The Securities and Exchange Board of India (SEBI) has announced the establishment of a long-awaited performance validation agency (PVA), named Past Risk and Return Verification Agency (PaRRVA). This agency will offer verification services for risk-return metrics to regulated entities such as Research Analysts (RAs), Investment Advisors (IAs), and algorithmic trading providers.
SEBI’s official announcement
The decision was finalized during SEBI’s Board meeting on December 18, 2024. A press statement issued after the meeting highlighted the purpose and structure of the agency. According to SEBI, PaRRVA will allow regulated entities or their agents to market their services using verified risk-return metrics. The verification process will be overseen by a Credit Rating Agency (CRA) acting as PaRRVA, with a recognized stock exchange serving as the PaRRVA Data Centre (PDC).
The press statement read:
“The Board has approved the proposal to recognize a Past Risk and Return Verification Agency (PaRRVA), which shall verify the risk-return metrics in respect of services of such persons or their agents. This verification will be conducted on a prospective basis from the effective date of opting for the PaRRVA service.”
Pilot phase and stakeholder feedback
PaRRVA will initially operate on a pilot basis for two months. During this phase:
- The agency will collect feedback from stakeholders.
- The feedback will help fine-tune technological systems and processes.
- Post-adjustments, PaRRVA will be fully operational for entities seeking risk-return metric verification.
Benefits and implications
The establishment of PaRRVA is a major step towards ensuring transparency and credibility in the financial advisory and trading ecosystem. By providing verified risk-return metrics:
- Investors can make more informed decisions.
- Regulated entities will benefit from an additional layer of trust and legitimacy in their services.
- SEBI aims to enhance investor confidence while streamlining the market for financial advisory and algorithmic trading.
PaRRVA marks a significant milestone in SEBI’s efforts to regulate and improve transparency in the financial sector. The initiative will not only support regulated entities but also safeguard investors’ interests by providing reliable and verified performance data. Following the pilot phase, PaRRVA is expected to become a cornerstone of SEBI’s regulatory framework.
