The Employee Benefits Security Administration has started the process of classifying Dominion Bond Rating Service Ltd. as a firm that can rate the assets held in benefit plan portfolios.
Dominion, Toronto, is trying to break into the U.S. rating agency market, which now is dominated by Standard & Poor’s Ratings Services, New York; Moody’s Investors Service Inc., New York; and FitchRatings Inc., New York.
The U.S. Securities and Exchange Commission helped Dominion in 2002 by issuing a “no-action letter” allowing securities firms to treat Dominion as a “nationally recognized statistical rating organization.”
Now EBSA, an arm of the U.S. Department of Labor, has proposed making a similar move by amending prohibited transaction exemptions 2000-58 and 2002-41. The PTE amendments would permit Dominion to serve as an EBSA-recognized rating agency for purposes of rating securities representing interests in mortgage-backed investment pools and other asset-backed investment pools.
The amendments also should apply to Dominion’s U.S. affiliate, Dominion Bond Rating Service Inc., because the rating operations of the U.S. affiliate are almost identical to those of the parent, EBSA officials write in a notice that appears today in the Federal Register.
Approving Dominion as a rating agency is important because the 1990 merger of Fitch with Duff & Phelps Inc., Chicago, has reduced the level of competition in the field, and future mergers could reduce the level of competition still further, officials write.
In addition, Dominion has been rating Canadian and U.S. securities from its offices in Canada since 1976, officials write.
Adding a rating agency to the market “would result in improved accuracy and timeliness of ratings” and “competition among rating agencies would encourage different methods of analyzing credit risk,” officials write.
Comments and requests for a hearing are due Feb. 23.
If granted, the PTE amendments would apply to transactions occurring on or after April 5, 2006.
A copy of the Dominion notice is on the Web at Document Link