SEBI has vide notification dated
16th December, 2024, amended the SEBI (Research Analysts)
Regulations 2014. Salient features of the amendment are as follows
1)
In the definitions section, following new
definitions have been added:
“(fa)
“consideration” means any form of economic benefit including non-cash benefit,
received or receivable, directly or indirectly, in any form whether from client
or otherwise for providing research services;
(fb)
“family of an individual research analyst” shall include individual research
analyst, spouse, children and parents;
(fc)
“family of client” shall include individual client, dependent spouse, dependent
children and dependent parents;”
“(na)
“non-individual” means a body corporate including a limited liability
partnership and a partnership firm;
(nb)
“other business activity or employment” means such business activity or
employment which is not related to securities and:
a.
it does not involve handling or managing of money or funds of client or person;
or
b.
it is not related to providing advice or recommendation to any client or person
in respect of any products or assets for investment purposes;
(nc)
“partner” means partner of the partnership firm or a limited liability
partnership who renders research services on behalf of the firm or limited
liability partnership;
(nd)
“part-time research analyst” means an individual or a partnership firm
who for consideration, is engaged in the business of providing research
services and is also engaged in any other business activity or employment;
(ne)
“persons associated with research services” shall mean any member,
partner, officer, director or employee or any other staff of such research
analyst or research entity including any person occupying a similar status
or performing a similar function irrespective of the nature of association with
the research analyst or research entity who is engaged in providing research services
to the clients or other persons or group of persons or general public.
Explanation.
- All
client and public facing persons such as analysts, sales staff, service relationship
managers, client relationship managers, etc., by whatever name called, shall be
deemed to be persons associated with research services, but shall not include
persons who discharge clerical or office administrative functions where there
is no connection with research services and they have no client contact;”
“(oa)
“principal officer” in case of non-individual research analyst engaged –
(i)
solely in providing research services, shall mean the managing director or
designated director or managing partner or executive chairman of the board or
equivalent management body who is responsible for the overall function of the
business and operations of non-individual research analyst;
(ii)
in activities other than research services through separate
departments/divisions, may be the person at the management level who is a
business head or unit head, responsible for the overall function of the
business and operations related to research services:
Provided
that in case of non-individual research analyst being a partnership firm one of
the partners shall be designated as its principal officer:
Provided
further that where no partner of firm registered as a research analyst has
minimum qualification and certification requirements provided in these
regulations, it shall apply for registration as a research analyst in the form
of a limited liability partnership or a body corporate within such time as may
be specified by the Board.
Explanation.
— The
provisions of sub clause (i) shall also be applicable to the principal officer
of a non-individual entity registered both as a research analyst and an
investment adviser but engaged in no other business activity.”
2)
The concept of “part
time research analyst is being introduced in Reg 2(1)(t).
3)
Clause u which is
definition of “research analyst” is being substituted as under:
“(u) “research analyst” means a person who, for consideration, is engaged in the business of providing research
services and includes a part-time research analyst;”
4)
Some more definitions
added:
“(wa) “research services” means the
following services provided by research analyst:
i. preparation or publication of the
research report or content of the research report; or
ii. providing or issuing research
report or research analysis; or
iii. making 'buy/sell/hold'
recommendation; or
iv. giving price target or stop loss
target; or
v. offering an opinion concerning
public offer, or
vi. recommending model portfolio; or
vii. providing trading calls; or
viii. any other service of similar
nature or character,
with respect to securities that are
listed or proposed to be listed in a stock exchange, whether
or not any such person has the job
title of 'research analyst' to the clients or other persons or
group of persons or general public;”
Research services were never defined in
the regulations before.
5. “(zc) “trading calls” means intraday, ultra-short duration, non-delivery based
(other than hedging) recommendation or any recommendation related to securities
that are not personalized or investor specific.”
6. A new proviso has been added in Reg
3(1) which pertains to Application for grant of certificate.
“Provided further that any principal
officer, person associated with research services and partner of a research
analyst which is registered under these regulations shall not be required to
seek registration under regulation 3, subject to compliance with regulation 7
of these regulations.”
7) Reg 6 which pertains to Consideration of
application and eligibility criteria allows a partnership firm as an
applicant besides an individual or body corporate or LLP. Clause (i) has
been amended accordingly.
8) Clause (ii) has been modified as under:
“(ii) whether in case the applicant
is an individual, he and all persons associated with research services are
appropriately qualified and certified as specified in regulation 7;”
Earlier it was required that only
he is appropriately qualified and certified, now all persons associated with
research services are required to be appropriately qualified and certified.
Similar amendments are made in the case
of body corporate or LLP or partnership firm
9) Capital adequacy requirements are
replaced with “deposit”
10) Reg 7 which pertains to qualification and
certification requirement has been amended as follows
7. (1) An individual research
analyst or a principal officer of a non-individual research analyst registered under
these regulations, individuals employed as research analyst and partners of a
research analyst, if any, engaged in research services shall have the following
minimum qualifications, at all times:
(i) A professional
qualification or graduate degree or post-graduate degree or post graduate
diploma in finance, accountancy, business management, commerce, economics,
capital market, banking, insurance, actuarial science or other financial
services from a university or institution recognized by the Central Government
or any State Government or a recognised foreign university or institution or
association; or
(ii) a professional qualification by
completing a Post Graduate Program in the Securities Market (Research Analysis)
from NISM of a duration not less than one year or a professional qualification
by obtaining a CFA Charter from the CFA Institute;
(2) Persons associated with research
services shall, at all times, have minimum qualification of a graduate degree
in any discipline from a university or institution recognized by the Central
Government or any State Government or a recognized foreign university or
institution.
(3) An individual registered as research
analyst under these regulations, a principal officer of a non individual research
analyst, individuals employed as research analyst, person associated with
research services and in case of the research analyst being a partnership firm,
the partners thereof if any, who are
engaged in providing research services,
shall have, at all times, a NISM certification as specified by the Board from
time to time:
Provided that a fresh relevant NISM
certification as specified by the Board from time to time shall be obtained
before expiry of the validity of the existing certification to ensure
continuity in compliance with certification requirements.”
So all references to UGC,
AICTE, National Board of Accreditation has been deleted. NISM seems to be
single point of reference for obtaining qualification under these regulations.
11) Reg 8
which pertains to capital adequacy has been completely revamped and in its
place, deposit has been brought in.
“Deposit.
8. (1) A research analyst
shall maintain a deposit of such sum as specified by the Board from time to time.
(2) The deposit shall be
maintained with a scheduled bank, marked as lien in favour of a body or body
corporate recognised by the Board for the purpose of administration and
supervision of research analysts in accordance with regulation 14 of these
regulations:
Provided that such deposit
shall be available for utilization in case the research analyst fails to pay
dues emanating out of arbitration and conciliation proceedings, if any, under
the Online Dispute Resolution Mechanism or such other mechanism as may be
specified by the Board.”
12) Reg 13 introduces
a new proviso as under:
“Provided that part-time
research analyst registered under these regulations shall use the term ‘part-time
research analyst’ in all correspondences with its clients.”
13) No. of clients of a part time research
analyst shall not exceed 75 in total at any point in time.
14) A new clause
has been added in Reg 14 as follows:
“(1A) Notwithstanding
anything contained in regulation 14, the administration and supervision of the
proxy advisers shall entirely vest with the Board.”
15) Reg 19 which pertains to disclosures in research
reports sees a new clause added:
“(vii) A research analyst or
research entity shall disclose to the client the extent of use of Artificial Intelligence
tools in providing research services.”
16) A new Reg
19A has been added for website as follows:
“Website.
19A. A Research analyst or
research entity shall maintain a functional website containing such details as may
be specified by the Board.”
17) In Reg 20 which pertains to contents of
research report, a new clause has been added as follows:
“(4) Research analyst or
research entity shall ensure that the recommendations in the research report
are corroborated by relevant data and analysis forming the basis for such
research service.”
18) In Reg 24, which is the General Responsibility
section, following new clauses have been added:
“(6) A research analyst or research entity
shall disclose to the client the terms and conditions as may be specified by
the Board and take consent of the client on such terms and conditions in such
manner as may be specified by the Board.
(7) A research analyst or research entity who
uses Artificial Intelligence tools, irrespective of the scale and scenario of
adoption of such tools, for servicing its clients shall be solely responsible
for the security, confidentiality and integrity of the client data, use of any
other information or data for
research services, research services based on
output of Artificial Intelligence tools and compliance with any law for the
time being in force.
(8) Research analyst or research entity
engaged in providing model portfolio shall abide by the guidelines issued by
the Board from time to time.”
19) In Reg 25 which pertains to maintenance
of records, new clauses have been added as follows:
“(v) Know Your Client records of the
fee paying client;
(vi) a register or record containing list of
the clients along with client’s PAN, the date and nature of the research
service, details of the products/securities for which research service was
provided and fee/consideration, if any charged/received for such research
service;
(vii) records of communication
including emails, call recordings etc. with all clients including prospective
clients in such manner as may be specified;
(viii) the terms and conditions of research
services disclosed to the clients and the consent of the client thereon.”
20) Reg 25(3) which pertains to conducting of
an annual audit – now the ICMA institute has been empowered apart from ICAI
& ICSI.
21) Reg 26 which pertains to appointment of
compliance officer has been revamped as follows:
“Appointment of compliance
officer.
26. (1) A non-individual research analyst or
research entity shall appoint either:
(i) a compliance officer; or
(ii) an independent professional who is a
member of Institute of Chartered Accountants of India or Institute of
Company Secretaries of India or Institute of Cost Accountants of India or
member of any other professional body as may be specified by the Board,
provided that such a professional holds a relevant certification from NISM, as
specified by the Board who shall be responsible for monitoring the compliance
of the provisions of the Act, these
regulations and circulars issued by the
Board.
(2) Where independent professional referred
in sub-regulation (1) of this regulation is appointed for monitoring
compliance, the principal officer shall submit an undertaking to the Board or
the body or body corporate recognised under regulation 14 of these regulations
to the effect that principal officer shall be responsible for monitoring the
compliance in respect of the
requirements of the Act, regulations,
notifications, guidelines, instructions issued by the Board.”
22) A new regulation 26C has been introduced
for client level segregation of research services and distribution activities.
Individual shall not provide distribution
services
Family of individual shall not
provide distribution services
A non individual shall have client level segregation
at group level for research services and distribution services
