Sebi's New Rules to Reshape Repo Valuation by January 2025

Securities and Exchange Board of India (Sebi) has announced the introduction of new valuation metrics for mutual funds involved in repo transactions, effective January 1, 2025. This change aims at achieving uniformity across valuation methodologies and addressing concerns of regulatory arbitrage in money market and debt instruments.

The Securities and Exchange Board of India (Sebi) has unveiled new valuation metrics for mutual fund repo transactions to be effective from January 1, 2025. These new rules are designed to standardize the valuation methods for money market and debt instruments, safeguarding against potential regulatory discrepancies.

According to Sebi's circular, repurchase transactions, including those with tenors up to 30 days, will now be valued on a mark-to-market basis. Currently, these are evaluated on a cost-plus accrual basis. The updated framework mandates the engagement of valuation agencies for most repo transactions except overnight deals.

Sebi's initiative extends to allowing mutual funds to invest in repos of Commercial Papers and Certificates of Deposits, a move to bolster corporate bond market growth. Eligible mutual funds can partake in repo agreements involving 'AA' rated or higher corporate debt securities.

(With inputs from agencies.)