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The Securities and Exchange Board of India (Sebi) on Thursday announced it had formulated new norms for research analysts, including minimum requirements in terms of experience and qualification, as well as capital adequacy. The Sebi (Research Analyst) Regulations, 2014, would be applicable to brokerage houses, merchant bankers, proxy advisors, etc, said a Sebi statement issued after a meeting of the regulator's board.
“The regulations seek to register and regulate individual 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 offers,” the statement said.
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The regulator also announced prerequisites for analysts. “Requirements relating to experience, qualification, certification and capital adequacy have been prescribed in the regulations for an individual person or an entity to act as research analyst,” the statement said.
Shriram Subramanian, founder and managing director of InGovern, a proxy advisory firm, said norms on disclosure of holdings, conflicts of interest and compensation were welcome. He added all proxy advisory firms already followed such practices as part of their code of conduct.
Amit Tandon, managing director of Institutional Investor Advisory Services, pointed out global brokerage and financial services firms operating in India usually followed the practices of their parents in developed markets. Since these were now responsible for most of the trading
volume, it might be fair to say the majority of the market already adhered to such standards, he said.
The regulator has also sought to put restrictions on trading by research analysts, as well as put in place norms related to their compensation.
“Limitations on publication of research reports and restrictions on public appearances have been prescribed in the regulations,” Sebi said.
“The regulations specify the research report prepared shall 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. The regulations specify provisions in relation to disclosures to be made in research reports and during the public appearance,” it added.
The new regulations also specify provisions for a code of conduct, as well as maintenance of records. These are to be implemented within 90 days of their publication in the official gazette.
