Market regulator publishes rules on standardization of rating scales

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Bombay : The Securities and Exchange Board of India (Sebi) on Monday issued a circular on the standardization of rating scales used by credit rating agencies (CRAs).

This follows deliberations by the regulator with various stakeholders, including credit rating agencies. The circular will enter into force on January 1, 2023. NCAs will then have to declare to Sebi their compliance with the standards as endorsed by their boards of directors within one quarter of the date of applicability.

“In accordance with consultation with credit rating agencies, standardized symbols and definitions have been developed for issuer rating and corporate credit rating,” Sebi said in its four-page circular.

A “rating outlook” reflects the expected direction of rating movement in the short to medium term, while a “rating watch” indicates a CRA’s view of the expected direction of rating movement. in the short term, Sebi said.

The standard descriptors to use for an issuer or security are placed on Rating Watch, the regulator said. This will include Rating Watch with positive implications, Rating Watch with developing implications, and Rating Watch with negative implications.

Essentially, stable, positive and negative are the standard descriptors to use for an issuer or security placed on the rating outlook, Sebi said. In addition, the monitoring of the implementation of these standards will be carried out through biannual internal audits for the rating agencies mandated under the Sebi (credit rating agencies) regulations, he said. The circular directs each credit rating agency to assign a rating outlook and publish it in a press release.

Issuers rated AAA are considered to have the highest degree of security with respect to the timely servicing of debt securities.

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