Valuation of money market and debt securities
Summary
This circular mandates reducing the residual maturity threshold for amortization-based valuation of money market and debt securities from 60 days to 30 days. It establishes uniform valuation rules for below-investment-grade securities, requiring the use of prices or indicative haircuts from AMFI-appointed valuation agencies. The document outlines specific procedures for handling traded prices during interim periods and details disclosure requirements for any deviations from prescribed valuation methods.
Text
Kindly refer to SEBI circulars IMD/CIR No.16/ 193388/2010 dated February 02, 2010 read with Cir/IMD/DF/6/2012 dated February 28, 2012.
The residual maturity for amortization based valuation as referred to in SEBI circular dated February 28, 2012 shall be reduced from existing 60 days to 30 days.
The amortized 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.
All money market and debt securities which are rated below investment grade shall be valued at the price provided by valuation agencies.
Till such time the valuation agencies compute the valuation... such securities shall be valued on the basis of indicative haircuts provided by these agencies... applied on the date of credit event... These indicative haircuts shall be updated and refined, as and when there is availability of material information...
In case of trades during the interim period between date of credit event and receipt of valuation price from valuation agencies, AMCs shall consider such traded price for valuation if it is lower than the price post standard haircut.
In case of trades after the valuation price is computed by the valuation agencies... where the traded price is lower than such computed price, such traded price shall be considered for the purpose of valuation and the valuation price may be revised accordingly.
The trades referred above shall be of a minimum size as determined by valuation agencies.
The detailed rationale for deviation from the price post haircuts or the price provided by the valuation agencies shall be recorded by the AMC.
The rationale for deviation along-with details such as information about the security... and the impact of such deviation on scheme NAV... shall be reported to the Board of AMC and Trustees.
The rationale for deviation... shall also be disclosed to investors... all AMCs shall immediately disclose instances of deviations under a separate head on their website... total number of such instances shall also be disclosed in the monthly and half-yearly portfolio statements...
Para 1.0 shall be applicable within 90 days from date of issuance of the circular.
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Source: SecMarx — Valuation of money market and debt securities. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.