Sebi Introduces Colour-Coded Credit Risk-O-Meter for Debt Securities

New Delhi: Markets regulator Sebi on Wednesday introduced a mandatory colour-coded credit risk-o-meter for debt securities to help investors assess credit risk before investing.

The credit risk-o-meter will be required in offer documents, abridged prospectus, private placement memorandum, advertisements of issuers and Online Bond Platform Providers (OBPPs) and web and mobile platforms of OBPPs, Sebi said in a circular.

The framework will apply to all listed and proposed to be listed non-convertible securities, commercial papers, securitised debt instruments, security receipts, and structured debt/market-linked debentures, whether issued by way of public issue or private placement.

Under the framework, Sebi’s existing credit ratings ranging from AAA to D will be mapped to six risk levels, each represented by a colour.

The regulator said that AAA-rated securities will be classified as having the lowest credit risk, followed by very low, low, moderate, moderate risk of default and high to very high risk of default for ratings ranging down to D.

The colour-coded scheme will be applicable for all digital and polychrome printed promotion materials for particular debt security.

Issuers and OBPPs must also disclose the name of the credit rating agency (CRA) and the actual credit rating of the respective debt security in text format below the risk-o-meter.

For unsecured debt instruments, the word “unsecured” will have to be displayed in bold red text. Where a debt security carries ratings from multiple CRAs, the credit risk-o-meter will reflect the lowest rating, though all ratings may be disclosed, Sebi said.

The market watchdog said the meter represents only the credit risk associated with the debt security and does not constitute investment advice or a recommendation to invest. Debt investments are also subject to market and liquidity risks.

OBPPs will have to update any change in the meter within 24 hours of receiving rating-change intimation from NSDL or CDSL. Manual overrides of the classification will be prohibited, and platforms will have to maintain audit trails of rating changes and meter updates.

The provisions of the circular will come into force after 45 days from the date of issuance, the Securities and Exchange Board of India (SEBI) said.

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