SEBI’S Regulations for Registration of Research Analysts in India

As a response to the increase in the malpractices and the pursuant depletion of investors’ confidence in the financial and capital market back in the early nineties, the Securities and Exchange Board of India (“SEBI”) was introduced as a regulatory body to regulate the capital and financial markets in India and to restore the lost trust of investors in the market. Ever since, the financial and capital markets have been amongst the most regulated markets in India and SEBI has introduced various regulations to ensure transparency and fairness in financial activities. Amongst the various market participants in the financial and capital markets, such as investors, traders, brokers, exchanges, intermediaries, market analysts, etc, involved in buying, selling, trading, and managing financial assets, research analysts play a fundamental role in preparing research reports by conducting investigation, research, and assessment of financial assets. The information provided by analysts is intended to assist investors in making informed decisions about buying, holding, or selling financial securities.

With an intent to regulate the conduct and standards of operations of the critical role of the research analysts, SEBI has framed comprehensive guidelines to manage the activities of the research analysts and entities involved in research analysis and also sets the procedure for their certification and post-certification compliances. In this article, we aim to highlight the key provisions of these regulations namely the Securities and Exchange Board of India (Research Analysts) Regulations, 2014 (“SEBI Regulations”), focussing on the certification, registration requirements, eligibility, and other mandatory requirements applicable on research analysts.

Mandatory Registration of the Research Analysts

As per the SEBI Regulations, it is mandatory for any individual or entity to obtain a registration certificate from SEBI to function or act as a research analyst or as a research entity. Compulsory registration of these research analysts and entities aims to protect the interests of the investors and other market participants, by ensuring that the research analysts and entities are duly qualified and continually comply with the SEBI Regulations, so as to not mislead any stakeholder.

The certificate is granted by SEBI under Form B, upon receiving an application along with the prescribed fees, followed by an assessment of the said application, and subject to certain terms and conditions. The issued certificate is valid until it is suspended or cancelled by SEBI.

Exemption from Mandatory Registration

Exemption from the mandatory registration requirement is provided to investment advisers, credit rating agencies, asset management companies, and fund managers. The exemption is subject to the compliance of Chapter III of the SEBI Regulations by the above-mentioned entities. This exemption is granted to the above-mentioned entities because they are governed by separate regulations issued by SEBI, to regulate their code of conduct.

Process for Registration

1. Submission of Application Form: Firstly, all qualified individuals and entities are required to submit an application through ‘Form A’, as provided under the ‘First Schedule’ of the SEBI Regulations, to get duly registered as a research analyst / entity.

2. Application Fee: The application form should be submitted along with a non-refundable application fee of INR 5,000 (Indian Rupees Five Thousand). It is pertinent to note that the said fee is applicable on individual applicants and partnership firms. All other applicants are to pay a non-refundable fee of INR 50,000 (Indian Rupees Fifty Thousand).

3. Additional Information: SEBI may require the applicants to submit additional information or clarifications, in order to ensure that the applicants meet the requirements set in the SEBI Regulations. Additionally, SEBI may also request the applicants or their authorized representatives to appear before SEBI for personal representation.

4. Grant of Registration Certificate: Registration certificate will be granted by SEBI to the research analysts / entities under Form B. Individual applicants and partnership firms have to pay a fee of INR 10,000 (Indian Rupees Ten Thousand) and whereas body corporates including Limited Liability Partnerships have to submit a fee of INR 5,00,000 (Indian Rupees Five Lakhs), as a registration fee.

5. Renewal Fee of Registration Certificate: The certificate of registration granted, though valid until suspended or cancelled by SEBI, needs a renewable fee to be paid every five (5) years from the date of issuance of the certificate. Research analysts or entities may apply for a renewal three months prior to the expiry of their existing certificate.

Eligibility Criteria

SEBI evaluates the applicant upon receiving their registration application, on the following grounds, namely:

•  Applicants are evaluated as per their classification as an individual, body corporate, or limited liability partnership firm.

•  Individual applicants and all individuals and partners employed with a body corporate, or limited liability partnerships are required to fulfil the minimum professional qualification criteria set forth in Regulation 7 of the SEBI Regulations.

•  Capital adequacy requirement set forth in Regulation 8 of the SEBI Regulations shall be met. An individual or a partnership firm must have net tangible assets of a value not less than INR 1,00,000 (Indian Rupees One Lakh), whereas all body corporates and limited liability partnership firms shall have a net worth not less than INR 25,00,000 (Indian Rupees Twenty-Five Lakh).

•  Individual applicants or employees of applicant entities are required to be ‘fit and proper persons’ as per the Securities and Exchange Board of India (Intermediaries) Regulations, 2008.

•  Availability of necessary infrastructure for discharge of activities as an analyst.

•  Prior rejection of application by SEBI under the SEBI Regulations and the reasons for the same are taken into account. Any history of disciplinary action taken by SEBI or any other regulatory authority against the applicant.

Qualification and Certification Requirements

Individual applicants and employees of entity applicants are required to meet the minimum qualification and certification provided in Regulation 7. Such qualifications are essential to obtain registration, which are as follows:

•  Professional qualification or a post-graduate degree, or a post-graduate diploma in fields of finance, accountancy, business management, commerce, economics, capital market, financial services, or markets, from the recognized institutions, as stated under regulation 7 of the SEBI Regulations.

•  Professional qualification or a post-graduate degree, or a post-graduate diploma accredited by All India Council for Technical Education, National Assessment and Accreditation Council, National Board of Accreditation, or others established under Indian Acts of Parliament.

•  Completion of a Post Graduate Program in the Securities Market (Research Analysis) from National Institute of Securities Market (“NISM”), with a duration of at least one year.

•  Graduation in any filed, with an experience of at least five (5) years in the field of activities relating to financial products, markets, securities, fund, asset, or portfolio management.

•  Already registered research analysts are required to have a NISM Certification, specifically the "NISM-Series-XV: Research Analyst Certification Examination".

Refusal of Registration

SEBI may reject an application after giving a reasonable opportunity to be heard to the applicant. The said decision has to be conveyed to the applicant within a period of thirty (30) days of the decision. Following the rejection, the applicant must discontinue its operations as a research analyst. However, rejection of the application does not absolve the applicants of any liabilities under the law.

Conditions Post Grant of Registration Certificate

Research analysts are required to comply with the SEBI Act along with the SEBI Regulations, after getting duly registered. Further, the research analysts are to update SEBI in writing, of any material changes in the information previously furnished to SEBI or if any materials or information are found to be misleading or false. Registered research analysts are required to use the term “research analyst” in all their correspondences with their clients.

Foreign Entity as a Research Analyst in India

According to the SEBI Regulations, foreign entities planning to provide research reports on Indian securities shall be allowed to operate only after entering into an agreement with a registered Indian research analyst or entity. After such contractual collaboration, foreign entities may prepare and publish reports based on Indian financial markets.

Code of Conduct for Research Analysts:

1.  Registered research analysts must act honestly and in good faith while conducting their operations.

2.  They must use proper skill, exercise caution, and carry out thorough analysis in preparation of research reports.

3.  Conflict of interest should be addressed at the earliest possible opportunity to avoid any impartiality.

4.  SEBI prohibits insider trading, front running, and self-front running. The certified research analysts shall ensure that they or their employees/partners (in case of an entity) are not involved in any such activities.

5.  Research reports shall remain confidential until it is finalized and ready to be published.

6.  A research analyst must maintain high professional standards when creating research reports.

7.  Research analysts must comply with all regulatory requirements relevant to their business activities.

8.  Senior management of registered research entities shall be responsible for maintaining the primary responsibility for upholding appropriate standards and procedures during its operations and day-to-day activities.

Conclusion

Considering the vital role played by the research analysts/ entities in the financial and capital markets, it is abundantly evident that SEBI Regulations have been framed and implemented with the intention to promote transparency, integrity, and to maintain investor’s confidence.. A well-regulated capital market practices, implemented through this regulatory framework not only boosts India's financial sector but also safeguards the interests of the investors. While the minimum capital requirement, academic qualifications, certifications, adherence to the code of conduct and post-certification compliances required by the research analysts may seem to be a tedious and complex process, the rewards attached to the registration of the research analysts are far more extending and enormous.