SEBI PROCEDURAL GUIDELINES FOR PROXY ADVISORS

[CSLalit Rajput]

Securities Exchange Board of India (SEBI) vide Circular No. SEBI/HO/IMD/DF1/CIR/P/2020/147 dated 03rd August, 2020 issued in exercise of powers conferred by Section 11(1) of the Securities and Exchange Board of India Act, 1992 has come out with Procedural Guidelines for Proxy Advisors  to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

The Circular is issued to:

• All SEBI registered Proxy Advisors

Applicability of the Circular:

• applicable with effect from September 1, 2020.

• Applicable Provisions:

Securities And Exchange Board Of India (Research Analyst) Regulations, 2014

Regulation 24(2)

Research analyst or research entity shall abide by Code of Conduct as specified in Third Schedule.

Regulation 23(1):

• All the provisions of Chapter II, III, IV, V and VI shall apply mutatis mutandis to the proxy adviser:

• Provided that the employees of proxy advisors engaged in providing proxy advisory services shall be required to have a minimum qualification of being a graduate in any discipline:

• Provided further that certification requirements for employees of proxy advisors engaged in providing proxy advisory services shall be as specified by the Board:

• Provided further that time period for compliance with capital adequacy as provided in sub-regulation (3) of regulation 8, for proxy advisors shall be three years.

Regulation 24(2) read with 23(1) of SEBI (Research Analyst) Regulations, 2014 mandates proxy advisors to abide by Code of Conduct specified therein. It is decided that proxy advisors shall also comply with the following procedural guidelines

1. Voting recommendation policies and disclosure

• Proxy Advisors shall formulate the voting recommendation policies and disclose the updated voting recommendation policies to its clients.

• Proxy Advisors shall ensure that the policies should be reviewed at least once annually.

• The voting recommendation policies shall also disclose the circumstances when not to provide a voting recommendation

2. Methodologies and Processes:

Proxy Advisors shall disclose the methodologies and processes followed in the development of their research and corresponding recommendations to its clients

3. factual errors or material revisions to the report

Proxy Advisors shall alert clients, within 24 hours of receipt of information, about any factual errors or material revisions to the report

4. Communication:

Proxy Advisors shall have a stated process to communicate with its clients and the company

5. Reporting:

• Proxy Advisors shall share their report with its clients and the company at the same time.

• This sharing policy should be disclosed by proxy advisors on their website.

• Timeline to receive comments from company may be defined by proxy advisors and all comments/clarifications received from the company, within timeline, shall be included as an addendum to the report.

If the company has a different viewpoint on the recommendations stated in the report of the proxy advisors, then proxy advisors, after taking into account the said viewpoint, may either revise the recommendation in the addendum report or issue an addendum to the report with its remarks, as considered appropriate.

6. disclose in recommendations

Proxy Advisors shall clearly disclose in their recommendations the legal requirement vis-a-vis higher standard they are suggesting if any, and the rationale behind the recommendation of higher standards

7. disclosure of conflict of interest

• Proxy Advisors shall disclose conflict of interest on every specific document where they are giving their advice.

• Further, the disclosures should especially address possible areas of potential conflict and the safeguards that have been put in place to mitigate possible conflicts of interest.

8. Proxy Advisors shall establish clear procedures to disclose, manage and/or mitigate any potential conflicts of interest resulting from other business activities including consulting services, if any, undertaken by them and disclose the same to clients.

Link of the Circular:

https://www.sebi.gov.in/legal/circulars/aug-2020/procedural-guidelines-for-proxy-advisors_47250.html

Disclaimer:

IN NO EVENT THE AUTHOR SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM OR ARISING OUT OF OR IN CONNECTION WITH THE USE OF THIS INFORMATION