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Making judgments about investments requires access to current and reliable information about investment products. It would be challenging for an investor to analyze and comprehend the information, however, given the volume and complexity of the information. The research analysts are crucial in this situation. They research businesses and industries, examine raw data, and then predict or suggest whether to buy, hold, or sell securities.

To make recommendations to their clients concerning securities investments, Research Analysts evaluate data. Investors frequently rely on the recommendations of these Analysts because they perceive them as authorities and vital sources of knowledge regarding the stocks they evaluate. But such recommendations from investment analysts are frequently vulnerable to conflicts of interest that could prohibit them from providing objective and unbiased assessments. To avoid such conflicts, the Research Analysts must comply with certain regulations:  

  • Within thirty days prior to and five days following the publication of a research report, RA is not permitted to engage in or trade in securities that recommend or follow. 
  • RA is not allowed to deal with or trade in securities that are the subject of a review in a way that is at odds with the suggestions given. If the issuer is primarily engaged in the same sorts of businesses as companies that the research analyst follows or advises, RA may not purchase or receive securities of the issuer prior to the issuer’s initial public offering (IPO). Except: significant company-related news or event A change in RA’s financial situation, not to take part in road shows and sales pitches.
  • Refrain from discussing an investment banking services transaction with a current or potential client in the presence of employees from the merchant banking, brokerage, or investment banking divisions or firm management.  
  • In a similar vein, employees of the investment banking, merchant banking, or brokerage services divisions may not direct the analyst to engage in sales or marketing, and they may not direct the research analyst to communicate in any way with a current or potential client regarding a transaction involving such a division.
  • Not be applicable if the analyst is involved in investor education initiatives, such as publishing pre-deal research and sharing their opinions with the sales or marketing team about the transaction. Limitations on the research analyst’s ability to conduct business, appear in public, and publish research reports, among other things It will be made sure.
  • To refrain from publishing or disseminating research reports or research analyses or appearing in public at any time during the following time frames: (a) Forty days immediately following the day on which the securities are priced if the offering is an IPO or (b) Ten days immediately following the day on which the securities are priced if the offering is an FPO: Provided that the aforementioned is done within such forty days and ten-day periods, subject.
  • If RA has engaged in or is currently participating as an underwriter in an issuer’s IPO, he must refrain from publishing, distributing, or making a public appearance regarding that issuer before the expiration of twenty-five days from the date of the offering.
  • In the ten days before the date of entering into and the fifteen days following the expiration/waiver/termination of a lock-up agreement or any other arrangement, if the same is restricted or forbidden, refrain from publishing or distributing a research report about that company. If the aforementioned is completed within the aforementioned forty-day and ten-day timeframes, with the Compliance officer’s previous written consent and justifications given
  • The research team must keep sufficient records that are backed by research in order to prepare research reports. These records must be made available to the internal auditor or the compliance officer upon request.
  • Not to make any promises or guarantees about favorable reviews in order to start a business connection, influence it, or get paid or receive other benefits
  • Not publish a research report that contradicts the opinions expressed by the research analyst.

Regulating authorities are very concerned with locating and resolving conflicts of interest resulting from the creation and distribution of research reports because the main goal is to safeguard investors and increase market confidence. 

This blog is written by Srijan Lama, a student of St. Joseph’s College of Law, Bengaluru.

Author Bio

Smriti Legal LLP is a sector focused law firm headquartered at Bengaluru with associated offices nationwide. The firm specializes in RERA litigation and legal advisory services under The Real Estate (Regulation and Development) Act, 2016 ( Contact: +91 97400 12005 View Full Profile

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April 2024