S&P leaked pending downgrade to select banks and hedge funds

Discussion in 'Trading' started by SteveNYC, Aug 9, 2011.

  1. These guys and gals need to be taken to the woodshed. They are porn watching criminals.



    S&P may have more to worry about than just the U.S. Senate investigating its credit downgrade decision. There's mounting evidence that the ratings agency leaked the pending action to a select group of banks and hedge funds prior to its public announcement, which is a clear violation of SEC rules.




    http://www.nakedcapitalism.com/2011...sclosing-its-downgrade-to-select-parties.html


    Tuesday, August 9, 2011
    Did Standard and Poor’s Break SEC Regulations in Disclosing Its Downgrade to Select Parties?

    The Administration and its allies have gone after Standard and Poor’s for its downgrade of the US bond rating to AA+. They have attacked S&P’s general competence, its failure to reexamine its decision in the light of a $2 trillion math error (a Wall Street Journal story does not reflect well on S&P’s haste) and the subjective and political basis for its judgment. Even if these attacks have merit, however, they come off as being less than convincing by virtue of sounding like sour grapes.

    There is a much more straightforward basis for questioning S&P’s conduct, and it has nothing to do with how S&P arrived at its rating. There is compelling evidence that the ratings agency made selective disclosure of its downgrade decision before it made it public last Friday evening. A reader told us certain hedge funds were informed Tuesday and traded successfully on the information. A separate source had told me certain banks were briefed on Thursday and were told of the US downgrade but assured their ratings would be unaffected. On Friday morning, Twitter was alight with the news.

    Disclosing news of a ratings decision is required under SEC rules to be made publicly. All the discussion with favored parties is clear regulatory violation. Here is the germane section (boldface ours):

    § 240.17g-4 Prevention of misuse of material nonpublic information.

    (a) The written policies and procedures a nationally recognized statistical rating organization establishes, maintains, and enforces to prevent the misuse of material, nonpublic information pursuant to section 15E(g)(1) of the Act (15 U.S.C. 78o–7(g)(1)) must include policies and procedures reasonably designed to prevent:

    (1) The inappropriate dissemination within and outside the nationally recognized statistical rating organization of material nonpublic information obtained in connection with the performance of credit rating services;

    (2) A person within the nationally recognized statistical rating organization from purchasing, selling, or otherwise benefiting from any transaction in securities or money market instruments when the person is aware of material nonpublic information obtained in connection with the performance of credit rating services that affects the securities or money market instruments; and

    (3) The inappropriate dissemination within and outside the nationally recognized statistical rating organization of a pending credit rating action before issuing the credit rating on the Internet or through another readily accessible means.

    (b) For the purposes of this section, the term person within a nationally recognized statistical rating organization means a nationally recognized statistical rating organization, its credit rating affiliates identified on Form NRSRO, and any partner, officer, director, branch manager, and employee of the nationally recognized statistical rating organization or its credit rating affiliates (or any person occupying a similar status or performing similar functions).

    The language in Dodd Frank is more strict and specifies that a nationally recognized statistical ratings organization can have its registration revoked for misconduct (see page 1353).

    The SEC is actually good at pursuing insider trading cases and even though this is not technically insider trading (as in the leakers presumably didn’t gain personally; this instead appears to be corporate favor seeking/trading) the type of investigation required would be virtually identical. It would be fun to see who S&P saw fit to enrich and how much ill-gotten gains they reaped.
     
  2. This happens all the time. S&P just pissed off Obama and he's using his Chicago-style politics as a revenge hammar. They will be found guilty, this will keep the other two toeing the party line.
     
  3. Where have you been these past few years?

    This is business as usual for the cabal.