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Opening Remarks at SEC Roundtable on Credit Ratings

Chair Mary Jo White

May 14, 2013

Good morning everyone, and welcome to the Securities and Exchange Commission's Credit Ratings Roundtable, which I have been very much looking forward to and which will address a range of critical subjects. I would like first to extend a special welcome to our distinguished Members of Congress here today: Senator Franken, Senator Wicker, and Chairman Garrett. Thank you for taking time from your hectic schedules to speak to us today. Thank you also in advance to our distinguished panelists for contributing your time and knowledge to this roundtable.

There are many questions about the appropriate role of credit ratings in our financial marketplace generally. We take all the questions seriously. But today, our discussions will center on whether and how to change the agency assignment system and alternatives to the compensation models now in use.

When Congress enacted the Dodd-Frank Act, it noted the critical "gatekeeper" role played in the debt market by Nationally Recognized Statistical Rating Organizations (NRSROs). It also noted the systemic importance of credit ratings and that credit rating agencies are central to capital formation, investor confidence, and the efficient performance of the U.S. economy.

Congress also cited the adverse impact on the economy of inaccurate ratings assigned to structured finance products during the financial crisis. And it noted that in certain activities — particularly advising arrangers of structured financial products on potential ratings — rating agencies face conflicts of interest that need to be recognized and carefully monitored.

As a result, the Commission was charged with studying the credit rating process for structured products and the conflicts of interest associated with the issuer pay and subscriber pay rating agency models.

We also were instructed to examine the feasibility of establishing an assigned ratings system and alternate means to compensate NRSROs. When reporting to Congress, we were required to submit recommendations for regulatory or statutory changes that would be needed to implement our findings.

The Commission requested public comment and, in preparing the report, the Commission's staff carefully reviewed each of the comment letters received as well as studies, articles, and testimony regarding potential conflicts of interest and alternate compensation models. We also met with several NRSROs, proponents of alternative models, and other market participants.

Relying on the information gathered from these efforts, the staff report described potential benefits and concerns with the systems proposed, and identified potential regulatory or statutory changes that could be undertaken with respect to each proposal. The staff report was filed with Congress in December 2012.

Given the complex issues the study brought to our attention and the varying and sometimes conflicting viewpoints expressed, the Commission's staff recommended convening a roundtable dedicated to these topics during which all sides could discuss the issues and the potential actions the study addressed. Today is the day for that discussion.

As I said, I am very much looking forward to hearing the exchange of ideas by today's speakers and panelists, and using what we learn today as we consider approaches and appropriate responses.

Before I turn the floor back to Tom Butler (director of the SEC's Office of Credit Ratings), I would like to thank him and all of the staff from across the Commission who provided help and assistance in organizing this roundtable. It was their tireless effort and coordinated activities that made today's extremely impressive assemblage of speakers and panelists possible. Thank you all.

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