Earlier this month, research was published which spectacularly suggests that some analysts of the Big Three rating agencies are guilty of ‘informed trading’, which in this context means leaking information to institutional investors ahead of the publication of rating actions by their respective credit rating agencies. In this post, we will look at this researched claims and assess the potential impact such findings may have upon the industry, if any.   Dr Omri Even-Tov of Berkeley Haas Business School and Dr Naim Bugra Ozel , Visiting Associate Professor at Wharton Business School have co-authored an article that can be read here . The article, entitled What moves stock prices around credit rating changes? seeks to extend the studies that have found that credit rating changes lead to significant stock price reactions by examining whether informed trading may affect the stock price before the rating announcement. One of the key elements that the researchers look for is wheth...

In March 2020, when discussing concerns that had been raised regarding the ESG Ratings arena , we saw how an article developed by Professor Roberto Rigobon, Dr Florian Berg, and Dr Julian Kölbel argued that there are inherent divergences witnessed between the ratings within the ESG rating arena, and provided for a number of reasons as to why. Recently, via MIT and the MIT Sloan Sustainability Initiative, the team are launching the Aggregate Confusion Project to tackle those issues.   The paper, published in August 2019, is entitled ‘ Aggregate Confusion: The Divergence of ESG Ratings ’ and is certainly worth reading. Its findings are particularly important, particularly in relation to the effects of measurement divergence in a range of contexts. Without spoiling the paper for those that have not read it yet, the key to the paper is understanding and demonstrating the ‘rater effect’ and how that is currently impacting upon the stunted development of the industry. More worryingly, ...

The European Joint Board of Appeal (BoA) of the European Supervisory Authorities – the European Banking Authority, European Insurance and Occupational Pensions Authority, and the European Securities and Markets Authority – were recently asked to decide on an appeal from Scope Ratings regarding their recent penalty from ESMA – see here for the blog post on the penalty.   Yesterday, the decision was made and publicised . Scope had appealed upon the belief that the decision by ESMA to penalise them was not ‘well founded in law’. ESMA had contested that Scope had negligently applied its methodologies to a number of rating actions, whilst also failing to revise and update their methodologies accordingly, and summarily fined the agency €640,000. Specifically, Scope argued that Article 8(3) of the ‘CRA Regulation’ (EU/462/2013) had not been breached as ESMA had contested because the section of the regulation only concerns the design of the methodology, not the application. Furthermor...