Sebi analyst norms: Media exemption under a cloud

Lawyers say FAQs cannot exempt journalists from registration; Sebi reiterates no intention to regulate the press

An exemption to mediapersons from registration under the new research analyst regulations, as stated by the Securities and Exchange Board of India (Sebi) earlier, is now under a cloud.

Earlier this month, Sebi had released a set of answers to FAQs (frequently asked questions) on the new regulations. In these, it had said journalists would have to follow the regulations, but were exempt from registration.

Experts, however, say such an exemption, under an explanatory document such as FAQs, didn’t have validity. “While all regulations by Sebi have the force of law under the Sebi Act, FAQs are not binding in the same way. Sebi cannot amend or minimise the applicability of regulations by way of FAQs,” says Sandeep Parekh, founder of Finsec Law Advisors and former executive director of Sebi.

THE EXEMPTION THAT MAY NOT BE

• Sebi has put in place new research analyst regulations
• Regulator’s FAQ had said media entities exempt from registration
• Legal opinion suggests otherwise
• Says FAQ does not have the weight of law
• FAQ cannot provide an exemption not mentioned in regulation
• Such media entities will now come under Sebi as registered research entities
• This expands scope of what was said earlier
• It was earlier stated rules would apply to journalists but without registration
• Sebi has said there is no intention to regulate the press

“FAQs do not have any legal value and do not necessarily represent the position a regulator might adopt in a particular case,” said Yogesh Chande, associate partner, Economic Laws Practice.

This might mean all media entities providing ‘opinion or recommendation’ on specific securities will come under Sebi, technically becoming Sebi-regulated entities. This will also mean payment of the fees applicable. “The term ‘research analyst’ has been broadly defined under the Sebi (Research Analyst) Regulations and journalists do not feature in the general exemption list. Therefore, a journalist or a person providing opinion on a listed security in public media will technically have to register….FAQs are not in the nature of a circular or amendment to the regulations, which otherwise have force of law,” said Tejesh Chitlangi, partner at IC Legal.

However, in response to a query from Business Standard, the regulator reiterated its position. “Journalists employed by various news organisations and who comment on specific stock with proper research, which is published in newspapers, etc, are not required to be registered with Sebi … Further, RA (research analyst) regulations…are not intended to regulate the media. The purpose of RA regulations is to address various conflicts of interest while making research recommendations,” stated Sebi.

The FAQs had said if journalists talked about specific securities, they would be subject to the same rules as research analysts. “If they make public appearances or a recommendation or offer an opinion concerning securities or public offers through public media, all the provisions of regulations 16 (on limitations on trading) and 17 (on limitations on compensation) shall apply,” Sebi had said.

The sections are to apply to media houses with appropriate changes, according to the FAQs.

Section 16 deals with personal trading activities of individuals involved in a report. The regulations require trading by such individuals be monitored, recorded and subject to a formal approval process, if required. Analysts and associates are not allowed to deal in securities recommended or followed for 30 days before a report is published, as well as five days after it.

Section 17 lays guidelines for compensation of research analysts, and seeks to ensure the compensation is not based on activities that might lead to conflict of interest with the contents of their reports.

The FAQs say reports on general trends in the securities market, discussions on the broad-based indices, and economic, political or market commentary, will not be subject to the regulations. “Legally speaking, in case of a conflict, the provisions contained in the regulation concerned will prevail over the FAQs. However, it’s unlikely that Sebi will enforce anything against the FAQ clarification, since the FAQs are nothing but expression of regulatory intent,” said Chitlangi.

Another lawyer said if there was a decision to enforce regulations as they were, the FAQs couldn’t offer protection to the media, as these didn’t carry the weight of law.