October 19, 2008
Hunt on Rating Agency Rules
The SEC's Proposed Rating Agency Rules: Unresolved Conflicts, by John P. Hunt, Berkeley Center for Law, Business and the Economy, was recently posted on SSRN. Here is the abstract:
On June 16, the SEC made public new rules intended to increase transparency and reduce conflicts of interest in the credit rating process for fixed-income instruments. The proposal may be most important for what it does not do: The SEC does not plan to forbid the "issuer-pays" system, in which the rating agencies are paid by the parties whose products are being evaluated. Although the SEC apparently has the power to ban issuer-pays and recognizes that the arrangement creates potential conflicts of interest, the proposed rules address issuer-pays only through a half measure that appears unlikely to be effective.
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