A senior Securities and Exchange Commission official said the agency is considering alternatives to its long held practice of using credit ratings to assess the risk of securities issuers.

?We are asking the question?does it make sense, instead of using a credit rating, to replace that by something that refers to the characteristic for which the credit rating was proxied?liquidity, volatility, probability of loss, those sorts of things,? said Erik Sirri, the SEC?s Director of Trading and Markets during a panel discussion held at the American Enterprise Institute, a Washington think-tank, on June 24, 2008.

The SEC is due to consider the third part of a larger set of proposals on credit rating agency reforms on June 25 in Washington, D.C. The agency issued Release No. 34-57967, Proposed Rules for Nationally Recognized Statistical Rating Organizations, on June 11 to propose revamped disclosure requirements for the rating agencies in their handling of complex structured securities.

The rating agencies have been criticized in recent months for their role in the recent collapse of the debt markets. In the past year, many of the subprime mortgage-backed securities that received AA and AAA ratings have been written off as all but worthless as the rate of mortgage defaults has continued to climb.

In the meantime, the SEC has sought to use its rule making process to increase the competition in the credit rating market. Ten firms are registered as NRSROs, and Release No. 34-57967 is based on the assumption that there would eventually be 30 rating agencies.