WASHINGTON (Reuters) - Securities regulators proposed weaning investors and Wall Street institutions from over-reliance on credit ratings, part of changes to the rating industry prompted by the subprime mortgage crisis.

The Securities and Exchange Commission voted 3-0 on Wednesday in favor of reducing reliance on credit ratings, including proposing to eliminate a requirement that money market funds hold highly-rated securities.

"The official recognition of credit ratings... may have played a role in encouraging investors' overreliance on ratings," SEC Chairman Christopher Cox told an open meeting of the commission.

Rating agencies such as Moody's (MCO.N), McGraw-Hill Cos' (MHP.N) Standard & Poor's and Fimalac SA's (LBCP.PA) Fitch Ratings have been blamed for contributing to the crisis by assigning top ratings to mortgage-backed securities that later deteriorated.

For months, SEC staff combed the agency's rules and forms and found 44 references to credit ratings. On Wednesday, the investor protection agency proposed changes to 38 of them.

"The recommendations we consider today are consistent with the objective of having investors make an independent judgment of the risks associated with a particular security," Cox said.

Cox said high credit ratings are often not an indication of liquidity or low price volatility for structured financial products, such as mortgage-backed securities.

Current rules do not allow a money market fund to rely solely on credit ratings when making investments, but the proposals would further reduce emphasis on ratings. The funds hold $3.5 trillion of investor assets according to the SEC.

Fund managers would be required under the proposals to assess a security's liquidity, or how easily the security can be bought or sold, before buying it for a money market fund.

"Ratings have become a crutch... Blind reliance on ratings is not something the SEC should foster" said SEC commissioner Paul Atkins. "Today's proposals are, I recognize, likely to meet with some resistance out in the public," he said.

CAPITAL REQUIREMENTS, CREDIT RISKS

The proposed rules would also find alternatives to establish net capital requirements for the investment banks the SEC supervises.

The new rules would also address so-called haircuts, or the percentage by which an asset's market value is reduced when calculating capital requirements. The new rules would allow the asset to be valued based not only on credit ratings, but also on other subjective standards to determine credit risk.

The proposed rules would replace the ratings required to register investment-grade asset-backed securities with a provision requiring initial sales be made in minimum denominations of $250,000 and to qualified institutional investors.

The proposed rules would also end specific rating requirements for investment companies' holdings and would replace those requirements with liquidity and credit risk standards.

The changes would affect diversification requirements and the purchase of certain municipal securities.

Two weeks ago, the SEC proposed rules that would require rating agencies to differentiate between structured products and corporate bonds.

The proposed rules from the prior meeting also called for disclosures on past ratings and would prohibit anyone who participates in determining a credit rating from negotiating the fee that the issuer pays for it.

(Reporting by Karey Wutkowski and Rachelle Younglai; Editing by Tim Dobbyn)