SEBI feels that the research reports prepared by analysts as such might not be violating any rules, but they might be used by vested interests for stock market manipulations
"Advice from investment analysts is many times prone to conflicts of interest that may prevent them from offering independent and unbiased opinions. Since the prime objective is to protect investors and enhance confidence in the market, it is a major concern of regulatory authorities to identify and deal with conflicts of interest arising from the production and dissemination of research reports," said the market regulator Securities and Exchange Board of India (SEBI) in a consultation paper on the regulation of research analysts it has put out for discussion and for public comments. Any market participant or interested party can send their comments to SEBI before 21 December 2013.
Research analysts attached with brokerage firms, fund houses, investment banks and other market intermediaries are currently governed by SEBI regulations, but there are no comprehensive rules that could also cover third-party or independent analysts and research reports.
In a board meeting in 2011, SEBI had discussed the need to have a comprehensive set of regulations for research analysts.
Among the proposed measures, the analysts could be asked to make extensive disclosures regarding their incentive structure, shareholding pattern, market dealings, and various direct and indirect business interests.
Various registered market intermediaries are already required to put in place certain ‘Chinese Walls’ to avoid any conflict of interest arising out of the reports published by their equity research units.
The new rules could also prescribe mechanisms to ensure that the research analysts’ trading activities or financial interests do not prejudice their reports.
The comments / suggestions on this paper may be emailed to T Venkateshwarlu, Assistant General Manager ([email protected]) or may be sent to the following address, latest by 21 December 2013 in the following format:
Sr. No. | Name | Pertains to which regulation/sub-regulation | Proposed/ suggested changes
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Letter(s) can be addressed to:
Ms. Barnali Mukherjee
General Manager,
Investment Management Department - Division of Funds- 1,
Securities and Exchange Board of India,
SEBI Bhavan, Plot No. C4-A, "G" Block,
Bandra Kurla Complex, Bandra (East),
Mumbai 400 051 (India)
Here is the consultation paper released by SEBI
Inside story of the National Stock Exchange’s amazing success, leading to hubris, regulatory capture and algo scam
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The underlying principle in any investment decision should be "let the buyer beware". Just because analyst XYZ says "buy stock ABC", should investors blindly follow the advice, without doing their own bit of research? Stocks can also move down after a buy recommendation, due to factors which cannot be predicted even with reasonable acumen and expertise, such as management issues, or frauds being uncovered, or regulatory changes, etc. Should the analyst be held accountable for such cases too?
Sebi seeks to even control what the "analyst" says in the media! Again, the presumption is that the analyst is trying to "push" certain stocks with a vested interest. I believe such constraints should only apply to small cap stocks with low volumes, with say market cap less than Rs100 crore, and penny stocks. If an analyst voices his views on index stocks, or large-cap stocks with good liquidity, his intentions simply cannot be suspected, since a single analyst can never cause the price of such stocks to go up or down dramatically.
Research reports do not usually sell for cash. Why should an analyst, who is not selling his research for cash, have to pay the hefty registration and enrollment fees of Rs 1.50 lakh, when his income from selling research is next to zero?
If the objective is to protect investors, then would it not be better to regulate investor behavior in the first place.