117 3.7 Conclusion Th ahse rreecleeivvaendcseu fbosrt ai nnvt ieasl taotrtse’ nrtiisokn abnyaal yc sa ids eomf itchs ea nn du mr ebgeurl aot fo rr as ti inn tghs epl ae sr t sdeeccuardi tey. However, the role played by the complexity of a security’s design remained unclear and the current de facto view of policy-makers is that all structured finance securities ao rreSe&qPu aolrl yi gci no amt epdl e ax n. Wd es oulsde baeltawr geee nu n1i9v 9e r6s et horfoCuLgOh t2r0a 1n 3c h, et hs er ayteeadr bi ny Mwohoi cdhy ’tshaenEdU/ regulations regarding dual credit ratings for structured products came into force. Ieni t hs ue rmt,hies smu eo rs st foafv Co rLaObsl ec hr aotoi ns eg oo rn eb ootrh t. wT hoeCr eR Ah as vteo breaet en ti nh seti ar nCcLeOs wa nhde rdei sr ca ltoi ns ge st hhios pmp ienagn si s t lhi ka et l tyh, earned i si ncsrteadnict ersa twi nhge rrei s rka, tti hn eg rciastke rt ihnagt irsa tl ii kn eg lsy . dFoo nr oi nt vf ue sl ltyo rosr, accurately reflect the actual credit risk of a security at issuance, by, for example, at hs es i ng nu imn gb ebri aosferda triant gi ns gbsyt oS &s tPr ua cntdu rMe do opdryo’ds uact t iss. sOuua rn rc ee s, ua pl t ps es ahroswt ot hvaatr yd iws ci ltohs ti nh ge individual complexity measures through their correlation with the business cycle. Significant indicators of CLO tranche complexity pertain to the capital structure at hnadt tChLeOs iiznev eo sf ttohres Ci nL Ot hter amn cahr ek se.t Fduor trheel yr moonr ec ,r endoittwriat ht i sntgasn, dai nsgi nogul er cS o&nPc lcursei do int raat t ii snsguha ansc es ,u bb os tt ahnbt ieaflol yr emaonrde iamf tpe ar ctthteh acnr i as issi. nSgol e, iMn voeosdt yo ’rss r aa pt ipnegai rn tpor iscpi ne gn dC Lt Oh es t( icmo me , pelfef ox rot ra nn odt m, r oa tneedy , bi y. e .S, &i nPc uo rr tMh oe osde ya ’rsc ho rc bo sottsh, )t oa sd ti hf f ee yr ednet ti ea rt embi ne et wt he ee inr dyei eallds requirements. Consequently, the EU regulations that have made dual ratings mandatory for all structured finance securities (including CLOs) since 2013 may be counterproductive as a measure to improve the functioning of the market. First, investors Chapter 3 - Security Design and Credit Rating Risk
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