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SEBI finalises norms for research analysts, proxy advisory firms

By PTI
17 June, 2014

To safeguard Indian markets from manipulative research reports including by foreign entities, Sebi has finalised detailed norms for ‘research analysts’ to ward off any conflict of interest in their activities.

Foreign entities acting as research analysts for Indian markets or India-listed companies would need to tie-up with a registered entity in India, while domestic players would also be subjected to strict disclosures and scrutiny.

The final norms in this regard would be notified soon after draft regulations are approved by the board of capital markets regulator Sebi at its meeting later this week, a senior official said.

The new norms, which would also cover ‘proxy’ advisors or those providing advisory services similar to research analysts, have been framed in the wake of various instances of ‘mischievous’ research reports having been circulated among the investors in the past to manipulate the overall market trends or share price of individual companies.

As per the draft norms, every individual or entity desiring to function as a research analyst would need to get registered after meeting the prescribed criteria regarding qualifications, capital adequacy, establishment of internal policies and procedures, firewalls against conflict of interest, sufficient and timely disclosures, among others.

The regulations also provide for penal actions that Sebi can take against erring research analysts. Such actions would include cancellation of registration, debarment, or penalties similar to any other market intermediary.

All existing research entities and individuals engaged in research activity would come under these regulations. Also, the research entity or proxy adviser has to segregate their research work from its other activities.

Further, entities would have to ensure that yearly audits are carried with respect to complying with these regulations.

With regard to foreign entities, Sebi has decided that they have to enter into an arrangement with registered research analysts.

The registered entities would be allowed to distribute third party research reports as per the regulations, the official said.

Earlier the proposal was that overseas entities would be required to incorporate or establish an Indian office to carry out the function of research analysts.

Under the norms finalised by Sebi, the compensation of individual research analyst would be decided by the board of directors or committee of directors. The panel should not have any representation from the merchant banking, investment banking or brokerage services department.

Comments from more than 80 entities/individuals were received on the consultation paper on regulatory framework for research analysts which was issued by Sebi in November last.

In July 2011, the board had approved a proposal that Sebi may look at regulating research analysts in the domestic securities market. 


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SEBI finalises norms for research analysts, proxy advisory firms

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