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TMI BlogRecognition and operationalization of Past Risk and Return Verification Agency (PaRRVA)X X X X Extracts X X X X X X X X Extracts X X X X ..... mic Trading ("regulated persons"), in terms of risk and return metrics verified by PaRVVA. 2. A CRA may be recognized as a PaRRVA, in terms of Regulation 12A of the 'SEBI (Credit Rating Agencies) Regulations, 1999' ("CRA Regulations") read with Regulation 16E of the Intermediaries Regulations. Such CRA shall engage with a recognized SE which will serve as PaRRVA Data Centre ("PDC"). Suitable enablement has been made in Regulation 38B of the 'Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018' ("SECC Regulations"). 3. PaRRVA-PDC shall have principal and agent relationship wherein PaRRVA will avail the services of PDC for verification of risk-return metrics. However, the complete responsibility for the verification work shall lie with PaRRVA. Eligibility Criteria for PaRRVA 4. The eligibility criteria for a CRA for recognition as PaRRVA shall be as under (as on the date of application for recognition as PaRRVA): (i) Number of years of existence of the CRA should be minimum 15 years; (ii) Minimum net worth of the CRA should be INR 100 crores; (iii) Number of issuers which have obtained ratings of listed or proposed to be listed de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... while granting recognition and during the currency of the recognition, may also impose conditions, as may be deemed fit, in the interest of investors in the securities market. Operationalization of PaRRVA - on 'pilot basis' for two months 11. Pursuant to grant of recognition as PaRRVA, the concerned CRA and SE shall initiate the verification services of risk-return metrics in respect of services of regulated persons, on a pilot basis for a period of two months. The pilot period may be extended by SEBI on such terms and conditions as may be prescribed. 12. During the pilot period, relevant fine-tuning (if required) shall be carried out to ensure a stable technological system and efficient and streamlined processes. 13. PaRRVA shall seek feedback from regulated persons while implementing this process during the pilot period. The verified risk and return metrics shall not be made available to the public during the pilot period. 14. After the pilot period, based on the assessment of the Oversight Committee [Constitution of the committee has been discussed in subsequent section of this circular] and subject to relevant changes in the operational framework (if required), PaRRVA sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s processed data shared with PaRRVA; (vi) Establishing connectivity with PaRRVA for sharing output post verification process; (vii) Providing support to PaRRVA to handle and address investors' queries/grievances; and (viii) Conducting half-yearly internal audits on process and information security and share the reports with PaRRVA. 18. While Para 16 and 17 above provide broad areas of roles and responsibilities of PaRRVA and PDC, the list is not exhaustive. The roles and responsibilities may further evolve over a period of time and shall be appropriately documented by PaRRVA and PDC after due consultation with SEBI. Contours of the verification process under PaRRVA-PDC framework 19. The verification process shall be carried out by PDC as an agent of PaRRVA being the Principal. PDC shall receive the input data for verification process from regulated persons, MIIs and AMFI (for Mutual Funds NAV data) through Application Programming Interface' ("API")/ file upload etc. on real time basis, at the end of the day or any other frequency, based on the nature of data and services. 20. PDC shall carry out the verification process in terms of the methodology specified by PaRRVA and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gulations, 2008. 25. The guidelines for presentation of verified risk-return metrics shall be as detailed in Annexure -B. Disclaimers in respect of verified risk-return metrics 26. Any display of risk-return metrics verified by PaRRVA and any claim using such metrics shall be accompanied with appropriate disclaimers. These shall inter alia include disclaimers specifying that past performance is not indicative of future results, verified returns do not guarantee any assured returns, the information about risk-return metrics should not be used as singular basis for investment decisions and the verified return may be different from the actual return accrued to a client. A list of such disclaimers is provided at Annexure -C. Oversight Committee for monitoring the activities of PaRRVA and PDC 27. PaRRVA shall constitute an oversight committee within 2 months of the date of in-principle approval given by SEBI, to oversee the activities of the CRA as PaRRVA and the SE as PDC. The constitution of the oversight committee shall be as follows: (i) It shall primarily comprise of non-independent directors (excluding Managing Director) of the PaRRVA and PDC, public interest directors of P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chanism provided by PaRRVA. PaRRVA shall constitute such mechanism for dispute resolution within two months of in-principle approval for recognition as PaRRVA. The mechanism shall also provide opportunity for appeal with the Oversight Committee of the PaRRVA for dispute resolution. 36. If no resolution is reached at the level of the Oversight Committee, the PaRRVA or the regulated person, as per the agreed terms and conditions of the services, may approach Online Dispute Resolution ("ODR") portal [URL -https://smartodr.in/login]. 37. Investors' complaints against any intermediary with respect to the PaRRVA verified risk or return metrics or investors' complaints against PaRRVA shall be dealt through SCORES and any such disputes through the ODR portal. 38. In the likelihood of dispute between PaRRVA and PDC, the same shall be resolved by the Oversight Committee. Review of operational framework for verification of risk-return metrics 39. Based on the on-ground experiences and feedback from the stakeholders, a review of the specified operational framework for verification of risk-return metrics, if required, shall be done as per the process given below under the overall supervisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urn metrics pertaining to algorithmic trading, it has been decided to amend the abovementioned provisions of the Master Circular for Stock Brokers by way of insertion of Para 58.14, as under: "The above restrictions mentioned in para 58.13 shall not apply in case reference is made to risk-return metrics of algorithms verified by Past Risk and Return Verification Agency (PaRRVA), in the manner specified by SEBI." 44. The circular shall come into force with immediate effect. 45. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 read with (i) Regulation 16D, 16E and 16F of the Intermediaries Regulations; (ii) Regulation 12A of the CRA Regulations; (iii) Regulation 38B of the SECC Regulations; (iv) Regulation 33 of the Securities and Exchange Board of India (Research Analysts) Regulations, 2014; (v) Regulation 29 of the Securities and Exchange Board of India (Investment Advisers) Regulations, 2013; and (vi) Regulation 30 of the Securities and Exchange Board of India (Stock Brokers) Regulations, 1992; to protect the interests of investors in securities market and to promote the development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the Oversight Committee. Annexure - B to Circular dated April 4, 2025 Guidelines for presentation of verified risk-return metrics A. In terms of Para 24 of the above mentioned Circular, the following guidelines must be adhered to, in order to ensure holistic representation and prevent misrepresentation: (i) Selective display of PaRRVA verified returns of any specific product or service shall not be permitted. For example, an IA/RA who has given advice/recommendation of multiple portfolios/stocks/derivatives during a specific period cannot make a statement displaying standalone verified risk-return metrics of one specific portfolio/stock for the said period. Similarly, a Stock Broker/Algo Provider who has applied to PaRRVA for verification of multiple Algos cannot make a statement displaying standalone verified risk-return metrics of one specific algo. (ii) Any claim using risk-return metrics of one of the PaRRVA verified portfolio/algo shall always be accompanied with information about the total number of portfolios/ algos verified by the PaRRVA, during the relevant period, and shall also refer to the range of positive/negative returns and other risk-return metrics pert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a breach of contract shall be laid down by the PaRRVA. Annexure - C to Circular dated April 4, 2025 Disclaimers in respect of verified risk-return metrics In terms of Para 26 of the above mentioned Circular, the disclaimers for display of risk-return metrics is as under: All risk-return metrics verified by PaRRVA as well as any claim/ display of such verified risk-return metrics by regulated persons or their agents shall be accompanied with the following disclaimers: (i) All the information contained herein is for reference purpose only and must not be used on singular basis for any investment decision. (ii) The information contained in this document is not intended to provide any professional advice or any advice/suggestion to subscribe to any intermediary. (iii) While verification of risk-returns metrics by PaRRVA is based on the data submitted by the regulated persons or their agents, however, verification of risk-returns metrics by PaRRVA must not be considered as an assurance of compliant status of such regulated persons with the rules, regulations or other regulatory guidelines governing them. (iv) While verified risk-returns metrics represent historical ris ..... X X X X Extracts X X X X X X X X Extracts X X X X
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