SEC backs new bonus rule
By Marcy Gordon |
March 4, 2011, Friday
|
Print Edition
Print Edition
THE United States Securities and Exchange Commission took steps on Wednesday toward curbing risk-taking at big Wall Street firms and reducing the influence of credit-rating agencies, two factors that contributed to the financial crisis.
The commission voted to back a proposed rule that would make top executives at big firms wait at least three years to be paid at least half of their annual bonuses. The rule would apply to financial firms with US$50 billion or more in assets. The Federal Deposit Insurance Corp advanced the rule last month.
The SEC is also proposing the elimination of a requirement that money-market funds invest only in securities that have credit ratings. The funds can assess the securities themselves.
Both rules were outlined in the financial regulatory law enacted last summer.
In addition, the five SEC commissioners voted to propose requirements for the operations of clearinghouses, the intermediaries that derivatives will be traded through for the first time. The new financial law dictates that derivatives, the complex investments blamed for hastening the financial crisis, be subjected to new oversight. They now are traded in an opaque US$600 trillion market worldwide.
Clearinghouses settle trades and their member firms must back them. Clearinghouses will require derivatives sellers to set aside money for each contract in case their bets go bad.
The law calls for reducing the influence of the big three rating agencies - Moody's, Standard & Poor's and Fitch Ratings. They were discredited in the crisis for giving high ratings to risky securities tied to subprime mortgages. The securities sank in value as home-loan delinquencies soared, causing tens of billions of dollars in losses for major banks.
The commission voted to back a proposed rule that would make top executives at big firms wait at least three years to be paid at least half of their annual bonuses. The rule would apply to financial firms with US$50 billion or more in assets. The Federal Deposit Insurance Corp advanced the rule last month.
The SEC is also proposing the elimination of a requirement that money-market funds invest only in securities that have credit ratings. The funds can assess the securities themselves.
Both rules were outlined in the financial regulatory law enacted last summer.
In addition, the five SEC commissioners voted to propose requirements for the operations of clearinghouses, the intermediaries that derivatives will be traded through for the first time. The new financial law dictates that derivatives, the complex investments blamed for hastening the financial crisis, be subjected to new oversight. They now are traded in an opaque US$600 trillion market worldwide.
Clearinghouses settle trades and their member firms must back them. Clearinghouses will require derivatives sellers to set aside money for each contract in case their bets go bad.
The law calls for reducing the influence of the big three rating agencies - Moody's, Standard & Poor's and Fitch Ratings. They were discredited in the crisis for giving high ratings to risky securities tied to subprime mortgages. The securities sank in value as home-loan delinquencies soared, causing tens of billions of dollars in losses for major banks.
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