Stock exchange to administer and supervise research analysts: Sebi

Enlistment with stock exchange may become mandatory

The Securities and Exchange Board of India (Sebi) will delegate administrative and supervisory responsibilities of research analysts (RAs) and investment advisors (IAs) to a stock exchange along with many other non-core functions like approval of advertisements and scrutiny of applications.

Once the new norm kicks in, fresh applications for a research analyst will be routed through the stock exchange, and enlistment with the exchange may be a prerequisite for obtaining Sebi registration, according to draft documents seen by Business Standard.

Existing RAs will not be required to re-register with the new administrative body, unlike when the transition for investment advisors was done to the present BSE-owned administrative body.

Sebi at its March board meeting approved recognising a stock exchange as a ‘Research Analyst Administration and Supervisory Body’ (RAASB) and ‘Investment Advisers Administration and Supervisory Body’ (IAASB).

A circular and a notification on these regulations are yet to be issued. The new norms will kick-in only after the changes have been notified. 

While enforcement action and penal action will still be issued by the markets regulator, with the new enabling provisions, the delegated stock exchange may issue warnings or refer a matter for enforcement action.

“The other non-core or incidental functions as may be specified by Sebi shall be performed concurrently by Sebi and RAASB. Sebi shall monitor RAASB through periodical reports and inspection regarding activities of RAs,” said the document.

As the RAASB will be charging administrative fees, the markets regulator has decided to take a fee cut in its regulatory charges to keep the transition fee-neutral for RAs and IAs. For instance, according to the existing fee structure, an individual applicant is required to pay Rs 15,000. In the revised fee structure, the amount payable to Sebi for application and registration will be reduced to only Rs 5,000 while the amount to be paid to RAASB as an administrative fee for five years would be Rs 10,000.

The data shared by Sebi shows there were over 1,176 registered research analysts as of February 2024. The number of RAs has surged manifold since the RA Regulations first came into existence in December 2014.

Currently, BSE Administration and Supervision (BASL), a wholly-owned subsidiary of BSE, has been assigned as an IAASB and is responsible for verification and processing of applications for investment advisors, grievance redress, monitoring their activities, and on-site or off-site supervisions, among others.

However, there is no clarity if BASL will continue to carry these roles as only one exchange will be delegated as an RAASB or IAASB for the first five years. 

Industry experts believe that the markets regulator is filling in the regulatory gaps before the formulation of any norms to address unsolicited advice and stock recommendations or malpractices through social media or by finfluencers.