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SEBI for Greater Transparency

It will put pressure on fund managers to ensure transparency

The Securities and Exchange Board of India (SEBI) has mandated that mutual funds will have to disclose inter-scheme transfers of corporate bonds on the stock exchanges where they are traded.

Years ago, SEBI authorized the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) and Fixed Income Money Market & Derivatives Association (FIMMA) to set up and maintain reporting platforms to capture information related to trading in corporate bonds. Now, when mutual funds report their trades in corporate bonds, they will also have to disclose the transactions in inter-scheme bond transfers.

“This is only a move to lead to greater transparency,” says Ritesh Jain, Head - Fixed Income, Canara Robeco Mutual Fund. “There is no change in the method by which bonds are valued.” Currently, bonds are valued by a valuation matrix designed by CRISIL.

Fund managers would tend to resort to this route (of inter-scheme transfers) as the most convenient way to meet shortfalls. So bonds would even move from say, a short-term scheme to a long-term one, either due to lack of liquidity or inability of the company to pay on time.

But the compliance departments of a number of asset management companies (AMCs) tend to discourage this activity. Now, with greater transparency, this is more pressure on the fund managers not to resort to such transfers. “We welcome this move of reporting trades separately on the designated platforms,” says Sujoy Das, Head - Fixed Income, Bharti AXA Mutual Fund. “It enables greater price discovery for semi-liquid papers.”

SEBI issued the circular on July 31, 2009 (SEBI/IMD/DOF-1/BOND/Cir-3/2009) stating that the new ruling would come into effect from August 10, 2009.