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EC Proposes Cash and Synthetic Securitization Ratings

The European Commission is proposing regulations to reduce buy-side reliance on ratings-agency ratings and require investors to instead internally rate their own cash and synthetic securitization positions.

The European Commission is proposing regulations to reduce buy-side reliance on ratings-agency ratings and require investors to instead internally rate their own cash and synthetic securitization positions. The far-reachng proposals stem from regulators’ concerns that institutional investors rely too heavily on external ratings.

Commission officials said that this overreliance creates a herd mentality that can trigger mass sell-offs of bonds in ratings-agency downgrades. But securitization officials in London warn that such measures would place extra compliance costs on investing firms.

— Derivatives Week

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