Briefly:

Previous Brieflies this week: | MON | TUE | WED | THU |

(March 26, 2008) The International Organization of Securities Commissions (IOSCO) is calling for changes in the code of conduct governing credit rating agencies. The global body is seeking comment on a paper published Wednesday entitled The Role of Credit Rating Agencies in Structured Finance Markets.

“These changes are required in order to ensure that investors and the financial markets can have confidence that CRAs are producing clear, well-researched ratings, free from bias, which can be easily understood by their users,” says Michel Prada, chairman of IOSCO’s technical committee.

Among the changes, IOSCO is recommending ratings agencies establish an independent internal system to periodically review the firm’s methodologies and models. Ratings reports should make clear the limitations of data for relatively new structures and refrain from assigning a rating altogether if the structure’s complexity leaves any doubt to the credibility of the rating.

The new code of conduct would also bar ratings analysts from making recommendations as to how an investment’s structure could be altered to produce a better rating.

“The role played by credit rating agencies in the development of the market for structured finance products has raised serious issues for regulators globally, and I believe that these changes to IOSCO’s Code of Conduct will contribute to addressing some of the issues that the current crisis has exposed in relation to the ratings system,” said Prada.

The IOSCO report also calls for more transparency, such as agencies disclosing certain fees and better explanations of how analysts arrived at ratings.

• • •

Desjardins seeks clarity in TSX–MX merger

(March 26, 2008) One of Quebec’s largest financial services firms has reiterated its support for the proposed merger of the Toronto and Montreal securities exchanges, which would create the TMX Group.

“The creation of the TMX Group is the best option to ensure the greatest reach for the expertise developed in Montreal in this leading-edge, high-growth sector,” said Alban D’Amours, Desjardins Group’s president and CEO. “I believe that this merger will also make it possible to relieve the uncertainty surrounding the future of the Montreal Exchange with respect to the March 2009 deadline and thereby ensure its continuity, which will benefit Montreal and the province of Quebec.”

Still, Desjardins would prefer to see some “ambiguities” cleared up before the deal proceeds. The company would like to ensure that the responsibilities currently assigned to Montreal Exchange CEO Luc Bertrand would continue to be filled by his successor.

The current agreement also states that “existing derivatives trading and related products operations of MX remain in Montreal,” which Desjardins would like to see amended to include future derivatives as well, especially in the field of carbon credits.

“It is important to remove these ambiguities so that the TMX Group can begin trading as quickly as possible and on a solid foundation,” said D’Amours. “It seems to be no more than a formality, especially as, during discussions with representatives of the TSX Group, their intentions as to the role of the Montreal Exchange in the derivatives field appear quite clear to us.”

• • •

BMO issues to pad capital base

(March 26, 2008) The Bank of Montreal may have avoided write-downs on its Sitka and Apex trusts, but the bank continues to shore up its capital base in light of the current liquidity crisis in the credit market. The bank announced today that it is issuing $900 million in subordinated debt.

The capital will contribute to the bank’s Tier 2 capital base, for “general corporate uses.”

The new issue — officially labelled Series F Medium Term Notes, First Tranche — offers a fixed rate of 6.17% until 2018, when it converts to a floating rate of 250 bps above the three-month bankers’ acceptances rate. The issue matures in 2023.

The new debt issue follows a $200 million preferred share offering, which includes an option for underwriters to purchase up to $50 million in additional preferred shares.

(03/26/08)