SEBI issues FAQs pertaining to regulatory provisions for Research Analysts

Capital markets regulator SEBI on Wednesday (July 23) asked persons associated with research services to obtain the required NISM ( Institute of Securities Markets) certification within one year.

This one-year period is applicable from the date of this circular, SEBI said.

Further, institutional investors are not required to give signed consent on the terms and conditions, including the Most Important Terms and Conditions (MITC). However, Research Analysts (RAs)/research entities will still share and disclose these terms to them, according to the circular.

These decisions have been taken based on feedback from RAs and research entities, and to make compliance easier. Additionally, in order to provide clarity and guidance for compliance by RAs with the regulatory provisions, SEBI has issued clarifications in the form of Frequently Asked Questions (FAQs).

Under this, SEBI stated that a research report does not include communications related to general trends in the securities market, discussions on broad-based indices, or commentaries on economic, political, or market conditions.

It also clarified that research reports do not include periodic reports prepared for unit holders of Mutual Funds or Alternative Investment Funds, or clients of Portfolio Managers and Investment Advisers; internal communications not shared with current or prospective clients; statistical summaries of financial data of companies; and technical analyses relating to demand and supply in a sector or index.

SEBI further clarified that journalists employed by media agencies such as newspapers or television are not required to register with it. However, if they make recommendations or offer opinions on securities or public offers, such recommendations must be based on research reports of registered research analysts or other SEBI-registered intermediaries permitted to issue research reports.

The regulator said that a person located outside India can issue a research report or analysis on securities listed or proposed to be listed on Indian stock exchanges. However, before doing so, the person is required to enter into an agreement with a research analyst or research entity registered under the RA regulations.

Regarding trading restrictions, SEBI said that independent research analysts, part-time research analysts, individuals employed as research analysts, or their associates would not deal in or trade any 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.

They are also prohibited from dealing in securities they review in a manner contrary to their recommendations.

Additionally, they shall not purchase or receive securities of an issuer before its initial public offering (IPO) if the issuer is principally engaged in the same type of business as companies that the research analyst follows or recommends.

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