Sebi mulls making 'market risk factor disclosures' for investors

New Delhi: In a global first, the Securities and Exchange Board of India (Sebi) is planning to issue regular 'risk factor disclosures' on market trends, including surges and collapses, to help investors make right decisions by learning from the regulator's insights, sources said.

The move, which is still in a preliminary stage of discussion, can help investors avoid a herd mentality that has been particularly witnessed during the last couple of years -- starting with large-scale selloffs when the pandemic hit the world in early 2020, followed soon by a sharp surge in buying of stocks without understanding the fundamentals and largely on account of get-rich-quick stories and then subsequent losses. Particularly of significance has been the losses suffered by investors in a large number of IPOs in the recent past and in the highly complicated futures and options segment of the capital market.

"Though the investors have seen a fixed pattern play out in every single cycle -- that is, everyone rushes to buy shares when the going is good and then they indulge in panic-selling when a crisis strikes. The basics of capital market investments are always thrown out of the window and one key reason for that is the lack of truly independent insights," a top official said.

The official further said most of the research material available in the market has been prepared by the market participants who have their own business interests in mind and therefore it could be a great idea if the regulator itself makes public its insights from upswings or downtrends in the market.

Explaining the idea that Sebi is working on, a high-level source said, "It's time for Sebi to lead by example by making disclosures on matters that can have implications for investors at large and disclosures of important market-wide datapoints."

"A simple sentence mandated under the present regulations that certain 'investments are subject to market risks' has become too cliched and it is like a motherhood statement that does not work anymore. What is required at this moment is that investors get some detailed datasets, that too from the regulator and not only from their wealth managers, whose main aim remains maximising their businesses," said the source involved in the proposed move.

"We are not a nanny state where a regulator can dictate terms to market participants, including investors, on what to do and what not to do, but it is certainly the responsibility of the regulator to ensure that all necessary disclosures are made and to tell the market participants how those disclosures should be made.

"But when we tell others to make all necessary disclosures, it becomes the regulator's duty also to disclose to the investors and all market players what has been its learnings and understandings," the source added.

Sebi has got huge amount of facts and figures and enormous datasets, thanks to the use of big data, artificial intelligence and other facets of latest technologies, all of which can be of immense help to the investors and other market participants if Sebi itself starts making regular disclosures about its

learnings.