Research analysts will be required to register with SEBI and will be governed by a broad set of regulations.
To address the issue of conflict of interest and to improve governance standards, SEBI has released a consultative paper which proposes to regulate research analysts providing advice on securities market.
Large brokerage firms, merchant/investment-banks, independent research firms, credit rating agencies providing research services are likely to fall under the purview of the proposed regulations. Though investment advisers, AMCs, proxy advisory service providers and fund managers of alternative investment funds providing research services will not be required to register with SEBI, they’ll have to comply with SEBI regulations if they give recommendations in public.
The regulator, in its 33 page consultative paper, has proposed detailed guidelines on registration, compliance, capital adequacy, qualification, disclosure and compensation of research analysts.
The proposed regulations cover both individual research analysts and companies offering research services.
A research analyst will be required to have a professional qualification or post-graduate degree or post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science. Also, a graduate in any discipline with an experience of at least eight years in activities relating to financial products or securities or fund or asset or portfolio management will be eligible to register with SEBI as a research analyst. Additionally, research analysts have to obtain a NISM certification within two years within two years from the date of commencement of these regulations.
Research analysts will be governed by a code of conduct. They’ll be require to make prominent disclosure of conflicts of interest in research reports.
SEBI has also proposed that individual research analysts or partnership firms will be required to have a net tangible assets of Rs. 5 lakh while body corporates need to have net worth of Rs. 50 lakh. Existing research analysts will have to comply with the capital adequacy requirement within one year from the date of commencement of these regulations.
The regulator has also proposed certain restrictions and limitations on publication of research reports and restrictions on public appearances by research analysts.
Companies incorporated outside India who wish to provide research services in India will have to set up a subsidiary in India.
Applicants which are individuals and firms will have to pay Rs. 1 lakh as registration fee while corporates have to shell out Rs 5 lakh. Additionally, all applicants have to pay a non-refundable application fees Rs. 50,000.
SEBI has invited feedback from public on the proposed regulations till December 21, 2013.
