Market regulator Securities and Exchange Board of India has been keen on allowing an Indian credit rating agency to verify past risks and future return claims made by market participants like research analysts, investment advisors, algo providers and others.
While there has been a high demand to have a solid framework on the issue, the regulator may take three to four more weeks to come out with a final circular on a Past Risk and Return Verification Agency or PRRVA, people in the know told NDTV Profit. The suggestion for such an agency was approved in the last board meeting of the regulator, held on Dec 18, 2024.
As per the people quoted above, until now Crisil and CareEdge Ratings have shown interest to act as a PRRVA, but the decision on who gets appointed and what kind of guardrails the regulator will employ in making such a decision would be clear once the circular is out.
SEBI on Dec 18 approved a proposal to recognise a "Past Risk and Return Verification Agency" to help regulated entities market their services to investors using verified risk-return metrics.
Under this new framework, a credit rating agency will act as the agency, with a recognised stock exchange serving as the data centre for it.
It had been previously reported by NDTV Profit that the regulator had likely finalised the framework to regulate algorithm-based trading, which works on putting future return strategies based on past performance.
The report had mentioned that the regulator may allow qualified credit rating agencies to serve as performance validation agencies for these strategies. Additionally, it was reported that NSE is expected to be responsible for maintaining a data centre related to the validation process.
However, it was clarified that the verification of risk-return metrics will only apply prospectively, beginning from the date of opting for the agency’s service.
Initially, the agency will operate on a pilot basis for a period of two months. During this period, the agency will gather feedback from stakeholders and refine its technological systems and processes to ensure a stable and efficient experience.
After this fine-tuning phase, the agency will become fully operational for the entities mentioned. Participation in the agency’s services will be voluntary, and it will not be required for those who do not wish to make claims about their past risk-return metrics.
While there has been a high demand to have a solid framework on the issue, the regulator may take three to four more weeks to come out with a final circular on a Past Risk and Return Verification Agency or PRRVA, people in the know told NDTV Profit. The suggestion for such an agency was approved in the last board meeting of the regulator, held on Dec 18, 2024.
As per the people quoted above, until now Crisil and CareEdge Ratings have shown interest to act as a PRRVA, but the decision on who gets appointed and what kind of guardrails the regulator will employ in making such a decision would be clear once the circular is out.
SEBI on Dec 18 approved a proposal to recognise a "Past Risk and Return Verification Agency" to help regulated entities market their services to investors using verified risk-return metrics.
Under this new framework, a credit rating agency will act as the agency, with a recognised stock exchange serving as the data centre for it.
It had been previously reported by NDTV Profit that the regulator had likely finalised the framework to regulate algorithm-based trading, which works on putting future return strategies based on past performance.
The report had mentioned that the regulator may allow qualified credit rating agencies to serve as performance validation agencies for these strategies. Additionally, it was reported that NSE is expected to be responsible for maintaining a data centre related to the validation process.
However, it was clarified that the verification of risk-return metrics will only apply prospectively, beginning from the date of opting for the agency’s service.
Initially, the agency will operate on a pilot basis for a period of two months. During this period, the agency will gather feedback from stakeholders and refine its technological systems and processes to ensure a stable and efficient experience.
After this fine-tuning phase, the agency will become fully operational for the entities mentioned. Participation in the agency’s services will be voluntary, and it will not be required for those who do not wish to make claims about their past risk-return metrics.
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