A credit rating agency is expected to observe highest standards of integrity and fairness in all its dealings. SMERA is committed to continuously reviewing and monitoring its policies and procedures in light of the contemporary developments. In addition, in order to also align its code of conduct with Code of Conduct Fundamentals for credit rating agencies (the IOSCO Code ) published in December 2004 by the International Organization of Securities Commissions (IOSCO), SMERA has come out with this code. This code will be available to public on SMERA s website at www.smera.in. However, by making this code available to the public SMERA does not assume any responsibility or liability to any third party arising out of or relating to this code.
This code shall not form a part of any contract with any third party and no third party shall have any right (contractual or otherwise) to enforce any of this code s provisions, either directly or indirectly. SMERA in its sole discretion may revise this code to reflect changes in market, legal and regulatory circumstances and changes to SMERA s control, policies and procedures.
SMERA expects all employees to comply with this code and the related policies and procedures. Any exceptions to this code or the related policies and procedures should be approved in writing by the Compliance Officer of SMERA who shall be responsible for interpretation of this code and the related policies and procedures. Failure to comply with this code and the related policies and procedures could be sufficient reason for disciplinary action.
Quality and Integrity of the Rating Process
A. Quality of the Rating Process
1.1 & 1.2 SMERA shall use rating methodologies/criteria that are rigorous, systematic, and, where possible, result in ratings that can be subjected to some form of objective validation based on historical experience.
1.3 In assessing an issuer s creditworthiness, analysts involved in the preparation or review of any rating action shall use methodologies/criteria established by SMERA. Analysts shall apply methodology/criteria existing at the time of rating/review in a consistent manner, as determined by SMERA.
1.4 Credit ratings shall be assigned by the Rating Committee comprising competent and experienced professionals and not by any individual analyst employed by SMERA. Ratings shall reflect all information known, and believed to be relevant by the Rating Committee, consistent with SMERA s published methodology/criteria and SMERA shall use people who, individually or collectively have appropriate knowledge and experience in developing a rating opinion for the type of credit being applied.
1.5 SMERA shall maintain internal records to support its credit opinions for a reasonable period of time or in accordance with applicable law.
1.6 SMERA and its analysts shall take steps to avoid issuing any credit analyses or reports that contain misrepresentations or are otherwise misleading as to the general creditworthiness of an issuer or obligation.
1.7 SMERA shall ensure that it has and devotes sufficient resources to carry out high-quality credit assessments of all obligations and issuers it rates. When deciding whether to rate or continue rating an obligation or issuer, it shall assess whether it is able to devote sufficient personnel with requisite skill sets to make a proper rating assessment, and whether its personnel likely will have access to sufficient information needed in order to make such an assessment.
1.8 SMERA shall structure its rating teams to promote continuity and avoid bias in the rating process.
B. Monitoring and Updating
1.9 In accordance with SMERA s established rating policies and procedures, once a rating is accepted, SMERA shall monitor it on an ongoing basis (except for ratings that are carried out as one time exercise and or Private Rating), and update the rating by: a. regularly reviewing the issuer s creditworthiness; b. initiating a review of the status of the rating upon becoming aware of any information that might reasonably be expected to result in a rating action (including withdrawal of a rating),consistent with the applicable rating methodology/criteria; and, c. updating on a timely basis the rating, as appropriate, based on the results of such review.
1.10 SMERA typically withdraws rating only when the rated instrument is fully redeemed or if there is no instrument outstanding. Where SMERA makes its ratings available to the public, it shall publicly announce if it withdraws rating of an issuer or obligation. Where SMERA s ratings are provided only to its subscribers, SMERA shall announce to its subscribers if it withdraws rating of an issuer or obligation. In both cases, publications by SMERA of the withdrawn rating shall indicate that the rating was withdrawn.
C. Integrity of the Rating Process
1.11 SMERA and its employees shall comply with all applicable laws and regulations governing its activities in each jurisdiction in which it operates.
1.12 SMERA and its employees shall deal fairly and honestly with issuers, investors, other market participants, and the public.
1.13 SMERA s analysts shall be held to high standards of integrity, and SMERA shall not employ individuals with demonstrably compromised integrity.
1.14 SMERA and its employees shall not, either implicitly or explicitly, give any assurance or guarantee of a particular rating prior to a rating assessment. This does not preclude SMERA from developing prospective assessments used in structured finance and similar transactions.
1.15 The Company Secretary of SMERA would be responsible for SMERA and SMERA s employees compliance with the provisions of its code of conduct and with applicable laws and regulations.
1.16 Upon becoming aware that another employee of SMERA is or has engaged in conduct that is illegal, unethical or contrary to SMERA s code of conduct, an employee of SMERA shall report such information immediately to the individual in charge of compliance or an officer of SMERA, as appropriate, so proper action may be taken. SMERA s employees are not necessarily expected to be experts in the law. Nonetheless, its employees are expected to report the activities that a reasonable person would question. Any SMERA officer who receives such a report from a SMERA employee is obligated to take appropriate action, as determined by the laws and regulations of the jurisdiction and the rules and guidelines set forth by SMERA. SMERA s management prohibits retaliation by other SMERA staff or by SMERA itself against any employee who, in good faith, make such reports. In case any staff is found guilty on this count, SMERA shall take disciplinary action upto and including termination of employment.
Independence and Avoidance of Conflicts Of Interest
2.1 SMERA shall not forbear or refrain from taking a rating action, if appropriate, based on the potential effect (economic, political, or otherwise) of the rating action on SMERA, an issuer, an investor, or other market participant.
2.2 SMERA and its analysts shall use SMERA and professional judgment to maintain both the substance and appearance of independence and objectivity.
2.3 The determination of a credit rating shall be influenced only by factors known to the Rating Committee that are believed by it to be relevant for credit assessment. 2.4 The credit rating SMERA assigns to an issuer or issue shall not be affected by the existence of or potential for a business relationship between SMERA(or its affiliates) and the issuer (or its affiliates) or any other party, or the non-existence of such a relationship.
2.5 SMERA or any of its associated arms does not have advisory business.
B. SMERA s Procedures and Policies
2.6 SMERA shall adopt written internal procedures and mechanisms to (1) identify, and (2) eliminate, or manage and disclose, as appropriate, any actual or potential conflicts of interest that may influence the opinions and analyses SMERA makes or the judgment and analyses of the analysts. SMERA shall disclose such conflict avoidance and management measures.
2.7 SMERA s disclosures of actual and potential conflicts of interest should be complete, timely, clear, concise, specific and prominent.
2.8 SMERA shall disclose the general nature of its compensation arrangements with rated entities. Where SMERA receives from a rated entity compensation unrelated to its ratings service, As such SMERA does not have any other subsidiary business activity such as consulting and advisory and therefore the issue of receiving compensation from a rated entity on businesses unrelated to its ratings service does not arise. .
2.9 SMERA and its employees shall not engage in any securities or derivatives trading presenting conflicts of interest with SMERA s rating activities.
2.10 In instances where rated entities (e.g., governments) have, or are simultaneously pursuing, oversight functions related to SMERA, SMERA shall use different employees to conduct its rating actions than those employees involved in its oversight issues.
C. Analyst and Employee Independence
2.11 Reporting lines for Analyst and their compensation arrangements shall be structured to eliminate or effectively manage actual and potential conflicts of interest. An analyst will not be compensated or evaluated on the basis of the amount of revenue that SMERA derives from issuers that the analyst rates or with which the analyst regularly interacts.
2.12 SMERA analysts shall not be involved in deciding the commercial terms of the rating assignment. This is decided by the business development group /Senior Management.
2.13 No SMERA Employee/Rating Committee Member shall participate in or otherwise influence the determination of rating of any particular entity or obligation if the Analyst/Rating Committee Member or member of his family (family includes self, dependent spouse, dependent parents, dependent children, dependent parents in laws): a. Owns securities or derivatives of the rated entity, other than holdings in diversified collective investment schemes;
b. Owns securities or derivatives of any entity related to a rated entity, the ownership of which may cause or may be perceived as causing a conflict of interest, other than holdings in diversified collective investment schemes;
c. had been employed or had other significant business relationship with the rated entity in the immediately preceding one year that may cause or may be perceived as causing a conflict of interest;
d. Has an immediate relation (i.e., a spouse, partner, parent, child, or sibling) who currently works for the rated entity; or
e. Has, or had in the immediately preceding one year, any other relationship with the rated entity or any related entity thereof that may cause or may be perceived as causing a conflict of interest.
2.14 SMERA s analysts and anyone involved in the rating process (or their dependent spouse, partner or minor children/family member) shall not buy or sell or engage in any transaction in any security or derivative based on a security issued, guaranteed, or otherwise supported by any entity within such analyst s area of primary analytical responsibility, other than holdings in diversified collective investment schemes except as permitted under SMERA s internal securities trading policy.
2.15 SMERA employees are prohibited from soliciting money, gifts or favors from anyone with whom SMERA does business and are prohibited from accepting gifts offered in the form of cash or any gifts exceeding a minimal monetary value.
2.16 Any SMERA analyst who becomes involved in any personal relationship that creates the potential for any real or apparent conflict of interest (including, for example, any personal relationship with an employee of a rated entity or agent of such entity within his or her area of analytic responsibility), shall be required to disclose such relationship to the appropriate manager or officer of SMERA.
2.17 SMERA shall establish policies and procedures for reviewing the past work of analysts that leave the employ of the CRA and join an issuer the SMERA analyst has been involved in rating, or a financial firm with which the SMERA analyst has had significant dealings as part of his or her duties at the SMERA.
SMERA s Responsibilities to the Investing Public and Issuers
A. Transparency and Timeliness of Ratings Disclosure
3.1 SMERA shall distribute in a timely manner its ratings decisions regarding the issuers and securities it rates if any.
3.2 SMERA shall publicly disclose its policies for distributing ratings, reports and updates.
3.3 SMERA shall indicate with each of its ratings when the rating was updated.
3.4 Except for private ratings provided only to the issuer, SMERA shall disclose to the public, on a non-selective basis and free of charge, any rating regarding publicly issued securities, or public issuers themselves, as well as any subsequent decisions to discontinue such a rating. Press releases providing brief rationale of the rating are provided on SMERA s website.
3.5 SMERA shall publish sufficient information about its procedures, methodologies and assumptions (including financial statement adjustments that deviate materially from those contained in the issuer s published financial statements) so that outside parties can understand how a rating was arrived at by SMERA. This information will include (but not be limited to) the meaning of each rating category and the definition of default.
3.6 When issuing or revising a rating, SMERA shall explain in its press releases and reports the key elements underlying the rating opinion.
3.7 Where feasible and appropriate, prior to issuing or revising a rating, SMERA shall inform the issuer of the critical information and principal considerations upon which a rating will be based and afford the issuer an opportunity to clarify any likely factual misperceptions or other matters that SMERA would wish to be made aware of in order to produce an accurate rating. SMERA will duly evaluate the response. Where in particular circumstances SMERA have not informed the issuer prior to issuing or revising a rating, SMERA shall inform the issuer as soon as practical thereafter and, generally, shall explain the reason for the delay.
3.8 SMERA would publish periodic default and transition studies on its ratings. These studies will explain the methodologies, assumptions and limitations.
3.9 SMERA undertakes only ratings solicited by issuers It would hence not be necessary to separately disclose whether each rating has been initiated at the request of the issuer.
3.10 Because users of credit ratings rely on an existing awareness of SMERA methodologies, practices, procedures and processes, SMERA shall fully and publicly disclose any material modification to its methodologies and significant practices, procedures, and processes. Where
feasible and appropriate, disclosure of such material modifications shall be made prior to their going into effect. SMERA shall carefully consider the various uses of credit ratings before modifying its methodologies, practices, procedures and processes.
B. The Treatment of Confidential Information
3.11 SMERA shall adopt procedures and mechanisms to protect the confidential nature of information shared with it by issuers under the terms of a confidentiality agreement or otherwise under a mutual understanding that the information is shared confidentially. Unless otherwise permitted by the confidentiality agreement and consistent with applicable laws or regulations, SMERA and its employees shall not disclose confidential information in press releases, through research conferences, to future employers, or in conversations with investors, other issuers, other persons, or otherwise.
3.12 SMERA shall use confidential information only for purposes related to its rating activities or otherwise in accordance with any confidentiality agreements with the issuer.
3.13 SMERA employees shall take all reasonable measures to protect all property and records belonging to or in possession of SMERA from fraud, theft or misuse.
3.14 SMERA employees shall be prohibited from engaging in transactions in securities when they possess confidential information concerning the issuer of such security. 3.15 In preservation of confidential information, SMERA employees shall familiarize themselves with the internal securities trading policies maintained by it, and periodically certify their compliance as required by such policies.
3.16 SMERA employees shall not selectively disclose any non-public information about rating opinions or possible future rating actions of SMERA, except to the issuer or its designated agents.
3.17 SMERA employees shall not share confidential information entrusted to SMERA with employees of any affiliated entities. SMERA employees shall not share confidential information within SMERA except on an as needed basis.
3.18 SMERA employees shall not use or share confidential information for the purpose of trading securities, or for any other purpose except for the conduct of SMERA s rating s business.
Disclosure of the Code of Conduct and Communication with Market Participants
4.1 SMERA shall disclose to the public its code of conduct and describe how the provisions of its code of conduct fully implement the provisions of the IOSCO Principles Regarding the Activities of Credit Rating Agencies and the IOSCO Code of Conduct Fundamentals for Credit Rating Agencies. If SMERA s code of conduct deviates from the IOSCO provisions, SMERA shall explain where and why these deviations exist, and how any deviations nonetheless achieve the objectives contained in the IOSCO provisions. SMERA shall also describe generally how it intends to enforce its code of conduct and shall disclose on a timely basis any changes to its code of conduct or how it is implemented and enforced.
4.2 SMERA s Chief Executive Officer shall be responsible for communicating with market participants and the public about any questions, concerns or complaints that SMERA may receive. Chief Executive Officer will help ensure that SMERA s officers and management are informed of those issues so that it could be taken note of when setting the organization s policies.
Limitations of SMERA Ratings
Ratings are arrived at based on information obtained in the rating process. In addition to management meetings and information provided by rated entities, the rated entity's audited accounts, regulatory filings, and information provided by management form an important source of information. Although reasonable care has been taken to ensure that the information in the Rating Report is true, such information is provided as is without any warranty of any kind and SMERA, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. The limitations of SMERA rating are given below
1. The rating is a one-time exercise and does not envisage automatic surveillance. The rating is valid for a period of one year ; subject to however, no significant changes / events occur during that period which could materially affect the business and financials parameters of the organization / project
2. SMERA is not responsible for any errors in transmission and specifically states that SMERA shall have no financial liability whatsoever to the users of the Rating Report.
3. The rating does not constitute an audit and SMERA s work is significantly different from that of an audit and accordingly, cannot be relied upon to provide the same level of assurance as an audit.
4. SMERA Rating Report is not a recommendation to purchase, sell or hold any securities and investors should take their own decision. In providing this SMERA does not underwrite the risks of any third party or that of the subject. SMERA Rating is not liable to the Company or any third party in respect of any matter specified in the Rating Report.
5. SMERA Rating is not an opinion on associate, affiliate or group companies of the rated entity, or on promoters, directors or officers of the rated entity.
6. SMERA Rating is not an indication of compliance or otherwise with legal or statutory requirements