SEBI has made changes to the valuation matrix of money market and debt securities. Valuation of debt market securities has often been a tedious task, as a large number of debt instruments are not traded actively. Now, SEBI has decided to define what are traded and non-traded securities and how their valuation should be decided.

In a circular to bring in consistency in valuation, SEBI said a money market or debt security shall be considered as traded when, on the date of valuation, there are trades (in marketable lots) in that security on any recognised stock exchange or there are trades reported (in marketable lots) on the trade reporting platform of recognised stock exchanges or the clearing corporation. In this regard, the marketable lots shall be defined by AMFI, the mutual fund body, in consultation with SEBI. A money market or debt security shall be considered as non-traded when, on the date of valuation, there are no trades in such security on any recognised stock exchange or no trades (in marketable lots) have been reported on any of the aforementioned trade reporting platforms, SEBI said.

Amortisation-based valuation will be permitted for money market and debt securities including floating rate securities, with residual maturity of up to 30 days. Further, the amortised price shall be compared with the reference price which shall be the average of the security level price of such security as provided by the agency(ies) appointed by AMFI for that purpose.

Amortised price

The amortised price shall be used for valuation only if it is within a threshold of ±0.025% of the reference price. In case of deviation beyond this threshold, the price shall be adjusted to bring it within the threshold of ±0.025% of the reference price. In case the security level prices given by valuation agencies are not available for a new security (which is currently not held by any mutual fund), then such security may be valued on amortisation basis on the date of allotment/ purchase.

For government securities (including T-bills) shall be valued on the basis of security-level prices obtained from valuation agencies, SEBI said. Investments in short-term deposits with banks (pending deployment) and repurchase (repo) transactions (including tri-party repo, ie, TREPS) with tenor of up to 30 days, shall be valued on cost-plus-accrual basis. In order to have uniformity in valuation methodology, prices for all OTC derivatives and market-linked debentures shall be obtained from valuation agencies.

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