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SEC Drafts Credit Rating Agency Rules

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The U.S. Securities and Exchange Commission says it will be trying to make the credit rating process easier to understand and monitor.

The SEC will be proposing 3 batches of regulations in an effort to increase the transparency of the rating process, officials say.

Two batches of regulations came out Wednesday, and the third will appear June 25.

Congress gave the SEC new authority to regulate rating agencies in 2007.

One provision in the proposed regulations released Wednesday is a rule that would prohibit a credit rating agency from rating a structured product unless the agency had information about the underlying assets.

Rating agencies also would have to make all of their ratings and subsequent rating actions publicly available and publish 1-year, 3-year and 10-year performance statistics.

Rating analysts could not receive gifts valued at over $25 from the parties being rated, and no one who participated in determining a credit rating would be able to participate in negotiating the fee that the issuer pays for the rating, according to the SEC.

The second part of the SEC proposal would require credit rating agencies to differentiate structured product ratings from bond ratings.

The part of the proposal that will come out June 25 will emphasize the importance of reminding investors that they must “make an independent judgment of risks,” officials say.

Public comments will be due 30 days after the proposed regulations appear in the Federal Register.

At press time, copies of the first and second batch of proposed regulations were not available on the Web.


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