SEBI's New 'Credit Risk-O-Meter' To Help Debt Security Investors

(MENAFN- AsiaNet News) The Securities and Exchange Board of India (SEBI) mandated a colour-coded“Credit Risk-o-Meter” for debt securities on Wednesday, requiring issuers and online bond platforms to prominently display the credit risk of securities to help investors assess risks before investing. The new disclosure will apply to all listed and proposed-to-be-listed non-convertible securities, commercial papers, securitised debt instruments, security receipts and structured debt or market-linked debentures, whether issued through public issue or private placement.

How the 'Credit Risk-o-Meter' Functions

Under the framework, the Credit Risk-o-Meter will be mandatory in offer documents, abridged prospectuses, private placement memorandums, advertisements and on the web and mobile platforms of online bond platform providers (OBPPs). SEBI said the mechanism is intended“to assist investors in assessing credit risk through colour-coded visualization prior to investing”. The meter will map existing credit ratings from AAA to D into six risk levels, ranging from“Lowest credit risk” to“High to Very high risk of Default”, using different colour codes.

Mandatory Disclosures and Platform Rules

Where a debt security has ratings from multiple credit rating agencies, the meter will reflect the lowest rating, although all ratings can be disclosed alongside it. The framework also requires issuers and OBPPs to disclose the name of the credit rating agency and the actual credit rating below the meter. For unsecured debt instruments, the word“unsecured” must be displayed in bold red text.

Rules for Online Bond Platforms

For online bond platforms, any change in the Credit Risk-o-Meter must be communicated within 24 hours of receiving intimation of a rating change. The meter will also have to be displayed on bond listing and details pages before investment action buttons. SEBI has further required OBPPs to source the meter solely from ratings assigned by SEBI-registered credit rating agencies and maintain automated systems to update it within 24 hours. Manual overrides of the classification are prohibited, while audit trails of updates and rating changes must be maintained.

Implementation Timeline

The circular will come into force 45 days after its issuance on Wednesday, giving stock exchanges, depositories, issuers and OBPPs time to put the required systems and processes in place. (ANI) (Except for the headline, this story has not been edited by Asianetnews Editorial staff and is published from a syndicated feed.)

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