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S&P Rating Plan Faulted for Reducing Repo Cash, Funds’ Choices

A Standard & Poor’s plan to change the way it rates the credit risk of counterparties in repurchase agreements will boost costs for broker-dealers who draw cash through the arrangements and shrink the pool of liquid assets for money funds, according to industry participants.

Today is the final day in a one-month public comment period on S&P’s proposal to view unrated broker-dealers serving as counterparties in repos to rated money funds as having “high credit risk.” S&P now assigns to an unrated counterparty that’s at least half-owned by a rated entity the parent company’s risk level.