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Sebi prescribes waterfall approach for valuation of money market, debt securities

Under the approach, all traded securities shall be valued on the basis of traded yields, subject to identification of outlier trades by the valuation agencies.

ETMarkets.com|
Sep 24, 2019, 10.50 PM IST
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Agencies
Sebi
Valuation of all other money market and debt securities, including Government securities not traded in last one hour, shall be done on the basis of VWAY of all trades during the day.
Mumbai: The Securities and Exchange Board of India (Sebi) said late on Tuesday it was decided that for arriving at security level pricing, a waterfall approach shall be followed for the valuation of money market and debt securities.

Under the approach, all traded securities shall be valued on the basis of traded yields, subject to identification of outlier trades by the valuation agencies.

Volume Weighted Average Yield (VWAY) for trades in the last one hour of trading shall be used as the basis for valuation of Government Securities(including T-bills), the regulator said.

Valuation of all other money market and debt securities, including Government securities not traded in last one hour, shall be done on the basis of VWAY of all trades during the day.

Considering the importance of polling in the valuation process, guidelines shall be issued by Amfi (Association of Mutual Funds in India) on polling by valuation agencies and on the responsibilities of Mutual Funds in the polling process, as part of the aforesaid waterfall approach, Sebi said.

Valuation agencies will identify the mutual funds who will participate in the polling process on a particular day, taking into account factors such as diversification of poll submitters and portfolio holding of the Mutual Funds.

Mutual Funds who are identified by the valuation agencies shall necessarily participate in the polling process.

However, in case any Mutual Fund does not participate in the polling process, detailed reason for the same shall be recorded and made available during SEBI inspections.

The minimum number of polls to be considered for valuation along-with the operational modalities of polling, shall be specified.

Separately, a money market or debt security shall be classified as “below investment grade” if the long-term rating of the security issued by a a credit rating agency is below BBB- or if the short term rating of the security is below A3.

A money market or debt security shall be classified as “Default” if the interest and/or principal amount has not been received on the day such amount was due or when such security has been downgraded to “Default” grade by a credit rating agency.

In this respect, mutual funds shall promptly inform to the valuation agencies and the credit rating agency, any instance of non-receipt of payment of interest and / or principal amount (part or full)in any security.

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