SEBI eases call-recording rules for research analysts dealing with institutional clients

New business data points to the fact that Market regulator Securities and Exchange Board of India (SEBI) has approved a proposal to relax the requirement for research market watchers (RAs) and research entities to maintain call recordings of interactions with institutional market participants, easing compliance requirements for the industry.

Under the approved framework, cleared by SEBI board in its meeting today, research market watchers will no longer be mandatorily required to maintain call recordings for interactions with institutional clients. That stated, they will keep be required to maintain other records of client interactions, including emails, SMS messages and other legally verifiable records.

The relaxation will not apply to retail clients, for whom RAs will keep maintain call recordings as part of the existing record-keeping requirements.

The move follows representations from traders at large, including the Industry Standard Forum for Research Market watchers, seeking a review of the call-recording requirement for institutional market participants.

SEBI’s proposal had noted that institutional market participants are generally sophisticated entities with specialised knowledge and resources to independently evaluate research inputs and investment opportunities. They are additionally more likely to be aware of their legal rights and available regulatory mechanisms.

The regulator has adopted a risk-proportionate approach, considering that research market observer services involve research and recommendations and do not include client-specific investment advice, asset management or transaction execution.

Under the revised framework, research market watchers will still be required to maintain records of interactions with institutional clients, including prospective clients, where conversations relating to their services have taken place. Such records will have to be preserved for five years, with longer retention required where a dispute has been boosted or SEBI directs that specific records be preserved.

SEBI will additionally define an ‘institutional investor’ for the purpose of the framework by adopting the definition under the SEBI (Offering of Capital and Disclosure Requirements) Regulations, 2018.

The existing rules require research market watchers and research entities to maintain records of communication, including emails and call recordings, with all clients and prospective clients. The requirement at present applies to institutional market participants and qualified institutional buyers (QIBs) as well.

SEBI had stated the proposed relaxation would reduce the compliance burden on research market watchers while retaining safeguards for investor protection.