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The SEC's Proposed Rating Agency Rules: Unresolved Conflicts

6 Pages Posted: 15 Oct 2008 Last revised: 21 Nov 2008

John P. Hunt

University of California, Davis - School of Law

Date Written: June 26, 2008

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.

Keywords: rating agencies, credit crisis, SEC

JEL Classification: G18

Suggested Citation

Hunt, John P., The SEC's Proposed Rating Agency Rules: Unresolved Conflicts (June 26, 2008). Available at SSRN: https://ssrn.com/abstract=1284709 or http://dx.doi.org/10.2139/ssrn.1284709

John P. Hunt (Contact Author)

University of California, Davis - School of Law ( email )

Martin Luther King, Jr. Hall
Davis, CA CA 95616-5201
United States
(530) 752-5052 (Phone)

HOME PAGE: http://ratingagencylawblog.wordpress.com/

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