The SEC's Proposed Rating Agency Rules: Unresolved Conflicts
John P. Hunt
University of California, Davis - School of Law; Berkeley Center for Law, Business and the Economy
June 26, 2008
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.
Number of Pages in PDF File: 6
Keywords: rating agencies, credit crisis, SEC
JEL Classification: G18working papers series
Date posted: October 15, 2008 ; Last revised: November 21, 2008
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