To ward off market manipulation through ‘independent’ reports on stocks and listed companies, the Securities and Exchange Board of India (SEBI), on Friday, proposed new norms to regulate research analysts while clamping down on research services offered by foreign entities without getting registered in India.

Those to be regulated through new norms include independent research analysts, intermediaries that employ research analysts and issues research reports, as also research analysts giving recommendations in the public media such as TV channels, newspapers and websites.

As per the proposed norms, an entity incorporated outside India willing to provide research services in respect of Indian companies will have to set up a subsidiary in India and make an application for registration through that subsidiary.

The guidelines have come against the backdrop of various cases of foreign entities coming out with research reports on India, resulting in huge fall in share prices here.

One such case is that of Canada-based research firm Veritas Investment Research which had issued reports on DLF, Reliance and Indiabulls that had influenced the share price of these companies.

SEBI has come across instances where bear cartels have used negative issues raised in these reports to beat down the shares, while positive reports have been used to push the prices higher.


Issuing detailed draft norms to be followed by research analysts, SEBI has asked general public to give suggestions on the same by December 21.

The latest proposals are based on recommendations by The International Organisation of Securities Commissions (IOSCO), which has also suggested to the SEBI that research analysts need to be subjected to appropriate oversight and regulation.

As per the detailed draft guidelines issued by SEBI for research analysts, “no person shall act as a research analyst or hold itself out as a research analyst unless he has obtained a certificate of registration”.

The new norms suggest that investment advisers, asset management companies, proxy advisory service providers and fund managers of alternative investment funds engaged in research services to their unit-holders would not come under the ambit of these regulations.

However, these entities and their employees or directors will be required to follow the norms if they make commentaries or recommendations through the public media, SEBI said.

Among others, analysts which are body corporates will be required to have a net worth of minimum Rs.50 lakh, while analysts who are individuals or partnership firms would need to have net tangible assets of Rs.5 lakh in value.

According to the market regulator, research analyst would have “to establish, maintain written policies and control procedures governing the dealing and trading by any research analyst” so as to eliminate “potential conflicts of interest arising from such dealings or trading”.

Among the proposed measures, the analysts have been asked to make extensive disclosures regarding their incentive structure, market dealings, and various direct and indirect business interests. Further, the research analyst would not be allowed to deal with securities that the research analyst recommends or follows within 30 days before and 5 days after the publication of a research report on the subject company or in a manner contrary to the recommendation.

Besides, research analysts cannot purchase or receive any securities before the issuer’s initial public offering or further offering if the issuer is “principally engaged” in the similar business as firms that the research analyst follows.

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