Regulator to address issues surrounding corporate bonds

Our Bureau Mumbai | Updated on January 23, 2018 Published on October 27, 2015

Concerned over mutual fund investors’ exposure to distressed corporate bonds, UK Sinha, Chairman, SEBI, on Tuesday said it has launched a wider scrutiny of the risks posed by such investment decisions.

The process of reviewing SEBI guidelines on mutual funds with respect to concentration risk, sector risk and company risk has begun, according to UK Sinha.

“These are being worked at, we might revise them,” Sinha said. Risk of too much exposure to a sector, company or geography is called concentration risk.

Additionally, SEBI guidelines on credit rating agencies are likely to be issued in the future.

“We are looking at why in certain cases the paper is being rated as investment grade and suddenly the rating was suspended. There may be a genuine reason, I do not suspect anything, but that has to be explained to the investors and the public at large. Our feeling was that it was not being done,” Sinha said.

SEBI has also flagged the issue of possible conflict of interest in the rating process in its meetings with the credit rating agencies.

Conflict of interest

Sinha observed that there was potential conflict of interest with debenture trustees. “They are supposed to be trustees on behalf of investors. Maybe their group companies have also been investors. Are there instances where there has been a favour in getting the money to their group companies? These are areas where SEBI is looking at and we have flagged it with the agencies.”

Sinha said SEBI would bring out norms for new products and newer participants in the commodity derivatives markets, such as foreign portfolio investors in the next few months.

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Published on October 27, 2015
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