WASHINGTON (CN) – The Securities and Exchange Commission has proposed a rule that would allow consumers to see what percentage of revenue earned by Moody’s Investor Service, Standard & Poor’s, and similar rating groups is derived from each entity for which a credit rating is issued. A consumer could then know the influence wielded by the rated over the rater.
Under the rule, each nationally recognized statistical rating organization would be required to post on its Internet Web site an annually updated report detailing the relative size of the revenue contributed by entities that paid the NRSRO to issue or maintain a credit rating.
Specifically, under the proposed rule, the report must show the percentage of the net revenue attributable to the entity that was earned by the NRSRO for that fiscal year from providing services and products other than credit rating services, list the relative standing of the entity in terms of the entity’s contribution to the revenue of the NRSRO for the fiscal year as compared with other entities that provided the NRSRO with revenue, and finally the report must identify all outstanding credit ratings paid for by each entity who paid for a credit rating.
NRSROs are credit rating agencies that issue credit ratings of debt issuers that the U.S. Securities and Exchange Commission permits other financial firms to use for meeting regulatory requirements.
NRSROs rate the safety of commercial paper held by banks and broker-dealers to meet net capital requirements, and the Securities Exchange Commission allows bond issuers to use a shorter prospectus form when issuing bonds if the issuer has an NRSRO credit rating above a certain level. In addition, the SEC determines what securities money market funds may hold based on their NRSRO rating.