SEBI to Establish Agency for Claim Verification of Algo Providers, RA and IA

The Securities and Exchange Board of India (SEBI) has introduced a new framework to verify the performance claims made by investment advisors, research analysts, and algorithmic trading platforms.

This involves the creation of the Past Risk and Return Verification Agency (PaRRVA), which will be responsible for validating risk-return metrics used in advertisements and communications by regulated entities.

Eligibility Criteria

SEBI has outlined strict eligibility norms for agencies that wish to act as PaRRVA. Only credit rating agencies (CRAs) with at least 15 years of operational experience, a minimum net worth of ₹100 crore, and a record of rating 250 or more issuers of listed debt securities can apply.

Stock exchanges that wish to serve as PaRRVA Data Centres (PDCs) must also have 15 years of experience, a net worth of ₹200 crore, nationwide terminals, and an investor grievance redressal system.

Process and Implementation

After receiving in-principle approval, the CRA has three months to set up the necessary infrastructure, including APIs, servers, and cybersecurity frameworks. Before final recognition, SEBI will conduct site visits and require a certified audit.

Once recognised, the CRA and its associated PDC will begin a two-month pilot phase. During this period, risk-return metrics will be verified but not made public. Feedback from regulated entities will be collected to refine the process.

Verification Methodology 

PaRRVA will define the methodology for computing and verifying risk-return claims. The Oversight Committee, comprising representatives from market infrastructure institutions, CRAs, mutual funds, and brokers, will monitor its functioning.

Updated Guidelines for Communication

SEBI has amended its master circulars to now allow investment advisors, research analysts, and algorithmic trading platforms to use verified risk-return data in their communications. These claims must follow SEBI’s guidelines and include the required disclaimers.

Conclusion

The PaRRVA framework is now in effect, with clear eligibility conditions, timelines, and oversight mechanisms. Its rollout aims to standardise how past performance is validated and presented by registered market participants.

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