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Volume 2012 - Number 49

December 21, 2012

SEC Report Reveals Doubts About ‘Franken’ Credit Rating Proposal, Wants More Study

Staff at the Securities and Exchange Commission this week recommended that the agency do more research before making a decision on how to implement a controversial provision in the Dodd-Frank Act involving random assignments of credit ratings in structured finance. Sen. Al Franken, D-MN, was the major proponent of a requirement that the SEC study the feasibility of creating a government body that would pick which credit rating agency would evaluate new non-agency MBS, non-mortgage ABS, commercial MBS and other structured finance transactions. The provision, Sec. 15e(w) of the Dodd-Frank Act, essentially requires the SEC to implement the new system unless the agency determines that an alternative system would better serve the public interest and protect investors. Although some investors and rating services support the Sec. 15e(w) concept, most securitization market participants oppose...

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