Three things that will change under Sebi's new research analyst regulations

New norms will seek to regulate hitherto unregulated entities, address issues of overseas research and conflicts of interest

The Securities and Exchange Board of India (Sebi) has been working on a regulatory framework for research analysts. The new norms were finalised in Sebi’s June board meeting but are yet to be given official status.

The new regulations seeks to bring a number of changes in the way research analysts conduct their business, three of which are given below:

1 Proxy Advisory Firms Will Be Regulated

The Securities and Exchange Board of India’s planned research analyst regulations, will also apply to proxy advisory services which provide investors with advice on corporate governance and voting recommendations for various company resolutions.

It was earlier believed that they may be kept out of the ambit of research analyst regulations since they did not give ‘buy’ or ‘sell’ recommendations like typical research reports.

2 Overseas research won’t need local presence

The regulations also eased a proposed rule under which entities located outside India could only issue research reports if they had a local presence.

“The requirement for incorporating an Indian subsidiary or establishing an Indian office may be onerous and therefore has been replaced with a requirement to enter into an arrangement with research analyst or research entity registered as research analyst under the Regulations,” it said. The local entity can distribute the third party reports.

3 Compensation of research analysts can’t depend on merchant banking, broking activities

The regulations also sought to remove a conflict of interest between those providing research services and associate firms which deal with the company.

“The compensation of individual research analyst shall be determined by board of directors/committee of directors of the research entity which does not consist of representatives from the merchant banking or investment banking or brokerage services department,” it said.