The Transparency Label Initiativetm is free from all conflicts that could call into question the quality or integrity of its labels.
For example, the Transparency Label Initiative™ is not paid on a security-by-security basis for determining if a label is appropriate or not. It is paid for on a subscription basis by the buy-side. As a result, the Transparency Label Initiative™ is not subject to capture by Wall Street. If it were paid for on a security-by-security basis, Wall Street could capture it by shopping for a label. Wall Street knows how to shop for a label as shown by how it captured the rating firms on the pre-financial crisis mortgage-backed securities.
Every aspect of the Transparency Label Initiative’s ownership and day-to-day operation is looked at through the prism of does the potential exist for any type of conflict that would jeopardize the quality or integrity of its labels. Where there is any doubt, the working assumption is a conflict exists.
The primary and only business the Initiative is in is performing the analytical work that results in the awarding of a label. This eliminates any potential conflicts with other business lines.
The Initiative specifically excludes from any involvement in its ownership or day-to-day operation any individual or firm with a direct conflict of interest. This includes firms like:
- An investment bank that underwrites securities; or
- A financial market self-regulatory entity that is Wall Street’s self-funded regulator; or
- A firm that is paid to rate securities; or
- An accounting firm that audits security issuers; or
- A financial information service provider selling pricing data and indexes where it has proprietary access to the underlying information.
The Initiative specifically excludes from any involvement in its ownership or day-to-day operation any individual or firm with an indirect conflict of interest. This includes firms like an asset manager that sells a service that values opaque securities.