Sebi sets up PaRRVA for risk, return performance verification

Market regulator Sebi is establishing the Past Risk and Return Verification Agency (PaRRVA) as a Performance Validation Agency (PVA). This agency will offer validation services for research analysts (RAs), investment advisors (IAs), and algorithm providers seeking verification. 

A Credit Rating Agency (CRA) shall act as PaRRVA with a recognized stock exchange serving as PaRRVA Data Centre (PDC). PaRRVA will be responsible for verifying risk-return metrics for Investment Advisors (IAs), Research Analysts (RAs), Algorithmic Trading professionals, and individuals authorized by the Board to provide these services. This verification will be conducted prospectively, starting from the date of opting for the PaRRVA service.

"PaRRVA shall carry out the verification of risk-return metrics for Investment Advisors (IAs), Research Analysts (RAs) and Algorithmic Trading, and those persons permitted by the Board to offer these services. It is clarified that the risk return metrics verification shall be made only on a prospective basis from the effective date of opting for the PaRRVA service," the market regulator said in a statement.

The regulator added it shall be operational on a pilot basis for a period of two months. During the pilot period, the agency will gather feedback from stakeholders to optimize technological systems and processes for a more efficient and reliable experience. Following adjustments, PaRRVA will operate regularly for the specified entities. Utilizing the agency's services for past risk-return metrics is optional and not mandatory.

It is to be noted that the capital markets regulator had proposed to form this body with the aim of verifying performance claims made by SEBI-registered intermediaries and other entities. This validation process would enable these intermediaries/entities to present their validated performance to investors, ultimately expanding their service reach. 

Experts suggested that research analysts (RAs), investment advisors (IAs), and brokerages' algo services are eagerly awaiting the agency to become operational, as it will support in marketing the products and services they offer.

The SEBI's consultation paper, issued earlier this year, discussed the need expressed by registered intermediaries to demonstrate their performance to investors to bolster their credibility and attract more clients. 

To meet this demand, the proposal is to allow registered intermediaries to disclose their performance to investors while putting measures in place to prevent unsubstantiated claims or misleading performance data.