The substitute proposed by the SEC would require firms to set up their own systems for evaluating credit-worthiness, essentially reproducing the system of the credit ratings agencies. This approach would be extremely detrimental to smaller firms, to issuers and to investors. Because it is based on an inherent conflict of interest, the proposed system would not provide the protection necessary to counterparties. The BDA recommended an objective system based on trading spreads to an index. The BDA’s comments are available here.
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