Securities and Exchange Commission of Pakistan (SECP) has proposed limitations on trading of shares at stock exchanges by research analysts, whose reports are used by general public for trading at bourses. The SECP has issued draft of the Research Analyst Regulations, 2015 here on Tuesday. According to the proposed regulations, the personal trading activities of the individuals employed as research analyst by a research entity shall be monitored, recorded and wherever necessary, shall be subject to a formal approval process.
The independent research analysts, their associates, individuals employed as research analyst by a research entity and their associates shall not deal or trade in the securities which are covered in the research report, within 30 days before and five days after the publication of such research report.
Independent research analysts, their associates, individuals employed as research analysts by a research entity and their associates shall not deal or trade directly or indirectly in securities that such research analyst reviews in a manner contrary to its given recommendation. It said that the research entity shall ensure that compensation of the individual employed as research analyst is neither determined nor based on any other services that the research entity is offering. This includes bonus, salary or any other form of compensation.
An individual employed as a research analyst by the research entity shall not be subject to the supervision or control of any employee of its non-research departments, and no person engaged in providing non-research services may have any influence or control over the compensatory evaluation of such individual. Provided that the factual accuracy of the information in the research report or potential conflict of interest may be reviewed by a person not involved in research.
The research analyst shall not provide any promise or assurance of favourable review in its research report to a company or industry or sector or group of companies or business group as consideration to commence or influence a business relationship or for the receipt of compensation or other benefits. As per regulations, no person shall act as a research analyst or hold itself out as a research analyst unless such person has obtained a certificate of registration as a research analyst from the commission under these regulations.
Provided that a natural person performing functions of a research analyst under employment of a research entity shall not be required to be registered as research analyst under these regulations, but shall be subject to compliance of all the conditions and requirements applicable to a research analyst under these regulations.
Provided further that the credit rating companies, all non-banking finance companies with the exception of entities falling under the definition of research entity under these regulations, which issue research reports and circulate or distribute research reports to the general public or whose associates make public appearance(s), shall not be required to seek registration under these regulations, subject to compliance of Chapter III of these regulations
It said that a credit rating company or any non-banking finance company which prepares research reports with regard to the specific investment objectives, financial situation and the particular needs of any person or client shall not attract any provisions of these regulations.
Nothing contained in these regulations shall exempt any Person which is required to obtain a license of Investment Advisor under the Non-Banking Finance Companies and Notified Entities Regulations, 2008 and/or Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003.
Provided further that any person or entity located outside Pakistan and engaged in the issuance of research report in respect of securities listed or proposed to be listed on a stock exchange registered in Pakistan, shall enter into an agreement with a research analyst registered under these regulations and it will be deemed that such Report has been issued by the research analyst and the research analyst will be responsible for the contents of the research report, it added.
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