US SECURITIES regulators do not plan to follow a European proposal that would force credit rating agencies to give countries a three-day notice about a rating change because the regulators fear it could create opportunities for insider trading.
Ethiopis Tafara, who heads the US Securities and Exchange Commission’s international affairs office, said the US prefers its current requirement for prompt disclosure after a rating change.
Europe already requires rating agencies such as Standard Poor’s to give any company or government that issues debt a 12-hour notice, but its pending proposal would lengthen that to three days.
“We haven’t done that, and I don’t expect that we will,” said Mr Tafara.
The issue of how quickly a rating agency should disclose a change became the subject of debate after the US Treasury Department tried to convince SP’s to delay the announcement of its downgrade of long-term US debt for several days because the numbers in the rating agency’s assessment were in contention.
The Obama administration accused SP, a unit of McGraw-Hill, of making an error in its calculations leading to the unprecedented downgrade. SP has vigorously denied making any mistakes, and while it did give the Treasury a draft press release of the downgrade in advance, it refused the Treasury’s request to delay making the announcement until the following Monday.
SP’s decision to release the rating change on the same day was in line with current Securities and Exchange Commission rules. Although these do not dictate how quickly a rating change must be announced, a 2007 rule does require raters to have policies in place to prevent trading on inside information.
Treasury Department officials declined to comment on Europe’s proposal, or how it differs from the commission’s current rules.
Mr Tafara said the commission’s rules reflect its general regulatory philosophy aimed at preventing insider trading and ensuring investors quickly get the material information they need.
The European model, by contrast, strives to ensure the issuers get more time to review a rating change.
“Their notice requirement affords issuers greater input into the rating outcome, and greater time to prepare the market,” Mr Tafara said. “On this issue, we simply have a difference of view.”
Like the Obama administration, European officials are frustrated with the ratings agencies’ recent downgrades there, including a move by Moody’s to downgrade Portuguese debt despite the country securing an EU bailout.
The major credit-raters, including SP, have strongly rebuffed efforts by the Europeans to give issuers more time to review ratings changes, saying such a policy interferes with their independence.
In a letter to the European Commission last year, SP wrote that giving countries three days to review changes “would constitute an unreasonable and politically motivated interference with the independence of the ratings process.” – (Reuters)
