The global nature of securities markets means that research reports on Indian securities may be prepared and issued from jurisdictions outside India. The SEBI (Research Analysts) Regulations, 2014 specifically address this situation through Regulation 4, which imposes a mandatory agreement requirement.
The Regulatory Requirement
Regulation 4 of the RA Regulations states that any person located outside India engaged in issuance of research report or research analysis in respect of securities listed or proposed to be listed on a stock exchange shall enter into an agreement with a research analyst or research entity registered under these regulations.
This is a mandatory requirement that applies to all foreign persons, entities, or organizations that issue research on Indian securities.
Scope of Application
Persons Covered
The requirement applies to any person located outside India. This includes:
- Individuals: Individual analysts located outside India
- Entities: Companies, partnerships, or other entities outside India
- Organizations: Any organization engaged in research activities
- Media Organizations: Media organizations with research functions
Securities Covered
The requirement applies to research reports or research analysis in respect of:
- Listed Securities: Securities listed on Indian stock exchanges
- Proposed to be Listed: Securities that are proposed to be listed on Indian stock exchanges
Activities Covered
The requirement applies to:
- Issuance of Research Reports: Publishing or distributing research reports
- Research Analysis: Conducting and providing research analysis
- Recommendations: Making buy/sell/hold recommendations
The Agreement Requirement
Mandatory Agreement
The foreign person must enter into an agreement with an SEBI-registered Research Analyst or Research Entity. This agreement must be in place before any research report is issued.
Purpose of the Agreement
The agreement serves several purposes:
- Compliance Bridge: It provides a mechanism for foreign entities to comply with Indian regulatory requirements
- Regulatory Accountability: It ensures that there is a registered entity accountable for the research
- Investor Protection: It ensures that investors have recourse to a registered entity
- Market Integrity: It maintains the integrity of the Indian securities market
Agreement Content
While the regulations do not specify the exact content of the agreement, it should cover:
Regulatory Compliance
- RA Regulations: The registered RA/research entity must ensure compliance with all RA regulations
- Disclosure Requirements: All disclosure requirements must be met
- Reporting Obligations: Reporting obligations must be fulfilled
Liability
- RA Responsibility: The RA/research entity takes responsibility for the research
- Indemnity: Appropriate indemnity provisions
- Liability: Clear liability allocation
Operational Matters
- Research Process: How research will be conducted
- Review Process: Review by RA/research entity
- Publication: How and when research will be published
Financial Arrangements
- Fees: Any fees payable
- Consideration: The nature of consideration for the arrangement
Practical Implications
For Foreign Research Providers
Foreign research providers should:
- Identify RA Partner: Identify a suitable SEBI-registered RA/research entity
- Establish Agreement: Enter into a compliant agreement
- Ensure Compliance: Ensure all research reports comply with RA regulations
- Maintain Records: Maintain records of the arrangement
For Registered Research Analysts
SEBI-registered RAs should:
- Due Diligence: Conduct due diligence on foreign partners
- Agreement Review: Ensure agreements are comprehensive
- Compliance Oversight: Ensure oversight of research reports
- Record Maintenance: Maintain records of all arrangements
Considerations for the Agreement
Scope of Research
The agreement should clearly define:
- Types of Research: What types of research are covered
- Securities Covered: Which securities are covered
- Publishing Terms: How and when research will be published
Quality Standards
The agreement should ensure:
- Research Quality: Appropriate research standards
- Compliance with Regulations: Compliance with RA regulations
- Disclosure Standards: Appropriate disclosure standards
Regulatory Changes
The agreement should address:
- Changes in Regulations: How changes will be addressed
- Updates to Procedures: How procedures will be updated
- Communication: How regulatory changes will be communicated
Consequences of Non-Compliance
For Foreign Research Providers
Non-compliance can result in:
- Legal Action: Legal action under Indian law
- Regulatory Action: Action by SEBI
- Reputational Damage: Damage to reputation
- Market Access Issues: Issues with access to Indian markets
For Registered Research Analysts
Non-compliance can result in:
- Regulatory Action: Action by SEBI
- Penalties: Monetary penalties
- Suspension: Suspension of registration
- Reputational Damage: Damage to reputation
Expert Legal Guidance
Anuj Desai & Associates provides expert legal services for both foreign research providers and Indian Research Analysts on cross-border research arrangements. Our securities law experts help draft compliant agreements, navigate regulatory requirements, and ensure compliance with SEBI regulations. We assist in due diligence, agreement negotiation, and ongoing compliance monitoring.