As reported by New York Times’s Ben Protess, on Tuesday, the Securities and Exchange Commission unanimously approved a plan to erase references to credit ratings from certain rulebooks. The agency also adopted a substitute to the ratings, the first of several such changes the commission must enact in the coming months.
“I believe the rules will provide an appropriate and workable alternative to credit ratings,” Mary L. Schapiro, the agency’s chairwoman, said in a statement.
The rules, stemming from the Dodd-Frank financial regulatory law, are part of a broader movement in Washington to crack down on the rating agencies, which awarded rosy grades to dubious investments at the peak of the mortgage bubble.
Dodd-Frank created a laundry list of new regulations for the industry, including proposals to make it easier for investors to sue the agencies. The S.E.C. must also create its own Office of Credit Ratings to police the raters, though the agency has yet to open its doors as it struggles to scrape together the needed money.
Now, the S.E.C. will enforce a new standard of creditworthiness. Companies can dart around lengthy reporting forms, regardless of credit ratings, if they meet one of several qualifications, the agency said.
Companies that issue more than $1 billion of regulated nonconvertible securities within the last three years or have $750 million of outstanding nonconvertible securities will qualify, according to the S.E.C. Firms that are a “wholly owned subsidiary of a well-known seasoned issuer” will also be eligible.