Restricting access to credit opinions awkward

There is a lot at stake in the tussle between credit ratings agencies and the investment regulator. ASIC is keen to promote the use of credit ratings, particularly so that retail investors can be better informed about the investment risks they are considering.

Standard & Poor's (and presumably Moody's too) is not only denying itself access to a potentially big market but may also be severely damaging its existing business.

Having taken a stand, S&P must now act to ensure that retail investors cannot access rating information on Australian entities rated by it. This means that S&P's customers must remove all references to credit ratings from all materials, collateral, websites and anywhere a retail investor might look for information. Moreover, S&P will shut down its own website to retail investors.

Just how this can be done, while still maintaining a wholesale or institutional business, is not clear. Information that is known in wholesale markets will inevitably leak into the public domain.

Moreover, ratings agencies are obliged by their undertakings to other regulators around the world, led by IOSCO, to make their credit ratings and changes to credit ratings publicly known, as soon as their decisions are made and the rated entity is advised.

The only exception to this is if the rated entity requests that the rating be kept confidential. In which case, the rating cannot be disclosed to anybody and cannot be associated with any security issue, even in wholesale markets or to other private professional investors.

Is Australia now going to differentiate itself from the rest of the world, such that credit ratings must remain state secrets and all bond issuance must take place as truly private placements to institutional or private professional investors, that cannot be reported?

This looks very much like a game of brinkmanship.