Analysts or investment advisers are experts or at the least understand the markets a little more, given that they spend a lot of time reading and researching about stocks. People often rely on their advice, hoping that they have the most accurate information about the company/securities which they are covering. While this may or may not be true, the bigger question is – What exactly is an investment adviser, legally?
In the absence of any regulation, pretty much anyone can give themselves this title. Indeed, for many years such titles have proved very helpful at manipulating sentiment in favor of particular stocks. In order to root out unfair motives and make the market a safer place for investors, the Securities and Exchange Board of India (SEBI), has set some norms/guidelines to check ‘conflict of interests’ in stock markets.
Conflict of interest arises where market participants, particularly those claiming to be independent financial advisors stand on both sides of the transaction. On one side they may be acting for a company or its promoter while on the other, they have the authority and standing to recommend stocks of that very company to their clients. What follows is a situation where they must necessarily cheat one of the two parties. Often it is the smaller client who pays the price.
EXAMPLE
Promoter may want to sell 1% stake in his company. Advisors working with him could put out buy recommendations on the stock to prop up the share price before the promoter sells. Similarly, often the analysts buy a particular stock in their own account before recommending it to their clients. To deal with this “conflict of interest”, SEBI has set up new rules for investment advisers and research analyst. This is aimed at removing loopholes that allow irregularities like insider trading etc.
SEBI (Investment Advisers) Regulations, 2013
SEBI has published a set of guidelines for individuals and firms offering investment advice. These new regulations make it mandatory for everyone who is in the business of offering investment, to register with the market regulator – SEBI.
Exempted:
Insurance agent or insurance broker, pension advisor, distributor of mutual funds, advocate, stock broker or sub-broker registered under SEBI, fund manager (mutual fund etc) are not required to be registered under these regulations.
SEBI (Research Analysts) Regulations, 2014
On 1st September, 2014, SEBI published another set of guidelines to regulate research analysts covering Indian markets. Under these, research analyst will have to obtain a certificate from SEBI to continue giving opinions and recommendations on companies.
These regulations seek to regulate individual research analysts as well as entities engaged in issuance of research reports or research analysis or who makes ‘buy/sell/hold’ recommendations related to securities and public offers such as brokerage houses, merchant bankers and advisors etc. By doing so, SEBI’s main intention is to improve the quality of research by ensuring that analysts with suitable education qualifications and experience are only registered. Under this regulation, foreign entities conducting research on Indian markets or Indian-listed companies would need to tie-up with a registered entity in India.
Exempted:
Investment advisers, asset management companies, credit rating agencies, fund managers of venture capital fund or portfolio manager are not required to be registered under these regulations.
The following are some key changes under the new framework:
| Eligibility | Investment Advisers Regulations | Research Analyst Regulations |
|
|
|
| Capital adequacy |
|
|
| Avoiding conflicts of interest | Investment advisors are not allowed to enter into transactions on thier own account contrary to the advice given to clients for at least 15 days from the day of such advice. | SEBI has put a trading restriction on research analyst. They are not allowed to trade in the securities that they follow. The restriction is applicable 30 days before and five days after the publication of the research report |
| Disclosures | Disclosure related to the fee they get from the beneficiary company / firm for the advice they give about a particular product.Disclosure about their holdings in the products on which they are advising.Risk related disclosures. | Research analyst must disclose all the information given by the company to the public. This will prevent the analysts or their entities to gain any undue advantage over other investors |
| Validity of Certificate | 5 years | 5 years |
| Renewal of Certificate | 3 months before the expiry of validity period | 3 months before the expiry of validity period |
About Author
what is the main difference between advisor and analyst (apart from advisor being able to buy stocks)?
Can I publish reports while being registered as advisor (so I can buy my recommendations and publish them also)?
YES
Hi Rajat, thank you for the informative Blog.
We are a Registered Sub-Broker,with active some clients trading and this sub-broker is Registered in my partners name. We now plan to start some advisory business mainly into Equity Advisory for which we plan to Charge clients for it, for which RIA is compulsory.
Can my Partner also apply for RIA after clearing the required Exams? Can we do both Sub-Broker business and Advisory Business in my partners name ?
The reason I am asking is since i am confused with the SEBI Wording ” Maintain a ARMS LENGTH DISTANCE” !!!!
Quick answer to all your questions – No. 🙁
Hi Rajat
I am graduated in B.com(Financial Markets) and Currently i have cleared CMT level 2. i am doing technical analysis since last 4 years can i apply for research analyst??
Yes
Hi Rajat,
Recently, I signed up by a SEBI registered Company for a service where they would play via my account from their office. They made a loss of 75000 in 1 day.
I have been getting SMS with just the information of the profit made by their company but they do not play their SMS calls on my account.
Now, can I complain to SEBI and ask for the refund including the package of 1 lakh?
I so not even know what they are going to play in my account as I do not receive any SMS for the same. Please guide. Thank you.
Yes you can complain to SEBI via their online complaint portal but for starters it is more important to shut this account.
Sir i am Auhtorised person and now i want to become SEBI RA and want to start giving advise to clients. so my question is can i run both business at same time. i mean AP + Sebi Research analyst. bcz APs are nt registered under sebi so asking. giving some idea how to run both at same time >> it will be very helpful if u suggest. thanks
Yes you can.
thanks alot sir for faster reply from a busy person like you.. i asked this bcz someone said you cant run both at same time as its a “conflict of interest” athorised person are register under exchange i am FAN. and planning to register as Sebi research analyst. sir one more advise.. Graduation Plus ATA(CFTe) is acceptable for minimum eligibility for SEBI RA>>
Contact SEBI, They are very good with responding and are super helpful. My view is that it should be but I am no authority on this.
Sir
1. I subscribed for one month service for intraday stocks from a Sebi registered research analyst .
2. Following problems I faced
(i). sometime it is not possible to take entry since movement is very fast.
(ii). He used to give two targets but suddenly you receive msg book partial profit and revise SL to cost price . Thereafter if revised SL hit and subsequently after that target 1 achieved then he updates target 1 achieved .
3. He does not update in performance sheet many calls which hit stop loss. This I came to know after I joined paid service . His performance updation misguides since he is not updating 80 percent of stop loss.
May I know what action I can initiate against him and what is the procedure.
Thanks
Jai Singh
I am a part time stock trader. I do my own technical analysis on Nifty50 stocks, based on Elliott wave theory with 60% success rate. Recently I planned to start a youtube channel and a blog to display my analysis showing expected future price action free of cost to the public without any advice or recommendation of buy/sell or hold. Despite that both the youtube channel and the blog would be with proper disclaimer. Is it illegal or should I need to be registered with SEBI. Please reply.
I am a stock trader. I do my own technical analysis on Nifty50 stocks, based on Elliott wave theory with 60% success rate. Recently I planned to start a youtube channel and a blog to publish my analysis with indication of expected upcoming stock price action free of cost with no advice or recommendation of buy/sell or hold. Despite that both the youtube channel and the blog would be with proper disclaimer. Now I am eager to know from you that are they illegal or I need to be registered with SEBI for these activities. Please reply.
My best answer is – You should register to give credibility to your channel and blog. Registration is easy and just requires you to clear an exam. What’s stopping you?
Rajat Sharma,
I want to take RA certificate from SEBI. I am a B.Tech and having more than 5 years of experience in brokerage firm (Stock Broker) as sales (now a full-time trader). Can this be consider as Qualification and certification requirement by SEBI.
Here I am quoting line from SEBI notes on RA:
“a graduate in any discipline with an experience of at least five years in activities relating to financial products or markets or securities or fund or asset or portfolio management”.
So, my job experiance as a sales in Stock Broker be considered as an experience required by SEBI.
My next query is on Avoiding conflicts of interest. So, I am a trader and trading based on Hedging from last 7-8 Years. Is there any way I can also continue my trading (from family members or friends or by registering a company and trading in it) and also RA.
Thanks.