InvestorQ : Can you tell me about the latest SEBI announcement on routine risk disclosure on stock markets?
Mary Joseph made post

Can you tell me about the latest SEBI announcement on routine risk disclosure on stock markets?

Arusha Ray answered.
4 weeks ago

SEBI may end up becoming a global pioneer in regular and routine risk disclosure for stock markets. What is the idea all about? It is to empower investors with more knowledge based on the accumulated intelligence in the markets. More importantly, to give greater credibility to these insights, it will be put out by SEBI as the regulator and not by the brokers or the financial advisors. This kind of an approach can help investors avoid the now-famous or notorious herd mentality which tends to get accentuated in market extremities.

That sounds interesting but vague. Here is what SEBI intends to do. What SEBI plans to do is to issue regular risk factor disclosures on key market trends. This can be anything of interest and importance to the investors like a surge in the market, profit booking led drop in the market, differentiating between buying and short covering, too much intraday volatility, investors gravitating towards IPOs or small cap stocks etc. The idea is to give the investors the necessary tools to make right decisions by learning from the insights of SEBI.

SEBI has pointed out that normally in good market or bullish market conditions, everyone rushes to buy shares. On the other hand, they also indulge in panic-selling when a crisis strikes. Both may seem right for the moment but could cause damage to their wealth in the long run. The point is with the data insights of SEBI, such decisions can be taken based on researched information rather than on intuition. This would be much better than the statutory risk warnings that are now given in markets, which is not taken seriously.

SEBI wants to have skin in the teeth as the regulator. Merely saying that certain investments are subject to market risks is too hackneyed and generic and is of little use to investors. Now, investors must get detailed datasets based on the data accumulated by SEBI an it will also carry more credibility when it is issued under the name of SEBI. This may not address the market reality but can forewarn investors like when they went overboard trying to invest money aggressively in digital IPOs and were left holding for a long time.

SEBI has clarified that it would not want to come between the investors and their decisions or even their equations with their brokers or advisors. That is outside the ambit of SEBI. However, SEBI wants to ensure that proper data disclosures reach the investor with the added benefit of SEBI learnings. SEBI is already using big data, artificial intelligence and machine learning to fine tune information and insights. That can be made available to the investors through a structured updates mechanism. It would be a good start for sure.