WASHINGTON (AFP) — The US Securities and Exchange Commission rolled out a series of proposals Wednesday aimed at overhauling the credit rating industry which has been criticized for worsening the global credit crunch.
The proposals seek to boost transparency in how credit rating agencies rate security portfolios and other complex investments managed by big investment banks.
Officials said the proposals were also designed to boost competition between the powerful agencies and to provide investors with more information on their influential, and sometimes market-moving, ratings.
"The events of recent months have had a profound effect on our economy and our markets," SEC chairman Christopher Cox said.
"This package of proposed rules would foster increased transparency, accountability, and competition in the credit rating agency industry for the benefit of investors," he said.
The markets watchdog released its proposals a week after the big three credit rating agencies, Standard & Poor's, Moody's Investors Service and Fitch, agreed to reform their practices in an agreement with New York state attorney general Andrew Cuomo.
Securities portfolios, especially those holding securities tied to US subprime home loans, have endured vast multibillion dollar losses in the past year and played havoc with banks' wider finances.
The SEC reforms were unveiled as the credit crunch continues to jolt Wall Street. Some analysts say ailing mortgage-backed securities, which have slumped in value amid a lengthy housing market downturn, have exacerbated the credit squeeze.
The ratings assigned to investment portfolios and the banks holding them often determine whether other parties will trade with the banks. They can even impact a bank's share price.
The SEC's proposals would require credit rating agencies to make all their ratings and subsequent rating actions publicly available, partly through publishing ratings on their websites.
Other proposals would prohibit agency staff and their clients from accepting gifts worth over 25 dollars, as well as requiring the agencies to disclose how often they review their ratings among other reforms.
Interested parties will have 30 days to comment on the reforms before SEC commissioners take a final vote on the intended reforms.
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