Research On Legal System Of Securities Credit Rating

"Credit rating agency"refers to a financial institution which provides the service of rating the credit status of securities issuers through its professional credit rating analysts. Thus, informational asymmetry may be decreased via consultation with professional agencies composed expertise members. As compared with information forced to be disclosed or information brought by investors, such method has its absolute advantages. However, due to the financial crisis, currently credit rating agencies are in an awkward situation. Structured financial products previously ranked as"AAA"by the agencies continuously turned out to be nightmares of investors; the losses incurred were enlarged dozens of times by the high leverage; through the impact of capital chain, other financial institutions such as the banks and securities agencies are all badly influenced to the edge of collapse, in which case, financial bubbles burst mercilessly. Taking this as the background, it is essential to clarify the issues concerning credit rating agencies at the first place, in order to improve the credit rating system..Securities credit rating system in our country has initiated though it encounters many obstructions. Through learning from the American securities credit rating system, the thesis also probes into the establishment of legal system over securities credit rating in our country and the relevant issues therein.The thesis consists of four parts, in addition to the foreword and the epilogue. The first part is to describe the definition and the historical development of the securities credit rating system. This part is the theoretical support of the whole thesis. The author firstly defines the concept of"credit rating"and"securities credit rating"; reveals the characteristics and types of securities credit rating; briefly introduces the securities credit rating, preferred shares credit rating and assets securitization credit rating; and finally introduces the historical development of the securities credit rating system in America, Britain, Japan, India, Korean and China.The Second part is to discuss the issues concerning securities credit rating agencies and their solutions. Major credit rating agencies are Moody's , Standard & Poors and Fitch. The three agencies almost dominate the current credit rating market and provide essentially all the rating services. Since the three agencies are all American companies, discussion of the rating agencies has to start with their functions in the American financial market. The thesis firstly defines the status of"evaluation scale"of the securities credit rating agencies in the financial market not only because the issuance of the structured financial products by financial agencies such as the investment banks, shall be approved by the rating agencies but also the U.S. Securities Exchange Commission shall to great degree depend on the rating of the rating agencies to take the corresponding supervisory measures. Secondly, the thesis analyzes the problems of the securities credit rating agencies during the process of credit rating, including the lack of the independency and neutrality of the securities credit rating and the ineffectiveness of the model– over dependence on the historical data and information failures– together with the loss of the understanding abilities and the transparency. Finally, the thesis puts forward the suggestion on reforms and improvement of the securities credit agencies from the perspectives of interest conflicts, ineffectiveness of the rating model and information failure.The third part is to analyze the supervision and its relevant problems concerning the securities credit rating agencies. The thesis firstly analyze the historical change of the supervision of the rating agencies in America, including from self-regulation to authentication and to supervision by the government, the improvement of authentication and supervision system to the NRSROs since 1997, the new challenge to the supervision of the credit rating agencies since the breakout of the subprime mortgage crisis. Secondly, the thesis analyzes the main problems concerning the supervision of the credit rating agencies, mainly resulting from the idea deviation of the"2006 Credit Rating Agencies Reform Act", the default of the authentication system NRSROs made by the supervision departments, the supervision inadequacy to the interest conflicts by the supervisory departments over the credit rating agencies. Finally, the thesis discusses the inspiration to the supervision over credit rating agencies in our country. On one hand, we shall improve the laws and regulations on the securities credit rating. On the other hand, we shall also enhance the administration and supervision over the business activities of rating agencies, enforce the quality authentication system of the rating outcome, establish the system of quitting the market, and finally establish the self-regulation organization to elaborate the function of assisting supervision.The fourth part is to analyze the legal liabilities of the securities credit rating agencies. The legal liabilities of the securities credit rating agencies and their employees are mainly provided dispersedly in the Securities Law the Criminal Law, and the Provisional Measures on Administration of Credit Rating in the Securities Market. The relevant regulations are sort of scattered and vague and are not good for protecting the benefits of the issuers and investors. The author starts with discussing the bearers of liability and the cause of action for securities credit rating cases, and further analyzes the constituencies of the legal liabilities of the securities credit rating agencies, mainly including: illegal act; facts of making the false rating outcome and the loss; the loss the investors or issuers suffered by the false reports and the subjective fault; intentionally or gross negligence, and the causation between the fault in the credit report and the loss of the consumers. And finally the author clarifies the four elements of the liabilities.