Fearing share price manipulation with the help of certain ‘independent’ research reports onIndian companies, market watchdog Sebi may soon bring all kinds of research analysts under its regulatory ambit.
The research analysts attached with brokerage firms, fund houses, investment banks and other market intermediaries are currently governed by Sebi (Securities and Exchange Board of India) regulations, but there are no comprehensive rules that could also cover third-party or independent analysts.
In a board meeting late last year, Sebi had discussed the need to have a comprehensive set of regulations for research analysts. The regulator is now working towards brining greater accountability in the conduct of independent analysts as well, a senior official said.
Sebi would also look at creating greater awareness among investors, and public in general, about doing their own due diligence before taking any decision based on these reports.
A major areas of concern in regulating independent analysts is the fact that it could amount to putting curbs on expression of opinion, the official said.
It has also been felt that the research reports as such might not be violating any rules, but they might be used by vested interests for stock market manipulations.
The official said that Sebi as such looks into the issued raised by these reports about the Indian companies, but it has also come across certain instances where bear cartels have used the negative issues raised in these reports to beat down the share prices.
At the same time, positive reports have been used to push the prices higher as well, he added. While he s have been used to push the prices higher as well, he added. While he refused to name any particular research firm, saying it could hinder its oversight mechanism, reports from one particular overseas research firm has raised serious concerns about a few Indian groups in the recent months.
The Sebi as such is in favour of good quality research reports, the official said.
However, research on its own cannot generate sufficient revenue to sustain its existence, therefore, it has to rely on other parts of the organisation. This could lead to conflict of interest in their functions, he added.
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.
