The chairman of Hong Kong's stock exchange operator yesterday suggested creating an Asian-based credit rating agency to restore confidence in the industry and put up safeguards against repeating last year's market collapse.
'Some people felt that some of the existing rating agencies fell asleep,' Ronald Arculli said at the Asian Financial Forum in Hong Kong. 'Creating a rating agency in Asia ... is something that Asia can make a contribution to this financial crisis.'
Mr Arculli did not provide a timetable for the plan, saying it would depend on acquiring the necessary funding and talent. Governments and stock exchanges across the region might be viable providers of financing for the project, he said.
Initial support could come from governments, while future revenue could be derived from a portion of the fees that stock exchange operators charged on transactions, he added. 'This would prevent possible conflicts of interests from charging fees [directly] to listed companies.'
Major rating agencies have come under fire for receiving their revenue from the listed firms or bond issuers to which they assign ratings. And after highly graded securities suddenly swooned last year, US and European politicians have criticised the industry's profit structure for creating a conflict of interest between the agencies and their clients.
Rating analysts said a government-sponsored agency would also spark questions about objectivity. 'If the rating agency is backed by governments of certain countries, one may wonder if the ratings are based on political considerations,' said Vincent Ho, an associate director of Fitch's Asia sovereign rating group.
Political infighting could also diminish the effectiveness of such an agency unless it was supervised by international organisations such as the World Bank or the International Monetary Fund, Mr Ho added.
Meanwhile, credit rating agencies have also urged investors to put their ratings in context rather than rely on them as a one-stop, decision-making tool.
Ratings were not designed to move with the wildly fluctuating markets last year since they regarded the possibility of a security defaulting, not its market value, price volatility or suitability as an investment, Ping Chew, head of Greater China at Standard & Poor's, said last month.
'An S&P rating has an important but limited role,' he said. '[It] is one of many factors that an investor should consider in any investment decision, and one of many factors that can influence the market performance of a bond.'
On a separate issue, Mr Arculli said technical questions complicated the potential for merging the local bourse with its Shanghai counterpart. 'It involves capital account opening [on the mainland], since the two places have different regulatory regimes.
'I'm not sure if Shanghai has looked at us but they certainly have the ambition to do so.'