The Securities and Exchange Board of India (“SEBI”) through a circular dated 6th November, 2019 mandated all mutual funds and asset management companies to report the valuation agencies and SEBI registered Credit Rating Agencies (‘CRAs’) immediately with respect to any changes to the terms of investment, including extension in the maturity of a money market or debt security along-with reasons for the same.
Background:
SEBI through a circular dated 24th September, 2019 prescribed certain norms for mutual funds and asset management companies, which are needed to be followed in cases of changes in the terms of investment, which are as follows;
- Mutual Funds and Asset Management Companies were mandated to report valuation agencies immediately regarding any changes to terms of investment, which may have an impact on valuation.
- Any kind of extension in the maturity of a money market or debt security will be treated “Default”, for the purpose of valuation.
- Security shall be treated as “Default” for the purpose of valuation, in case the maturity date of a money market or debt security is shortened and then subsequently extended.
- Any put option inserted subsequent to the issuance of the security shall not be considered for the purpose of valuation and original terms of the issue will be considered for valuation.
Through the circular dated 6th November, 2019, SEBI made it more specific with respect to the formality of reporting regarding any changes to terms of investment, which may have an impact on valuation and accordingly amended the circular dated 24th September, 2019.
Source: Securities and Exchange Board of India
