SEC Proposals for Credit Rating Agency Reform: Potential Impact on the Asset-backed Markets

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On July 1, 2008, the Securities and Exchange Commission (the “SEC”) issued three rule proposals (the “Proposed

Rules”) aimed at responding to ongoing concerns regarding the role and importance of credit ratings issued by

nationally recognized statistical rating organizations (“NRSROs”). The Proposed Rules are intended to address

the SEC’s concern that the inclusion of credit ratings throughout its rules and regulations may have acted as a

regulatory “seal of approval” for the ratings such that market participants may have placed “undue reliance” upon

them. The proposed amendments would eliminate references to these ratings in numerous SEC rules and forms.1

The Proposed Rules follow, and are a companion to, the issuance on June 16, 2008 of proposed rules to increase

transparency of and avoid conflicts of interest in the credit rating process (the “NRSRO Proposals”2 and, together

with the Proposed Rules, the “Proposals”).3 A copy of our July 2, 2008 client alert on the NRSRO Proposals, SEC

Proposes Reforms Relating to Credit Rating Agencies, can be found at

http://www.mofo.com/news/updates/files/080702CreditAgencies.pdf.

As drafted, the Proposals would have a significant impact on how market participants use credit ratings during the

new issuance process, in determining investment suitability, for computing net capital requirements and in

complying with other SEC rules and regulations. They also would impact the NRSRO regulatory regime and how

NRSROs interact with market participants and other credit rating agencies. Below we review more closely how

the Proposals would impact the asset-backed market.

See full legal news bulletin for more information.

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Morrison & Foerster LLP on:

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