The Securities Industry and Financial Markets Association’s (SIFMA) credit rating agency task force expressed concern regarding the implications of a proposal presented by the Securities and Exchange Commission (SEC) today at an open meeting hosted by the commission.

SIFMA’s global investor-led task force argued in a letter to the three SEC commissioners that the proposal, which would alter existing credit rating scales, is capable of producing potential albeit unintentional adverse market consequences.

A potential undesirable consequence of the credit rating modifier proposal is impaired capital raising for loans, mortgages, credit cards. It could also lead to the sudden sale of structured finance securities at fire-scale prices into an already highly illiquid market.

Though the credit agency task force recognizes SEC’s focus on transparency and disclosure, “ratings modifiers are not the answer”, said task force co-chair Boyce Greer.  “What’s needed is greater transparency in the analytics and credit evaluation that underlie the rating.”

SIFMA’s task force voiced that the ratings modification sounds appealing, but that they do not hit at the crux of the problem underling the ratings. 

The SIFMA opponents also voiced appreciation of the SEC’s careful consideration of “unintended consequences that such a change might trigger, before the commission adopts any final rules,” according to task force co-chair Deborah Cunningham.

The task force instead recommends that the focus be on the credit rating agencies enhancing disclosure of collateral credit quality characteristics as an alternative solution.

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