SEBI to regulate research analysts; wants trading curbs, disclosures

Entity incorporated outside India willing to provide research in respect of Indian firms will have to set up a subsidiary in India

In order to increase accountability of research analysts providing recommendations for a fee, the Securities and Exchange Board of India plans to regulate these entities and place stringent curbs on their trading activities. "The draft regulations... require clear, comprehensive and prominent disclosure of conflicts of interest in research reports and public appearances by research analysts including limitations of dealings, restrictions on compensation," SEBI said in a release. SEBI proposes to regulate all independent research analysts, intermediaries that employ research analysts as well as research analysts giving recommendations in the media. The registration with SEBI will have to be renewed every five years. "Research analyst or the intermediary shall not issue research reports and shall not make public appearance regarding a subject company for which he acted as a merchant banker, underwriter, lead manager, dealer in an initial public offering for a period of 50 days from the date of completion of such offering or for 10 days for a secondary offering," SEBI proposed in the draft paper released. Analysts will also have to ensure that facts in their reports are based on reliable information and have to define the terms used in making recommendations. These terms should be used consistently, said SEBI. These entities will have to maintain a record of their reports and recommendations for at least five years and maintain an armslength relationship between their research activity and other activities. Comments on the paper can be sent to the regulator by Dec 21. For registering with SEBI, corporate research analyst firms will need to have a minimum net worth of 5 mln rupees while individuals will need net worth of at least 500,000 rupees. Foreign companies providing research on Indian companies will have to set up subsidiaries in India and make an application for registration with SEBI through the subsidiary. "A regulatory framework is required to ensure impartial report, to address conflict of interest, to improve governance standards, to minimize market malpractices, etc," SEBI said in the draft paper. SEBI, however, said investment advisers, asset management companies, proxy advisory service providers and fund managers of alternative investment funds providing research services to their unit holders will not be required to register under these regulations. -Cogencis The Reserve Bank of India will start selling Consumer Price Index linked National Saving Securities-Cumulative to retail investors in the second half of December, the central bank said in a release, adding that the date of issuance would be announced shortly.

"These securities are being launched in the backdrop of announcement made in the Union Budget 2013-14 to introduce instruments that will protect savings from inflation, especially the savings of the poor and middle classes," the RBI said.

These instruments would be of 10-year maturity, and the interest on them will have a fixed as well floating component.

"Interest rate would comprise of two parts - fixed rate (1.5%) and inflation rate based on CPI, and the same will be compounded in the principal on halfyearly basis and paid at the time of maturity," the RBI said. Earlier this year, the RBI had launched bonds linked to the headline inflation based on the Wholesale Price Index. However, retail demand for these instruments remained subdued.

Industry experts believe that such certificates linked to the CPI—which often eat into financial savings of households--would help steer retail investment away from gold.

"We have seen that because of high inflation, there has been migration from financial savings to physical savings like gold. These kinds of savings certificates always play a major role in acting as a hedge against inflation. So, they should be popular," said Rupa Rege Nitsure, chief economist at Bank of Baroda. ING Vysya Bank Economist Upasna Bhardwaj believes that the cumulative nature of these certificates may not be a big deterrent. "The fact that it is cumulative may affect a fraction of the people who may be wanting a cash flow on a more regular basis, but I don't think that should be a deterrent for people to invest or not invest," said Bhardwaj. -Cogencis