In addition to Tuesday's controversial move by Moody's Investors Service to abandon its triple-A ratings scale for money market mutual funds (see yesterday's Crane Data News, ratings agencies are also featured in a new ICI Credit Rating Agencies Reform Resource Center. And NRSROs are mentioned in the fund profile in the latest Money Fund Intelligence.
ICI's new Resource Center explains, "A credit rating agency assigns credit ratings for issuers of debt, as well as the debt instruments themselves (including bonds, preferred stock, and commercial paper). 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. The need for reliable and credible ratings has grown along with the complexity of the capital markets. Meanwhile, the financial crisis of 2008–2009 made clear the serious flaws in the ratings process and the urgency of reforms such as better disclosure, increased accountability, and improved rating presentations. In October 2009, and again in December 2009, the Securities and Exchange Commission (SEC) proposed amendments that would impose a series of new requirements on registered rating agencies to improve disclosure about credit ratings and the ratings process and address conflicts of interest between rated issuers and the rating agencies."
It continues, "With the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress decided to codify many of the measures that were a part of the SEC proposals as well as require additional oversight requirements that were not a part of the SEC proposals. This resource center provides information about reform efforts for the improvement in the way credit rating agencies function. This page will be updated as events unfold." (The web address is: http://www.ici.org/cra.) The Center contains a host of hotlinks to prior discussions of issues involving NRSROs.
Separately, Crane Data wrote in its August 23 News "SEC Issues No-Action Letter, Allows Putting NRSRO Designations on Hold", "At the end of last week, the U.S. Securities & Exchange Commission issued a "no-action" letter ... which allows fund board to delay implementation of the designation of NRSROs (nationally-recognized statistical ratings organization) until further notice." In the letter, the SEC's Associate Director of the Division of Investment Management `Robert Plaze wrote Investment Company Institute General Counsel Karrie McMillan, "As you know, the amendments to rule 2a-7 under the Investment Company Act of 1940 that the Commission adopted last February require[d] boards of directors of money market funds to designate at least four nationally recognized statistical rating organizations ('NRSROs') whose ratings the fund would use to determine the eligibility of portfolio securities under the rule."
But the September issue of Money Fund Intelligence shows that some are going ahead with the designations. MFI quotes OppenheimerFunds Carol Wolf, "We are going to ask our boards to designate four NRSROs. By doing this, we can focus on the NRSROs that we believe provide some good information on our credits. We don't rely on NRSROs for their analysis; we use them for an initial screen. We do our own internal credit analysis, but with 11 NRSROs to monitor it will be nice to be able to just cut it down to the ones that we believe provide the best value."
