SEBI - Regulation for Research Analyst

1. HIGHLIGHTS OF MAJOR POINTS OF SEBI PROPOSED REGULATION OF RESEARCH ANALYSTS
Applicability ............................................................................................................................................ 2
Registration of Research Analysts ............................................................................................................ 2
Conflict Avoidance and Disclosures.......................................................................................................... 3
General Obligation .................................................................................................................................. 6
Inspection ............................................................................................................................................... 6
Code of Conduct ...................................................................................................................................... 7
Published Paper ...................................................................................................................................... 7
Namrata Shah
http://finance-nams.blogspot.in/
Dec 29, 2013

2. HIGHLIGHTS OF MAJOR POINTS OF SEBI PROPOSED REGULATION OF RESEARCH ANALYSTS
SEBI - PROPOSED REGULATION OF RESEARCH ANALYSTS
(The Consultation Paper on Proposed Regulation of Research Analysts was open for Public
Comments till Dec 21, 2013)
Applicability

Independent research analysts,

Intermediaries that employ research analysts and issues research reports

Research analysts giving recommendations in the public media
o television channels
o newspapers

Employees or Directors (who make public appearance for giving opinion or whose research
report is circulated) of
o Investment Advisers
o Asset Management Companies
o Proxy Advisory Service providers
o Fund managers of Alternative Investment Funds
Organisations that are exempted from

Investment Advisers

Asset Management Companies

Proxy Advisory Service providers

Fund managers of Alternative Investment Funds providing research services to their unit
holders
Registration of Research Analysts

Proposed regulations cover both individual research analysts and companies offering
research services

Research Analyst must obtain certificate of Registration from SEBI
o Application Fees of Rs. 50,000 for all applicants. Additional fees

for Individual or firm – Rs. 1 lakhs

for body corporate – Rs. 5 lakhs
o Certificate valid for 5 years

3. HIGHLIGHTS OF MAJOR POINTS OF SEBI PROPOSED REGULATION OF RESEARCH ANALYSTS
o Renewal – 3 months before the date of expiry

Eligibility Criteria
o Qualification

Applicant is Individual – Professional qualification or post-graduate degree
or post graduate diploma in specified discipline or graduate with 8 years of
relevant experience.

Applicant is Body Corporate – all representative must meet eligibility criteria
of individual applicant

Applicant is Firm or LLP - all partners must meet eligibility criteria of
individual applicant

Applicant is Foreign Entity – Its Indian subsidiary must apply for registration

Applicant is Foreign Citizen – Office must be setup in India and research be
provided through such office
o Registered research analyst will have to regularly undertake NISM Certification
Examination or other certification recognized by the Board
o Individuals registered as research analysts shall use the term ‘research analyst’ in all
their correspondences with their clients
o Capital Adequacy

Body Corporate – Net worth of not less than Rs. 50 lakhs

Individuals or Firm – net tangible asset of not less than Rs. 5 lakhs
o Have in place necessary Infrastructure to effectively discharge duties
Conflict Avoidance and Disclosures

Prohibition of pre-publication of research reports by other than the persons engaged in
preparation of research report

Limitation on dealing in security
o
Restriction on dealing in securities recommended - 30 days before and 5 days after
the publication of a research report
o Restriction on recommendation of securities traded in - previous 30 days
o Restriction on purchase or receipt of IPO / FPO shares, if issuer is engaged in same
industry (business) as covered by Research Analyst.

4. HIGHLIGHTS OF MAJOR POINTS OF SEBI PROPOSED REGULATION OF RESEARCH ANALYSTS

Compensation
o Not determined nor based on specific merchant or investment banking or brokerage
transaction
o Reviewed, documented and approved annually by the board of directors, or by a
chief executive officer
o Not receive pay bonus, salary or other form of compensation that is linked to any
specific merchant/investment banking transaction
o Not offer favourable research to a company, whether directly or indirectly, for the
receipt of business or compensation

Publication
o Research report must not be submitted to subject company prior to publication
o Any change in recommendation on company’s securities be notified one day prior to
event
o
Shall not issue research report or make public appearance for company for which
he acted as a merchant banker, underwriter, lead manager, dealer in a initial public
offering - for 50 days from the date of completion of such offering or for 10 days for
a secondary offering
o Shall not directly or indirectly solicit merchant/investment banking business with
prospective clients, or share any communications with the companies
o Prohibited from participating in road show related to merchant/investment banking
services transaction
o Shall not engage in any communication with a current or prospective client in the
presence of merchant/investment banking personnel
o Shall not engage in sales or marketing of merchant/investment banking services
transaction

Content in Research Report
o Facts in report are reliable
o Rating system must be clearly defined, including time horizon and benchmark of
rating
o If rating is assigned to security in atleast prior one year, then research report must
include the graph of security’s daily closing prices, for

5. HIGHLIGHTS OF MAJOR POINTS OF SEBI PROPOSED REGULATION OF RESEARCH ANALYSTS



the period assigned or
three-year period (whichever is shorter)
Disclosures in Research Report
o Valuation method used to determine price
o Research Analyst or an intermediary shall disclose

Research Analyst’s close relative has a financial interest in the debt or equity
securities

or its employees serves as an officer

Compensation received based on intermediary’s other activities revenues in
the previous 12 months

Subject company during the 12-month period preceding the date of
publication or distribution of research report was client of the intermediary

has managed or co-managed a public offering or any takeover, buyback or
delisting offer – in past 12 months

received compensation for investment banking or brokerage services from
the subject company in the past 12 months

Compensation expected from investment banking or brokerage services
from the subject company in the next 3 months

Has interests equal to or more than 1% of the equity securities of the subject
Company

Any other material conflict of interest
o All disclosures be also made during public appearance

Distribution of Research Report
o Report shall not be distributed selectively
o All disclosures in report must be complete and accurate

Termination of Coverage
o Promptly notify client
o Final research report must include notification along with final recommendation and
rating
o If impracticable to provide a final research report, then reason for terminating
coverage be mentioned

6. HIGHLIGHTS OF MAJOR POINTS OF SEBI PROPOSED REGULATION OF RESEARCH ANALYSTS
General Obligation

General responsibility, namely, disclosure of all conflict of interest, abiding code of conduct

Maintenance of record for minimum period of 5 years, conduct of yearly audit to ensure
compliance of these regulation

Appointment of compliance officer
Inspection

Board’s right to inspect
o Books of accounts are being maintained
o Inspect into complaints received from client or any other person
o Affairs of Research Analyst

Notice before inspection
o Notice of not less than 7 days be given to Research Analyst

Obligation of Research Analyst on inspection

Submission of report to the Board
o Report to be submitted to SEBI

Action on the inspection report
o Research Analyst or intermediary be given opportunity of hearing
o Board may issue direction

Restricting Research Analyst or an intermediary from providing research

Require Research Analyst or an intermediary to refund money or fees
collected

Prohibit Research Analyst or an intermediary from operating in Capital
Market for specified duration
Other provision includes Procedure for Action in Case of Default and Miscellaneous

7. HIGHLIGHTS OF MAJOR POINTS OF SEBI PROPOSED REGULATION OF RESEARCH ANALYSTS
Code of Conduct
Proposed regulation has provided framework for code of conduct covering following points

Honesty and Fairness

Diligence

Conflict of Interest

Insider Trading or Front running

Confidentiality

Professional Standard

Compliance

Responsibility of Senior management
Published Paper
Complete Consultation Paper can be accessed from
http://www.sebi.gov.in/sebiweb/home/document_detail.jsp?link=http://www.sebi.gov.in/cms/sebi_dat
a/docfiles/26869_t.html