ISLAMABAD, Jan 9: The Securities and Exchange Commission of Pakistan (SECP) on Friday prescribed valuation methodology and provisioning criteria for debt securities held by collective investment schemes (CIS).

The value of debt securities held by CIS will be determined in accordance with the methodology prescribed by SECP on Friday.

The Mutual Funds Association of Pakistan (MUFAP), based on the prescribed methodology, shall determine and disseminate the values of different debt securities on a daily basis and announce on its website, said an announcement issued by the commission.

Owing to dormant debt securities market coupled with recent liquidity crunch, fair valuation of debt securities based on market traded data has become unviable. Therefore, the traded volume based pricing mechanism for determining the fair value of debt securities had become ineffective, the SECP said.

However, to determine the daily true and fair Net Asset Value (NAV) of CIS, it is imperative to find out the fair valuation of debt securities held by them.

In order to derive the fair valuation, MUFAP, after thorough review of international best practices, has submitted a valuation methodology and provisioning criteria for debt securities. The SECP after refining the proposed methodology through a series of consultative meetings has prescribed the same through a circular on Tuesday for mutual fund industry.

The circular is available at SECP website.

It supersedes SECP’s earlier directive issued vide another circular on Nov 5, 2008 regarding valuation of debt securities.

Adoption of the valuation methodology is aimed at bringing consistency across the mutual fund industry and is expected to lead to discover fair price of debt securities, says the commission.