule 2a-7 while continuing to require the independent credit analysis of securities (that) a money market fund purchases," said SEC spokesman John Nester on Tuesday.
Fund managers could still use ratings from firms such as Moody's (MCO.N), McGraw-Hill Cos' (MHP.N) Standard & Poor's and Fimalac SA's (LBCP.PA) Fitch Ratings in their analysis, Nester said.
The SEC staff is considering other rules designed to make it clear to investors the limits and purposes of credit ratings.
Requiring a fund manager to assess a security's liquidity, or how easily the security can be bought or sold, before buying it for a money market fund, is also being considered.
"Liquidity, volatility, probability of loss. Can we find a way to replace the credit rating with something along those lines?" Erik Sirri, SEC's director of trading and markets, said at an American Enterprise Institute event to examine credit rating agencies.
Earlier in June, the SEC proposed rules that would require rating agencies to differentiate between structured products like mortgage-backed securities and corporate bonds.
The proposed rules also called for disclosures on past ratings and would prohibit anyone who participates in determining a credit rating from negotiating the fee that the issuer pays for it.
(Reporting by Rachelle Younglai; Additional reporting by Robert MacMillan; Editing by Brian Moss and Tim Dobbyn)
