US regulators to probe rating agencies
08 Sep 2007
Mumbai: The US Securities and Exchange Commission (SEC) plans to investigate how the major credit-rating agencies are paid and their independence from Wall Street firms that issue bonds amid the crisis in the mortgage market, the Wall Street Journal reported in its online edition.
The regulators have begun to examine how the ratings firms evaluated sub prime-mortgage backed securities that grew into a trillion-dollar market, the report said.
The financial fortunes of rating firms are closely tied to the volume of securities deals and higher ratings often spur deals, the report said. The SEC wants to see whether clients that sell more deals and therefore generate more revenue for ratings firms, tend to get better ratings, the report added.
While there is no evidence so far of such preferential treatment, regulators are interested in examining the question because of the lucrative nature of the mortgage market, the report said, citing one person familiar with the matter.
