- The proposed Risk-o-Meter will have six levels: AAA = Lowest Credit Risk (Irish Green); AA+/AA/AA− = Very Low Risk (Chartreuse); A+/A/A− = Low Risk (Neon Yellow); BBB+/BBB/BBB− = Moderate Risk (Caramel); BB+/BB/BB− = Moderate Risk of Default (Dark Orange); and B+ to D = High to Very High Risk of Default (Red).
- Issuers and Online Bond Platform Providers (OBPPs) would have to display the meter in offer documents, abridged prospectuses, private placement memorandums, advertisements, websites and mobile platforms. The name of the Credit Rating Agency and actual rating must also appear below the meter.
- If a debt security has ratings from multiple Credit Rating Agencies, the Risk-o-Meter will be based on the lowest rating, while all available ratings must still be disclosed. For an unsecured debt instrument, the word Unsecured must be prominently shown in bold red text.
- The meter indicates credit risk only, meaning the possibility that the issuer may fail to repay interest or principal. It does not measure market risk or liquidity risk, so investors must still evaluate other risks before investing. SEBI’s proposal is intended to improve transparency, investor protection and comparison of debt securities, particularly for retail investors entering the bond market.
Question:
Q1. Under SEBI’s proposed Credit Risk-o-Meter, which colour represents the highest to very high risk of default?a) Irish Green
b) Neon Yellow
c) Dark Orange
d) Red
Answer: d) Under SEBI’s proposed Credit Risk-o-Meter, debt securities rated from B+ to D fall under High to Very High Risk of Default and are represented by the colour Red.
