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Securities and Exchange Board of India chief M Damodaran has suggested that Sri Lanka should consider introducing a system of grading public issues, similar to what is prevalent in India, to make it easier for investors to understand IPOs. India is currently running a pilot project where Initial Public Offerings are graded on a scale of 1-5 by credit rating agencies, who give their opinion on the risks involved in prospective companies. The grading system does away with alphabetical and numerical rating scales adopted universally by rating agencies. Instead, a company is graded in numbers with five being the best and one being the least attractive. Credit rating agencies also simplify their reporting process, limiting their lengthy reports to a few paragraphs. "Its purely voluntary for a company and they don't pay for the grading. Instead market development fees currently collected by regulators are used to pay a nominal fee to rating agencies," Damodaran said here. "Its something that Sri Lanka should think about introducing here. Because the unsophisticated investor has to wade through reams of financial data, the prospectus, brokers' reports and so on, they may sometimes not understand what they read," he said. While grading makes it easier for people to understand IPOs, the SEBI chairman said no Indian firm has so far secured a rating of five, with the average being between 1-3. South Asian securities regulators from Bangladesh, Bhutan, India, Maldives, Mauritius, Nepal, Pakistan and Sri Lanka met in Colombo to deliberate issues of mutual importance at a two-day conference that closed yesterday.
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