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Research Analysts

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The word "Research Analysts" is legally used in India, in the context of securities markets. The word is defined in Section 2(1) of the SEBI (Research Analysts) Regulations, 2014 (issued on 1 September 2014), which aims at addressing conflicts of interests arising from the issue of research reports by research analyst (RAs) or proxy advisors[1] on stock market investment due to their trading activities and financial interests in the subject company /sector, reporting lines and source of compensation, influence from other business relationships of the research entity etc. The RA Regulations set forth requirements to foster objectivity and transparency in research and provide investors with more reliable and useful information to make informed decisions.

In India, "Research analyst" means a person whose business activity is research analysis or preparation and/or publication of research report on stock market investments. He is different from an investment advisor who formally offers personalized advice, in return for a remuneration, on the proposed investments to be taken up by the investor.

The definition of RA covers only those research reports with respect to securities that are listed or to be listed in a stock exchange. Thus, the definition of RAs does not cover those persons who issue reports on bank deposits or insurance or pension policies. In other words, RAs refers to persons who are primarily responsible for preparation or publication of the content of the research report, or for making 'buy/sell/hold' recommendation on any stock, or giving a price target or an opinion on the Initial Public Offers (IPOs), Follow on Public Offers (FPOs) etc. The term also includes any associated person who reports directly or indirectly to such a research analyst in connection with the above activities.

Further, the definition of research reports excludes comments on general trends in the securities market, discussions on the broad-based indices, commentaries on economic, political or market conditions, periodic reports or other communications prepared for unit holders of mutual fund or alternative investment fund or clients of portfolio managers and investment advisers, statistical summaries of financial data of the companies; technical analysis relating to the demand and supply in a sector or the index etc. Thus, anyone who is engaged in the publication of such reports cannot be called as a Research Analyst.

The definition of “research analyst” includes such entities or intermediaries, who in addition to being engaged in merchant banking or brokerage or underwriting businesses etc, are engaged in issuance of research reports/ analysis in its own name or through research analysts employed by them. Such intermediaries or institutions are called as Research Entities.

However, Investment Advisers, Asset Management Companies, Credit Rating Agencies, fund managers of Alternative Investment Fund or Venture Capital Fund or Portfolio Manager are not required to be registered under the SEBI (RA) Regulations 2014. However, they shall comply with disclosure requirements specified in the Regulations, if they issue research reports or their research report is circulated or distributed to public or general investors and/or if they or their employees or directors make public appearance. Foreign entities can publish research reports in India only if they enter into an agreement with a domestically registered RA.

As per the Regulations, independent RAs or his associates or those RAs employed by the research entities cannot deal or trade any securities that the research analyst recommends or follows within 30 days prior and 5 days after the publication of a research report on the subject company. Certain such restrictions also exist for RAs or entities engaged in public offers. An RA or a research entity cannot deal or trade directly or indirectly in any securities that he reviews in a manner contrary to his recommendation. Educational Qualifications, networth requirements (Rs. 1 lakh for individuals and partnership firms; Rs. 25 lakh for research entities), compensation / remuneration norms, NISM certification requirements etc, are also specified for RAs.

The Regulation for RAs is to ensure compliance with Principle no. 23 of the IOSCO Objectives and Principles of Securities Regulation which states that the entities that offer investors analytical or evaluative services should be subject to oversight and regulation appropriate to the impact their activities have on the market or the degree to which the regulatory system relies on them. Currently, the securities market regulator, SEBI is registering and regulating the RAs. Regulations apply to whoever who holds themselves out as a research analysts, whether or not they hold the title of "Research Analyst".

1. means any person who provide advice, through any means, to institutional investor or shareholder of a company, in relation to exercise of their rights in the company including recommendations on public offer or voting recommendation on agenda items.


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