In the field of securities market research, it is essential for individuals or entities acting as research analysts to meet certain qualification and certification requirements. These regulations, governed by the Securities and Exchange Board of India (SEBI), aim to ensure that research analysts possess the necessary expertise and qualifications to provide reliable and accurate recommendations, opinions, and reports. This article provides an overview of the qualification and certification requirements for individuals and entities engaged in research analysis as per the SEBI (Research Analysts) Regulation, 2014.
SEBI (Research Analysts) Regulation, 2014 Qualification and Certification Requirement
QUALIFICATION AND CERTIFICATION REQUIREMENT
In order to understand the Qualification & Certification requirements, first we need to understand the Persons who can act as Research Analyst.
The Person (Applicant) can be:
- An Individual or
- A Body Corporate or
- A Partnership Firm or
- A Limited Liability Partnership Firm.
Now, we need to understand the term “Research Analyst”, which is stipulated below for your reference:
Research analyst” means a person who is primarily responsible for-
i. preparation or publication of the content of the research report; or
ii. providing research report; or
iii. making ‘buy/sell/hold’ recommendation; or
iv. giving price target; or
v. offering an opinion concerning public offer,
with respect to securities that are listed or to be listed in a stock exchange, whether or not any such person has the job title of ‘research analyst’ and includes any other entities engaged in issuance of research report or research analysis.
Explanation-The term also includes any associated person who reports directly or indirectly to such a research analyst in connection with activities provided above;
Following Inference can be drawn from the above definition:
- Person does not need to have the job title as “Research Analyst” or be designated as “Research Analyst” by the organization. If he performs the activities mentioned in point (i) to (v), he is a Research Analyst.
- Interns, Management trainee or otherwise who reports directly or indirectly to such Research Analyst, shall also be considered as Research Analyst even though they’re not on the regular payroll of the Company or receives stipend from the Company. However, it has to be checked whether they fall within the definition of Associated Person.
Further, the Research Analyst can be categorized as follows:
- “Independent Research Analyst” means a person whose only business activity is research analysis or preparation and/or publication of research report.
- SEBI registered Intermediaries, who are already registered with SEBI in the capacity of Merchant Banker or Investment Adviser or Broker or Underwriter or otherwise & proposes to engage in the business activity of research analysis or preparation and/or publication of research report.
It is pertinent to understand the following terms which have frequently been used in the regulation:
1. Research Analyst
2. Research Entity & its Associate
3. Research Entity & its Employees
4. An individual registered as research analyst
5. Individuals employed as research analyst
6. Partners of a research analyst
7. Research analyst or research entity or its associates
Point 1:
The term “Research Analyst” has already been defined above.
Point 2:
Stating the definition of Research Entity for your reference:
“Research Entity” means an intermediary registered with Board who is also engaged in merchant banking or investment banking or brokerage services or underwriting services and issue research report or research analysis in its own name through the individuals employed by it as research analyst and includes any other intermediary engaged in issuance of research report or research analysis;
It is Evident from the above definition that “Research Entity” means an intermediary which is already registered with SEBI in other capacity & propose to have a designated department as Research Department or subsidiary in the group to initiate Research Activity & to appoint people in such department or subsidiary having requisite qualification as Research Analyst. In such a case the people who are being appointed does not need to get registered with SEBI as an Individual Research Analyst, here the organization shall seek registration as a Research Entity.
Now the term “Associate” in this case shall be construed in accordance with SEBI (Intermediaries) Regulations, 2008 which is stipulated below:
“Associate” means any person controlled, directly or indirectly, by the intermediary, or any person who controls, directly or indirectly, the intermediary, or any entity or person under common control with such intermediary, and where such intermediary is a natural person will include any relative of such intermediary and where such intermediary is a body corporate will include its group companies (as defined in the Monopolies and Restrictive Trade Practices Act, 1969 (Act No. 54 of 1969) or any re-enactment thereof) or companies under the same management.
Further, SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007 also defines “Associated Person” which is stipulated below:
“Associated Person” means a principal or employee of an intermediary or an agent or distributor or other natural person engaged in the securities business and includes an employee of a foreign portfolio investor or a foreign venture capital investor working in India.
Therefore, the term “Research Entity & its Associate” shall mean the Company & its subsidiaries, group companies, employees, management.
Also this explanation covers Point 3, point 5 & Point 7.
Point 6:
Partners of Research Analyst means where the Research Analyst is a Partnership firm or LLP.
(Please Note points not explained here are considered self-explanatory)
Now, let’s come to the discussion of Qualification & Certification Requirements, which is stated hereunder:
Qualification and certification requirement.
7.(1) An individual registered as research analyst under these regulations, individuals employed as research analyst and partners of a research analyst, if any, engaged in preparation and/or publication of research report or research analysis shall have the following minimum qualifications, at all times:
(i) A professional qualification or post-graduate degree or post graduate diploma in finance, accountancy, business management, commerce, economics, capital market, financial services or markets provided by:
(a) a university which is recognized by University Grants Commission or by any other commission/council/board/body established under an Act of Parliament in India for the purpose; or
(b) an institute/association affiliated with such university; or
(c) an institute/ association/university established by the central government or state government; or
(d) autonomous institute falling under administrative control of Government of India;
or
(ii) professional qualification or post-graduate degree or post graduate diploma which is accredited by All Indian Council for Technical Education, National Assessment and Accreditation Council or National Board of Accreditation or any other council/board/body set up under an Act of Parliament in India for the purpose; or
(iii) a professional qualification by completing a Post Graduate Program in the Securities Market (Research Analysis) from NISM of a duration not less than one year; or
(iv)] 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.
(2) An individual registered as research analyst under these regulations, individuals employed as research analyst and partners of a research analyst, if any, shall have, at all times, a NISM certification for research analysts as specified by the Board or other certification recognized by the Board from time to time:
Provided that research analyst or research entity already engaged in issuance of research report or research analysis seeking registration under these regulations shall ensure that it or the individuals employed by it as research analyst and/or its partners obtain such certification within two years from the date of commencement of these regulations:
Provided further that fresh certification must be obtained before expiry of the validity of the existing certification to ensure continuity in compliance with certification requirements.
As we can see here, Regulation 7 does not mention the term “Associate”. So the following question arises.
1. Where a person has been appointed in the Research Entity as a Research Associate, does he need to comply with Regulation 7?
Regulation 7 uses the term individuals employed as research analyst. When we read regulation 7 in isolation, then an inference can be drawn that qualification & certification criteria is required only when a person is being appointed by the organization as a Research Analyst.
However, going through the definition of Research Analyst as stated above, it is evident that Associated persons who report directly or indirectly to Research Analyst are also considered as Research Analyst.
Further as per SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007, Associated person includes an employee of the organization.
Further, Regulation 24 requires the Research Entity to ensure that its employees comply with the certification and qualification requirements under regulation 7 at all times.
Since, person being appointed as Research Associate shall be an employee of the Company & shall report to Research Analyst, he shall also be considered as a Research Analyst & shall comply with Regulation 7.
2. Taking the above question, will an intern or management trainee, who is not an employee of the Company & receives stipend needs to comply with Regulation 7.
No.
Intern or Trainee are not considered as employee of the organization, therefore they do not fall under the definition of Associated person, even though they’re directly or indirectly reporting to the Research Analyst, they cannot be considered as a Research Analyst. Therefore, compliance of regulation 7 is optional.
Further, the primary objective of SEBI is to protect the interest of investors in the securities market. Therefore, the intent of the Regulator in this Regulation can be construed to ensure that persons who are preparing & publishing the Investment Advises/Recommendation/Opinion/Report are adequately qualified, equipped & have sufficient resources to do so.
Based on this, we can say that since MT/Interns are not actively engaged in the preparation of the Research Report but are learning under the supervision of Research Analyst. Therefore, they shall not fall within the definition of Research Analyst.
However, in the absence of any clarity, it is recommended to hire MT/interns who has requisite qualification.
To simplify Regulation 7,
Qualification Requirement:
An individual registered as research analyst, individuals employed as research analyst and partners of a research analyst shall have following qualifications:
- A professional qualification
- or postgraduate degree
- or post graduate diploma in following discipline
finance, accountancy, business management, commerce, economics, capital market, financial services or markets, from a university which is recognized by
- University Grants Commission
- All Indian Council for Technical Education
- National Assessment and Accreditation Council
- National Board of Accreditation
- any other council/board/body set up under an Act of Parliament in India for the purpose
Note: You can check the list of recognized universities from University Grants Commission website.
OR
- A professional qualification by completing a Post Graduate Program in the Securities Market (Research Analysis) from NISM of a duration not less than one year.
OR
- 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.
Certification Requirement
Please make sure they have a valid NISM certification for research analysts as specified by the Board or other certification recognized by the Board from time to time at all times and fresh certification is obtained before expiry of the validity of the existing certification.
As per SEBI (Certification of Associated Persons in the Securities Markets) Regulations, 2007
- certificate” means the certificate granted by NISM in accordance with these regulations;
- An associated person on being employed or engaged by an intermediary on or after the date specified by the Board shall obtain the certificate within one year from the date of being employed or engaged by the intermediary.
- An associated person who, as on the date specified by the Board, holds a certificate for a category as recognized by the Board shall not be required to obtain a fresh certificate for the same category during the validity of such certificate.
A person on being appointment as Research Analyst shall have to obtain the requisite certificate from the NISM or Institute accredited or approved by NISM or SEBI within 1 year of his date of appointment.
Conclusion: SEBI’s qualification and certification requirements for research analysts play a crucial role in ensuring the competence and professionalism of individuals and entities involved in securities market research. By adhering to these regulations, research analysts can enhance the credibility of their recommendations and reports, benefiting investors and maintaining the integrity of the securities market. It is important for individuals and organizations operating in this field to stay updated on SEBI’s guidelines and fulfill the necessary qualification and certification obligations to provide reliable and trustworthy research analysis services.
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