Dissertation credit rating agencies

Publicado em Agosto 2017

The credit rating agency infringes Article 7(4), in conjunction with point (ii) of point (b) of the first paragraph of point 8 of Section C of Annex I, by not dissertation credit rating agencies ensuring that, where it provides unsolicited credit ratings or sovereign ratings, a person approving credit ratings is not involved in credit rating activities related to the same rated entity or a related third party for a period exceeding seven years. This should be complemented with the relative weight of each factor; Without prejudice to point 5 of Part I of Section D of Annex I, in accordance with which, when announcing a credit rating, a credit rating agency is to explain in its press releases or reports the key elements underlying the credit rating and although national policies may serve as an element underlying a sovereign rating, policy recommendations, prescriptions or guidelines to rated entities, including States or regional or local authorities of States, shall not be part of sovereign ratings or rating outlooks. A low rating does not mean that default will occur; and a high rating guarantees nothing, not even that a downgrade won't occur. First, that is the segment of the European securitisations market that has underperformed since the financial crisis, and it is therefore the one in which the need to address conflicts of interest is greatest. A credit rating agency shall ensure that fees charged to its clients for the provision of credit rating and ancillary services are not discriminatory and are based on actual costs. In light of the findings of that report and following ESMA’s technical advice, the Commission may re-evaluate and suggest amending Article 8d. S. A detailed evaluation of the changes to the quantitative assumption justifying the reasons for the rating change and their relative weight. Such disclosure shall be made whether or not issuers contract with the credit rating agency for a final rating. It is important that the European rating platform website shows all available credit ratings per instrument in order to allow investors to consider the whole variety of opinions before taking their own investment decision. This excludes holdings in diversified collective investment schemes and managed funds such as pension funds or life insurance, which do not put him in a position to exercise significant influence on the business activities of the scheme; a shareholder or member of a credit rating agency holding 5 % or more of either the capital or the voting rights of that credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, is a member of the administrative or supervisory board of the rated entity or a related third party. Government—borrow at a lower cost. The issuer, the originator and the sponsor of a structured finance instrument established in the Union shall, on the website set up by ESMA pursuant to paragraph 4, jointly publish information on the credit quality and performance of the underlying assets of the structured finance instrument, the structure of the securitisation transaction, the cash flows and any essay on harriet tubman collateral supporting a securitisation exposure as well as any information that is necessary to conduct comprehensive and well-informed stress tests on the cash flows and collateral values supporting the underlying exposures. 3. ABN AMRO publiceert deze persberichten en het kredietonderzoek uitsluitend ter informatie. " That rating denotes a fair margin of safety. S. A credit rating agency shall, taking into consideration the second subparagraph of Article 8(5), publish on its website and submit to ESMA on an annual basis, in accordance with point 3 of Part III of Section D of Annex I, a calendar at the end of December for the following 12 months, setting a maximum of three dates for the publication of unsolicited sovereign ratings and related rating outlooks and setting the dates for the publication of solicited sovereign ratings and related rating outlooks. Note that occasionally the price of some bonds drops in advance of a rating change. Government is deemed impossible. But in addition, it is very difficult to predict how much you will really earn on bonds with the longest maturities because that will largely be determined by varying reinvestment rates earned on interest income. Note that the yield, in a sense, provides a scale of credit-worthiness: higher yields generally indicate higher risk-the higher the yield, the higher the risk. ’; The credit rating agency infringes the third subparagraph of Article 14(3) by not notifying ESMA of the intended material changes to the existing rating methodologies, models or key rating assumptions or of the proposed new rating methodologies, models or key rating assumptions when it publishes the rating methodologies on its website in accordance with Article 8(5a). At the same time, those restrictions do not go beyond what is necessary and should rather be seen as increasing the creditworthiness of re-securitisations towards other parties, and ultimately the market. Finally, some bankrupt companies emerge successfully from bankruptcy proceedings, leading to a bonanza for anyone who purchased the bonds while the company was in default. At the request of a credit rating agency, ESMA may exempt a credit rating agency from complying with the requirements of points 2, 5, 6 and 9 of Section A of Annex I and Article 7(4) if the credit rating agency is able to demonstrate that those requirements are not proportionate in view of the nature, scale and complexity of its business and the nature and range of issue of credit ratings and that:’; ‘4. Following that review, the Commission shall, by 1 January 2016, submit a report to the European Parliament and to the Council, accompanied by a legislative proposal if appropriate, assessing, in particular: 3. Where an issuer or a related third party intends to appoint at least two credit rating agencies for the credit rating of the same issuance or entity, the issuer or a related third party shall consider appointing at least one credit rating agency with no more than 10 % of the total market share, which can be evaluated by the issuer or a related third party as capable of rating the relevant issuance or entity, provided that, based on ESMA’s list referred to in paragraph 2, there is a credit rating agency available for rating the specific issuance or entity. Failure to redeem principal at maturity would constitute a default. No. Credit rating agencies should make all efforts to know their indirect shareholders so that they can avoid any potential conflicts of interest in this respect. The credit rating agency infringes Article 10(2), in conjunction with point 4 of Part III of Section D of Annex I, by including policy recommendations, prescriptions or guidelines to rated entities, including States or regional or local authorities of States, as part of a sovereign rating or a related rating outlook. ’; The credit rating agency infringes Article 8a(3) by not publishing on its website, or by not submitting to ESMA on an annual basis, in accordance with point 3 of Part III of Section D of Annex I, a calendar at the end of December for the following 12 months, setting a maximum of three dates that fall on a Friday for the publication of unsolicited sovereign ratings and related rating outlooks and setting dates that fall on a Friday for the publication of solicited sovereign ratings and related rating outlooks. In a market context where the rotation rule applies to all participants, business opportunities will arise since all credit rating agencies would need to rotate. Moreover, disclosing relevant information on structured finance instruments is likely to reinforce the competition between credit rating agencies, because it could lead to an increase in the number of unsolicited credit ratings. ’; ‘1. ’; a shareholder or member of a credit rating agency holding 10 % or more of either the capital or the voting rights of that credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, holds 10 % or more of either the capital or the voting rights of the rated entity or of a related third party, or of any other ownership interest in that rated entity or third party, excluding holdings in diversified collective investment schemes and managed funds such as pension funds or life insurance, which do not put him in a position to exercise significant influence on the business activities of the scheme;’; a shareholder or member of a credit rating agency holding 10 % or more of either the capital or the voting rights of that credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, is a member of the administrative or supervisory board of the rated entity or a related third party;’; a shareholder or member of a credit rating agency holding 5 % or more of either the capital or the voting rights of that credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, holds 5 % or more of either the capital or the voting rights of the rated entity or of a related third party, or of any other ownership interest in that rated entity or third party. 4. Plus 60 stock screens based on the winning strategies of legendary investors like Warren Start your trial now and get immediate access to our market-beating Model Stock Portfolio (beating the S&P 500 2-to-1) plus 60 stock screens based on the strategies of legendary investors like Warren Buffett and Benjamin Graham. A credit rating agency shall take all necessary steps to ensure that the issuing of a credit rating or a rating outlook is not affected by any existing or potential conflicts of interest or business relationship involving the credit rating agency issuing the credit rating or the rating outlook, its shareholders, managers, rating analysts, employees or any other natural person whose services are placed at the disposal or under the control of the credit rating agency, or any person directly or indirectly linked to it by control. Thus, as a general rule, rotation should only affect new re-securitisations with underlying assets from the same originator. Credit rating agencies should refrain from any direct or explicit policy recommendations on policies of sovereign entities. ’; 1. 1. However, such deviation should not happen routinely. In order to avoid such notification taking place outside working hours and to leave the rated entity sufficient time to verify the correctness of data underlying the credit rating, the rated entity should be notified a full working day before publication of the credit rating or of a rating outlook. On the same basis, it is also appropriate and proportionate that, at the end of December, credit rating agencies should publish a calendar for the following 12 months setting the dates for the publication of sovereign ratings and, corresponding thereto, the dates for the publication of related rating outlooks where applicable. Such reports shall be made publicly available. It is therefore appropriate to introduce an exemption from the rotation mechanism for small credit rating agencies. The Union is working towards reviewing, at a first stage, whether any references to credit ratings in Union law trigger or have the potential to trigger sole or mechanistic reliance on such credit ratings and, at a second stage, all references to credit ratings for regulatory purposes with a view to deleting them by 2020, provided that appropriate alternatives to credit risk assessment are identified and implemented. In order to protect their investments, many individual investors limit their purchases to bonds that are at minimum rated "investment grade," which corresponds to BBB (Standard & Poor's) and Baa (Moody's). That report shall be publicly available, clear and easily comprehensible. The rotation requirement would not achieve its objectives if the outgoing credit rating agency were allowed to rate re-securitisations from the same originator again within too short a period. In order to regain confidence it would be appropriate to require issuers or related third parties to engage at least two different credit rating agencies for the provision of credit ratings on structured finance instruments, which could lead to different and competing assessments. The market is sometimes ahead of the rating agencies in sniffing out that a particular security may face potential problems. You would dissertation credit rating agencies ask a lot of questions relating to the probability of repayment. Deviation of the publication of sovereign ratings or related rating outlooks from the calendar shall only be possible where necessary for the credit rating agency to comply with its obligations under Article 8(2), Article 10(1) and Article 11(1) and shall be accompanied by a detailed explanation of the reasons for the deviation from the announced calendar. The provisions in this Regulation regarding conflicts of interest with regard to the shareholder structure should not only refer to direct but also to indirect shareholdings as otherwise those rules could be easily circumvented. ‘5. A credit rating agency which is prevented from rating re-securitisations from a particular originator would still be allowed to rate re-securitisations from other originators as well as rating other asset classes. Bearing this in mind, the Commission should examine the possibility of developing a European creditworthiness assessment, to allow investors to make an impartial and objective assessment of Member States’ creditworthiness, taking into account the specific economic and social development. Public communications other than credit ratings, rating outlooks, or accompanying press releases or reports as referred to in point 5 of Part I of Section D of Annex I, which relate to potential changes in sovereign ratings shall not be based on information within the sphere of the rated entity that has been disclosed without the consent of the rated entity, unless it is available dissertation credit rating agencies from generally accessible sources or unless there are no legitimate reasons for the rated entity not to give its consent to the disclosure of the information. Only two defaults have occurred to bonds rated A. Bonds issued by federal agencies, or most types of mortgage-backed securities, are deemed to have almost equally high credit quality. ’; The credit rating agency shall inform the rated entity during working hours of the rated entity and at least a full working day before publication of the credit rating or the rating outlook. The European Parliament supported the establishment of such publication of credit ratings in its resolution on credit rating agencies of 8 June 2011. Bonds are rated when issuers initially come to market, and subsequently, as issuers bring additional issues to market. ’; The credit rating agency infringes Article 7(3), in conjunction with point 7 of Section C of Annex I, by not ensuring that a person referred to in point 1 of that Section does not take up a key management position with the rated entity or a related third party within six months of the issuing of a credit rating or rating outlook. Credit institutions and investment firms should be encouraged to put in place internal procedures in order to make their own credit risk assessment and should encourage investors to perform a due diligence exercise. Finally, the credit rating market for re-securitisations is dominated by a few large credit rating agencies but there are other players who have been building up expertise in this area. Requiring a regular rotation of credit rating agencies is proportionate to the objective pursued. SOPs should be periodically reviewed and monitored to evaluate their effectiveness and whether they should be updated. Technical standards in the financial services sector should ensure an adequate protection of depositors, investors and consumers across the Union. ‘4. ’; ‘2. Such guidance shall be clear and easily comprehensible. Consequently, bonds with the highest quality credit ratings always carry the lowest yields; bonds with lower credit ratings yield more. Furthermore, the ability of investors to make an informed assessment of the creditworthiness of structured finance instruments would be improved if investors were provided with sufficient information on those instruments. For such diversity to play a role and to avoid complacency of both originators and credit rating agencies, the maximum period during which the credit rating agency is allowed to rate re-securitisations from the same originator must be restricted to a level that guarantees regular fresh assessments of creditworthiness. ’; Where a credit rating agency issues a sovereign rating or a related rating outlook, it shall simultaneously provide a detailed research report explaining all the assumptions, parameters, limits and uncertainties and any other information taken into account in determining that sovereign rating or rating outlook. ’; ‘3. For bonds rated AA, for example, a downgrade to A+ may not make a noticeable difference in the price. ) As a general rule, if you are concerned about safety of principal and predictable income, it is usually safer to buy bonds with maturities of five to 10 years, rated at least investment grade or somewhat higher (depending on your preferences and tolerance for risk). 3. Moreover, credit rating agencies can always issue unsolicited credit ratings on re-securitisations from the same originator capitalising on their experience. Occasionally, changes in ratings are more sudden. In order to increase competition in a market that has been dominated by three credit rating agencies, measures should be taken to encourage the use of smaller credit rating agencies. ’; A credit rating agency shall disclose on its website, and notify ESMA on an ongoing basis, information about all entities or debt instruments submitted to it for their initial review or for preliminary rating. No exceptions. In order to further mitigate conflicts of interest and facilitate fair competition in the credit rating market, it is important to ensure that the fees charged by credit rating agencies to clients are not discriminatory. S. Investors, issuers and other interested parties should have access to up-to-date rating information on a central website. Similar statistics prevail for municipal bonds. Chances are that if your banker turns you down, you will find a different banker, who will charge you higher interest costs. Therefore, structuring rotation around the issuer would render the mechanism ineffective. Credit rating agencies shall establish standard operating procedures (SOPs) with regard to corporate governance, organisation, and the management of conflicts of interest. In the framework of its surveillance of economic and fiscal policies of Member States, the Commission collects and processes data on the economic, financial and fiscal situation and performance of all Member States, most of which are published by the Commission and which can therefore be used by investors to assess the potential creditworthiness of Member States. Only for unsolicited sovereign ratings should the number of publications in the calendar be limited between two and three. Sovereign ratings shall be issued in a manner which ensures that the individual specificity of a particular Member State has been analysed. It shall adopt all necessary measures so that the information it uses in assigning credit ratings and rating outlooks is of sufficient quality and from reliable sources. For example, frequent rotation could result in increased costs for issuers and credit rating agencies because the cost associated with rating a new entity or financial instrument is typically higher than the cost of monitoring a credit rating that has already been issued. Regular rotation of credit rating agencies issuing credit ratings on re-securitisations should bring more diversity to the assessment of creditworthiness. Unsolicited credit ratings are not constrained by the issuer-pays model and therefore are theoretically less affected by potential conflicts of interest. Get full access to AAII. That report shall contain, in particular, an assessment of the implementation of Annex I by the credit rating agencies registered under this Regulation and an assessment of the application of the endorsement mechanism referred to in Article 4(3). In particular, a credit rating agency shall prominently state when disclosing any credit rating or rating outlook whether it considers satisfactory the quality of information available on the rated entity and to what extent it has verified information provided to it by the rated entity or a related third party. Hiermee geeft ABN AMRO niet aan dat zij de kredietbeoordelingen van Moody's, Fitch, Standard & Poor's of DBRS onderschrijft. It has been the practice in recent times for issuers or related third parties to seek credit ratings from two or more credit rating agencies, and therefore, where two or more credit ratings are sought, the issuer or a related third party should consider appointing at least one credit rating agency which does not have more than 10 % of the total market share and which could be evaluated by the issuer or a related third party as capable of rating the relevant issuance or entity. The effectiveness of the rules on independence and prevention of conflicts of interest which require that credit rating agencies not provide credit rating services to the same issuer for a long period of time could be undermined if credit rating agencies were allowed to become significant shareholders or members of other credit rating agencies. There is a gradation in risk of default. ’; A credit rating agency shall identify, eliminate, or manage and disclose, clearly and prominently, any actual or potential conflicts of interest that may influence the analyses and judgments of its rating analysts, employees, or any other natural person whose services are placed at the disposal or under the control of the credit rating agency and who are directly involved in credit rating activities and persons approving credit ratings and rating outlooks. Period. If the rotation mechanism is established for other asset classes, the Commission should evaluate whether it is necessary to introduce an obligation on the credit rating agency to provide, at the end of the maximum duration period of the contractual relationship, information on the issuer and on the rated financial instruments (a handover file), to the incoming credit rating agency. ’; ‘5. As a body with highly specialised expertise, dissertation consulting service domeny it would be efficient and appropriate to entrust ESMA, with the elaboration of draft regulatory and implementing technical standards which do not involve policy choices, for submission to the Commission. But overall, if you consider primarily bonds that are at least investment grade in credit quality, default rates are relatively low. ’; 2. Where a prospectus contains a reference to a credit rating or credit ratings, the issuer, offeror, or person asking for admission to trading on a regulated market shall ensure that the prospectus also includes clear and prominent information stating whether or not such credit ratings are issued by a credit rating agency established in the Union and registered under this Regulation. Credit rating agencies should establish, maintain, enforce and document an effective internal control structure governing the implementation of policies and procedures for the prevention and control of possible conflicts of interest and for ensuring the independence of credit ratings, rating analysts and rating teams regarding shareholders, administrative and management bodies and sales and marketing activities. Therefore, those institutions should avoid entering into contracts where they solely or mechanistically rely on credit ratings and should avoid using them in contracts as the only parameter to assess the creditworthiness of investments or to decide whether to invest or divest. It lays down conditions for the issuing of credit ratings and rules on the organisation and conduct of credit rating agencies, including their shareholders and members, to promote credit rating agencies’ independence, the avoidance of conflicts of interest, and the enhancement of consumer and investor protection. Issuers pay the agencies for the rating. A rating of B- is slightly lower than a B rating. ‘Without prejudice to the second subparagraph, the credit rating agency shall notify ESMA of the intended material changes to the rating methodologies, models or key rating assumptions or the proposed new rating methodologies, models or key rating assumptions when the credit rating agency publishes the proposed changes or proposed new rating methodologies on its website in accordance with Article 8(5a). ’; a credit rating where the issuer is an international financial institution established by two or more States which has the purpose of mobilising funding and providing financial assistance for the benefit of the members of that international financial institution which are experiencing or threatened by severe financing problems; ‘1. But risk to principal is dramatically lower. The European Parliament’s resolution of 8 June 2011 on credit rating agencies: future perspectives ( 7), called for enhanced regulation of credit rating agencies. Pursuant to Article 284(3) of the Treaty on the Functioning of the European Union (TFEU), the ECB is to address an annual report on the activities of the European System of Central Banks (ESCB) and on the monetary policy of both the previous and current years to the European Parliament, the Council and the Commission, and also to the European Council. Government. Such dates shall be set on a Friday. For example, there are other financial products, such as covered bonds and other secured debt, where the risk to a large extent depends on the characteristics of any underlying collateral and where it could be relevant to provide investors with more information about the collateral. Therefore, in order to ensure the independence (and the perception of independence) of credit rating agencies, it is appropriate to provide for stricter rules regarding the relations between the credit rating agencies and their shareholders or members. It also takes a considerable amount of time and resources to get established as a credit rating agency, whether as a niche player or covering all asset classes. A credit rating agency shall disclose any credit rating or rating outlook, as well as any decision to discontinue a credit rating, on a non-selective basis and in a timely manner. That information shall include the principal grounds on which the credit rating or rating outlook is based in order to give the rated entity an opportunity to draw attention of the credit rating agency to any factual errors. Many defaults have taken the form of a suspension of coupon payments. This would reduce investors’ dependence on credit ratings. But the further they predict into the future, the more imprecise and unreliable their forecasts become. It is appropriate to introduce rotation on the credit rating market for re-securitisations. Furthermore, in order to allow for the effective supervision of those rules, credit rating agencies should disclose to ESMA the fees received from each of their clients and their general pricing policy. Equally important, a rotation mechanism should be implemented with sufficient safeguards to allow the market to adapt gradually before possibly enhancing the mechanism in the future. Moreover, the fees charged for credit rating services to a given issuer should not depend on the results or outcome of the work performed or on the provision of related (ancillary) services. ’; The credit rating agency infringes Article 8(2) by not adopting, implementing or enforcing adequate measures to ensure that the credit ratings and rating outlooks it issues are based on a thorough analysis of all the information that is available to it and that is relevant to its analysis according to the applicable rating methodologies. For example, State of Louisiana bonds were rated AAA in the mid-1980s. ’; all substantially material sources, including the rated entity or, where appropriate, a related third party, which were used to prepare the credit rating or rating outlook are indicated together with an indication as to whether the credit rating or rating outlook has been disclosed to that rated entity or related third party and amended following that disclosure before being issued;’; A credit rating agency shall accompany the disclosure of rating methodologies, models and key rating assumptions with guidance which explains assumptions, parameters, limits and uncertainties surrounding the models and rating methodologies used in credit ratings, including simulations of stress scenarios undertaken by the credit rating agency when establishing the credit ratings, credit rating information on cash-flow analysis it has performed or is relying upon and, where applicable, an indication of any expected change in the credit rating. Conversely, structuring rotation around the sponsor would mean that the exemption would almost always apply. In accordance with the principle of proportionality, as set out in that Article, this Regulation does not go beyond what is necessary in order to achieve those objectives. The detailed evaluation should include a description of the following: per capita income, GDP Growth, inflation, fiscal balance, external balance, external debt, an indicator for economic development, an indicator for default and any other relevant factor taken into account. It is essential that investors have appropriate information to assess the creditworthiness of Member States. 1. In view of the specificities of sovereign ratings and in order to reduce the risk of volatility, it is appropriate and proportionate to require credit rating agencies to publish those ratings only after close of business of the trading venues established in the Union and at least one hour before their opening. The credit rating agency infringes point 2 of Part III of Section D of Annex I by not issuing a publicly available research report accompanying a change compared to the previous sovereign rating or related rating outlook or by not including in that report at least the information referred to in point 2(a) to (d) of Part III of Section D of Annex I. The Commission shall, after obtaining technical advice from ESMA, review the situation in the credit rating market. S. Although these bonds are not rated, they are considered the safest and highest-quality securities that you can buy because a default by the U. A credit rating agency shall adopt, implement and enforce adequate measures to ensure that the credit ratings and the rating outlooks it issues are based on a thorough analysis of all the information that is available to it and that is relevant to its analysis according to the applicable rating methodologies. In that respect, the ECB reports regularly on the various measures taken by the Eurosystem to reduce reliance on credit ratings. You are therefore sacrificing income. Bondholders may also benefit from the sale of assets of issuers under bankruptcy proceedings. The Commission should, by January 2016, review and report on the appropriateness of extending the scope of that disclosure requirement to other financial products. Such dates should be set on a Friday. PLUS get unbiased investor education with our award-winning AAII Journal, our comprehensive ETF Guide and more – FREE for 30 days This point needs to be emphasized because many individual investors are needlessly worried about relatively minor downgrades and this fear is sometimes exacerbated by the financial press. As from the expiry of a contract pursuant to paragraph 1, a credit rating agency shall not enter into a new contract for the issuing of credit ratings on re-securitisations with underlying assets from the same originator for a period equal to the duration of the expired contract but not exceeding four years. The court that is competent to decide on a claim for civil liability brought by an investor or issuer shall be determined by the relevant rules of private international law. If a significant downgrade occurs, and you feel uncomfortable holding, you may want to consider selling that security. The credit rating agency infringes Article 7(4), in conjunction with the second paragraph of point 8 of Section C of Annex I, by not ensuring that a person referred to in points (a) and (b) of the first paragraph of that point is not involved in credit rating activities related to the rated entity or a related third party referred to in those points within two years of the end of the periods set out in those points. The Commission should put forward, by the end of 2013, a report regarding the feasibility of a network of smaller credit rating agencies in order to increase competition in the market. That depends, of course, on the type of bond under discussion. All bonds are not subject to default risk. Government, such as corporate bonds and municipal bonds, are rated by a number of agencies that specialize in evaluating credit quality. Any bond that is a direct obligation of the U. Therefore, it is important to provide for an appropriate period within which the outgoing credit rating agency cannot be appointed to rate re-securitisations from the same originator again. 2. Bear in mind, however, that bonds are rated for their entire life, even if that is 30 years. It would not result in a serious deterioration in the price of the bond. Those factors, together with the need to provide certain continuity of approach to credit ratings, mean that a period of four years is appropriate. However, transparency for sovereign ratings should not be conclusive to the direction of national policies (economic, labour or other). Differences in fees charged for the same type of service should only be justifiable by a difference in the actual costs in providing this service to different clients. That can be a costly and high-risk strategy. Sectoral competent authorities in charge of supervising the entities referred to in the first subparagraph of Article 4(1) shall, taking into account the nature, scale and complexity of their activities, monitor the adequacy of their credit risk assessment processes, assess the use of contractual references to credit ratings and, where appropriate, encourage them to mitigate the impact of such references, dissertation credit rating agencies with a view to reducing sole and mechanistic reliance on credit ratings, in line with specific sectoral legislation. Those fees shall fully cover ESMA’s necessary expenditure relating to the registration, certification and supervision of credit rating agencies and the reimbursement of any costs that the woodlands junior homework help competent authorities may incur carrying out work pursuant to this Regulation, in particular as a result of any delegation of tasks in accordance with Article 30. This could also reduce the over-reliance on a single credit rating. 2. The most creditworthy issuers—say, large states with diverse economies, blue-chip corporations with very little debt, or the U. In other words, although there is currently only a limited number of credit rating agencies active in the credit rating market for re-securitisations, that market is more naturally open to competition and a rotation mechanism could be a driver for creating more dynamics in that market. 4. The rating agencies do not have any connection to actual debt service payments, which are made by the issuer. Unless there is a genuine risk of default, however, price changes in response to upgrades or downgrades are far less major than those occurring due to changes in interest rate levels. If you need to resell your bonds before they mature, you might have to take a very costly hit to principal. If coupon payments are resumed, the price of the bonds can soar. Standard & Poor's adds plus (+) and minus (-) signs to its ratings. That report shall evaluate financial and non-financial support for the creation of such a network, taking into consideration the potential conflicts of interest arising from such public funding. This Regulation introduces a common regulatory approach in order to enhance the integrity, transparency, responsibility, good governance and independence of credit rating activities, contributing to the quality of credit ratings issued in the Union and to the smooth functioning of the internal market, while achieving a high level of consumer and investor protection. Com, including our market-beating Model Stock Portfolio, currently outperforming the S&P 500 by 2-to-1. ’; A credit rating agency shall state clearly and prominently when disclosing credit ratings or rating outlooks any attributes and limitations of the credit rating or rating outlook. The credit rating agency shall issue credit ratings and rating outlooks stipulating that the rating is the agency’s opinion and should be relied upon to a limited degree. The credit rating agency infringes point 1 of Part III of Section D of Annex I by issuing a sovereign rating or a related rating outlook without simultaneously providing a detailed research report explaining all the assumptions, parameters, limits and uncertainties and any other information taken into account in determining that sovereign rating or rating outlook or by not making that report publicly available, clear and easily comprehensible. Second, while the credit risk on debt instruments issued by, for instance, corporates to a high degree depends on the debt servicing capacity of the issuer itself, the credit risk on re-securitisations is generally unique to each transaction. The Commission should review whether it is appropriate to maintain a limited rotation mechanism or to apply it to other asset classes as well and, if so, whether other classes warrant different treatment with respect to, for example, the length of the maximum duration of the contractual relationship. The European Council of 23 October 2011 concluded that progress is needed on reducing over-reliance on credit ratings. Where this is necessary to comply with their legal obligations, credit rating agencies should be allowed to deviate from their announced calendar, while explaining in detail the reasons for such deviation. This could be achieved by limiting the scope of the mechanism to re-securitisations, which is a limited source of bank funding, while allowing credit ratings that are already issued to continue to be monitored upon request even after rotation becomes mandatory. These symbols are on the left-hand side. ‘5a. 4. The current rules provide for credit ratings to be announced to the rated entity 12 hours before their publication. Nor do the ratings constitute any kind of recommendation either to buy or sell a particular security. Failure to make interest payments on time (that is, to pay coupons to bondholders) would also constitute a default. The European rating platform should help smaller and new credit rating agencies to gain visibility. On a scale from the best credit quality to the lowest, Table 1 lists the symbols used by each of the major credit rating agencies. S. For instance, State of Massachusetts ratings went from AA to barely investment grade within the space of one year. At the same time, however, it could make it more difficult for new market players to secure a foothold in the market because they would not be allowed to hold on to their clients. S. Bonds issued by entities other than the U. That is because such bonds may be purchased very cheaply, perhaps as little as 10 to 30 cents on the dollar. And debt of so-called emerging markets is highly speculative. The European rating platform should incorporate ESMA’s central repository with a view to creating a single platform for all available credit ratings per instrument and for information on historical performance data, published on the central repository. Following that review, the Commission shall, by 1 July 2016, submit a report to the European Parliament and to the Council, accompanied by a legislative proposal if appropriate, assessing, in particular: whether it is appropriate to shorten or extend the maximum duration of the contractual relationship referred to in Article 6b(1) and the minimum period before the credit rating agency may re-enter into a contract with an issuer or a related third party for the issuing of credit ratings on re-securitisations referred to in Article 6b(3); 5. Note, however, that even when defaults occur, bond investors seldom lose 100% of the principal value of the bond. When you own a bond, monitor its rating. A registered or certified credit rating agency shall, when issuing a credit rating or a rating outlook, submit to ESMA rating information, including the credit rating and rating outlook of the rated instrument, information on the type of credit rating, the type of rating action, and date and hour of publication. U kunt hieronder de kredietbeoordelingen (credit ratings), rapportages en onderzoek over ABN AMRO Bank N. ’; An issuer may claim damages under this Article where it establishes that it or its financial instruments are covered by that credit rating and the infringement was not caused by misleading and inaccurate information provided by the issuer to the credit rating agency, directly or through information publicly available. Further, the ECB could, in such reports, describe how it has implemented the FSB principles and the alternative assessment mechanisms it uses. For the clients of credit rating agencies, the maximum duration of the contractual relationship with a credit rating agency and the requirement to employ more than one credit rating agency also represent restrictions on their freedom to conduct their own business. You may even go to your neighborhood loan shark (or equivalent), who will lend you the money, but charge you a much higher interest rate than the bank. ’; 1. If interest rates rise, the value of your bonds will decline. V. The credit rating agency infringes the first subparagraph of Article 8(5a) by not publishing on its website the proposed new rating methodologies or the proposed material changes to the rating methodologies that could have an impact on a credit rating together with an explanation of the reasons for and the implications of the changes. If bonds are downgraded (that is, if the credit rating is lowered), the bond price declines. Moody's adds a 1 to indicate slightly higher credit quality; for instance, a rating of A1 is a higher quality credit rating than an A rating. ‘1. That period should be sufficiently long to allow the incoming credit rating agency to provide its credit rating services effectively, to ensure that the re-securitisations are truly exposed to a new scrutiny under a different approach, and to guarantee that the credit ratings issued by the new credit rating agency provide enough continuity. If interest rates decline, the value of your bonds will rise. Municipal bonds come in a wide variety of ratings, but in the aggregate they have low default dissertation credit rating agencies rates. If the rating is upgraded, the price goes up. The President of the ECB is to present that report to the European Parliament, which may hold a general debate on that basis, and to the Council. ‘1. At its informal meeting of 30 September and 1 October 2010, the Ecofin Council acknowledged that further efforts should be made to address a number of issues related to credit rating activities, including the risk of over-reliance on credit ratings and the risk of conflicts of interest stemming from the remuneration model of credit rating agencies. Fees charged for credit rating services shall not depend on the level of the credit rating issued by the credit rating agency or on any other result or outcome of the work performed. Where at least four credit rating agencies are appointed, the objectives for a rotation mechanism have already been achieved so the requirement to rotate should not apply. Where the criteria set out in the second subparagraph are not met when entering into such a contract, the period referred to in paragraph 1 shall be calculated from the date on which the new contract was entered into. Less creditworthy clients have to pay higher interest. However, those restrictions are necessary on public-interest grounds considering the interference by the issuer-pays model with the necessary independence of credit rating agencies to guarantee independent credit ratings that can be used by investors for regulatory purposes. In plain English, ratings answer two questions: How likely am I to get my money back at maturity, and how likely am I to get my interest payments on time? The right-hand side of Table 1 is a translation into plain English of what the ratings mean. The credit rating agency infringes Article 8a(2) by basing its public communications relating to changes in sovereign ratings, and which are not credit ratings, rating outlooks or accompanying press releases, as referred to in point 5 of Part I of Section D of Annex I, on information within the sphere of the rated entity, where such information has been disclosed without the consent of the rated entity, unless it is available from generally accessible sources or unless there are no legitimate reasons for the rated entity not to give its consent to the disclosure of the information. Within that framework, this Regulation provides that financial institutions should not solely or mechanistically rely on credit ratings. For instance, a rating of B+ is slightly higher than a rating of B. Notwithstanding paragraph 1, where a credit rating of a re-securitisation is issued before the end of the maximum duration of the contractual relationship as referred to in paragraph 1, a credit rating agency may continue to monitor and update those credit ratings, on a solicited basis, for the duration of the re-securitisation. ESMA shall publish an annual report on the application of this Regulation. Such a credit rating agency shall provide information to that repository on a standard form as provided for by ESMA. Now suppose you are the struggling businessman or John Doe. It is also important to increase transparency about the research work carried out, the staff allocated to the preparation of sovereign ratings and the underlying assumptions behind the credit ratings made by credit rating agencies in relation to sovereign debt. With a view to facilitating the evaluation by the issuer or a related third party under paragraph 1, ESMA shall annually publish on its website a list of registered credit rating agencies, indicating their total market share and the types of credit ratings issued, which can be used by the issuer as a starting point for its evaluation. What is guaranteed is that interest payments will be made on time and that principal will be redeemed in full at the bond's maturity. ’; The credit rating agency which entered into a contract for the issuing of credit ratings on re-securitisations infringes Article 6b(3) by entering into a new contract for the issuing of credit ratings on re-securitisations with underlying assets from the same originator for a period equal to the duration of the expired contract referred to in paragraphs1 and 2 of Article 6b but not exceeding four years. ’; Neither a credit rating agency nor any person holding, directly or indirectly, at least 5 % of either the capital or voting rights of the credit rating agency or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency shall provide consultancy or advisory services to the rated entity or a related third party regarding the corporate or legal structure, assets, liabilities or activities of that rated entity or related third party. There is no connection between that guarantee and what happens to the price (or value) of bonds due to fluctuations in interest rates. Pursuant to the FSB principles, ‘central banks should reach their own credit judgments on the financial instruments that they will accept in market operations, both as collateral and as outright purchases. Compensation and performance evaluation of employees involved in the credit rating activities or rating outlooks, as well as persons approving the credit ratings or rating outlooks, shall not be contingent on the amount of revenue that the credit rating agency derives from the rated entities or related third parties. In order to ensure real competition, such an exemption should only be applicable where at least four of the appointed credit rating agencies rate a certain proportion of the outstanding financial instruments of the originator. ‘5. For bonds that have very high credit quality (AA or AAA), a deterioration in the rating is not a major cause for concern. Government is considered free of default risk. Credit rating agencies shall establish, maintain, enforce and document an effective internal control structure governing the implementation of policies and procedures to prevent and mitigate possible conflicts of interest and to ensure the independence of credit ratings, rating analysts and rating teams regarding shareholders, administrative and management bodies and sales and marketing activities. Defaulted bonds usually have some salvage value. In order to be effective, the rotation mechanism needs to be enforced in a credible manner. Where appropriate and available, and subject to the relevant confidentiality rules applicable in the framework of its surveillance of economic and fiscal policies of Member States, the Commission should complement existing reporting on economic performance of Members States by possible additional elements or indicators, which may help investors to assess the creditworthiness of Member States. Since the objectives of this Regulation, namely to reinforce the independence of credit rating agencies, to promote sound credit rating processes and methodologies, to mitigate the risks associated with sovereign ratings, to reduce the risk of over-reliance on credit ratings by market participants, and to ensure a right of redress for investors, cannot be sufficiently achieved by the Member States and can therefore, by reason of the pan-Union structure and impact of the credit rating activities to be supervised, be better achieved at the Union level, the Union may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty on European Union. This has led to a loss of market confidence in this type of credit ratings. The credit rating agency infringes Article 10(2), in conjunction with point 1 or 2, the first paragraph of point 4 or points 5 or 6, of Part I of Section D of Annex I, or Parts II or III of Section D of Annex I, by not providing the information as required by those provisions when presenting a credit rating or a rating outlook. ’; The credit rating agency infringes Article 7(3), in conjunction with point 2 of Section C of Annex I, by not ensuring that a person referred to in point 1 of that Section does not participate in or otherwise influence the determination of a credit rating or rating outlook as set out in point 2 of that Section. Since the Second World War, and despite a few well-publicized defaults in the corporate sector, no bonds have ever defaulted while currently rated AA. For example, as the risk on structured finance instruments to a large extent depends on the quality and performance of the underlying assets, investors should be provided with more information on the underlying assets. ESMA shall make that information accessible to the public and shall publish summary information on the main developments observed on an annual basis. Therefore, whilst those policies may serve as an element for the credit rating agency to assess creditworthiness of a sovereign entity or its financial instruments, and may be used in explaining the main reasons for a sovereign rating, direct or explicit requirements or recommendations from credit rating agencies the great gatsby symbolism essay to sovereign entities as regards those policies should not be allowed. To whom would you rather lend money: to a struggling businessman with no collateral who wants to start a business, or to IBM? However, in order not to undermine the ability of credit rating agencies to operate under the investor-pays model, such credit ratings should not be included in the European rating platform. Due to the complexity of structured finance instruments, credit rating agencies have not always succeeded in ensuring a sufficiently high quality of credit ratings issued on such instruments. (While some bonds that were initially highly rated eventually defaulted, these had been downgraded prior to the actual default. If necessary, the Commission should submit appropriate legislative proposals. Central bank policies should avoid mechanistic approaches that could lead to unnecessarily abrupt and large changes in the eligibility of financial instruments and the level of haircuts that may exacerbate cliff effects’. Where a credit rating agency issues an unsolicited credit rating, it shall state prominently in the credit rating, using a clearly distinguishable different colour code for the rating category, whether or not the rated entity or a related third party participated in the credit rating process and whether the credit rating agency had access to the accounts, management and other relevant internal documents for the rated entity or a related third party. They shall periodically monitor and review those SOPs in order to evaluate their effectiveness and assess whether they should be updated. The credit rating agency infringes point (aa) of Article 8(6), where it intends to use new rating methodologies, by not informing ESMA or by not publishing immediately on its website the results of the consultation and those new rating methodologies together with a detailed explanation thereof and their date of application. The credit rating agency infringes Article 6(2), in conjunction with the first paragraph of point 4 of Section B of Annex I, by rating entities where the credit rating agency itself or any person holding, directly or indirectly, at least 5 % of either the capital or the voting rights of the credit rating agency, or being otherwise in a position to exercise significant influence on the business activities of the credit rating agency, provides consultancy or advisory services to that rated entity or a related third party regarding the corporate or legal structure, assets, liabilities or activities of that rated entity or related third party. Investors generally rely on bond ratings to evaluate the credit quality of specific bonds. The perception of independence of credit rating agencies would be particularly affected should the same shareholders or members be investing in different credit rating agencies not belonging to the same group of credit rating agencies, at least if such investment reaches a certain size that could allow those shareholders or members to exercise a certain influence on the credit rating agency’s business. ESMA shall charge credit rating agencies fees in accordance with this Regulation and with the Commission regulation referred to in paragraph 2. Government is deemed to have zero possibility of default. Where the issuer or a related third party does not appoint at least one credit rating agency with no more than 10 % of the total market share, this shall be documented. The privilege of having its services recognised as playing an important role in the regulation of the financial services market and being approved to carry out this function, gives rise to the need to respect certain obligations in order to guarantee independence and the perception of independence in all circumstances. With rare exceptions, ratings go up one notch or down one notch in the rating scale, and prices go up or down by perhaps 1% or 2% per bond in response to rating changes. Information on total turnover shall also include a geographical allocation of that turnover to revenues generated in the Union and revenues worldwide;’. In fact, bond prices sometimes change if there is even a strong possibility of an upgrade or a downgrade. Multiple and different views, perspectives and methodologies applied by credit rating agencies should produce more diverse credit ratings and ultimately improve the assessment of the creditworthiness of re-securitisations. The credit rating agency infringes Article 6(2), in conjunction with the first paragraph of point 3 of Section B of Annex I, by issuing a credit rating or rating outlook in any of the circumstances set out in the first paragraph of that point or, in the case of an existing credit rating or rating outlook, by not disclosing immediately that the credit rating or rating outlook is potentially affected by those circumstances. A plus signifies higher quality; a minus signifies somewhat lower quality. Changes in interest rates affect all bonds, whether they are those of Fly-by-Night airlines or obligations of the U. A registered or certified credit rating agency shall make available in a central repository established by ESMA information on its historical performance data, including the ratings transition frequency, and information about credit ratings issued in the past and on their changes. Therefore, when a re-securitisation is created the risk of knowledge being lost by hiring a new credit rating agency is not high. After the expiry of the consultation period, the credit rating agency shall notify ESMA of any changes due to the consultation. The requirement only applies to registered credit rating agencies, which are regulated and which provide a service affecting the public interest (credit ratings that can be used for regulatory purposes) under the issuer-pays model and for a particular asset class (re-securitisations). The credit rating agency infringes Article 6(2), in conjunction with point 1 of Section B of Annex I, by not identifying, eliminating, or managing and disclosing, clearly or prominently, any actual or potential conflicts of interest that may influence the analyses or judgments of its rating analysts, employees, or any other natural person whose services are placed at the disposal or under the control of the credit rating agency and who are directly involved in credit rating activities or persons approving credit ratings and rating outlooks. Note that some ads for bond funds use the term "investment grade" to imply extraordinarily high quality, which is misleading. Those elements should be made available to the public, complementing the existing publications and other publicly disclosed information, with a view to providing investors with further data in order to help them assess the creditworthiness of sovereign entities and their debt information. It is appropriate to structure a rotation mechanism for re-securitisations around the originator. Furthermore, the ECB stated in its opinion of 2 April 2012 that it is committed to supporting the common objective of reducing over-reliance on credit ratings. Hence, it is prudent to monitor the ratings of bonds in your portfolio. For that reason, no person should simultaneously hold a participation of 5 % or more in more than one credit rating agency, unless the credit rating agencies concerned belong to the same group. ’; financial information on the revenue of the credit rating agency, including total turnover, divided into fees from credit rating and ancillary services with a comprehensive description of each, including the revenues generated from ancillary services provided to clients of credit rating services and the allocation of fees to credit ratings of different asset classes. The term "investment grade" stems from the fact that fiduciary institutions, such as banks, are permitted by law to invest only in securities rated at the minimum "investment grade. No. There is a good deal of speculation in the bonds of defaulted or bankrupt issuers. The Commission shall, after obtaining technical advice from ESMA, review the situation in the credit rating market for structured finance instruments, in particular the credit rating market for re-securitisations. Remember that ratings are opinions. A rotation mechanism could be an important tool for lowering the barriers to entry to the credit rating market for re-securitisations. A statement announcing revision of a given group of countries shall be prohibited if it is not accompanied by individual country reports. ’; for each credit rating and rating outlook decision, the identity of the rating analysts participating in the determination of the credit rating or rating outlook, the identity of the persons who have approved the credit rating or rating outlook, information as to whether the credit rating was solicited or unsolicited, and the date on which the credit rating action was taken;’; A credit rating agency shall ensure that any credit rating and rating outlook states clearly and prominently the name and job title of the lead rating analyst in a given credit rating activity and the name and position of the person primarily responsible for approving the credit rating or rating outlook. The exemption set out in the second subparagraph shall continue to apply at least until the credit rating agency enters into a new contract for rating re-securitisations with underlying assets from the same originator. Interest income from such bonds is likely to be close to (and occasionally higher) than that of AAA-rated bonds with long maturities, so you will not be sacrificing income. The best-known rating agencies are Moody's, Standard & Poor's (S&P), and Fitch (now Fitch IBCA). ’; The prohibition referred to in point (a) of the first subparagraph does not apply to holdings in diversified collective investment schemes, including managed funds such as pension funds or life insurance, provided that the holdings in such schemes do not put the shareholder or member of a credit rating agency in a position to exercise significant influence on the business activities of those schemes. Wij aanvaarden dan ook geen enkele verantwoordelijkheid voor de juistheid van de kredietbeoordelingen. Kredietbeoordelaars beoordelen periodiek de kredietwaardigheid en publiceren kwalificaties voor de mate van research paper about censorship risico die naar hun oordeel met een schuldinstrument samenhangt. Over time, changes in ratings can be major. If a credit rating or a rating outlook involves a type of entity or financial instrument for which historical data is limited, the credit rating agency shall make clear, in a prominent place, such limitations. Therefore, the length of the period should be proportionate, take my class online should generally be equal to the length of the expired contract of the outgoing credit rating agency but should not exceed four years. This includes all Treasury securities, as well as savings bonds. In early 1990, they were rated barely investment grade. Without prejudice to its right of initiative, the Commission shall continue to review whether references to credit ratings in Union law trigger or have the potential to trigger sole or mechanistic reliance on credit ratings by the competent authorities, the sectoral competent authorities, the entities referred to in the first subparagraph of Article 4(1) or other financial market participants with a view to deleting all references to credit ratings in Union law for regulatory purposes by 1 January 2020, provided that appropriate alternatives to credit risk assessment have been identified and implemented. That report should evaluate Union financial and non-financial support and incentives for the creation of such a network, taking into consideration the potential conflicts of interest arising from such public funding. ’; The credit rating agency infringes Article 7(4), in conjunction with point (i) of point (b) of the first paragraph of point 8 Section C of Annex I, by not ensuring that, where it provides unsolicited credit ratings or sovereign ratings, a rating analyst is not involved in credit rating activities related to the same rated entity or a related third party for a period exceeding five years. And it is high-risk for two reasons: One is that, as we have just seen, interest rate risk is far higher for bonds with longer maturities. Not necessarily. The answer is obvious. Credit institutions, investment firms, insurance undertakings, reinsurance undertakings, institutions for occupational retirement provision, management companies, investment companies, alternative investment fund managers and central counterparties may use credit ratings for regulatory purposes only if they are issued by credit rating agencies established in the Union and registered in accordance with this Regulation. Corporates (particularly so-called junk bonds) are far less predictable. A list of the persons entitled to receive such notification should be limited and should be clearly identified by the rated entity. It is, however, important that the implementation of a rotation mechanism is designed in such a way that the benefits of the mechanism more than outweigh its possible negative consequences. Over-reliance on credit ratings should be reduced and all the automatic effects deriving from credit ratings should be gradually eliminated. The change in price corresponds to the amount necessary to bring the yield of a bond (and therefore its price) in line with other bonds rated at the same level. A European rating platform should be established by ESMA and should allow investors to easily compare all credit ratings that exist with regard to a specific rated entity. Terms such as “damage”, “intention”, “gross negligence”, “reasonably relied”, “due care”, “impact”, “reasonable” and “proportionate” which are referred to in this Article but are not defined, shall be interpreted and applied in accordance with the applicable national law as determined by the relevant rules of private international law. ’; The credit rating agency infringes Article 6a(1) when one of its shareholders or members holding at least 5 % of the capital or the voting rights in that credit rating agency or in a company which has the power to exercise control or a dominant influence over that credit rating agency, is in breach of one of the prohibitions set out in points (a) to (e) of that paragraph, with the exception of that set out in point (a) for holdings in diversified collective investment schemes, including managed funds such as pension funds or life insurance, provided that the holdings in such schemes do not put the shareholder or member of a credit rating agency in a position to exercise significant influence on the business activities of those schemes. Re-securitisations are issued out of special-purpose vehicles without any significant capacity to service the debt. Such bonds are said to be trading flat. Credit ratings indicate on a scale of high to low the probability of default; that is, the probability that debt will not be repaid on time in full. In order to contribute to the issuance of up-to-date and credible sovereign ratings and to facilitate users’ understanding, it is important to regularly review those ratings. It is costly because AAA-rated bonds yield less than bonds with lower ratings but with similar maturities. (of haar juridische voorgangers) inzien. Standard Operating Procedures (SOPs) should be put in place relating to corporate governance, organisational matters, and the management of conflicts of interest. The principle for this is easy to explain. Ask your broker to let you know if any rating changes occur (and check periodically). “sectoral competent authorities” means the national competent authorities designated under the relevant sectoral legislation for the supervision of credit institutions, investment firms, insurance undertakings, reinsurance undertakings, institutions for occupational retirement provision, management companies, investment companies, alternative investment fund managers, central counterparties and prospectuses. This is also true for bonds. Further, ongoing rotation of credit rating agencies could have a significant impact on the quality and continuity of credit ratings. Think of a bond as a loan and imagine that you are a bank that is lending to a borrower. When forecasting economic conditions for the next six months or for perhaps one year, experts stand on reasonably secure ground. ’; ‘2. At the same time, for a rotation mechanism to function properly, the length of the period is constrained by the supply of credit rating agencies with sufficient expertise in the area of re-securitisations. Matters concerning the civil liability of a credit rating agency which are not covered by this Regulation shall be governed by the applicable national law as determined by the relevant rules of private international law. Any prediction of economic conditions that goes out more than five years becomes guesswork. This is because anxious investors sell bonds whose credit quality is declining and buy bonds whose credit quality is improving. In the event of a decision to discontinue a credit rating, the information disclosed shall include full reasons for the decision. Any security issued directly by the U. The Commission shall, by 31 December 2013, submit a report to the European Parliament and to the Council regarding the feasibility of a network of smaller credit rating agencies in order to increase competition in the market. For the purpose of dissertation credit rating agencies transparency, when publishing their sovereign ratings, credit rating agencies should explain in their press releases or reports the key elements underlying those credit ratings. A more serious concern would be a series of downgrades, particularly if downgrades drop the credit rating to below investment grade. A credit rating agency that intends to make a material change to, or use, new rating methodologies, models or key rating assumptions which could have an impact on a credit rating shall publish the proposed material changes or proposed new rating methodologies on its website inviting stakeholders to submit comments for a period of one month together with a detailed explanation of the reasons for and the implications of the proposed material changes or proposed new rating methodologies.