Sebi has decided to introduce new valuation metrics for repo transactions through mutual funds.
The Securities and Exchange Board of India (SEBI) said in its circular that the new framework will come into effect from January 1, 2025.
Markets regulator Sebi on Tuesday decided to introduce new valuation metrics for repurchase or repo transactions by mutual funds, whereby the securities used in such transactions should be valued on a mark-to-market basis. will
The purpose of the new valuation matrix is to provide uniformity in the valuation methodology for all money market and debt instruments as well as to address concerns of unintended regulatory arbitrage that may arise due to different valuation methodologies.
The Securities and Exchange Board of India (SEBI) said in its circular that the new framework will come into effect from January 1, 2025.
In its circular, Sebi said it has decided that “repurchase (repo) transactions including TREPS with a tenure of up to 30 days will also be valued on a mark-to-market basis”.
Currently, repo transactions including Tri-Party Repo (TREPS) with a maturity of up to 30 days are on a cost-plus-deposit basis. Further, valuation of all repo transactions, other than overnight repos, will be obtained from valuation agencies, apart from valuation of money market and debt securities.
In repo transactions, also known as repo or sale-repurchase agreements, securities are sold with the seller agreeing to buy them back at a later date. This instrument is used to raise short-term capital.
Sebi said that all money market and debt securities, including floating rate securities, will be valued on the average of security level prices obtained from rating agencies.
If the security level values given by the valuation agencies are not available for the new security (which is not currently held by a mutual fund), the price of such security on the date of allotment/purchase yield/ Can be done at cost.
In June, Sebi allowed mutual funds to invest in repo transactions in securities such as commercial papers and certificates of deposits to boost the growth of the corporate bond market. Mutual funds may participate in repo transactions only in corporate debt securities rated “AA” and above.
(This story has not been edited by News18 staff and is published from a syndicated news agency feed. PTI)