Conflict of interest
Any interest of the analyst's own — a shareholding, a fee, a relationship — that could bias the research, and which the regulations require to be disclosed rather than merely avoided.
In plain language
Research is worth something only if the person reading it believes it is honest. A conflict of interest is anything that gives the analyst a reason to write something other than what they actually think.
The regulatory answer is not to pretend such interests do not exist. It is to put them on the page, so the reader can discount the opinion accordingly.
How it works
The SEBI (Research Analysts) Regulations, 2014 work on managing and disclosing rather than prohibiting. The disclosures belong in the research report itself, not merely in an internal register, and cover the holdings of the analyst and their relatives in the subject company, any compensation received from it, any material commercial relationship, whether the firm managed a public offering or acted as market maker, and any directorship held.
Alongside disclosure sit two hard restrictions: an analyst must not trade contrary to their own published recommendation, and must not deal in the securities they cover in the window running thirty days before and five days after a report is published.
A worked example
An analyst personally holds 3,000 shares of a mid-cap bought at Rs 240 — a position of Rs 7.2 lakh — and is preparing to publish a Buy with a target of Rs 320.
If the report moves the share 6%, the analyst's own position gains roughly Rs 43,000. Nothing about that makes the recommendation wrong, and nothing about it is prohibited. What is required is that the holding is disclosed prominently in the report, and that the analyst does not trade in the stock in the thirty days before or five days after publication.
A second layer runs at the firm. If the investment banking arm is pitching to manage the same company's qualified institutional placement, the research view must be separated from that process by a Chinese Wall, and the banking relationship disclosed in the report. The wall handles the firm's conflict; it does nothing about the analyst's personal one, which still has to be declared.
Why NISM asks about it
Chapter 1 (Introduction to the Research Analyst Profession) frames the ethical duty and Chapter 14 (Legal and Regulatory Environment) supplies the regulations. This is among the most heavily examined non-numerical areas of the paper, and in almost every scenario question the correct answer is disclose — not avoid, not ignore, and not resign.
Common exam traps
- Disclosure is the requirement. Holding shares in a company you cover is not itself a violation; failing to declare it is.
- The disclosure belongs in the report, where the client sees it, not only in the firm's internal records.
- Relatives' holdings count as the analyst's for this purpose.
- Trading against your own recommendation is prohibited outright — no disclosure cures it.
- A Chinese Wall is a firm-level control. It does not remove the individual analyst's duty to disclose.
Check yourself
1.What is the purpose of having written internal policies and controls by a research analyst under Regulation 15?
- a)Addressing only the actual conflict of interest arising from dealings of securities of a company
- b)Promoting objective research that reflects the biased view of the research analyst
- c)Preventing the use of a research report to manipulate the securities market
- d)Restricting client access to research reports
Show the answer
Answer: (c) Preventing the use of a research report to manipulate the securities market
Regulation 15(1) — research analyst or research entity shall have written internal policies and control procedures governing the dealing and trading by any research analyst for:
(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.
Option A is wrong on one word — the regulation covers actual or potential conflict of interest, not only actual.
Option B reverses another — the aim is research reflecting the unbiased view, not the biased one.
Option D contradicts a different rule entirely: a research report shall not be made available selectively to internal trading personnel or a particular client or class of clients in advance of other clients who are entitled to receive the research report.
Regulation 15 also requires that the analyst or entity shall have in place appropriate mechanisms to ensure independence of its research activities from its other business activities.
The reason all this exists: such advice from investment analysts is many times prone to conflicts of interest that may prevent them from offering independent and unbiased opinions. The IOSCO principle behind it: firms that employ analysts should establish written internal procedures or controls to identify and eliminate, manage or disclose actual and potential conflicts of interest on the part of analysts.
2.A research analyst must disclose beneficial ownership in the subject company when the holding is:
- a)Five per cent or more, measured on the date of publication
- b)One per cent or more, at the end of the month immediately preceding the date of publication or public appearance
- c)Any amount, measured on the date of publication
- d)Ten per cent or more, at the end of the financial year
Show the answer
Answer: (b) One per cent or more, at the end of the month immediately preceding the date of publication or public appearance
Regulation 19(i)(b) — whether the research analyst or research entity or its associates or relatives, have actual/beneficial ownership of one per cent or more securities of the subject company, at the end of the month immediately preceding the date of publication of the research report or date of the public appearance.
Both halves matter — the 1% threshold and the measurement date. The date is the end of the month immediately preceding, not the publication date itself.
A separate disclosure has no threshold at all: whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company and the nature of such financial interest. Any financial interest, however small, must be disclosed — option C mistakes this rule for the ownership one.
And a third: whether the research analyst or research entity or his associate or his relative, has any other material conflict of interest at the time of publication of the research report or at the time of public appearance.
All three must appear in the research report AND in public appearance.
The compensation disclosures run on a twelve-month lookback: whether it or its associates have received any compensation from the subject company in the past twelve months · have managed or co-managed public offering of securities... in the past twelve months · have received any compensation for investment banking or merchant banking or brokerage services... in the past twelve months · have received any compensation for products or services other than those · and any compensation or other benefits from the subject company or third party in connection with the research report.
Two more standing items: whether the research analyst has served as an officer, director or employee of the subject company, and whether the research analyst or research entity has been engaged in market making activity for the subject company.
Where this is taught
Free preparation for NISM Series XVRelated terms
- Chinese WallAn enforced separation inside a firm between departments holding confidential price-sensitive information and those dealing with clients, sales or public research.
- InsiderAnyone who is a connected person, or who simply possesses or has access to unpublished price sensitive information — possession alone is enough, with no relationship to the company required.
- Research reportA document presenting an investment idea — analysis plus a recommendation. SEBI excludes market commentary, index discussion, internal notes and statistical summaries from the definition.
- Unpublished price sensitive informationInformation about a company or its securities that is not generally available and that would, on becoming available, be likely to materially affect the price of the security.
- Soft Dollar ArrangementAn arrangement in which a Category III AIF uses clients' money, typically through brokerage, to pay for third-party or proprietary research — a conflict of interest that must be disclosed.
- Research Objectivity StandardsThe CFA Institute's specific, measurable norms for managing and disclosing the conflicts of interest that can stop a research analyst producing independent research and objective recommendations.
- Due diligence certificateThe formal certificate a lead manager signs and files with SEBI at prescribed stages of an issue, confirming that it has verified the issuer's disclosures and that the offer document is compliant.
- Volcker RuleThe limb of the US Dodd-Frank Act of 2010 that segregates banking from proprietary trading and asset management — the workbook's example of investment banks being re-regulated after 2008.
- Conflict of Interest PolicyThe written policy every AIF must have describing the conflicts that could arise at each level of the fund, how the manager will mitigate them, and how investors are told and asked to acknowledge them.
- Registered Investment AdviserA SEBI-licensed professional who charges investors a fee for investment advice; since 2013 only an RIA may use the word "adviser" — distributors, brokers and insurance agents may not.
- Conflict of Interest RegisterThe record an AIF keeps of each actual or potential conflict of interest — naming the related party, the nature of the relationship, the date it arose, the proposed investment and its market price.
- Corporate governanceThe rules, processes and procedures followed in running a company, judged by an analyst against a checklist of board, audit and related-party tests rather than by reputation.
- Independent directorA director who is neither part of management nor otherwise connected to the company — at least half the board where the chairman is executive, and one-third otherwise.
- Buy-side analystAn analyst employed by an asset manager — a mutual fund, pension fund, hedge fund, AIF, FPI or portfolio manager — whose recommendations are written for the employer's own fund managers, not the public.
- Sell-side analystAn analyst at a firm offering investment banking, broking or advisory services who publishes research in the public domain with a buy, hold or sell call and a price target.
- Research AnalystUnder the SEBI (Research Analysts) Regulations, 2014, a person who, for consideration, is engaged in the business of providing research services — including a part-time research analyst.
- Related party transactionA deal between a company and a party connected to its controllers — promoters, their relatives, group firms. Watched because it can enrich the promoter group at minority shareholders' cost.
- Supervisory CommitteeA voluntary best-practice committee an AIF manager may set up, meeting at least once a year, with powers over outsize valuations, governance, fund terms and conflicts — but none to replace investor consent.
- Obligations of trusteesThe duties SEBI places on a mutual fund's trustees: hold scheme property in trust, review every AMC-associate transaction quarterly, and certify to SEBI half-yearly that nothing improper happened.
- Norms for shareholding in mutual fundsA rule that stops one fund house owning a piece of another: no sponsor, associate or 10% shareholder of one AMC or trustee company may hold 10% or more of, or sit on the board of, another mutual fund's.
- Independent research analystThe third of the workbook's analyst categories: one who works for a research originator or boutique firm separate from full-service investment firms, and sells research on subscription.
- Insider informationMaterial non-public information which, if published, would immediately affect an investor's decision to buy or sell a security — information a research analyst must not collate.
- Mosaic analysisAssembling many individually insignificant pieces of information, public and non-public, into a critical insight — a practice the workbook states is acceptable.
- SuitabilityThe investment adviser's obligation under Regulation 17 to ensure that every piece of advice fits the client's documented risk profile, investment objectives and capacity to absorb loss.
- Debenture trusteeThe SEBI-registered trustee of the trust deed securing an issue of debentures — the debenture holders' agent, standing between them and the issuer for the life of the paper.
- Proxy adviserA person who advises institutional investors or shareholders on exercising their rights in a company, including voting recommendations on agenda items and recommendations on public offers.
- Eligible promotersThe promoter categories SEBI requires before considering a credit rating agency application — PFIs, scheduled commercial banks, foreign banks, eligible foreign CRAs, or companies with Rs 100 crore net worth.
- Stewardship codeSEBI's mandatory code requiring all AIFs and mutual funds to monitor, engage with and vote in the listed companies they invest in — and to publish the policies by which they do it.
- Compliance Test ReportThe annual self-certification an AIF manager prepares in SEBI's prescribed format, testing the fund against the AIF Regulations and routed through the sponsor and trustee for comment.
- Reasonable or objective basisThe fiduciary obligation that an adviser's recommendation must rest on grounds that are defensible on the client's facts, and not on factors that benefit the adviser.
- Third Schedule Code of ConductThe 9-head code of conduct in the Third Schedule to the SEBI (Investment Advisers) Regulations, 2013, which every Investment Adviser must follow at all times.
- Warehousing of investmentsParking securities for a period so they can be transferred or disposed of later — a conflict of interest the PPM must disclose, and not the same thing as warehousing of deals.
- Key Management PersonnelThe key investment team of an AIF's manager, the employees who decide on behalf of the fund, and anyone else the AIF or manager declares as such — named in the PPM and bound by the Code of Conduct.
- Co-investmentInvestment by a manager, sponsor or investor of a Category I or II AIF directly into an investee company that the AIF is itself investing in, alongside the fund rather than through it.
- Investment CommitteeA committee the manager of a Category I or II AIF may constitute to approve the fund's investment decisions; its members are responsible for those decisions and bound by the Code of Conduct.
- Investor Advisory CommitteeAn optional committee of mainly investor representatives that gives an AIF's manager or Investment Committee informed guidance on conflicts, risk, governance, reporting and tax — a check, not a decision-maker.
- Fund GovernanceThe control structure within which an AIF is managed, directed and controlled — manager oversight, independent valuation, segregation of functions, conflict management, transparency and an investor-first culture.
- Self-dealingUsing your position inside a fund house to transact with the fund itself on terms that benefit you unfairly, at the expense of the scheme and its unit holders — banned outright by the AMFI Code of Ethics.
- Unit Holder Protection CommitteeA committee every AMC must constitute under the SEBI Mutual Fund Regulations, 2026, whose sole remit is the interests of unit holders across all the AMC's products and services.
- Badla financingA traditional Indian carry-forward financing arrangement that a portfolio manager is expressly barred from deploying client PMS funds into, grouped with bill discounting and third-party lending.
- PFUTP RegulationsSEBI's 2003 regulations banning fraudulent, unfair and manipulative trade practices in the securities market, including a specific list of dealings deemed fraudulent regardless of actual gain or loss.
- Fiduciary capacityThe legal standing in which an investment adviser or portfolio manager must act — putting the client's interest ahead of its own and disclosing every conflict of interest as it arises.
- Uberrimae fideiThe Latin principle of utmost good faith — that a person acting on another's behalf must make no profit at that person's cost and must never take unfair advantage of their trust.
- Client level segregationThe SEBI rule that no single client may receive both advisory and distribution services from the same investment adviser group — each client is one or the other, never both.
- Full disclosure obligationThe fiduciary duty to give a client every relevant fact, with nothing omitted, especially wherever a conflict of interest exists or could even appear to exist.