Equity Research Firms Heading To Closure

New Delhi: Markets regulator Sebi’s new guidelines on research analysts (RAs) are forcing several equity research firms publicly announcing plans to shut down their shops due to heightened compliance and operational requirements.

The Securities and Exchange Board of India (Sebi), on January 8, came out with guidelines for Research Analysts in a bid to curb fraudulent stock recommendations and illegal practices in the securities market. The new guidelines necessitate research firms to comply with stricter measures such as maintaining records of client interactions, conducting compliance audits, and following Know-Your-Customer (KYC) procedures and these requirements have led to increased operational costs for smaller entities. Consequently, a few firms including Sentinel Research, Stalwart Advisors, and Mystic Wealth have announced their plans of shutting their research services citing significant operational and compliance burden.

Market experts said that the new guidelines have notably lowered the threshold for individuals to register as RAs, making it easier for newcomers to enter the profession. However, for established RAs, these guidelines have imposed heightened compliance and operational requirements. They believe that the new regulations are too stringent and could undermine the quality of research in the market. Sandeep Parekh, founder of Finsec Law Advisors, posted on microblogging site X that Sebi is “going way overboard in its regulations and shutting down competent and honest advisors and researchers from the market”. “If it goes down this path, all that will remain will be incompetent and dishonest, or incompetent or dishonest advisors,” he added.

Neeraj Marathe, who operates independent research firm Sentinel Research, also expressed his dismay on social media. He had paused his research services last year when the draft RA regulations were first announced, hoping for more clarity and more balanced guidelines.