Post-S038;P8217;s US hit,SEC plans crackdown?

SEC: prompt disclosure needed to avoid insider trading

Ethiopis Tafara,who heads the US Securities and Exchange Commission8217;s international affairs office,said the United States prefers its current requirement for prompt disclosure after a rating change.

Europe already requires rating agencies,such as Standard amp; Poor8217;s Samp;P8217;s,to give any company or government that issues debt a 12-hour notice,but its pending proposal would lengthen that three days.

We haven8217;t done that,and I don8217;t expect that we will,Tafara said in an interview on Tuesday.

The issue of how quickly a credit rating agency should disclose a rating change became the subject of debate after the US Treasury Department tried to convince Standard amp; Poor8217;s to delay the announcement of its downgrade of long-term US debt for several days because the numbers in the rating agency8217;s assessment were in contention.

The Obama administration accused Standar amp; Poor8217;s Samp;P8217;s,a unit of McGraw-Hill Companies Inc,of making an error in its calculations leading to the unprecedented downgrade.

Samp;P has vigorously denied making any mistakes,and while it did give the Treasury a draft press release of the downgrade in advance,it refused the Treasury8217;s request to delay making the announcement until the following Monday.

Samp;P8217;s decision to release the rating change on the same day was in line with current SEC rules. Although the rules do not dictate how quickly a rating change must be announced,a 2007 rule does require raters to have policies in place to prevent trading on inside information.

Treasury Department officials declined comment on Europe8217;s proposal,or how it differs from the SEC8217;s current rules.

Tafara said the SEC8217;s rules reflect its general regulatory philosophy aimed at preventing insider trading and ensuring that investors quickly get the material information they need.

The European model,by contrast,strives to ensure the issuers get more time to review a rating change. Their notice requirement affords issuers greater input into the rating outcome,and greater time to prepare the market,Tafara said. On this issue,we simply have a difference of view.

Like the Obama administration,European officials are frustrated with the ratings agencies8217; recent downgrades there,including a move by Moody8217;s Corp to downgrade Portuguese debt despite the country securing an EU bailout.

The major credit-raters,including Samp;P,have strongly rebuffed efforts by the Europeans to give issuers more time to review ratings changes,saying such a policy interferes with their independence.

In a letter to the European Commission last year,Samp;P wrote that giving countries three days to review changes would constitute an unreasonable and politically motivated interference with the independence of the ratings process.

But as Samp;P now faces a backlash in America from its decision to downgrade the US debt,some lawmakers may start viewing the European proposal with a newfound appreciation 8212; especially as the US House and Senate prepare to gear up for congressional hearings on the downgrade.

One congressional aide told Reuters that a longer notice period,as proposed by the Europeans,could be an attractive option for lawmakers angered by the Samp;P downgrade when they debate further ratings agency reforms this fall.

SEC examiners are also reviewing whether Samp;P followed all of its own policies and procedures leading up to the US downgrade,people familiar with the matter said.

Aside from differences between the United States and Europe about the timing of notifications,Tafara said overall efforts to align global reforms for credit-rating agencies have been a success story.

The United States and other international regulators have developed a 10-page code of conduct for raters that addresses issues such as transparency of the ratings methodology,use of non-public information,and the management of conflicts of interest.

Basically,that8217;s been the consensus template for regulation around the world. Virtually all regulators are using the code of conduct to develop their regulations,Tafara said.