Assessing the Importance and Value of an
NRSRO Rating: Investor and NRSRO Views

Abstract

Two consecutive panels moderated by Mahesh Kotecha addressed the importance and value of an NRSRO (nationally recognized statistical rating organization) rating from perspectives of both investors and rating agencies. The investor panel discussed what, if anything, the rating agencies are doing differently today than in 2007, what investors are expecting now from the rating agencies, whether investors are really sure what each agency means by a rating such as AAA, common mistakes investors make in using credit ratings, rating shopping, unsolicited ratings, the issuer-pay business model, Rule 17g-5, how investors feel regarding confidential information that agencies get that investors may not, how the way rating agencies produce ratings is affected by new laws and regulations and the U.S. SEC’s rulemaking process, the proposed rotational system for assigning ratings, how rating agencies are and should be addressing conflicts of interest, and how the framework of ratings could be changed to provide more insight to investors. The NRSRO panel addressed how rating agencies think investors view them and their ratings, what rating agencies think investors are expecting of them, what the long-established rating agencies are doing differently than they did in 2007, how some of the newer rating agencies are approaching the rating business today, how investors should use ratings to get the most out of them, rating shopping, unsolicited ratings, the issuer-pay business model, Rule 17g-5, how new laws and regulations affect the way rating agencies produce ratings and the way investors should use them, other key issues arising from the U.S. SEC’s rulemaking process, the rotational system for assigning ratings proposed in the Franken amendment, and how the rating agencies are addressing conflicts of interest.

TOPICS: Fixed income and structured finance, information providers/credit ratings