Regulators make sure market participants behave responsibly, so the market keeps financing companies and government, and investors are protected. Their shared aim: a fair and competitive marketplace with high service standards.
Who regulates whatAs described in the book
Regulator
Set up under
Main role
Ministry of Finance (MoF)
Government of India
Taxation, financial legislation, institutions, capital markets, state finances, Union Budget. Five departments (below)
Monetary policy; regulator of banks and the financial system; manager of foreign exchange (FEMA 1999); issuer of currency; developmental role; banker to government and banks
SEBI
Section 3 of the SEBI Act, 1992
Protect investors, develop and regulate the securities market. Also commodities since merging with the Forward Markets Commission on 28 September 2015
IRDAI
IRDA Act, 1999
Licenses insurers, sets capital rules, product and contract terms, distributor training and commission, supervises the Tariff Advisory Committee, investment of insurers' funds
PFRDA
PFRDA Act, 2013 (constituted October 2003)
Promote old age income security; regulate pension funds; protect subscribers; design and run the National Pension System (NPS)
IBBI
Insolvency and Bankruptcy Code, 2016
Oversees insolvency processes and insolvency professionals; rules on corporate and individual insolvency; also the authority for valuers
The official syllabus also lists WDRA (Warehouse Development Regulatory Authority), but the book's chapter does not describe it.
The five departments of the Ministry of Finance
Economic Affairs
Nodal agency for fiscal policy and the capital market including stock exchanges; external resources; bank notes and coins; prepares the Union Budget.
Expenditure
Government spending, financial rules, central employees' service conditions, help to and borrowing by states.
Revenue
Direct and indirect taxes, through the CBDT and CBEC.
Disinvestment and privatisation of public sector undertakings, and use of the proceeds.
Preambles worth knowingRBI: "to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage." SEBI: "to protect the interests of investors in securities and to promote the development of, and to regulate the securities market."
SEBI's main functions
Protect investors; develop and regulate the securities market and stock exchanges
Register and regulate brokers, sub-brokers and other intermediaries; promote and regulate self-regulatory organisations
Investor education and training of intermediaries
Prohibit insider trading and fraudulent and unfair trade practices
Regulate substantial acquisition of shares and takeovers
Call for information, inspect, inquire and audit exchanges, intermediaries, SROs, mutual funds and others
For commodities, SEBI monitors forward markets, advises the government on recognising associations, and sets open position limits, circuit filters, margins and physical delivery rules.
Gives SEBI direct and indirect control over almost all of the market: instruments, intermediaries, issuers and investors. It prevents undesirable transactions. It covers:
Recognising stock exchanges
Corporatisation and demutualisation of exchanges
Central Government power to call for periodic returns from exchanges
SEBI's power to make or amend exchanges' bye-laws
Central Government (also SEBI) power to supersede an exchange's governing body
Power to suspend an exchange's business
Power to prohibit undesirable speculation
14.2.2 SEBI Act, 1992
Section 11(1) makes it SEBI's duty to protect investors and to develop and regulate the market by measures it thinks fit. Section 11(2) lists those measures, including: regulating exchanges; registering and regulating brokers, sub-brokers, share transfer agents, bankers to an issue, trustees, registrars, merchant bankers, underwriters, portfolio managers, investment advisers, depositories, DPs, custodians, FIIs, credit rating agencies; registering venture capital funds and collective investment schemes including mutual funds; regulating SROs; prohibiting fraud, unfair practices and insider trading; regulating takeovers; inspection and audit; levying fees; and research. The Act also lets SEBI impose penalties and run adjudication.
14.2.3 Prohibition of Insider Trading (PIT) Regulations, 2015
Made under section 30 of the SEBI Act.
Insider trading: the key definitions
Insider
A connected person, or anyone in possession of or with access to unpublished price sensitive information (UPSI).
Connected person
Anyone associated with the company in any capacity during the six months before the act, in a way that gives or could give access to UPSI. Deemed connected unless shown otherwise: relatives, group companies, intermediaries and their staff, AMC and trustee staff, exchange officials, bankers of the company, and others.
UPSI (Regulation 2(n))
Information about a company or its securities, not generally available, which would likely materially affect the price once public. Includes: financial results; dividends; change in capital structure; mergers, demergers, acquisitions, delisting, disposals, expansion; changes in key managerial personnel; resignation of a statutory or secretarial auditor; change in ratings (other than ESG ratings); proposed fund raising; agreements affecting management or control; fraud, defaults or arrests; loan restructuring or one-time settlement; insolvency admissions; forensic audits; regulatory actions; litigation outcomes; guarantees outside normal business; grant or loss of key licences.
Regulation 3(1): an insider must not communicate or give access to UPSI to anyone, other insiders included, except for legitimate purposes, duties or legal obligations. Information is handled on a need-to-know basis.
Regulation 4: no insider may trade in listed (or to-be-listed) securities while in possession of UPSI. Such trades are presumed to be motivated by it; the insider may prove innocence in the circumstances the regulation allows.
Initial disclosure: a new key managerial person, director or promoter must disclose holdings to the company within seven days.
A compliance officer sets and monitors the codes of fair disclosure and conduct.
Fair disclosure: prompt, uniform, universal release of UPSI; no selective disclosure; information given to analysts must not be UPSI; record meetings with analysts.
Designated persons (including analysts, law firms, auditors, consultants) cannot trade while expected to hold UPSI; trades above board limits need pre-clearance.
The Chinese wallFirms separate "insider areas" that routinely see confidential information from "public areas" such as sales, marketing and investment advice. Insiders must not pass price-sensitive information across; teams may be physically separated. In exceptional cases a person may be brought "over the wall" on a need-to-know basis, and the compliance officer must be told.
Under the PIT section, the book quotes: analysts preparing reports on a client company must disclose their holdings to the compliance officer, and analysts who prepare a report on a listed company shall not trade in it for thirty days from preparation of the report. (The RA Regulations' own window, in 14.4, is different: 30 days before and 5 days after publication.)
14.2.4 Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003
Also made under section 30 of the SEBI Act. Fraud (Regulation 2(1)(c)) includes any act, expression, omission or concealment to induce someone to deal in securities. Whether anyone gains or avoids a loss does not matter. Examples: wilful misrepresentation; false suggestion; active concealment; a promise made with no intention to keep it; reckless representation; false statements without reasonable grounds; an issuer's misinformation that moves the price.
Deemed manipulative, fraudulent or unfair (selected)The book's list is not exhaustive
Creating a false or misleading appearance of trading
Dealing not meant to transfer ownership, only to move the price
Funding people to subscribe so an issue meets minimum subscription
Paying people to trade to inflate, depress or hold a price
Manipulating a reference or benchmark price
Publishing false financial results, M&A or approval news while dealing
Trades without intention to perform or change ownership
Dealing in stolen or counterfeit securities (with exceptions for holders in due course)
Spreading false or misleading information or advice in any media
Trading for clients without their knowledge; misusing client funds
Circular transactions; inducing trades to earn brokerage; falsifying records
Front running-type orders on non-public knowledge of a big impending trade; planting false news; mis-selling; illegal collective investment schemes
Investigation: a person under investigation must produce books and documents and appear in person when required (Regulation 8(1)). SEBI may, pending or after investigation: suspend trading in a security; restrain persons from the market; suspend exchange or SRO office-bearers; impound proceeds; stop disposal of assets or securities. Against an intermediary: warning or censure, suspension, or cancellation of registration.
Mis-selling means selling securities or services by knowingly making false statements, concealing material facts or risks, or not taking reasonable care to ensure suitability for the buyer.
14.2.5 SEBI (Research Analyst) Regulations, 2014
Analysts' advice can be distorted by conflicts of interest. Regulators worldwide responded; the IOSCO report of September 2003 set principles: analysts' own trading and their firms' business must not prejudice research; reporting lines and pay should limit conflicts; firms need written procedures; undue influence of issuers and investors must be managed; disclosures must be complete, timely, clear and prominent; high integrity; investor education. India's RA Regulations followed.
Registration rules at a glanceRegulations 3 to 12, as in the book
Regulation
What it says
3: Registration
No one may act as an RA without SEBI registration. Existing RAs had 6 months to apply. Exempt (if they comply with Chapter III): investment advisers, credit rating agencies, AMCs or fund managers issuing research, and their staff making public appearances. A registered RA's principal officer, associated persons and partners need not register separately (if they meet regulation 7)
4: Outside India
A person outside India issuing research on Indian listed securities must have an agreement with a registered RA
6: Eligibility
Qualifications and certification (reg 7); deposit (reg 8); fit and proper; infrastructure; past refusals and disciplinary history; enlistment with the body recognised under reg 14
7: Qualification
A graduate degree (or CFA Charter) plus NISM certification; or NISM's Post Graduate Program in the Securities Market (Research Analysis). Renew NISM certification before it expires, or within 3 years of registration
8: Deposit
As specified by SEBI, marked as lien to the body recognised under reg 14 (RAASB); held as liquid or overnight mutual fund units or a scheduled bank deposit
9: Certificate
Form B for an RA; Form C for a part-time RA. An individual or partnership registered as an investment adviser may also be registered as an RA
10: Validity
Valid until suspended or cancelled by SEBI
12: Refusal
After a hearing; decision communicated within 30 days; applicant must stop acting as an RA
Book footnotes: persons doing sales and other non-core research services need NISM Series XXV-A; SEBI moved RA compliance reporting to BSE Ltd.
14.2.6 Insolvency and Bankruptcy Code, 2016
Consolidates insolvency laws for companies, partnership firms and individuals, with time-bound resolution.
How a corporate insolvency runs under the IBCAs described in the book
Application
Any financial or operational creditor (or the company itself) on default. Threshold in the book: undisputed dues above Rs 1,00,000
IRP appointed
Interim resolution professional runs the company; the board is dissolved
Committee of creditors
Financial creditors only; confirms the IRP or appoints another insolvency professional
Resolution in 180 days
Restructuring, takeover, or liquidation as a last resort
Operational creditors can start insolvency proceedings but cannot sit on the committee of creditors. A financial creditor is one paid for the time value of money (earns interest).
14.3
Code of conduct for research analysts
Set out in the Third Schedule of the RA Regulations.
Eight duties
1
Honesty and good faith
2
Diligence
Due skill and care; report after thorough analysis
3
Conflict of interest
Address it; disclose it
4
No insider trading or front running
Including front running its own report
5
Confidentiality
Of the report until made public
6
Professional standard
7
Compliance
With all regulatory requirements
8
Senior management responsibility
Primary responsibility for standards and procedures
14.4
Conflicts of interest and disclosures
Chapter III of the RA Regulations.
Regulation 15: written internal policies on analysts' dealing and trading, to (i) address actual or potential conflicts from dealing in the subject company's securities, (ii) promote objective, reliable, unbiased research, (iii) prevent the use of research to manipulate the market; plus mechanisms to keep research independent of other business. 15A: RAs may charge fees as SEBI specifies.
Regulation 17 (compensation): no pay linked to a specific merchant banking, investment banking or brokerage deal; pay reviewed and approved annually by a board or committee with no representation from those divisions; analysts not supervised by those divisions.
The time windows to rememberRegulations 16 and 18
Rule
Window
Applies to
No trading in a recommended or followed security (reg 16(2))
30 days before and 5 days after publication of a report
Independent and part-time RAs, employed analysts and their associates
No report or public appearance after an IPO the RA managed (reg 18(1))
40 days after pricing
Manager or co-manager of the issue
Same, after a further public offer
10 days after pricing
Manager or co-manager
Underwriter of an IPO (reg 18(2))
25 days from the date of the offering
Research entity acting as underwriter
Around a lock-up agreement (reg 18(3))
15 days before and 15 days after its expiry, waiver or termination
Manager or co-manager of the offering
The 40, 10 and 15-day windows can be relaxed with prior written approval of legal or compliance staff. The 30/5-day trading ban can be relaxed for significant news or an unexpected change in the analyst's personal finances, with prior written approval.
More limits under regulation 16
Employed analysts' personal trading is monitored, recorded and, where needed, approved.
No trading contrary to one's own recommendation.
No buying or receiving shares of an issuer before its IPO if it is in the same business as companies the analyst covers.
These apply to a research entity too, unless research is segregated and at arm's length.
Regulation 18: other limits
Analysts may not take part in sales pitches or deal road shows for investment banking or brokerage business, or talk to clients about such deals in the presence of those divisions or company management.
Those divisions may not direct analysts to do sales or marketing.
Reports need adequate documentary basis; no promise of a favourable review in exchange for business; no report inconsistent with the analyst's own view; analysts kept separate from sales, trading and corporate finance staff (feedback from sales on a report's impact is allowed).
Regulation 19: what to discloseIn research reports and public appearances
Ownership and conflicts
Any financial interest of the RA, associates or relatives in the subject company
Ownership of 1% or more of its securities at the end of the month before publication
Any other material conflict of interest
Compensation (past 12 months)
Any compensation from the subject company
Managed or co-managed its public offering
Investment banking, merchant banking or brokerage fees from it
Fees for other products or services from it
Any benefit from the company or a third party in connection with the report
Other
Whether the analyst served as officer, director or employee of the subject company
Whether the RA has been a market maker in it
The extent of use of Artificial Intelligence tools in research services
Report contents (reg 20)
Facts from reliable information; terms defined and used consistently
Define each rating, its time horizon and benchmark
If a rating or target has existed for at least one year: a graph of daily closing prices for that period or three years, whichever is shorter
Recommendations backed by data and analysis
Other regulations in Chapter III onwards
19A Website
Maintain a functional website.
21 Public media
Disclose registration status and financial interest when appearing in public. Staff of IAs, CRAs, AMCs and fund managers commenting in media follow regs 16 and 17 and disclose name, registration status and interest.
22 Distribution
No selective early release to internal traders or favoured clients. Review third-party reports for false statements and disclose the third party's conflicts (unless there is no business relationship).
23 Proxy advisers
Covered by the RA Regulations. Review voting policies at least annually; alert clients of factual errors within 24 hours; communicate material revisions within 72 hours; share reports with clients and the company at the same time.
24 General
Arm's length between research and other activities; follow the code of conduct; SEBI's prior approval for a change in control; sole responsibility for client data and outputs when using AI tools; follow model portfolio guidelines and the Investor Charter. A model portfolio is a basket of securities in a research report that recommends weightages for them. A plain list of recommended stocks, with no weightages, is not a model portfolio.
25 Records
Signed, dated reports; recommendations and their rationale; public appearances; KYC; client register with PAN; communication records; client terms and consent. Kept at least five years. Annual compliance audit by a member of ICAI, ICSI or the Institute of Cost Accountants.
26 Compliance officer
A non-individual RA appoints a compliance officer, or an independent ICAI, ICSI or ICMAI professional with NISM certification.
26A Disputes
Mediation, conciliation and/or arbitration as SEBI specifies.
26B Grievances
Redress within 21 calendar days.
26C Segregation
An individual RA may not provide distribution services. Its family may not distribute to the RA's research clients. A non-individual RA keeps client-level segregation at group level: a client gets research or distribution, not both.
32 Default
Breaches, false information, missing returns, non-cooperation or unresolved complaints are dealt with under the SEBI Act or the Intermediaries Regulations, 2008.
14.5
Exchange surveillance: GSM and ASM
Some traders use unscrupulous practices that distort prices. SEBI and the exchanges watch stocks against objective criteria and impose extra restrictions.
GSM versus ASM
Graded Surveillance Measures
Based on valuation
Stocks with low market cap or net worth whose valuation is not justified by fundamentals.
Criteria (book): net worth up to Rs 10 crore and net fixed assets up to Rs 25 crore, with negative P/E or P/E at 2x the benchmark index; or market cap below Rs 25 crore with P/E above 2x the benchmark, or negative P/E with negative P/B or P/B at 2x the benchmark
Not applied to PSUs, index stocks, recent IPOs, F&O stocks and others listed in the book
Additional Surveillance Measures
Based on price and volume
High-low price variation over 3 months; close-to-close variation over 1 month, 60 days and 365 days
Client concentration: share of volume by the top 25 clients
Volume variation over time
Once shortlisted: margin raised to 80%, then tighter price bands and margin up to 100%
Not applied to: stocks already in GSM, trade-for-trade stocks, F&O stocks, PSUs
Reviewed after a minimum period; removed if criteria no longer met
The advertisement code for RAs and IAs
"Advertisement" covers all communications that may influence investment decisions, in any medium, print, electronic, social media or audio-visual. A research report counts as an advertisement if it promotes the RA's products or services.
Must include
Registered name, address, SEBI registration number, logo, CIN
Accurate, true, complete, concise information
The standard warning, unchanged, in at least 10-point font: "Investment in securities market is subject to market risks. Read all the related documents carefully before investing."
In audio-visual ads, the warning shown and spoken clearly (the book's example: 20 words over at least 10 seconds)
Translated accurately if the ad is not in English
For SMS or pop-ups without full details: a link to the website that has them
"The securities quoted are for illustration only and are not recommendatory" if securities are shown
The disclaimer that SEBI registration, BASL membership (for IAs) and NISM certification do not guarantee performance or returns
Must not include
False, misleading, biased or deceptive statements; misleading testimonials
Statements that exploit inexperience; exaggeration; excessive jargon
"Free" unless truly free
Any promise of assured, minimum or target returns, or percentage accuracy
Discrediting other intermediaries
Past performance of the RA
Superlatives: "Best", "No. 1", "Leading" (factual awards from independent bodies are allowed)
The SEBI logo
Also: get prior approval from the SEBI-recognised supervisory body; no ads while suspended; no games, leagues or prize schemes; keep a copy of each ad for five years. RAs may use brand names and logos if the registered name, number and contact details are shown prominently everywhere.
14.6
Investor charter and complaints
SEBI's Investor Charter for Research Analysts (Annexure 1 of the book) puts in one place the services, investors' rights, do's and don'ts and grievance timelines. RAs must share it: on their website and app, at their office, during onboarding, and by email or letter. RAs must also publish monthly complaint data, including SCORES complaints, in SEBI's format (Annexure 2); those without a website email it to investors.
The monthly table splits complaints by source: directly from investors, SEBI (SCORES) and other sources. For each it shows: pending at the end of last month, received, resolved, total pending, pending for more than 3 months, and average resolution time in days (total days taken ÷ complaints resolved that month). Complaints caused by someone impersonating the RA are reported separately and may be left out of the totals. RAs also show a month-by-month and a year-by-year trend of complaints received and resolved.
The Investor Charter in briefAnnexure 1 of the book
Grievance route
Approach the RA: redress within 21 days
Then SCORES 2.0 (SEBI's online system) or email the RAASB. Two-level review: first RAASB, then SEBI
Still unhappy: SMART ODR for online conciliation or arbitration
Do's
Deal only with SEBI-registered RAs; check the registration number
Read the disclosures
Pay through banking channels and keep receipts (or CeFCoM if the RA uses it)
Report any RA offering assured returns to SEBI
Don'ts
Do not give the RA funds to invest
Do not fall for luring ads, rumours or limited-period offers
Never share trading or demat login credentials
Investor rights include privacy, transparency, fair treatment, adequate information, fair advertisement, timely grievance redressal, exit as per agreed terms, and caution notices for complex, high-risk products.
14.7 Cybersecurity and Cyber Resilience Framework (CSCRF)
All RAs must comply with SEBI's CSCRF. Its five cyber resiliency goals:
Anticipate
Stay prepared
Withstand
Keep running during an attack
Contain
Isolate trusted systems
Recover
Restore functions
Evolve
Adapt to reduce future harm
CSCRF grades regulated entities into five categories: Market Infrastructure Institutions, Qualified, Mid-size, Small-size and Self-certification REs. RAs not registered in any other category are excluded from submitting CSCRF compliance, but must submit a declaration under SEBI's 2020 SaaS (software-as-a-service) advisory. Institutional RAs registered in another category follow that category's classification.
All exam traps in this chapter
SEBI was set up under section 3 of the SEBI Act, 1992; merged with the FMC on 28 September 2015.
MoF's Department of Economic Affairs prepares the Union Budget; Department of Revenue works through CBDT and CBEC.
MCA administers the Companies Act and the Competition Act 2002 (which replaced MRTP 1969).
RBI administers FEMA 1999 and is banker to government and banks.
PFRDA: PFRDA Act 2013, constituted October 2003; promotes old age income security; runs NPS.
IBBI: under IBC 2016; also regulates valuers.
SCRA 1956 gives SEBI power to make or amend exchange bye-laws.
PIT 2015 and PFUTP 2003 are both made under section 30 of the SEBI Act.
A connected person: associated with the company in the six months before the act.
Change in ESG ratings is excluded from the UPSI list; other rating changes are included.
Initial disclosure of holdings within seven days of appointment.
Fraud under PFUTP does not need wrongful gain or loss avoidance.
IOSCO principles on analyst conflicts: September 2003.
RA qualification: graduate or CFA Charter plus NISM certification, or NISM's PG Program in Securities Market (Research Analysis).
Form B for an RA, Form C for a part-time RA. Registration valid until suspended or cancelled.
No trading 30 days before and 5 days after a report; never contrary to one's own recommendation.
Quiet periods: 40 days after IPO pricing, 10 days after FPO pricing, 25 days for an IPO underwriter, 15 days either side of a lock-up end.
Disclose ownership of 1% or more at the end of the month before publication; compensation over the past 12 months.
Price chart: daily closes for the rating period or three years, whichever is shorter.
Records kept at least five years; grievances redressed within 21 calendar days.
An individual RA cannot provide distribution services.
GSM is valuation-based; ASM is price and volume based (top 25 clients). ASM margin 80%, then up to 100%.
Advertisements: no past performance, no superlatives, no SEBI logo, no assured returns; standard warning in at least 10-point font.
Investor Charter: RA redress within 21 days; then SCORES 2.0 or RAASB; then SMART ODR.