SEC Proposes Rating Agency Disclosures

The Securities and Exchange Commission wants the credit rating agencies to publicly disclose the information they use in rating mortgage-backed securities (including information about the underlying mortgages) to provide more transparency for investors and other rating agencies. "That would permit broad market scrutiny, as well as competitive analysis by other rating agencies that are not paid by the issuer," SEC Chairman Christopher Cox said. The proposal approved by the commissioners for public comment would prohibit credit rating agencies from assisting MBS issuers in structuring their deals to get a certain rating. However, it would be acceptable to tell the issuer how much overcollateralization is needed to achieve a triple-A rating, an SEC staffer said. The rating agencies would also have to maintain a history of their rating actions, including default statistics for the initial rating and defaults that occur after a rating is withdrawn. The wide-ranging proposal addresses conflicts of interest, disclosures, internal practices, and business practices of the rating agencies and is designed to prevent another "subprime mess," Mr. Cox said.