A few days ago, there was much cheer when a long-awaited change eased the fee burden on corporate research analysts (RAs). However, much of that cheer has dissipated as RAs fear they may not actually get the relief they thought they would.
On April 26, the Securities and Exchange Board of India (Sebi) announced an amendment to the SEBI (Research Analyst) Regulations through a gazette notification. It slashed the registration fee for corporate RAs and limited liability partnership (LLP) RAs to Rs 30,000 from Rs 5 lakh, and renewal fee to Rs 5,000 from Rs 5 lakh.
Also read: Corporate RAs registration fee slashed to Rs 30,000 from Rs 5 lakh; renewal fee to a hundredth
It also reduced the application fee, registration fee and renewal fee for individual RAs, partnership RAs and proxy advisory RAs. But what really caught individual RAs' attention was the change made to the fees payable by corporate RAs.
This is because many individual RAs have long wanted to register as corporate RAs for various reasons. But they have held back because of the fees structure.
Corporate benefits
As Nitin Mangal, founder of Trudence Capital Advisors Private Limited, explained, being able to register as a corporate RA has several benefits.
"It allows you to scale up your business. It streamlines processes like compliance. It also allows the director of the RA, which is now a corporate body, to pursue other businesses," he said.
That is, individual RAs can only have research analysis or preparation and/or publication of research reports as his/her business activity. A corporate RA too needs to maintain an arm's length distance between its research activities and its other businesses. But the director of a corporate RA can pursue other businesses and, hence, an individual RA who becomes the director of a corporate RA can pursue other revenue-generating activities such as conducting courses on the share market or trading.
It was no surprise, then, that individual RAs initially welcomed the announcement. Some told Moneycontrol that they saw this as a landmark move by the regulator, while others said that this should help improve their business economics and drive more registrations.
But later, the RAs recognised a big problem that could arise.
What could go wrong
Ayush Agarwal, an individual RA, told Moneycontrol, “When the fee for IAs (investment advisors) was reduced, the reduction was compensated (or neutralised) by the (membership) fee charged by BASL." BASL or BSE Administration & Supervision Ltd, a wholly owned subsidiary of BSE, has been tasked by Sebi to administer and supervise IAs.
SEBI amended its IA rules to lower IA fees in January 2021, and BASL made the supervisory body in June that year.
Kruti Gogri, a compliance expert with over 14 years and founder of Kruti Gogri and Co, explained: "With the 2021 amendment, an IA's application fee was split into two—one part to be paid at the time of filing the application and the other part to be paid once the application is cleared, as registration fee. An amount equivalent to the fee that used to be paid as the registration fee to Sebi was to be paid to BASL. That is, earlier the registration fee was Rs 5 lakhs paid to Sebi for five years; after the amendment, it became Rs 3 lakh paid to BASL for a membership of three years. Effectively, Rs 1 lakh a year."
RAs are worried something similar could play out with an entity tasked with their supervision.
On April 26, Sebi also amended its Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations to say that a recognised stock exchange may be asked to administer and supervise specified intermediaries such as RAs.
Also read: Sebi issues list of changes to private placement memorandums that AIFs can report directly
Agarwal said, "As an individual RA, I am a little sceptical of applying for a corporate RA registration. Even though I applaud the regulator for reducing the fee, I am fearful that what happened with IAs when BASL was introduced will repeat with RAs and as a corporate if I apply I may end up paying a low fee to SEBI but high fee to BSE/ BASL (or whichever entity is made a supervisory body).”
RAs said that the regulator should provide more clarity on whether the selected exchange would be able to raise this fee and, if so, by how much.
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