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Business News/ Markets / Stock Markets/  New Sebi code a wet blanket for broker calls, TV appearances
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New Sebi code a wet blanket for broker calls, TV appearances

The code defines advertisement as ‘all forms of communications, issued by or on behalf of IA/RA, that may influence investment decisions of any investor or prospective investor.’

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Photo: Mint

NEW DELHI:A new Securities and Exchange Board of India(Sebi) code for Registered Investment Advisors (RIAs) and Research Analysts (RAs) came into effect on 1 May 2023. The code defines advertisement as ‘all forms of communications, issued by or on behalf of IA/RA, that may influence investment decisions of any investor or prospective investor.’

In other words, it can cover views on individual stocks or price targets issued by RAs, say legal experts.

Since brokers require an RA license to make such calls on television or other media, daily media activity of brokers may be hit by the code. The code does not explicitly ban such advertisements but lays down a series of restrictions on them.

“SEBI-registered stockbrokers who issue research rep-orts or research analysis are required to obtain registration as a research analyst. Accordingly, when a broker issues a buy/ sell stock recommendation on a TV channel, and it is in the form of research reports or analysis which is meant to influence the investor’s investment decision, an RA license would be required. Given that such communication would be targeted to the public at large and would be capable of influencing the decisions of investors and prospective investors, it would be an advertisement under the purview of the SEBI Advertisement Code for Investment Advisers and Research Analysts." said Namita Viswanath, partner, IndusLaw.

“Under the SEBI Code, such statements in themselves are not barred, however, there are prohibitions in relation to what an advertisement can contain. Such statements sho-uld not be misleading or based on projections. They must not exploit investors’ lack of experience/ knowledge," she added. The relatively rigid res-trictions on such statements in the advertising code can affect the ability of brokers to deliver calls/views in the media.

Harish Kumar, partner, Luthra and Luthra Law Offices India, said as per BASL guidelines, any recommendation/promotion of a specific investment/scrip in any manner is not permitted. “Thus, prima facie, such stock recommend-ations appears to be not perm-itted as such, however, a clear communication from SEBI in this regard (with bifurcation on recommendations made to public and to clients) would bring clarity," he said. BASL is a body authorized by SEBI to regulate RIAs. It does not regulate RAs but its interpretation of advertising code, can be construed to apply to RAs too.

Anil Choudhary, partner, Finsec Law Advisors, however, differed from strict interpretations of the advertising code. “Brokers have their own advertisement guidelines and in terms of the FAQs issued by the exchanges all client communications including research recommendations are exempted from advertisement restrictions. Further, issuance of buy/sell recommendations are specifically permitted under the regulations and there can be no prior approval imposed for issuing the recommendations. However, promotional materials enticing prospective clients by displaying past performances etc would be covered under the advertisement code," he said.

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Published: 17 May 2023, 08:51 PM IST
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