Sebi Approves Norms for Research Analysts

The Securities and Exchange Board of India (Sebi) on Thursday cleared detailed norms for 'research analysts' to safeguard investors from any manipulation by such entities and to bring in greater transparency in their activities.

The draft norms to regulate individual research analysts and entities were approved by the board of capital market watchdog Sebi at a meeting on Thursday.

"In India, research analysts were not being regulated. Now we have provided that all the people who are doing research reports they will be regulated, there will be a requirement, registration with Sebi and post registration they will have certain disclosure requirements," Sebi chairman U K Sinha told PTI.

Noting that the underlining aim of the new norms was to avoid conflict of interest, Mr Sinha said, "Somebody is doing research and somebody is also either directly or through a group entity advising somebody to buy, hold or sell a particular share then in that case there has to be an avoidance of conflict of interest."

The new norms seek to register and regulate research analysts as well as those entities that make recommendations related to securities, public offers such as brokerage houses, merchant bankers, proxy advisors.

However, investment advisers, credit rating agencies, portfolio managers, asset management companies (AMCs), fund managers of alternative investment funds or venture capital funds would not be required to be registered under these regulations.

The entities seeking to act as 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 specify requirements to foster objectivity and transparency in research and provide investors with more reliable and useful information to make informed decisions," Sebi said.

The norms also prescribe limitations on trading by research analysts as well as certain restrictions with regard to publication of research reports and public appearances.

The norms would mandate that research reports have complete disclosures on financial interest, receipt of compensation "so that investors can understand the actual or potential conflicts of interest and their likely impact on the quality of the research report published".

Among others, the norms would also have provisions in relation to disclosures to be made in research reports, code of conduct, general responsibility and maintenance of records.

Sebi norms would not include "internal communications that are not given to current or prospective clients and periodic reports or other communications prepared for unit holders of Mutual Fund or Alternative Investment Fund or clients of Portfolio Managers and Investment Advisers".