SEBI initiates regulatory provisions for research analysts
The move followed the feedback to make compliance easier
The Securities and Exchange Board of India (SEBI) has directed persons associated with research services to obtain the National Institute of Securities Markets (NISM) certification within a year from the date (23 July) of the circular.
It added that institutional investors do not have to give signed consent on the terms and conditions, including the Most Important Terms and Conditions (MITC). However, research analysts (RAs) and entities must still share and disclose these terms.
The move followed the feedback from RAs and entities to make compliance easier. The regulator also issued clarifications in the form of Frequently Asked Questions (FAQs) to provide clarity and guidance for compliance with the provisions.
It clarified that a research report did not include communications on general trends in the securities market, discussions on broad-based indices, or commentaries on economic, political, or market conditions.
Also, research reports would not include periodic details prepared for unit holders of Mutual Funds or Alternative Investment Funds, or clients of Portfolio Managers and Investment Advisers. It also comprised internal communications not shared with current or prospective clients; statistical summaries of financial data of companies; and technical analyses on demand and supply in a sector or index.
SEBI added that journalists employed by media agencies (newspapers or television) were not required to register. However, if they made recommendations or offered opinions on securities or public offers, it must be based on reports of registered research analysts or other SEBI-registered intermediaries permitted to issue such reports.
The regulator further explained that a person located outside India could issue a research report or analysis on securities listed or proposed to be listed on Indian stock exchanges. However, before that, the individual must agree with a research analyst or entity registered under the regulations.
While spelling out the trading restrictions, the market regulator stated that independent RAs, part-time RAs, individuals employed as RAs, or their associates would not deal in or trade any securities that the analyst recommends or follows within 30 days before and 5 days after the publication of a report on the company involved.
Even as they would be prohibited from dealing in securities, they would not be allowed to purchase or receive securities of an issuer before its initial public offering (IPO) if the issuer was principally engaged in the same business as companies that the analyst follows or recommends.