SEBI issues draft norms to regulate research analysts

To ward off market manipulation through ‘independent’ reports on stocks and listed companies, 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.

The Securities and Exchange Board of India (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, 2013.

The latest proposals are based on recommendations by The International Organisation of Securities Commissions (IOSCO) which has also suggested to 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 an 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.