US regulators have moved to stiffen rules government credit rating agencies, blamed by some for failing to alert investors to a meltdown that dragged the global economy into recession.
The Securities and Exchange Commission said in a statement late Thursday that its members had voted unanimously on the new rules “to bolster oversight of credit ratings agencies by enhancing disclosure and improving the quality of credit ratings.”
Some of the rulemaking actions became effective immediately, while others are proposals subject to a 60-day period for public comment.
“These proposals are needed because investors often consider ratings when evaluating whether to purchase or sell a particular security,” said SEC chairman Mary Schapiro.
“That reliance did not serve them well over the last several years, and it is incumbent upon us to do all that we can to improve the reliability and integrity of the ratings process and give investors the appropriate context for evaluating whether ratings deserve their trust.”
The SEC said it was seeking “greater disclosure” from the 10 credit agencies it currently regulates, including Standard & Poor’s, Moody’s and Fitch.
The beefed-up regulatory framework immediately requires better information concerning ratings histories, the SEC said.
In addition, the new rules seek to boost competition by enabling competing credit rating agencies “to offer unsolicited ratings for structured finance products, by granting them access to the necessary underlying data for structured products.”
Proposals include amendments to strengthen compliance programs and improve disclosure of potential sources of revenue-related conflicts.
Credit rating agencies, which judge the credit quality of firms and financial products, have been blamed in part for the financial crisis that spawned the worst global recession since the Great Depression.
Critics say the agencies gave excessively high ratings to high-risk complex financial products that fed the financial bubble until it burst.
In a separate statement, the SEC announced late Thursday a proposal to bar so-called “flash trading” in the stock market, saying it allows certain people an unfair advantage.
A flash order enables a person who has not publicly displayed a quote to see orders less than a second before the public is given an opportunity to trade with those orders.
“Flash orders may create a two-tiered market by allowing only selected participants to access information about the best available prices for listed securities,” Schapiro said.
“These flash orders provide a momentary head-start in the trading arena that can produce inequities in the markets and create disincentives to display quotes.”
The proposal is subject to a 60-day public comment period.
AFP
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