Market Abuse: National responses to a global problem Presented by: Nigel Phipps Regulatory Relations...
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Market Abuse: National responses to a global problem Presented by: Nigel Phipps Regulatory Relations May 23, 2005 British Institute of International and Comparative Law
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Transcript of Market Abuse: National responses to a global problem Presented by: Nigel Phipps Regulatory Relations...
Market Abuse: National responses to a global problem
Presented by:
Nigel PhippsRegulatory Relations
Presented by:
Nigel PhippsRegulatory Relations
May 23, 2005British Institute of International
and Comparative Law
Credit Rating
Agencies and
Market Abuse
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What I will cover
1. The context
2. The information picture
3. The handling of issuer information
4. Other issues
Inside information generated by Moody’s
Insider lists
Staff development
Fair presentation and disclosure of conflicts of interest
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1. The context
2. The information picture
3. The handling of issuer information
4. Other issues
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Two examples
The CEO of an issuer had been alarmed by a lawyer’s presentation saying that they could only share confidential information with certain parties and rating agencies weren't on that list.
A request for us to agree in writing not to commit market abuse if we were to receive price sensitive information
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The rock and a hard place for a rating agency
We must not disseminate information which we knew or ought to have known is false or misleading.
If an issuer provides us with inside information and makes us an insider we cannot use the information to take a rating action.
BUT we have an existing public rating on the issuer which, on the basis of the inside information, is now misleading.
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The risk in all of this (1)
Ratings are a public good – free, disseminated broadly and non-exclusive
Other attributes – predict good credit from bad, easy to use, breadth
Hence used by many who want
– Accuracy
– Stability
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The risk in all of this (2)
Therefore only change the rating when the fundamental creditworthiness HAS changed.
Information is vital to provide this public good.
The poorer the information flow, then the more reactive our rating opinion will become to transient market rumours.
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The global dimension
Investors and borrowers expect us to produce rating opinions that are globally consistent
Our analysts work in product and specialist groups that are at European and often global
A patchwork approach to fighting market abuse will put at risk the consistency objective
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1. The context
2. The information picture
3. The handling of issuer information
4. Other issues
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The information picture
Confidential information
Inside
information
Public information
Material
&
Certain
Material & almost certain
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The information types
1. Public information – issuer reporting; other sources
2. Confidential information
– data, documents and verbal communications related to an
issuer’s strategic and financial plans, forecasts and performance;
– information about the credit exposures of an issuer;
3. Inside information
– E.g. a significant event or transaction before an issuer has
publicly disclosed this;
– information related to proposed or future Moody’s rating actions.
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The context
information picture
The handling of issuer information
Other issues
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Confidential information
This is commercially sensitive information.
We will use it when taking a rating action
But will maintain confidentiality
PROTECTION: We will whenever possible allow the issuer to check the information in the press release announcing the rating action
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Inside information from the issuer
The issuer must tell us it is inside information
PROTECTION:
– We will not take a rating action in respect of this information
– We might require reassurance as to the status of any inside information
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1. The context
2. The information picture
3. The handling of issuer information
4. Other issues
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Inside information generated by Moody’s
A Moody’s rating action might be price sensitive
We will keep the time between the rating committee
decision and public dissemination as short as
possible
Issuers will be given time to review the press release.
But it is for us to release the rating action publicly
We use appropriate channels to ensure proper
dissemination
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Insider lists
Staff development
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Fair presentation and disclosure of conflicts of interest
Rating agencies are outside the scope of the directive
(although we are watching national implementation)
The standards we work to are set out in our Code of
Professional Conduct.
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Code of Professional Conduct
The IOSCO principles and code are being
implemented in our Code of Professional Conduct
Our code seeks to protect the integrity of the rating
process
We will be reporting publicly on our compliance with
the code.
We will ensure a continuing dialogue between market
participants and us on the basis of the code.
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Conclusion
1. The context
2. The information picture
3. The handling of issuer information
4. Other issues
