WASHINGTON -- A divided Securities and Exchange Commission continued this week to debate the pro and cons of formally regulating the nation's powerful bond rating agencies as commissioner sent letters to Capitol Hill outlining their positions.

In separate letters to Rep. John Dingell, D-Mich., SEC Chairman Richard Breeden and Commissioner J. Carter Beese Jr. said they opposed new standards on rating agencies because they already are subject to strong market disciplines and certain federal standards. Rep. Dingell is chairman of the House Energy and Commerce Committee.

They also argued that no new standards are needed because there have been no serious abuses by rating firms.

But in a separate letter to Rep. Dingell, Commissioners Richard Roberts and Mary Schapiro warned that the SEC now routinely designates firms as "nationally recognized statistical rating organizations," based on procedures that have not kept up with the proliferation of the companies.

Congress should enact legislation that defines the term "nationally recognized" agencies, requires such agencies to register with the SEC, and authorizes the SEC to enact rules governing the firms, the two commissioners wrote in the joint letter to Rep. Dingell, who informed the SEC this spring that he wants to move ahead with legislation to beef up regulation of the rating agencies.

The five-member SEC is currently short a commissioner, which means that if a vote were taken today on the question of new standards, it would probably be a tie.

Despite objections from two of the commissioners, an aide said yesterday that Rep. Dingell will introduce legislation early next year. Hearings on the plan would be held by the panel's subcommittee on telecommunications and finance, chaired by Rep. Edward Markey, D-Mass., the aide said.

Rep. Dingell contacted the SEC on the issue after Commissioner Roberts warned that rating agencies, despite their enormous influence, remain one of the only largely unregulated participants in the securities markets.

Daniel Heimowitz, executive vice president at Moody's Investors Service, said, "We feel that we are doing a good job and that the market clearly regulates and monitors us. What we do is very public and broadly disseminated, and it is that discipline that" guides us.

"We provide opinions. If people find those opinions useful, that's good. But if they are thought to be less on target and less useful, then our business will" be affected, he said.

Mr. Beese wrote, "At its essence, a rating agency sells trust. To the extent a rating agency engages in transactions or conduct that diminishes the public's trust in it, I feel confident that the reaction of the markets will be swift and efficient, and that the rating agency ... will not survive. To date, with minor exceptions, rating agencies appear to understand and accept the demands that the financial markets have placed on them, and I believe they have performed their task capably."

In his letter to Rep. Dingell, Mr. Breeden noted that the SEC requires rating agencies seeking national recognition to register as investment advisers under the Investment Advisers Act of 1940. Other than standard investment adviser inspections and regulation, however, the commission does not attempt to regulate the rating agencies, for "strong reasons," he said.

"Rating agencies that do badly -- that give good ratings to weak securities -- will themselves do badly," Mr. Breeden said. "No regulatory agency can hope to write rules to force rating agencies to rate accurately or fairly. The rating process is simply too fact-intensive and too firm-specific."

Moreover, rating firms already are subject to certain basic prohibitions under the federal securities laws, he said. "There is little question, for example, that a rating agency which accepted under-the-table payments in return for a favorable rating would violate one or more provisions of the federal securities laws," he said.

Mr. Roberts stressed that nationally recognized rating agencies are doing a professional job, but a formal degree of regulation is appropriate because such firms enjoy "substantial competitive advantages." He stressed that new rules should by "no means" be an effort to regulate the substance of agencies ratings.

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