SEC Wants Investment Funds to Reduce Reliance on Credit Ratings

[flashl]

June 24 (Bloomberg) -- The U.S. Securities and Exchange Commission, responding to losses on top-rated mortgage securities, will push investment funds to rely on criteria such as an asset's liquidity and risk instead of credit rankings.

The SEC will propose tomorrow that references to credit ratings in its rules be replaced "by something that refers to, say, the characteristic for which the credit rating was proxying: liquidity, volatility, probability of loss,'' Erik Sirri, who heads the SEC division of trading and markets, said at a conference in Washington.

Agency rules require managers of money-market funds to buy debt maturing in less than 13 months that carries one of the two highest rankings from two ratings companies. By dropping references to credit ratings, companies would have to conduct more due diligence to determine whether an asset is investment grade, Sirri said.

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Pension and bond funds also absorbed losses after buying mortgage securities that offered higher returns than government debt with the same AAA rankings. Lawrence White, a professor at New York University's Stern School of Business, said the SEC has been "outsourcing'' regulation by incorporating ratings into its rules.

Bloomberg

[Pale Blue Dot]

1. Interesting timing.

I didn't hear any calls for this when the credit ratings were good....

Seems like another case of Wall Street trying to ignore the truth for as long as possible.