The Securities and Exchange Commission yesterday delayed voting on proposed rule changes designed to curb rating agency conflicts of interest, pushing back a vote on them until Dec. 3, when it will consider two additional rating agency-related proposals.
The SEC pulled the item off the meeting's agenda at the last minute yesterday, and instead voted only on an unrelated proposal to require mutual funds to distribute "plain English" prospectuses to their investors. The five-member commission voted unanimously to adopt those rule changes.
The conflicts-of-interest proposal would, among other things, bar rating agencies from allowing the officials that negotiate fees with issuers to also rate the issuers' deals.
In other action at the Dec. 3 meeting, the SEC will consider a proposal to boost rating agency disclosures and allow investors to better differentiate between structured, corporate, or municipal securities by either attaching a symbol or a lengthy report to a rating of a structured product.
A third and thus far highly controversial proposal to be considered at that meeting would strip explicit references to "nationally recognized statistical rating organizations" from 38 of its rules, including 2a-7, which governs tax-exempt and other money market funds.
"Originally, we had planned to spread the consideration of the credit rating agency rules over two meetings, since that is the way we proposed them," SEC chairman Christopher Cox said at the start of the hour-long meeting. "But the commissioners and staff have agreed that the best way to proceed is to do the entire package of rules in one meeting ... This rulemaking remains a high priority for the commission."
The proposals were all made in June in response to record losses reported by Wall Street firms with investments in tainted subprime mortgage securities, which were rated triple-A despite their poor credit quality.
Meanwhile, the commission's adoption of rule changes requiring "plain English" prospectuses for mutual funds comes about a year after the SEC first proposed the idea.
Under the rule changes, mutual funds will be required to provide a two- to four-page summary, either in the form of a "summary prospectus" or at the front of the current statutory prospectus, beginning in 2010. The summary must include key information, such as the fund's investment objectives, strategies, risks, and costs. In addition, funds will be required to provide an enhanced online version of their prospectus.
SEC officials believe that the summary prospectuses would save lay readers from digging through pages of legalese in the full-length prospectuses and allow them to easily compare one fund to others.
The vote was welcomed by the Investment Company Institute, which represents the $10.6 trillion mutual fund industry. ICI president and chief executive officer Paul Schott Stevens called the summary prospectus "a clear, concise document that investors are more likely to use and therefore benefit from than the long-form statutory prospectus."
In 1998, the SEC approved a proposal allowing funds to create a voluntary "profile" similar to a summary, but few companies have done so because they do not want to be held liable for providing information that does not contain all the material that is included in full prospectuses, SEC officials have said.
Cox also told reporters after the meeting that the commission may meet again later in December to consider other proposals, though he declined to specify which ones.
