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SEBI notifies norms for research analysts

02 September, 2014

The capital market regulator Securities and Exchange Board of India (SEBI) has issued a set of final norms for ‘research analysts’, including minimum requirements in terms of experience and qualification as well as capital adequacy, in order to safeguard Indian markets from manipulative research reports.

The new norms seek to register and regulate research analysts and entities engaged in issuance of research reports or research analyses and/or publication of substance of research report or who provide research report or make ‘buy/sell/hold’ recommendations on securities or who make recommendations on public offer.

As per the new norms by the capital market watchdog, all research analysts, be it individual analysts, brokerage houses or merchant bankers, would be required to be registered with it.

The regulations prescribe requirements relating to experience, qualification, certification, capital adequacy, limitations on trading by research analysts, compensation of research analysts, limitations on publication of research reports and restrictions on public appearances have been prescribed in the regulations for an individual person or an entity to act as research analyst.

The SEBI (Research Analyst) Regulations, 2014, notified by the capital watchdog on September 1, will come into force on the 90th day from the date of their publication in the Official Gazette.

Here are highlights of these regulations:

– No person shall act as a research analyst or research entity or hold itself out as a research analyst unless he has obtained a certificate of registration from the board under these regulations.

– The certificate of registration granted shall be valid for five years from the date of its issue.

– Any person acting as research analyst or research entity before the commencement of these regulations may continue to do so for six months from such commencement or, if it has made an application for a certificate of registration under sub-regulation (2) within the said period of six months, till the disposal of such application.

– Investment advisers, credit rating agencies, portfolio managers, asset management companies, fund managers of Alternative Investment Funds or Venture Capital Funds are exempt from these regulations.

– A professional qualification or post-graduate degree or post-graduate diploma in finance, accountancy, business management, commerce, economics, capital market, financial services or markets as also an National Institute of Securities Markets (NISM) or equivalent certification to ensure that investors get the right financial advice.

– New norms seek that the research report prepared should have complete disclosures in respect of financial interest, receipt of compensation, etc, so that investors can understand the actual or potential conflicts of interest and their likely impact on the quality of the research report published.

– Foreign entities or any person living outside India engaged in issuance of research report or research analysis in respect of securities listed or proposed to be listed on stock exchange shall enter into an agreement with a research analyst or research entity registered under these regulations.

– A research report shall not be made available selectively to internal trading personnel or a particular client or class of clients in advance of other clients who are entitled to receive the research report.

– Research analyst or research entity who distributes any third-party research report shall disclose any material conflict of interest of such third-party research provider or he shall provide a web address that directs a recipient to the relevant disclosures.

– Research analyst or research entity shall take steps to ensure that facts in its research reports are based on reliable information and shall define the terms used in making recommendations, and these terms shall be consistently used.

– Research analyst or research entity shall maintain the following records: (i) research report duly signed and dated (ii) research recommendation provided (iii) rationale for arriving at research recommendation (iv) record of public appearance.

– A research analyst who is an individual or partnership firm shall have net tangible assets of value not less than Rs 1 lakh.

– A research analyst who is body corporate or limited liability partnership firm shall have a net worth of not less than Rs 25 lakh.

– The regulations also specify restrictions on trading and on compensation of the persons who make comments or recommendations concerning securities or public offer through public media

– There are some restrictions on dealing in securities recommended – 30 days before and 5 days after the publication of research reports; restrictions on recommendation of securities traded in – previous 30 days and restriction on purchase of IPO/FPO shares, if issuer is engaged in same industry as covered by research analysts.

– SEBI may suo motu or upon receipt of information or complaint appoint one or more persons as inspecting authority to undertake inspection of the books of accounts records and documents relating to research analyst or research entity.

(Edited by Joby Puthuparampil Johnson)


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SEBI notifies norms for research analysts

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