Notching

A A A

DEFINITION

When rating agencies reduce their ratings on structured financial collateral based on ratings from another agency without rating the collateral themselves. Notching arises when collateral, such as mortgage backed securities (MBS), and other asset backed securities (ABS) are included within investment vehicles that are rated, such as collateralized debt obligations (CDOs).

INVESTOPEDIA EXPLAINS

A study by Greenberg Quinlan Rosner Research in early 2002 found that 67% of senior executives, working in structured finance, oppose the practice of notching, because they feel that it undermines competition. They feel that the two largest rating agencies employ notching to maximize their market share and undermine competition.


RELATED TERMS
  1. Standard & Poor's Underlying Rating ...

    A rating for a debt issue on a stand-alone basis without credit enhancements. ...
  2. Moody's Bond Survey

    A weekly publication that reports changes in corporate bond quality ratings ...
  3. Asset Quality Rating

    A review or evaluation assessing the credit risk associated with a particular ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively ...
  5. Bond Rating

    A grade given to bonds that indicates their credit quality. Private independent ...
  6. Morningstar Risk Rating

    A ranking ranging from one to five stars, with one being the poorest rank and ...
  7. Rating

    1. An evaluation of a corporate or municipal bond's relative safety from an ...
  8. Ratings Service

    A company, such as Moody's or Standard & Poor's, that rates various debt ...
  9. Standard & Poor's - S&P

    The world's leading index provider and the foremost source of independent credit ...
  10. Shadow Rating

    1. The name given to a bond rating performed on an issuing party by a credited ...
Related Articles
  1. What Is A Corporate Credit Rating?
    Investing Basics

    What Is A Corporate Credit Rating?

  2. Junk Bonds: Everything You Need To Know
    Bonds & Fixed Income

    Junk Bonds: Everything You Need To Know

  3. Are High-Yield Bonds Too Risky?
    Bonds & Fixed Income

    Are High-Yield Bonds Too Risky?

  4. What You Need To Know About Financial ...
    Insurance

    What You Need To Know About Financial ...

  5. Stock Ratings: The Good, The Bad And ...
    Retirement

    Stock Ratings: The Good, The Bad And ...

  6. What does investment grade mean?
    Investing

    What does investment grade mean?

  7. Herding Tendencies Among Analysts
    Investing Basics

    Herding Tendencies Among Analysts

  8. Understanding Leveraged Buyouts
    Fundamental Analysis

    Understanding Leveraged Buyouts

  9. How The Sarbanes-Oxley Era Affected ...
    Fundamental Analysis

    How The Sarbanes-Oxley Era Affected ...

  10. Where's The Market Headed Now?
    Fundamental Analysis

    Where's The Market Headed Now?

comments powered by Disqus
Hot Definitions
  1. Leased Bank Guarantee

    A bank guarantee that is leased to a third party for a specific fee. The issuing bank will conduct due diligence on the creditworthiness of the customer looking to secure a bank guarantee, then lease a guarantee to that customer for a set amount of money and over a set period of time, typically less than two years.
  2. Degree Of Financial Leverage - DFL

    A ratio that measures the sensitivity of a company’s earnings per share (EPS) to fluctuations in its operating income, as a result of changes in its capital structure. Degree of Financial Leverage (DFL) measures the percentage change in EPS for a unit change in earnings before interest and taxes (EBIT).
  3. Jeff Bezos

    Self-made billionaire Jeff Bezos is famous for founding online retail giant Amazon.com.
  4. Re-fracking

    Re-fracking is the practice of returning to older wells that had been fracked in the recent past to capitalize on newer, more effective extraction technology. Re-fracking can be effective on especially tight oil deposits – where the shale products low yields – to extend their productivity.
  5. TIMP (acronym)

    'TIMP' is an acronym that stands for 'Turkey, Indonesia, Mexico and Philippines.' Similar to BRIC (Brazil, Russia, India and China), the acronym was coined by and investor/economist to group fast-growing emerging market economies in similar states of economic development.
  6. Pension Risk Transfer

    When a defined benefit pension provider offloads some or all of the plan’s risk – e.g.: retirement payment liabilities to former employee beneficiaries. The plan sponsor can do this by offering vested plan participants a lump-sum payment to voluntarily leave the plan, or by negotiating with an insurance company to take on the responsibility for paying benefits.
Trading Center