Investing in the stock market is a common avenue for many investors, whether directly in individual stocks or through mutual funds. However, navigating the vast sea of information related to companies, stocks, and commodities can be challenging. Often, this information is raw and requires thorough analysis using various financial tools to make informed investment decisions. This is where the role of a ‘Research Analyst’ becomes crucial.
In essence, a research analyst is responsible for evaluating securities, such as stocks, mutual funds, or derivatives, and providing recommendations to buy, sell, or hold. Despite their significance, it’s important to note that the perspectives or recommendations of research analysts may not always be impartial, leading to potential conflicts of interest.
To address this concern and ensure the independence of research analysts, the Securities and Exchange Board of India (SEBI) introduced the SEBI (Research Analyst) Regulations in 2014. These regulations aim to oversee individuals or entities engaged in the issuance and publication of research reports or research analysis on securities.
This guide aims to delve into various aspects of the SEBI (Research Analyst) Regulations, 2014, and provide a comprehensive overview of the steps involved in obtaining registration as a Research Analyst.
What is a Research Analyst?
A Research Analyst plays a pivotal role in the financial landscape, primarily tasked with preparing research reports and offering recommendations such as ‘buy/sell/hold’ or providing price targets for securities listed or to be listed on stock exchanges. It’s worth noting that individuals in this role may or may not carry the official designation of ‘research analyst.’
The definition of a Research Analyst extends to include entities like companies or Limited Liability Partnerships (LLPs) that issue research reports or conduct research analyses on listed securities, such as stocks and mutual funds. Additionally, it encompasses anyone reporting directly or indirectly to a research analyst, aiding in the preparation or publication of research reports. For example, individuals assisting a research analyst in gathering information about specific stocks or mutual funds fall under this category.
Furthermore, it’s essential to understand the concept of a proxy adviser:
A Proxy Adviser is an individual who provides advice to institutional investors or shareholders of a company regarding the exercise of their rights within the company. This advice may include recommendations on public offers or voting suggestions on agenda items during meetings.
What is a Research Report?
A Research Report, in the context of a Research Analyst’s responsibilities, refers to any written or electronic communication containing research analysis, research recommendations, or opinions concerning securities or public offers. These reports serve as a basis for making informed investment decisions, covering a spectrum of financial instruments such as stocks, mutual funds, bonds, debentures, derivatives, and other securities.
In summary, a Research Analyst is a professional central to the financial sector, focusing on the preparation of research reports and providing recommendations on various securities, contributing to the informed decision-making process for investors.
Do Research Analyst Regulations Apply to You?
It’s not uncommon for individuals to be uncertain about whether their research activities fall under the purview of SEBI Research Analyst (RA) Regulations. Let’s simplify this for you. Keep reading!
Consider the RA Regulations if:
1. You provide buy/sell/hold recommendations on various securities like stocks, mutual funds, bonds, debentures, derivatives, and government securities.
2. You have the primary responsibility for generating research reports.
3. You are involved in the preparation and publication of the content of research reports.
4. You offer price targets on stocks.
5. You express views on Initial Public Offerings (IPO) or New Fund Offers (NFO).
6. You are a merchant banker, investment banker, or a broker who also issues research reports.
7. You directly or indirectly report to a research analyst or assist in writing research reports or providing price targets.
Exemptions from RA regulations include:
1. Providing buy/sell/hold recommendations on unlisted securities.
2. Being a marketing personnel or a back-office assistant involved in the publication or formatting of research reports.
3. Offering general views on the market, industry, or sector.
4. Presenting statistical summaries of the financial data of a company.
5. Presenting publicly available financial data of a company in an easy-to-understand manner.
6. Providing technical analysis related to demand and supply in a sector or index.
7. Recommending spot commodities.
Additionally, the following activities are not covered under Research Analyst Regulations for companies:
1. Providing periodic reports or other communications prepared by mutual funds, alternative investment funds, portfolio managers, or investment advisers for their clients.
2. Circulating documents like offer documents or prospectuses required by regulations.
3. Sending internal communications to employees or group companies that are not shared with current or prospective clients.
Entities exempted from registration under the Research Analyst Regulations include:
1. Investment Advisers.
2. Credit Rating Agencies.
3. Asset Management Companies or fund managers issuing research reports or circulating/distributing them to the public, or their directors or employees making public appearances.
However, note that these exempt entities still need to comply with Chapter III of the Research Analyst regulations.
What are the Eligibility Criteria for Research Analyst Application?
Once you’ve identified your research activities and decide to register as a Research Analyst, it’s crucial to assess your eligibility for application with SEBI. The main criteria to consider are qualification and certification requirements, as well as capital adequacy requirements.
Qualification and Certification Requirements:
1. Professional Qualification or Post Graduate Degree/Diploma:
– A degree in finance, business management, commerce, economics, capital markets, financial services from a recognized university or institution by the central or state government, or a recognized foreign university, institution, or association.
– A professional qualification or post-graduate degree/diploma accredited by All Indian Council for Technical Education, National Assessment and Accreditation Council, National Board of Accreditation, or any other council/board/body set up under an Act of Parliament in India.
– A graduate in any discipline with a minimum of five years of working experience in activities related to financial products, securities, fund, or asset/portfolio management.
– Possession of NISM certification for research analysts as specified by the Board or any other certification recognized by the Board.
– Specific certifications include:
– Chartered Accountant (ICAI)
– Company Secretary (ICSI)
– Cost Accountant (ICWA)
– MBA in Finance (from a recognized institute/university/association)
– Chartered Financial Analyst (CFA)
– Masters Degree in Economics
– Post-graduation in Banking and Finance
– Other qualifications like Chartered Market Technician (CMT) or Certified Financial Technician (CFTe) from recognized international bodies.
– Relevant experience may be considered in lieu of specific qualifications.
– Engineering degrees without relevant experience do not fulfill qualification requirements.
– Graduates with at least 5 years of relevant experience may meet the qualification criteria.
– Personal investment or family portfolio management does not count as relevant experience.
– SEBI may consider contributions like blogs or articles related to financial product research or personal finance as relevant experience.
– If current qualifications do not meet the criteria, individuals can enroll in courses offering postgraduate degrees or diplomas from recognized institutions.
– In the case of companies or LLPs, research analysts and partners involved in research and analysis must meet the eligibility criteria.
Capital Adequacy Requirement:
Individuals (including proprietorship) and Partnerships:
– Net tangible assets should be not less than INR 1 Lakh.
– “Net tangible assets” include total assets (laptop, house, vehicle, bank balance, FDs, shares, mutual funds, and other investments) minus intangible assets minus liabilities (home loan, car loan, education loan, etc.).
Companies and LLPs:
– Net worth should be not less than INR 25 Lakhs.
– “Net worth” includes the aggregate value of paid-up share capital plus free reserves (excluding reserves created out of revaluation) minus the aggregate value of accumulated losses.
Net Worth Certification:
– A net worth certificate must be provided by a Chartered Accountant, stating their membership number, seal, and signature.
– Apply for registration as a Research Analyst only after fulfilling the above two criteria.
Before submitting an application to SEBI, ensure that you, your partnership firm, or your company fulfill the qualification and net worth criteria outlined above.
How to Get Registered as a Research Analyst with SEBI?
Research analysts seeking registration with SEBI need to follow a step-by-step process through the SEBI portal for intermediaries. Here is a detailed guide:
Step 1: Make Payment of Application Fee
– Pay the non-refundable application fee through Demand Draft (DD), NEFT, or RTGS. The DD should be in favor of “The Securities and Exchange Board of India” payable at Mumbai.
Step 2: Fill in Applicant Details on the Portal
1. Go to SEBI’s online portal.
2. Click on “Self-Registration” and start filling the application details.
3. Choose “Research Analyst” under “Role required.”
4. For “Applicant Category,” select “Individual Research Firm” for a firm, or “Research Entity” for a company or LLP.
5. Provide accurate contact person details, including a valid email ID and mobile number.
6. Mention the correct designation, either “Director” or “Partner” based on the applicant type.
7. Specify the Registered Office Address for SEBI correspondence.
Step 3: Fill in Payment Details
– Prepare the DD in advance if opting for this payment method.
– Fill in the details of the DD or select NEFT/RTGS and provide the necessary bank account details.
– Click “Submit” after adding all payment details.
Step 4: Receipt of Email from SEBI on Successful Registration
– Receive an email with the subject “User Registration” containing the applicant’s name and Request ID for tracking the application status.
Step 5: Receipt of Email from SEBI for Activation Link and Login ID
– Once SEBI confirms payment, receive an email with an activation link and login ID on the registered email.
– Create a new password within 14 days using the activation link.
Step 6: Fill in Application Details for Registration as Research Analyst
– Gather all required information and documents as specified in Form A of the relevant regulations.
– After completing the application and uploading necessary documents, receive a confirmation email from SEBI.
– Attach the signed Form A (in .pdf format) and send it to SEBI’s head office or regional office.
Step 7: Communication from SEBI
– SEBI will communicate within a month, either requesting additional details or approving the application.
Step 8: Payment of Registration Fees
– Once approved, pay the registration fees online or through a demand draft.
Step 9: Grant of Registration and Receipt of Registration Certificate
– After confirming the fee receipt, SEBI will send the registration certificate to the specified address in the application.
– The entire process typically takes at least two months, depending on SEBI’s response time.
Note: Keep track of your application status using the Request ID provided in SEBI’s communication emails.
5 Reasons Why SEBI Can Put Your Research Analyst Application on Hold:
1. Non-Fulfillment of Education Qualification Requirements:
– SEBI may put your application on hold if it deems that your educational qualifications do not meet the criteria specified in Regulation 7 of the Research Analyst Regulations. Ensure in advance that your qualifications align with the requirements or consider acquiring additional relevant qualifications.
2. Non-Disclosure of Complete Information:
– Full disclosure is crucial when applying to SEBI. Provide comprehensive information about your proposed business, the products/services you intend to offer, and a concise business plan. If you are a director or partner in a firm, make clear disclosures. Incomplete information may lead SEBI to put your application on hold, causing unnecessary delays.
3. Incomplete Set of Documents:
– Submission of various documents, including the past three years’ Income Tax returns and a net-worth certificate, is mandatory. Declarations mentioned in the application form (Form A) should also be included. Failure to submit the complete set of required documents may result in SEBI putting your application on hold, prompting requests for additional documentation or clarifications.
4. Non-Applicability of Regulations:
– Before applying, confirm whether the Research Analyst regulations truly apply to your case. Thoroughly review the definitions and exemptions outlined in the regulations. If it is determined that you are not required to register with SEBI, your application may not be accepted. SEBI might seek more information or clarification in such cases.
5. SEBI’s Discretionary Decision:
– SEBI reserves the right to exercise its discretion in accepting or rejecting applications. Different interpretations of regulations may exist between SEBI’s head office and regional offices, leading to variations in how your application is assessed. Consequently, your application may be put on hold based on SEBI officials’ individual interpretations.
Note: It’s important to be aware of potential pitfalls and uncertainties in the application process. Regularly check for updates and clarifications from SEBI to stay informed about any changes or nuances in the regulatory landscape.