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- ICI Comment Letters
ICI Supports Credit Rating Agency Legislation
Washington, DC, June 13, 2006 - The Institute urges the House Financial Services Committee to approve the “Credit Rating Agency Duopoly Relief Act of 2005,” legislation which will benefit investors and the securities markets by increasing competition in the credit ratings industry.
Mutual funds employ credit ratings in a variety of ways – to help make investment decisions, to define investment strategies, to communicate with their shareholders about credit risk, and to inform the process for valuing securities. Money market funds are governed by Rule 2a-7 under the Investment Company Act, which limits these funds to investing in securities either rated in the two highest short-term rating categories by an NRSRO, or determined by the fund board to be of comparable quality.
In a comment letter, ICI states that the SEC’s current “Nationally Recognized Statistical Rating Organization” (NRSRO) designation process stifles competition and presents barriers for new entrants to compete with currently designated NRSROs.
H.R. 2990 establishes a registration process through which additional rating agencies become NRSROs, while simultaneously granting the Commission appropriate authority to ensure the integrity and quality of credit ratings. The bill also brings much needed sunlight to credit ratings by requiring disclosure of an NRSRO’s rating criteria, its methodologies and policies, how an NRSRO addresses conflicts of interest (as well as the conflicts themselves), and the organizational structure of an NRSRO.