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NISM Certifications · NISM-Series-XV: Research Analyst · Legal and Regulatory Environment (NISM XV)

A research analyst, Meera, learns before publication that her report will upgrade a listed company to 'Buy'. She asks her brother to purchase the stock before the report is released. Which regulation is most directly breached?

The conduct breaches the SEBI PFUTP Regulations because acting on advance knowledge of an unpublished recommendation is front running. The research analyst regulations also bar trading ahead of a report. Mutual fund, depository and portfolio manager regulations govern other intermediaries and are not the direct fit here.

  1. ASEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, as the report is front-run using non-public informationCorrect
  2. BSEBI (Mutual Funds) Regulations, 1996
  3. CSEBI (Depositories and Participants) Regulations, 2018
  4. DSEBI (Portfolio Managers) Regulations, 2020

Explanation

Trading ahead of a report using advance knowledge of its content is front running, which is a fraudulent and unfair trade practice under the PFUTP Regulations. The research analyst code of conduct also prohibits trading ahead of a report. The other regulations govern different intermediaries and do not apply to her conduct.

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