Research Analysts (RAs) who have entered into lock-up agreements with a subject company are subject to publication restrictions. These restrictions prevent RAs from publishing research reports during certain periods related to the lock-up agreement. This article provides a comprehensive technical analysis of these restrictions.
Regulatory Basis
Primary Provision: Regulation 18(3)
Regulation 18(3) provides that:
"Research analyst or research entity who has acted as a manager or co-manager of public offering of securities of a company shall not publish or distribute a research report or make a public appearance concerning that company within fifteen days prior to date of entering into and fifteen days after the expiration/waiver/termination of a lock-up agreement or any other agreement that the research analyst or research entity has entered into with a subject company that restricts or prohibits the sale of securities held by the subject company after the completion of public offering of securities."
The Lock-Up Restriction Explained
When It Applies
| Condition | Details |
|---|---|
| RA's Role | Acted as manager or co-manager |
| Type of Agreement | Lock-up agreement |
| Restriction | Restricts or prohibits sale of securities |
| Period | 15 days before and 15 days after |
The 15/15 Rule
| Period | Restriction |
|---|---|
| 15 Days Before | Entering into the lock-up agreement |
| 15 Days After | Expiration/waiver/termination of the lock-up agreement |
Example
| Event | Date |
|---|---|
| Lock-up Agreement Entered | June 1 |
| 15 Days Before | May 17-31 |
| 15 Days After (Expiration) | June 2-16 |
What is a Lock-Up Agreement?
Definition
A lock-up agreement is an agreement that restricts or prohibits the sale of securities held by the subject company after the completion of a public offering.
Purpose
- Prevents large-scale selling that could impact the market
- Provides stability to the market
- Protects the offering price
Typical Duration
- 90-180 days
- Can be shorter or longer
What is Prohibited
During the 15/15 Period
| Activity | Prohibited? |
|---|---|
| Publish research report | Yes |
| Distribute research report | Yes |
| Research analysis | Yes |
| Public appearance | Yes |
| Comment on subject company | Yes |
Exception
Prior Written Approval
Regulation 18(3) provides that:
"Provided that research analyst or research entity may publish or distribute research report or research analysis or make public appearance regarding that company within such fifteen days subject to prior written approval of legal or compliance personnel as specified in the internal policies and procedures."
Practical Implementation
Step 1: Track Lock-Up Agreements
- Monitor lock-up agreements
- Track key dates
Step 2: Identify 15/15 Periods
- 15 days before entering
- 15 days after expiration/waiver/termination
Step 3: Restrict Publications
- Do not publish during 15/15 periods
- Obtain approval if needed
Step 4: Monitor Compliance
- Monitor all publications
- Ensure compliance
Common Compliance Gaps
1. Not Tracking Lock-Up Agreements
Some RAs do not track lock-up agreements.
Solution: Monitor all lock-up agreements.
2. Incorrect Calculation
Some RAs calculate the 15/15 period incorrectly.
Solution: Calculate the period accurately.
3. Publishing During Restricted Period
Some RAs publish during the restricted period.
Solution: Restrict publications during the 15/15 period.
4. No Approval for Exception
Some RAs use the exception without approval.
Solution: Obtain prior written approval.
Consequences of Violation
1. Regulatory Action
SEBI may take action for violation.
2. Monetary Penalties
SEBI may impose monetary penalties.
3. Suspension or Cancellation
SEBI may suspend or cancel registration.
Conclusion and How Anuj Desai & Associates Can Help
Lock-up agreement restrictions are a critical compliance obligation.
Anuj Desai & Associates offers specialized services to help RAs comply with lock-up restrictions:
- Tracking of lock-up agreements
- Calculation of 15/15 periods
- Development of internal policies
- Compliance audit and advisory
Contact us today to ensure your publication practices comply with SEBI requirements. Our team will guide you through the process.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Readers are advised to consult qualified professionals for legal and compliance matters. Anuj Desai & Associates is a SEBI compliance consulting firm based in India.