Sebi tightens disclosure norms for rating agency employees

Securities and Exchange Board of India (Sebi) today tightened disclosure requirements for employees of credit rating agencies to avoid conflict of interest and insider trading.

Employees at rating agency will now have to seek prior approval of their compliance officer before buying or selling shares of a company, which have been rated or graded by the company.

The compliance officer, meanwhile, will need an approval of the chief executive officer (CEO), Sebi has said.

Both the CEO and the compliance officer will have to ensure that there is no conflict of interest while considering the request for prior approval, Sebi said in a circular today.

Sebi said the new guidelines will be applicable to so-called 'access persons' connected to a rating agency. An access person can be an official appointed as CEO (or MD, president), an employee carrying out function of analyst, or compliance, or head of the department. It will also include members of the rating committee or any other employee as decided by the rating agency.

Sebi has said rating agencies will have to adopt adequate systems, procedures and policies to ensure that they address conflict of interest while making their own investments in securities. They will also have to ensure their employees don't take undue advantage of any price sensitive information that they may have about any company.

Among other requirements, Sebi has said a new joinee will have to submit a statement of holding of all securities to the compliance officer or the CEO within seven working days of joining. All existing employees will have to submit details of share purchase or sale within seven days and a consolidated statement of their entire holdings at the end of every financial year.

Further, a rating agency will have to ensure that employees involved in the rating or grading process don't own the securities of the issuer. These new guidelines will come into effect from October 1, 2013 and rating agencies will have to disclose on their websites policies adopted by them in this regard, Sebi said.