Opening Remarks

Panel 1 — Credit Rating Assignment System

This panel will discuss the potential creation of a credit rating assignment system. The questions that the panel could consider include:

• Could a credit rating assignment system serve to mitigate the conflict of interest associated with the issuer-pay model, for instance by eliminating the opportunity for coordinated activities between credit rating agencies and market participants such as issuers and arrangers? If so, to what degree might this occur?
   
• What potential disadvantages, including potential unintended consequences, could arise from creating such a system?
   
• Would the creation of such a system raise any constitutional issues?
   
• What would it cost to implement such a system and how could it be funded?
   
• What effects would the establishment of such a system have on the markets and market participants?
   
• Would there be any impact to investors from not creating such a system?
   
• What metrics could a credit rating assignment system use to measure past performance of a Nationally Recognized Statistical Rating Organization (NRSRO) in order to determine future rating assignments?
   
• Would using such metrics to evaluate rating performance constitute interference with the substance or methodology of credit ratings? If so, how could this be mitigated?
   
• Could using such metrics to determine future rating assignments have an adverse effect on the rating process? If so, how could this be mitigated?
   
• What potential conflicts of interest would a credit rating assignment board have and how could they be mitigated?
   
• Should participation in a credit rating assignment system be mandatory or voluntary? What would be the effect of eligible NRSROs choosing not to participate in a voluntary credit rating assignment system?

Break

Panel 2 — Rule 17g-5 Program (Unsolicited Ratings)

This panel will discuss the effectiveness of the SEC’s current Rule 17g-5 system to encourage unsolicited ratings of asset-backed securities. The questions that the panel could consider include:

• How are NRSROs currently using the SEC’s Rule 17g-5 system to develop and issue unsolicited ratings?
   
• What improvements could be made to the Rule 17g-5 system to further encourage unsolicited ratings?
   
• To what degree could such improvements mitigate conflicts of interest with the issuer-pay model?
   
• What would be the effect of removing the requirement that NRSROs accessing Rule 17g-5 information issue unsolicited ratings for at least 10 percent of the issuances they access?
   
• Are issuers imposing any impediments to NRSROs accessing their information through the Rule 17g-5 system?
   
• Do concerns about liability affect the NRSROs’ willingness to issue unsolicited ratings?
   
• What other obstacles discourage NRSROs from issuing unsolicited ratings?
   
• Should the information on the 17g-5 websites be made available to investors? What are the implications of doing so?

Panel 3 — Alternative Compensation Models

This panel will discuss other potential alternatives to the current issuer-pay business model. The questions that the panel could consider include:

• What are other potential alternatives to the current issuer-pay business model?
   
• What potential advantages and disadvantages would come from establishing a licensing and certification requirement for NRSRO analysts?
   
• Would a system of NRSRO rotation be workable?
   
• What would be the effects of requiring NRSROs to use compensation systems other than the issuer-pay model?
   
• Should the SEC require issuers to hire at least one smaller NRSRO to rate each structured finance issuance? Would opinions of these smaller NRSROs help to mitigate any conflicts of interest in the issuer-pay model of the larger NRSROs? How should “smaller NRSRO” be defined? Would such a requirement cause a race to the bottom among the smaller NRSROs? Would it increase costs to issuers?
   
• Should issuers be required to provide credit enhancement that is no lower than the second lowest quote it receives from NRSROs? Should the issuer be permitted to hire any NRSRO it chooses, as long as it provides enhancement no lower than an amount equal to the second lowest quote? Would this method help to satisfy investor guidelines and mitigate ratings “shopping”?
   
• Should issuers be required to disclose which rating firms they have solicited for feedback, regardless of which firm or firms, if any, they engage to issue a rating?
   
• Are investors’ voices being heard in the rating selection process and in the terms of structured finance transactions? If not, how could investors have more input?
   
• Would a compensation scheme that required NRSROs to charge a flat fee reduce the potential for inflated ratings?
   
• Are there any other potential alternatives that the Commission has not yet considered?

Closing remarks

Roundtable concludes

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