New norms for rating agencies shortly: Sebi official

Within a week of warning credit rating agencies of tough action for lack of transparency, markets watchdog Sebi today said it is revising regulations governing these bodies to bring about more accountability.
"We have taken cognisance of a few events and revisiting the credit rating agency (CRA) regulations. The underlying principle behind these norms is to ensure enhanced transparency and accountability.
"The norms are at a consultation stage and therefore I can't give a timeline," Sebi Whole-Time Member Rajeev Kumar Agarwal told reporters.
After issuers of some highly-rated debt instruments defaulted on payments, Sebi recently standardised the ratings symbols, apart from fine-tuning the communication between rating agencies and debenture trustees.

Last week, Sebi Chairman U K Sinha had said the regulator would act tough against rating agencies for their lapses, after it came to light that CRAs were offering only limited disclosures when they suspended ratings.
"We cannot tolerate these practices as investors have the right to know about the reasons behind such moves," Sinha told senior editors in an interaction.

Hinting at a major overhaul of CRA regulations, Sinha had said Sebi was working on "three-four things" in this regard, including mandatory disclosure of reasons for suspension of ratings.
"If a bond market investor suddenly finds that a rating has been suspended, it must be explained. If a rating agency can give 10 reasons for an upgrade or a downgrade, it must explain the suspension also and it cannot be dismissed in one sentence. Sebi won't tolerate that," Sinha had said.

The chairman also spoke about mushrooming of rating agencies, saying it did not want to make it easy for CRAs to mushroom.
There are six rating agencies in the country -- the S&P-owned Crisil, Fitch-promoted India Ratings, Moody's-owned Icra and ARC Rating-affiliated Care Rating, besides standalone agencies Brickwork and Smera Ratings.
It can be noted that mutual fund investors lost heavily from Amtek Auto debt instruments after JP Morgan AMC was forced to delay redemption following cash flow issues at the leading auto component maker.
On FPI participation in commodity markets, Agarwal,
who was addressing a Crisil seminar on corporate bond market, said there are lot of issues to be tackled before they are allowed into this segment.

"Our advisory panel is looking into all the issues. Certain things need to be discussed with other regulators as various entities are related to them," Agarwal said.
Though he said allowing stock exchanges to have commodity segment is the ultimate goal, a policy on this is yet to be framed.
Regarding algo trading, Agarwal said new guidelines are under discussion and should be out in a month. The new regulations will ensure a level-playing field for all stakeholders, he added.
On delisting threat of around 4,200 non-traded companies, he said the regulator is working on the guidelines to remove companies which have been suspended for many years.

"We have to take measures first to ensure investors are protected," he added.
On May 25, Sinha had told an editors' meeting that Sebi had decided to delist as many as 4,200 companies and warned erring promoters and auditors of a mammoth clean-up exercise.
Sebi's move came after it was found that shares of these companies are not being traded, and their promoters were refusing to give exit opportunity to investors.
Out of these 4,200 companies, over 1,200 firms' shares are listed on BSE and NSE, but trading has been suspended for various non-compliance issues for over seven years. Others are listed on various regional exchanges that have become defunct.

Sinha had also warned of strong action against the auditors who close their eyes to the lapses in the financial accounts of listed firms.
"So far, we have had a hands-off approach on auditors, but we will take action if something serious comes to our notice. Auditors cannot go scot-free if they have been certifying the books for years without pointing finger at the lapses," Sinha had said.