Legal and Regulatory Environment — the regulators, the regulations and the research analyst

Where this chapter sits

Chapter 14 carries 10% of the paper — the joint-largest weight in the syllabus. It is also the only chapter that is entirely about the rules you personally will have to follow. Everything else in this workbook teaches you to analyse. This chapter tells you what you may and may not do while doing it.

The exam: 120 minutes, 100 marks, 60% to pass, 25% negative marking.

The dates and day-counts in this chapter are the most heavily examined numbers in the whole paper. Learn them precisely.

A note on style. Much of this chapter is regulation, and the exact words matter. Where a rule is quoted, it stays in the workbook's wording. Around it, we say in plain words what it means.

14.1 The regulators

The regulators in the Indian Financial Market ensure that the market participants behave in a responsible manner. The aim is that the securities market continues to be a major source of finance for corporate and government, and that the interest of investors is protected. The objective of all regulators is to create a fair and competitive market place, with intermediaries ensuring a high standard of services.

Ministry of Finance

The Ministry of Finance is an important ministry within the Government of India. It handles issues related to taxation, financial legislation, financial institutions, capital markets, state finances and the Union Budget.

It comprises of five departments:

Keep one link clear: it is Economic Affairs that prepares the Union Budget and oversees the capital market, including stock exchanges.

Ministry of Corporate Affairs

The MCA is primarily concerned with administration of the Companies Act and other allied Acts, rules and regulations. Their purpose is regulating the functioning of the corporate sector in accordance with law. The issuance of securities by companies is also subject to provisions of the Companies Act.

The Registrar of Companies (ROC) is the authority appointed under the Companies Act to register companies and to ensure that they comply with the provisions of the law.

The MCA also looks after the following:

Reserve Bank of India

RBI is the central bank of the country. It has the responsibility of administering the monetary policy. Its key concern is to ensure the adequate growth of money supply in the economy, so that growth and transactions are supported — but not so rapidly which may precipitate inflationary trends.

Its Preamble: "…to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage".

The six main functions:

Securities and Exchange Board of India

SEBI is the regulatory authority for the securities market in India. SEBI was established under Section 3 of SEBI Act, 1992, an act of Parliament.

The Preamble: "to protect the interests of investors in securities and to promote the development of, and to regulate the securities market and for matters connected therewith or incidental thereto".

SEBI's reach is wide. Its jurisdiction extends over corporates in the issuance of capital and transfer of securities. It also covers all intermediaries and persons associated with the securities market. It can conduct enquiries, audits and inspection of all concerned, and adjudicate offences under the Act. It has powers to register and regulate all market intermediaries, and to penalize them in case of violations. SEBI has full autonomy and authority to regulate and develop an orderly securities market.

The main functions of SEBI:

Commodities. SEBI merged with the Forward Markets Commission on September 28, 2015. It now regulates the commodities markets in India. Its role includes monitoring the trading conditions in the forward markets, including demand and supply and prices. It also sets the rules for:

• limits on open positions of clients and members
• circuit filters to control price volatility
• managing risk through margins
• physical delivery of contracts and penalty for defaults

IRDAI

IRDAI regulates the insurance sector in India under the IRDA Act, 1999. It is the licensing authority for insurance companies. It defines the capital and net-worth requirements for insurance companies.

Its mission is to regulate, promote and ensure orderly growth of the insurance sector, including the re-insurance business, while ensuring protection of the interest of insurance policyholders.

What it controls in practice:

• The terms and conditions of insurance contracts — sum assured, surrender value, settlement of claims, nomination and assignment, insurable interest and others
• The distribution of insurance products — the qualification and training requirements of intermediaries and the payment of commission to distributors
• The functioning of the Tariff Advisory Committee, which determines the rates for general insurance products

PFRDA

The PFRDA is the regulator of the pension sector in India under the PFRDA Act, 2013. It was constituted in October 2003. It has two responsibilities:

• (a) To promote old age income security by establishing, developing and regulating pension funds
• (b) To protect the interests of subscribers to schemes of pension funds and related matters

The PFRDA designs the structure of funds and constituents in the National Pension System (NPS). It registers the various constituents such as the fund managers, custodians, Central record keeping agency and trustee banks.

IBBI

IBBI was established under the Insolvency and Bankruptcy Code 2016. It is the regulator for overseeing the insolvency process as well as the insolvency professionals. It has oversight over insolvency professionals, insolvency professional entities and insolvency professional agencies. It is also the authority for regulation and development of valuers in India.

14.2 Important regulations

Securities Contracts (Regulation) Act, 1956

The SC(R)A gives SEBI direct and indirect control of virtually all aspects of the securities market — instruments, intermediaries, issuers and investors. It prevents undesirable transactions in securities by regulating the business of securities dealing and trading.

The act covers:

SEBI Act, 1992

Section 11(1) lays down that it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of and to regulate the securities market, by such measures as it thinks fit.

Section 11(2) lists the measures SEBI could adopt. They include:

SEBI (Prohibition of Insider Trading) Regulations, 2015

These were made under section 30 of the SEBI Act, 1992. They answer three questions: who is an insider, what information is price sensitive, and what an insider may not do.

"Insider" means any person who is a connected person or one in possession of or having access to unpublished price sensitive information.

So there are two routes to being an insider. You can be connected to the company. Or you can simply have or have access to UPSI.

The definition of a connected person is long, and it is worth reading once in full:

"Any person who is or has been, during the six months prior to the concerned act, associated with a company, in any capacity, directly or indirectly, including by reason of frequent communication with its officers or by being in any contractual, fiduciary or employment relationship or by being a director, officer or an employee of the company or holds any position including a professional or business relationship, whether temporary or permanent, with the company, that allows such a person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access."

In plain words: anyone linked to the company in the last six months, in any role, whose position gives or could give access to UPSI.

Deemed connected persons, unless the contrary is established:

UPSI — Regulation 2(n): "any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities."

It has two tests. The information is not generally available. And once public, it is likely to materially affect the price. It ordinarily includes:

Two small exceptions in that list get tested. A change in ESG rating is excluded. So is a change in key managerial personnel due to superannuation or end of term.

Regulation 3(1) — "an insider shall not communicate, provide, or allow access to any unpublished price sensitive information... to any person including other insiders except where such communication is in furtherance of legitimate purposes, the performance of duties or discharge of legal obligations." The intent is that people deal with the information strictly on a need-to-know basis.

Regulation 4 — "no insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information."

When a person who traded was in possession of UPSI, his trades are presumed to have been motivated by that information. Connected persons have to establish that their trades were not in violation of the regulations.

Note the reversed burden of proof. The trade is presumed tainted. The insider must prove innocence.

Initial disclosure. Every person on appointment as key managerial personnel or a director, or upon becoming a promoter or member of the promoter group, shall disclose his holding of securities of the company to the company within seven days. The holding is disclosed as on the date of appointment or of becoming a promoter.

Compliance officer. An organization needs to appoint a compliance officer. This officer sets policies and procedures and monitors adherence to the code of fair disclosure and code of conduct aimed at preservation of "Price Sensitive Information".

The principles of fair disclosure include:

• prompt, uniform and universal dissemination of UPSI to avoid selective disclosure
• ensuring information provided to analysts and consultants is not UPSI
• developing best practices to record the proceedings in meetings with analysts and investor relation conferences, to ensure official confirmation of the information provided

Designated persons include analysts, law firms, auditors and consultants, among others. Trading by designated persons needs pre-clearance by the compliance officer if the value exceeds the limits set by the board of directors.

The Chinese Wall

A Chinese Wall keeps secret information on one side of a firm. The workbook's wording:

"To prevent the misuse of confidential information the organisation/firm shall adopt a 'Chinese Wall' policy which separates those areas of the organisation/firm which routinely have access to confidential information, considered 'insider areas' from those areas which deal with sale/marketing/investment advice or other departments providing support services considered public areas."

How it works:

• Employees in the insider area shall not communicate any Price Sensitive Information to anyone in the public area.
• Employees in the inside area may also be physically segregated from employees in the public area.
• In exceptional situations, employees from the public areas may be brought "cross the wall" and given confidential information on a "need to know" basis. Such cases must be intimated to the Compliance Officer.

And a rule that applies to you personally: "Analysts, if any, employed with the organization/firm while preparing research reports of client company(s) shall disclose their shareholdings/interest in such company(s) to the Compliance Officer and the Analysts who prepare research report of listed company shall not trade in securities of that company for thirty days from preparation of such report."

SEBI (PFUTP) Regulations, 2003

The SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations prohibit fraudulent, unfair and manipulative trade practices in securities. They were also made under section 30 of the SEBI Act, 1992.

Regulation 2(1)(c) defines fraud to include any act, expression, omission or concealment committed to induce another person or his agent to deal in securities. There may or may not be wrongful gain or avoidance of any loss. That is inconsequential in deciding whether fraud has been committed.

In plain words: fraud is about inducing someone to deal. Whether anyone actually made money does not matter.

Instances of fraud include:

Prohibited dealings. No person shall directly or indirectly:

• buy, sell or otherwise deal in securities in a fraudulent manner
• use... any manipulative or deceptive device or contrivance
• employ any device, scheme or artifice to defraud
• engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person

Deemed manipulative, fraudulent or unfair practices include:

Mis-selling has its own definition: "sale of securities or services relating to securities market by any person, directly or indirectly, by knowingly making a false or misleading statement, or knowingly concealing or omitting material facts, or knowingly concealing the associated risk, or not taking reasonable care to ensure the suitability of the securities or service to the buyer."

And the list is not closed. The acts or omissions listed are not exhaustive.

SEBI's powers on investigation:

Insolvency and Bankruptcy Code, 2016

The IBC consolidates all the laws related to reorganisation and insolvency proceedings against companies, partnership firms and individuals. It sets time bound resolution of insolvency proceedings.

Here is the process, step by step:

1. Who can start it. Any creditor — financial or operational — can bring insolvency proceedings against a company if the undisputed amount outstanding is more than Rs.1,00,000. The corporate itself can also start the proceedings if it defaults on any payment.
2. The IRP takes over. If the adjudicating authority is satisfied that a default has occurred, it appoints an interim resolution professional (IRP) to manage the affairs of the company. The board is then considered dissolved, and all management personnel report to the IRP.
3. The committee of creditors is formed. The IRP collates the amounts outstanding and forms the committee of creditors. Operational creditors can start proceedings, but they cannot be part of the committee of creditors.
4. The IP is confirmed. The committee either confirms the IRP as the Insolvency Professional (IP) or appoints any other person as IP.
5. Resolution. Every proceeding should be completed within 180 days of initiation, though extensions have often been granted. The resolution can be restructuring, take over or liquidation. Liquidation is preferred only if no other option is available.

A financial creditor is one who receives consideration against the time value of money — in other words, one who earns interest on the amount outstanding.

14.2.5 SEBI (Research Analyst) Regulations, 2014

Why they exist. Research Analysts study companies and industries, analyse raw data, and make forecasts or recommendations about whether to buy, hold or sell securities. Investors often view analysts as experts and rely on their advice.

But such advice is many times prone to conflicts of interest. These may prevent analysts from offering independent and unbiased opinions. Regulators aim to protect investors and enhance confidence in the market. So a major concern is to identify and deal with conflicts of interest in producing and spreading research reports.

The global consensus is that a regulatory framework is required — to ensure impartial reports, address conflict of interest, improve governance standards and minimize market malpractices.

The IOSCO report on addressing conflicts of interest in September 2003 prescribed these principles:

Registration and eligibility

Regulation 3 — registration. "No person shall act as a research analyst or research entity or hold itself out as a research analyst unless he has obtained a certificate of registration from SEBI."

Transition. Anyone acting as a research analyst before these regulations began could continue for six months. If they applied within those six months, they could continue until the application was decided.

Exempt from separate registration:

• An investment adviser, credit rating agency, asset management company or fund manager that issues or distributes research reports to the public, or its director or employee who makes a public appearance. This is subject to compliance with Chapter III of these regulations.
• Any principal officer, person associated with research services and partner of a registered research analyst, subject to compliance with regulation 7.

Regulation 4 — persons outside India. "Any person located outside India engaged in issuance of research report or research analysis in respect of securities listed or proposed to be listed on a stock exchange shall enter into an agreement with a research analyst or research entity registered under these regulations."

Regulation 6 — what SEBI considers:

Regulation 7 — qualification and certification. These minimums apply at all times:

(a) A graduate degree or any equivalent educational qualification from a university or institution recognized by the Central Government or any State Government or a recognised foreign university or institution or association or CFA Charter from the CFA Institute, and relevant certification from NISM or from any other organization or institution accredited by NISM; or

(b) A Post Graduate Program in the Securities Market (Research Analysis) from NISM or any other program of NISM as may be specified by the Board.

Put simply: a graduate degree or CFA Charter plus NISM certification, or NISM's Post Graduate Program in Research Analysis.

Renewal of certification. Relevant persons shall obtain a fresh NISM certification before the existing one expires, or within three years from the date of the registration certificate, as the case may be. This keeps the certification requirement met without a break.

Regulation 8 — deposit. A research analyst shall maintain a deposit of such sum as SEBI specifies from time to time. How it works:

• It is marked as lien in favour of a body or body corporate recognised by SEBI.
• It is used if the research analyst fails to pay dues arising from arbitration and conciliation under the Online Dispute Resolution Mechanism.
• It is held as units of a liquid mutual fund or an overnight mutual fund, or as a deposit with a scheduled bank.

Regulation 9 — grant. SEBI grants a certificate of registration in Form B to a research analyst, or in Form C to a part-time research analyst. An individual or partnership firm registered as an investment adviser may also be registered as a research analyst.

Regulation 10 — validity. "The certificate of registration granted under regulation 9 shall be valid till it is suspended or cancelled by SEBI." There is no expiry date.

Regulation 12 — refusal. SEBI may reject an application after giving the applicant a reasonable opportunity of being heard. The decision must be communicated to the applicant within thirty days of such decision. Once rejected, the applicant shall forthwith cease to act as a research analyst.

14.3 Code of Conduct for Research Analysts

The Third Schedule of the Research Analyst Regulations sets out eight items:

14.4 Managing conflicts and disclosure

Regulation 15 — internal policies

A research analyst or research entity shall have written internal policies and control procedures governing the dealing and trading by any research analyst. They serve three purposes:

• (i) addressing actual or potential conflict of interest arising from such dealings or trading of securities of subject company;
• (ii) promoting objective and reliable research that reflects the unbiased view of research analyst; and
• (iii) preventing the use of research report or research analysis to manipulate the securities market.

There must also be appropriate mechanisms to ensure independence of research activities from other business activities.

Regulation 15A — a research analyst is entitled to charge fees for research services from a client, including an accredited investor, in the manner specified by the Board.

Regulation 16 — limitations on trading

Personal trading by individuals employed as research analysts shall be monitored and recorded. Where necessary, it shall be subject to a formal approval process.

The blackout window — the rule to learn word for word: "independent research analysts, part-time research analysts, individuals employed as research analyst by research entity or their associates shall not deal or trade in securities that the research analyst recommends or follows within thirty days before and five days after the publication of a research report."

So: 30 days before and 5 days after publication.

Three more limits:

The exception. These trading limits may not apply in case of significant news or an event concerning the subject company. They may also not apply after an unanticipated significant change in the analyst's personal financial circumstances. Either way, prior written approval is needed as per the approved internal policies and procedures.

Regulation 17 — compensation

The aim is simple: an analyst's pay must not depend on the deals the firm wins.

• A research entity shall not pay any bonus, salary or other compensation to a research analyst that is determined or based on any specific merchant banking, investment banking or brokerage services transaction.
• Analyst compensation shall be reviewed, documented and approved annually by the board of directors, or a committee appointed by it. That committee must not include anyone from the merchant banking, investment banking or brokerage divisions.
• The board or committee shall not take into account the analyst's contribution to the investment banking, merchant banking or brokerage business.
• An analyst shall not be supervised or controlled by any employee of the merchant banking, investment banking or brokerage divisions.

Regulation 18 — publication blackouts

These four day-counts are among the most examined numbers in the paper.

The 40-day, 10-day and 15-day periods allow publication with prior written approval of legal or compliance personnel, as set out in the internal policies. The date of the offering is the first date on which the security was offered to the public.

The separation rules. Research must stay apart from deal-making.

• Research analysts shall not take part in business activities designed to solicit investment banking, merchant banking or brokerage business, such as sales pitches and deal road shows.
• They shall not communicate with a current or prospective client about an investment banking transaction in the presence of investment banking, merchant banking or brokerage personnel, or company management.
• Investment banking personnel shall not direct research analysts to engage in sales or marketing.
• But this does not stop investor education activities, including publication of pre-deal research and briefing sales or marketing staff on the analyst's views on the transaction.

The integrity rules:

• A research analyst shall have an adequate documentary basis, supported by research, for preparing a research report.
• It shall not promise a favourable review to a company, industry, sector or business group as consideration to start or influence a business relationship, or to receive compensation or other benefits.
• It shall not issue a research report that is not consistent with the analyst's own views on the subject company.
• Research analysts shall be kept separate from employees doing sales trading, dealing, corporate finance advisory or any other activity that may affect independence. They may, however, receive feedback from sales or trading staff of the brokerage division to ascertain the impact of a research report.

Regulation 19 — disclosures in research reports

A research analyst or research entity shall disclose all material information about itself, including its business activity, disciplinary history, the terms and conditions on which it offers research reports, and details of associates.

Ownership and material conflicts — disclosed in the research report AND in public appearances:

Receipt of compensation — disclosed in the research report, each with a twelve-month lookback:

In public appearances, two disclosures apply: whether it or its associates received any compensation from the subject company in the past twelve months, and whether the subject company is or was a client in the twelve months before the report was distributed, and the types of services provided.

A carve-out. Some disclosures are not required where they would reveal material non-public information about specific potential future investment banking, merchant banking or brokerage transactions of the subject company.

Also disclosable:

• whether the research analyst has served as an officer, director or employee of the subject company
• whether the research analyst or research entity has been engaged in market making activity for the subject company
• the extent of use of Artificial Intelligence tools in providing research services

Regulation 19A — a research analyst or research entity shall maintain a functional website containing such details as SEBI may specify.

Regulation 20 — contents of the report

• Facts in research reports must be based on reliable information. Terms used in recommendations must be defined, and used consistently.
• A research analyst that uses a rating system must clearly define each rating, including the time horizon and benchmarks it is based on.
• Recommendations must be corroborated by relevant data and analysis forming the basis for the research service.

The price graph rule: "if a research report contains either a rating or price target for subject company's securities and the research analyst or research entity has assigned a rating or price target to the securities for at least one year, such research report shall also provide the graph of daily closing price of such securities for the period assigned or for a three-year period, whichever is shorter."

In plain words: once you have rated a stock for a year or more, show a daily closing price graph for that period or three years, whichever is shorter.

Regulation 21 — public media

A research analyst or research entity, including its director or employee, shall disclose its registration status and details of financial interest in the subject company when making a public appearance.

The rule reaches beyond registered analysts. It covers any person, including a director or employee of an investment adviser, credit rating agency, asset management company or fund manager, who makes a public appearance, a recommendation or an opinion on securities or public offers through public media. Regulations 16 and 17 apply to such a person mutatis mutandis. They must disclose their name, registration status and financial interest in the subject company in three situations:

• making such a recommendation or offering such an opinion in personal capacity
• responding to queries from audiences or journalists in personal capacity
• communicating the research report, or its substance, through the public media

Regulation 22 — distribution

A research report shall not be made available selectively to internal trading personnel, or to a particular client or class of clients, in advance of other clients entitled to receive it.

Third party research. A distributor of someone else's research shall review it for any untrue statement of material fact or false or misleading information. It shall also disclose any material conflict of interest of the third party provider, or give a web address that leads to those disclosures. These two duties do not apply if the distributor has no direct or indirect business or contractual relationship with the third party provider.

Regulation 23 — proxy advisers

All provisions of Chapters II, III, IV, V and VI apply mutatis mutandis to proxy advisers. Two differences: employees providing proxy advisory services need a minimum qualification of a graduate degree in any discipline, and the time period for compliance with capital adequacy is three years.

Additional disclosures:

• the extent of research involved in a particular recommendation, and the extent and/or effectiveness of controls and procedures in ensuring the accuracy of issuer data
• policies and procedures for interacting with issuers, informing issuers about the recommendation, and review of recommendations

A proxy adviser shall keep a record of its voting recommendations and furnish it to the Board on request.

The procedural guidelines — with two key timelines:

The two numbers to remember: alert clients to errors within 24 hours, and communicate material revisions within 72 hours.

Regulation 24 — general responsibility

On AI: a research analyst who uses Artificial Intelligence tools, irrespective of the scale and scenario of adoption, for servicing clients shall be solely responsible for the security, confidentiality and integrity of client data, for any other data used, for research services based on AI output, and for compliance with any law in force.

On model portfolios: analysts providing model portfolios shall follow SEBI's guidelines. A "model portfolio" is a basket of securities for which a research report recommends weightages for one or more securities. If the report does not give weightages, a mere consolidated list of recommended securities is not a model portfolio.

Regulation 25 — records

The records to be maintained:

Records may be physical or electronic, and must be preserved for a minimum of five years. Records that must be signed and are kept electronically must be digitally signed.

Annual audit. A research analyst shall conduct an annual audit of compliance with these regulations. The auditor must be a member of the Institute of Chartered Accountants of India, the Institute of Company Secretaries of India, or the Institute of Cost Accountants of India.

Regulations 26, 26A, 26B, 26C

Regulation 26 — compliance officer. A non-individual research analyst or research entity shall appoint either a compliance officer, or an independent professional. The professional must be a member of ICAI, ICSI, the Institute of Cost Accountants of India or another body SEBI specifies, and must hold a relevant NISM certification. Where an independent professional is used, the principal officer shall give an undertaking that the principal officer is responsible for monitoring compliance.

Regulation 26A — dispute resolution. All claims, differences or disputes between a research analyst and its client shall go to a dispute resolution mechanism that includes mediation and/or conciliation and/or arbitration.

Regulation 26B — grievances. "The Research Analyst shall redress investor grievances promptly but not later than twenty-one calendar days from the date of receipt of the grievance."

Regulation 26C — client level segregation. The idea: one client should not get both research and distribution from the same analyst or group.

Regulation 32 — liability for default. An analyst is dealt with under the Act or the SEBI (Intermediaries) Regulations, 2008 if it:

• contravenes any of the provisions
• fails to furnish any information
• furnishes information which is false or misleading in any material particular
• does not submit periodic returns or reports
• does not co-operate in any enquiry, inspection or investigation
• fails to resolve complaints or fails to give a satisfactory reply to the Board

14.5 Exchange surveillance — GSM and ASM

Stock exchanges enable transparent trading between buyers and sellers. In doing so, the market discovers a fair price. But some traders may use unscrupulous practices that distort prices and hurt other traders. To protect market integrity and investors, SEBI and the exchanges run several surveillance mechanisms.

Graded Surveillance Measures (GSM)

GSM targets securities with low market capitalisation or net worth, where the valuation is not commensurate with the business fundamentals. Such securities are flagged to alert investors to be extra cautious, and to advise market participants to carry out extra due diligence.

The restrictions that may be placed:

The criteria:

The first criterion does not apply to several kinds of security:

• securities already under suspension
• securities of PSUs
• securities that are part of an index
• shares that have paid dividends in the previous three years
• stocks that went through an IPO within the last one year
• those traded in the derivatives segment
• securities with significant institutional holding
• those currently undergoing merger or demerger under a scheme of arrangement

Additional Surveillance Measures (ASM)

While GSM picks securities based on valuation, ASM picks them based on variations in price and volume. In certain cases it also looks at the percentage of volume traded by the top 25 clients.

The factors:

ASM does not apply to: securities already under GSM, securities in the trade for trade segment, securities on which derivative products are available, and public sector units.

The consequence. Once a stock is short listed under ASM, the margin is raised to 80%. The restrictions tighten as the security meets more criteria. These include narrower price bands and a margin of 100%.

Exit. Stocks under ASM are reviewed after a minimum time period. They are removed if they no longer meet the short-listing criteria on the review date.

The advertisement code

"Advertisement shall include all forms of communications, issued by or on behalf of IA/RA, that may influence investment decisions of any investor or prospective investor."

The forms covered are sweeping: pamphlets, circulars, brochures, notices, research reports or any other literature, document, information or material — whether in print, on sign boards or hoardings, by email, text messaging, messaging platforms, social media, radio, telephone or any other internet form, or in any other audio-visual form.

And note this: a research report, however it is spread, shall be treated as an advertisement if anything in it expressly or impliedly promotes products or services offered by the RA.

What must be included:

What is prohibited:

Other compliances:

• Prior approval for the advertisement must be obtained from a SEBI recognized supervisory body before issue.
• A suspended IA/RA shall not issue any advertisement during the suspension.
• The IA/RA shall not engage in games, leagues, schemes or competitions that may involve distributing prize money, medals or gifts.
• A copy of the advertisement shall be kept for five years.

On brand names and logos. The name as registered with SEBI, logo, registration number and complete address with telephone numbers shall be prominently displayed on the website, notice boards, display boards, advertisements, publications, know your client forms and client agreements. Correspondence with clients must also show the compliance officer's name, phone number and email, and the grievance officer's name, phone number and email. SEBI logo shall not be used by IA/RA.

14.6 Investor Charter and complaint disclosure

SEBI has developed an Investor Charter for Research Analysts. It sets out, at one single place and in lucid language, the services provided to investors, their rights, do's and don'ts, responsibilities, the grievance handling mechanism and its estimated timelines.

All registered Research Analysts must bring the Investor Charter to the notice of their clients, existing and new. They do this by:

• disclosing it on their websites and mobile applications (if any)
• making it available at prominent places in the office
• giving a copy as part of client on-boarding
• sending it through e-mails or letters

On complaints. Research Analysts shall disclose on their websites or mobile apps all complaints received, including SCORES complaints, in the format SEBI specifies. Research Analysts without websites or mobile apps shall send the status of investor complaints to investors on their registered email.

They are also advised to display a link or option to lodge a complaint directly on their websites and mobile apps. A link to the SCORES website, or to download the SEBI SCORES mobile app, may also be provided.

14.7 Cybersecurity and Cyber Resilience Framework (CSCRF)

All Research Analysts are required to comply with the CSCRF. It rests on five cyber resiliency goals:

CSCRF follows a graded approach and classifies REs in five broad categories: Market Infrastructure Institutions (MIIs), Qualified REs, Mid-size REs, Small-size REs and Self-certification REs.

For research analysts specifically: all RAs who are not registered in other categories of REs are excluded from submitting compliance with CSCRF. However, the SEBI SaaS circular "Advisory for Financial Sector Organizations regarding Software as a Service (SaaS) based solutions" dated November 03, 2020 applies to RAs.

Institutional RAs registered with SEBI in another category of RE are classified as Qualified, Mid-size or Small-size REs, based on their category in that other RE or group entity.