SEBI Makes Credit Risk-o-Meter Mandatory for Debt Securities

The Securities and Exchange Board of India (SEBI) has made a colour-coded Credit Risk-o-Meter mandatory for debt securities, as per news reports. The meter will show the credit risk associated with a security and will have to be displayed across offer and investment-related documents and platforms. 

The requirement will cover listed and proposed-to-be-listed non-convertible securities, commercial papers, securitised debt instruments, security receipts and market-linked debentures issued through public or private placements. 

Six Risk Levels Based on Credit Ratings 

The Credit Risk-o-Meter will map existing credit ratings to six risk levels, ranging from “lowest credit risk” for AAA-rated securities to “high to very high risk of default” for B and below. 

Short-term securities will have a separate version covering ratings from A1+ to A4/D. If a security has ratings from more than one agency, the meter will use the lowest rating. The rating agency and the actual rating will also be shown below the meter. 

Unsecured and INC Securities to be Highlighted 

Unsecured instruments will have to be identified in bold red text. Where a rating agency classifies an issuer as “Issuer Not Cooperating”, the meter will show a separate grey INC zone. 

SEBI has also prescribed disclaimers stating that the meter represents only the credit risk of the security and does not amount to investment advice or a recommendation. Disclosures will also cover market and liquidity risks. 

OBPPs Get 24 Hours to Update Ratings 

Online Bond Platform Providers will have to display the meter prominently on listing and detail pages, before investment buttons. They will need to update it within 24 hours of receiving information about a rating change. 

OBPPs will also have to use data only from SEBI-registered rating agencies, prevent manual overrides and maintain audit trails. 

Rules To Take Effect in November 

The new requirement will come into force 45 days after the circular is issued, which puts the effective date around November 21-22. 

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Conclusion 

The new Credit Risk-o-Meter will bring a standardised way of displaying credit risk across debt securities and bond platforms, while keeping the underlying credit rating visible to investors. 

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.  

Investments in the securities market are subject to market risks, read all the related documents carefully before investing.