Sebi mulls allowing CRAs to rate instruments outside its regulatory purview
ADVERTISEMENT Under the current CRA regulations, credit rating agencies are only allowed to rate securities that are listed or proposed to be listed on a stock exchange recognised by Sebi.
However, the regulations do not stop CRAs from rating products, securities, or issuers if such ratings are done under the guidelines of another financial sector regulator or any authority specified by Sebi.
In its consultation paper, Sebi proposed that CRAs may be permitted to undertake activities that are not regulated by it, subject to certain conditions."CRA may undertake rating of financial instruments, which fall under the purview of any other FSR, provided it shall comply with the regulatory framework, if any, as may be specified by the respective FSR for the matters relating to policy, eligibility criteria, risk management, investor grievance or dispute handling mechanism, inspection, enforcement and claims," Sebi proposed.
The regulator suggested that CRAs may undertake only those rating activities that are fee-based and non-fund-based. Additionally, such activities should be carried out strictly on an arm's length basis through one or more Separate Business Units (SBUs), which should be segregated by a Chinese Wall and ring-fenced from Sebi-regulated functions.
ADVERTISEMENT The regulator further stated that CRAs should ensure the transfer of all non-Sebi-regulated activities to these separate business units within six months from the date of notification of the proposal.These SBUs would also be required to establish distinct grievance redressal mechanisms, including escalation procedures, which are separate from those applicable to Sebi-regulated activities.
ADVERTISEMENT Moreover, CRAs should maintain independent records within the SBU for such non-Sebi-regulated activities, and the personnel engaged in these functions must be distinct from those involved in Sebi-regulated operations.However, crossing the Chinese Wall may be permitted for staff, subject to due procedures approved by the Board of Directors and proper documentation.
ADVERTISEMENT Notably, this restriction does not apply to key managerial personnel.
Sebi also clarified that the minimum net worth requirement of a CRA, as specified under the CRA Regulations, should be protected from any impact arising out of non-Sebi-regulated activities.
ADVERTISEMENT A CRA will be required to disclose on its website the list of activities that are not regulated by Sebi, along with a disclaimer clearly stating that Sebi's investor protection mechanisms will not apply to any grievances or disputes related to such activities. This disclosure should also be prominently displayed in rating reports associated with non-Sebi-regulated activities.Prior to undertaking any such activities, the CRA should provide an upfront written disclosure to all relevant stakeholders, including clients, beneficiaries, and counterparties. This disclosure should be included in all engagement letters, contracts, agreements, and business communications, indicating that the activities do not fall within Sebi's regulatory framework.Also, stakeholders should confirm, at the time of engagement, that they understand the nature of the activities, associated risks, and the non-availability of Sebi's investor protection mechanisms.For existing and ongoing arrangements related to non-Sebi-regulated activities, CRAs should make the necessary disclosures and obtain acknowledgements from stakeholders. A compliance report on this should be submitted to Sebi within six months of the notification.In addition, every CRA undertaking any activity outside the purview of Sebi should submit an undertaking as part of its half-yearly internal audit report, confirming compliance with the specified requirements. This report should be duly reviewed and approved by the CRA's board of directors.Sebi has invited public comments on the proposal until July 30, 2025.
The move comes in response to representations from industry participants and stakeholders, who have requested that CRAs be allowed to rate financial products and instruments under the purview of other FSRs, even where no rating-related guidelines exist.
It was highlighted that such rating activities are closely aligned with CRAs' current business, and allowing them could lead to operational synergies while filling an existing gap in the market.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
NDTV
11 minutes ago
- NDTV
Pakistan Gets 3rd Hangor-Class Submarine From China
China has delivered the third of the eight new "advanced" Hangor-class submarines to Pakistan as part of Beijing's efforts to upgrade Islamabad's naval strength to support its growing presence in the Indian Ocean, India's backyard. The launching ceremony of the third Hangor-class submarine was held in Wuhan, Central China's Hubei province, on Thursday, the state-run Global Times reported on Saturday. The second of the eight submarines China is building for Pakistan was handed over in March this year. This is in addition to four modern naval frigates that China supplied to Pakistan in the last few years as part of its efforts to boost Pakistan's naval strength amid the Chinese navy's steady expansion in the Arabian Sea, where it is developing the Gwadar port in Balochistan, as well as in the Indian Ocean. Speaking at the launch of the third submarine, Pakistan's Deputy Chief of Naval Staff Project-2 Vice Admiral Abdul Samad said the Hangor-class submarine's cutting-edge weaponry and advanced sensors would be instrumental in sustaining regional power equilibrium and ensuring maritime stability, the daily quoted a Pakistan defence statement as saying. According to a recent report by the Stockholm International Peace Research Institute (SIPRI), China supplied over 81 per cent of Pakistan's military hardware. Some of Pakistan's key orders in the past five years include the country's first spy ship, the Rizwan; more than 600 VT-4 battle tanks, and 36 J-10CE 4.5-generation fighters, according to the SIPRI database. China supplied the first delivery of multi-role J-10CE fighter jets to the Pakistan Air Force in 2022, adding to its JF-17 fighters jointly manufactured by both countries. Pakistan used these fighter jets in the recent conflict with India. Zhang Junshe, a Chinese military affairs expert, told the Global Times that the Hangor-class submarine is characterised by its strong underwater combat capabilities, including comprehensive sensor systems, excellent stealth characteristics, high mobility, long endurance and formidable firepower. (Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
Economic Times
11 minutes ago
- Economic Times
China's $11 trillion stock market is a headache for both Xi and Trump
At the heart of why consumers in China save so much and spend so little, and why Xi Jinping and Donald Trump will struggle to change that behavior even if they want to, lies the country's stock market. ADVERTISEMENT Even after a recent rally, Chinese indexes have only just returned to levels seen in the aftermath of a dramatic bubble burst a decade ago. Instead of incentivizing consumers to spend, poor equity returns have nudged them toward saving. A $10,000 investment in the S&P 500 Index a decade ago would now have more than tripled in value, while the same amount in China's CSI 300 benchmark would've added just around $3,000. Part of the reason, long-term China watchers say, is structural. Created 35 years ago as a way for state-owned enterprises to channel household savings into building roads, ports and factories, exchanges have lacked a strong focus on delivering returns to investors. That skew has spawned a host of problems from an oversupply of shares to questionable post-listing practices, which continue to weigh on the $11 trillion market. The country's leaders are under pressure to fix this. President Xi is counting on domestic spending to reach the 5% economic growth goal, especially as a tariff war with the US heats up over the massive trade imbalance. At the same time, Beijing has reasons to keep prioritizing the market's role as a source of capital: the country needs vast funding to nurture companies that underpin its tech ambitions — even if their profitability remains questionable.'China's capital market has long been a paradise for financiers and a hell for investors, although the new securities chief has made some improvements,' Liu Jipeng, a securities veteran who teaches at China University of Political Science and Law, said in an interview. 'Regulators and exchanges are always consciously or unconsciously tilting toward the financing side of the business.'The limits of China's stock rally have again been evident this year. The CSI 300 has risen less than 7% despite a burst of optimism over AI, trailing benchmarks in the US and Europe. The underperformance — along with factors including an uncertain economic outlook — helps explain China's extraordinarily high savings rate, which stands at 35% of disposable income. ADVERTISEMENT Chen Long, who works in the asset management industry, has taken to social media platform Xiaohongshu to warn people of the risks of chasing the recent rally. Unlock 500+ Stock Recos on App 'Many ordinary people come in thinking they could make money, but the majority of them end up poorer,' Chen said in an interview, adding that he has been investing since 2014. 'State-owned companies primarily answer to the government rather than shareholders, while many private entrepreneurs have little regard for small investors.' ADVERTISEMENT Over the past year, China's top leadership has shown greater awareness of the stock market's importance as a vehicle for wealth creation. That's especially the case with an ongoing property slump and a fragmented social safety net, which exacerbates a sense of insecurity. The Communist Party's Politburo pledged to 'stabilize housing and stock markets' in a December meeting — a rare expression of support for equities at the high-level gathering. The body also called for 'increasing the attractiveness and inclusiveness of domestic capital markets' in July. ADVERTISEMENT There is no quick fix to boosting household confidence 'except for a stock market rebound,' said Hao Hong, chief investment officer at Lotus Asset Management Ltd. 'This is a topic that we economists have been discussing in the closed door meetings in Beijing.'' In some ways, the market's malaise has been decades in the making. 'The exchanges are motivated to fulfill the government's call for increasing companies' financing,' said Lian Ping, chairman of the China Chief Economist Forum, a think tank that advises the government. 'But when it comes to protecting investors' interests, there are few who are motivated to do it.' ADVERTISEMENT An explosive growth in new listings made China the world's biggest IPO market in 2022. Yet insufficient safeguards for shareholders and lax oversight of IPO frauds have led to share price crashes and delistings — what retail investors refer to as 'stepping on a land mine.'Take Beijing Zuojiang Technology, which listed in 2019. The company said in a 2023 statement that its product was modeled after Nvidia's BlueField-2 DPU. The company warned in January the following year that it was at risk of being delisted, citing an investigation for disclosure violations. It was subsequently removed from the Shenzhen bourse. The China Securities Regulatory Commission didn't immediately reply to a fax seeking years have seen greater efforts to screen poor-quality IPOs and crack down on financial fraud. There's also a push to reduce additional stock issuances by listed companies and share sales by major stakeholders, while encouraging more corporate profit to be passed on to has been visible progress. Initial public offerings shrank to nearly a third of 2023 levels last year. Shanghai and Shenzhen-listed companies handed out a combined 2.4 trillion yuan ($334 billion) in cash dividends for 2024, up 9% from the previous year, according to state media.'The regulations and overall requirements after IPO have become stricter, in terms of reliability, transparency, or information disclosure,' said Ding Wenjie, investment strategist at China Asset Management Co. Reforms, however, have fallen short of transforming the market into one that prioritizes investor returns. Even with the rise in share buybacks, CSI 300 companies spent only 0.2% of their market value on repurchasing shares in 2024, far less than the nearly 2% spent by S&P 500 firms, according to calculations by recent policy push to attract more tech listings is also a worrying sign for some investors. Regulators are resuming the listing of unprofitable companies on the STAR board, dubbed China's Nasdaq, while allowing them for the first time for the Shenzhen-based ChiNext board — which is earmarked for growth enterprises. IPOs so far this year have increased by nearly 30% from the same period in an inevitable move to secure capital for firms that are vital to China's battle against the US for supremacy in AI, semiconductor and robotics, but also signals that authorities may again be putting funding needs ahead of investor protection. Fast-tracking more firms to list without tackling the core problems of corporate credibility will 'just add volume without restoring investor trust,'' said Hebe Chen, an analyst at Vantage Markets in Melbourne. Stock exchange officials have been actively reaching out to investment banks and encouraging companies to file for IPOs, according to people familiar with the matter. Some high-quality tech applicants could get access to so-called "green channels" for a faster review and approval process, the people said. 'The entire regulatory environments are still not up to the task of delivering the best out of those companies,' said Dong Chen, chief Asia strategist at Pictet Wealth Management. It requires a more comprehensive improvement of the institutional environment 'to provide the right incentives'' for companies to deliver values to their shareholders, he said.
Time of India
43 minutes ago
- Time of India
China's $11 trillion stock market is a headache for both Xi and Trump
At the heart of why consumers in China save so much and spend so little, and why Xi Jinping and Donald Trump will struggle to change that behavior even if they want to, lies the country's stock market. Even after a recent rally, Chinese indexes have only just returned to levels seen in the aftermath of a dramatic bubble burst a decade ago. Instead of incentivizing consumers to spend, poor equity returns have nudged them toward saving. A $10,000 investment in the S&P 500 Index a decade ago would now have more than tripled in value, while the same amount in China's CSI 300 benchmark would've added just around $3,000. by Taboola by Taboola Sponsored Links Sponsored Links Promoted Links Promoted Links You May Like Bedridden for 2 years, please help my husband walk again! Donate For Health Donate Now Undo Part of the reason, long-term China watchers say, is structural. Created 35 years ago as a way for state-owned enterprises to channel household savings into building roads, ports and factories, exchanges have lacked a strong focus on delivering returns to investors. That skew has spawned a host of problems from an oversupply of shares to questionable post-listing practices, which continue to weigh on the $11 trillion market. The country's leaders are under pressure to fix this. President Xi is counting on domestic spending to reach the 5% economic growth goal, especially as a tariff war with the US heats up over the massive trade imbalance. At the same time, Beijing has reasons to keep prioritizing the market's role as a source of capital: the country needs vast funding to nurture companies that underpin its tech ambitions — even if their profitability remains questionable. 'China's capital market has long been a paradise for financiers and a hell for investors, although the new securities chief has made some improvements,' Liu Jipeng, a securities veteran who teaches at China University of Political Science and Law, said in an interview. 'Regulators and exchanges are always consciously or unconsciously tilting toward the financing side of the business.' Live Events The limits of China's stock rally have again been evident this year. The CSI 300 has risen less than 7% despite a burst of optimism over AI, trailing benchmarks in the US and Europe. The underperformance — along with factors including an uncertain economic outlook — helps explain China's extraordinarily high savings rate, which stands at 35% of disposable income. Chen Long, who works in the asset management industry, has taken to social media platform Xiaohongshu to warn people of the risks of chasing the recent rally. 'Many ordinary people come in thinking they could make money, but the majority of them end up poorer,' Chen said in an interview, adding that he has been investing since 2014. 'State-owned companies primarily answer to the government rather than shareholders, while many private entrepreneurs have little regard for small investors.' Over the past year, China's top leadership has shown greater awareness of the stock market's importance as a vehicle for wealth creation. That's especially the case with an ongoing property slump and a fragmented social safety net, which exacerbates a sense of insecurity. The Communist Party's Politburo pledged to 'stabilize housing and stock markets' in a December meeting — a rare expression of support for equities at the high-level gathering. The body also called for 'increasing the attractiveness and inclusiveness of domestic capital markets' in July. There is no quick fix to boosting household confidence 'except for a stock market rebound,' said Hao Hong, chief investment officer at Lotus Asset Management Ltd. 'This is a topic that we economists have been discussing in the closed door meetings in Beijing.'' In some ways, the market's malaise has been decades in the making. 'The exchanges are motivated to fulfill the government's call for increasing companies' financing,' said Lian Ping, chairman of the China Chief Economist Forum, a think tank that advises the government. 'But when it comes to protecting investors' interests, there are few who are motivated to do it.' An explosive growth in new listings made China the world's biggest IPO market in 2022. Yet insufficient safeguards for shareholders and lax oversight of IPO frauds have led to share price crashes and delistings — what retail investors refer to as 'stepping on a land mine.' Take Beijing Zuojiang Technology, which listed in 2019. The company said in a 2023 statement that its product was modeled after Nvidia's BlueField-2 DPU. The company warned in January the following year that it was at risk of being delisted, citing an investigation for disclosure violations. It was subsequently removed from the Shenzhen bourse. The China Securities Regulatory Commission didn't immediately reply to a fax seeking comment. Recent years have seen greater efforts to screen poor-quality IPOs and crack down on financial fraud. There's also a push to reduce additional stock issuances by listed companies and share sales by major stakeholders, while encouraging more corporate profit to be passed on to investors. There has been visible progress. Initial public offerings shrank to nearly a third of 2023 levels last year. Shanghai and Shenzhen-listed companies handed out a combined 2.4 trillion yuan ($334 billion) in cash dividends for 2024, up 9% from the previous year, according to state media. 'The regulations and overall requirements after IPO have become stricter, in terms of reliability, transparency, or information disclosure,' said Ding Wenjie, investment strategist at China Asset Management Co. Reforms, however, have fallen short of transforming the market into one that prioritizes investor returns. Even with the rise in share buybacks, CSI 300 companies spent only 0.2% of their market value on repurchasing shares in 2024, far less than the nearly 2% spent by S&P 500 firms, according to calculations by Bloomberg. The recent policy push to attract more tech listings is also a worrying sign for some investors. Regulators are resuming the listing of unprofitable companies on the STAR board, dubbed China's Nasdaq, while allowing them for the first time for the Shenzhen-based ChiNext board — which is earmarked for growth enterprises. IPOs so far this year have increased by nearly 30% from the same period in 2024. That's an inevitable move to secure capital for firms that are vital to China's battle against the US for supremacy in AI, semiconductor and robotics, but also signals that authorities may again be putting funding needs ahead of investor protection. Fast-tracking more firms to list without tackling the core problems of corporate credibility will 'just add volume without restoring investor trust,'' said Hebe Chen, an analyst at Vantage Markets in Melbourne. Stock exchange officials have been actively reaching out to investment banks and encouraging companies to file for IPOs, according to people familiar with the matter. Some high-quality tech applicants could get access to so-called "green channels" for a faster review and approval process, the people said. 'The entire regulatory environments are still not up to the task of delivering the best out of those companies,' said Dong Chen, chief Asia strategist at Pictet Wealth Management. It requires a more comprehensive improvement of the institutional environment 'to provide the right incentives'' for companies to deliver values to their shareholders, he said.
