SEBI Current Affairs - 2019

Category Wise PDF Compilations available at This Link

SEBI tightens disclosure and review norms for credit rating agencies

Securities and Exchange Board of India (SEBI) has tightened disclosure standards for credit rating agencies (CRAs) while assigning ratings to debt instruments. It has ordered CRAs to analyse deterioration in liquidity conditions of issuer, while monitoring its repayment schedules and taking into account any asset-liability mismatches.

Credit Rating Agency

It is organization that gives rating to debtors or borrowers (government, companies etc) on the basis of their ability to pay back their principal loan and interest on time. It gives an idea of the probability of committing a default by them on debt and other credit related instruments.

It gives ratings only to the organizations and not individual customers for whom separate credit score is released. It help investors, customers etc to get an overall idea of the strength and stability of an organization.

Credit Rating is not based on mathematical formulas instead CRA use their judgment and experience in determining what public and private information. Currently there are six credit rating agencies in India which are registered under SEBI namely-CRISIL, ICRA, CARE, SMERA, Fitch India, ONICRA.

SEBI Revised standards

CRAs should disclose parameters such as liquid investments or cash balances, access to any unutilised credit lines and adequacy of cash flows in a specific section on liquidity. For reviewing rating criteria CRAs need to assess inter-linkages of holding company and subsidiaries, holding company’s liquidity, financial flexibility and support to the subsidiaries.

For monitoring of repayment schedules, CRAs need to analyse deterioration in liquidity conditions of issuer and also take into account any asset-liability mismatch. For reviewing material events, CRAs may treat sharp deviations in bond spreads of debt instruments vis-à-vis relevant benchmark yield as a material event.

CRAs should publish information about historical average rating transition rates across various rating categories, for investors to understand historical performance of ratings assigned by CRAs.

Background

Recently rating agencies had were in spotlight following crisis at Infrastructure Leasing & Financial Services Ltd (IL&FS) and its group entities. Mutual fund houses were caught unaware as major CRAs in August 2018 started to cut ratings from high investment grade to default or junk. The agencies faced criticism that they had failed to see financial troubles in IL&FS and adjust its rating of IL&FS when its debt jumped by 44% at end of March 2015. This prompted SEBI to review rating standards and whether there is need for increased accountability, and insist on more disclosures.

Month: Categories: Business, Economy & Banking

Tags:

BSE, NSE get SEBI approval to launch commodity derivatives segment

The capital markets regulator Securities and Exchange Board of India (SEBI) has allowed India’s top two stock exchanges BSE Ltd and National Stock Exchange of India Ltd (NSE) to launch commodity derivatives trading from 1 October, 2018. This approval is part of SEBI’s December 2017 announcement of having unified exchange regime wherein stock exchanges will be allowed to offer trading in commodities derivatives. By unified exchange regime  stock exchanges need not to set up different entities to offer commodity trading.

Key Facts

With this approval, BSE will begin trading in commodity derivatives with non-agriculture commodities like metals initially, followed by agri-commodities subsequently. NSE will launch its commodity derivatives segment trading in non-agriculture commodities in initial phase, followed by agriculture commodities, subject to SEBI approval.

Significance

Universal exchanges will help in achieving integration of trading in commodity derivatives market with other segments of securities market at exchange level. It will help in providing efficient price discovery, reduction in timelines, cost effective, user-friendly, robust risk management system and wider market penetration. It will help in creating deeper markets with lower spreads and exchange by enhancing competition across all categories of trading. It will offer greater convenience as traders will be able to trade all asset categories from single account. It may also lead to consolidation of cross-holding norms as mergers between exchanges of different categories appear attractive. In longterm, Indian exchanges will find it easier to compete with their global counterparts and they are present in multiple segments.

Terms

Equity exchange: It is market in which shares are issued and traded, mostly through exchanges. It is also known as stock market. It gives companies access to capital and investors slice of ownership in company with potential to realize gains based on its future performance. Stock or securities traded in the equity market can be either public stocks, which are those listed on stock exchange or privately traded stocks. In India, NSE and the BSE offer equity and equity derivatives.

Commodity exchange: It is market is mostly related to food, metals or energy derivatives that are important part of everyday life. Types of commodities in this market includes metals like gold, silver, etc., energy like crude oil, natural gas etc. This trading traditionally move in opposition to stocks, so they are used as significant way to diversify  portfolio beyond traditional securities. In India, MCX and NCDEX specialise in commodity derivatives.

Universal exchanges: In this market, any exchanges i.e. can capital market or commodity exchange can offer each products in equity, commodity derivatives, and debt and currency segments. By this stock exchanges need not to set up different entities to offer commodity trading and vice versa.

Month: Categories: Business, Economy & Banking

Tags: