NISM Series XV · Unit 14 of 15 · about 10% of the paper
Legal and regulatory environment: NISM Series XV notes and practice questions
SEBI's Research Analyst Regulations: registration, conduct, disclosures, trading restrictions, records and penalties. Many exact-rule questions.
What to know in Unit 14
- Registration and qualification.
- Conflicts and disclosures.
- Trading restrictions.
- Records and client agreement.
Key terms, examples and exam traps
SEBI (Research Analysts) Regulations, 2014
These regulations require research analysts and research entities to register with SEBI and follow rules on qualification, conduct, disclosure and records.
Example. A person who publishes recommendations for the public must hold SEBI registration.
Exam trap. This statement is false: Research analysts need no registration.
Registration and qualification
An individual research analyst must hold the prescribed qualification and the NISM research analyst certification and meet other norms.
Example. A candidate cleared the NISM examination and holds the specified degree.
Exam trap. This statement is false: The NISM certificate is optional for registration.
Research entity
A research entity is a person such as a broker or company that issues research reports and must be registered; it can employ analysts.
Example. A brokerage house publishing reports must be a registered entity.
Exam trap. This statement is false: A research entity is an individual client.
Disclosure of conflicts
A research analyst must disclose any financial interest, ownership or relationship with the subject company in the report.
Example. A report states that the analyst holds shares of the company.
Exam trap. This statement is false: Analysts need not disclose holdings.
Trading restriction around reports
A research analyst must not deal in securities for 30 days before and 5 days after publishing a report on them.
Example. An analyst cannot trade a stock for a period around her report.
Exam trap. This statement is false: An analyst may trade the stock in the hour before publication.
Assured returns prohibited
A research analyst must not provide, or claim to provide, assured or guaranteed returns.
Example. A report says 'This stock will double in a year for sure.'
Exam trap. This statement is false: An analyst may guarantee returns for large clients.
Record keeping
Research analysts must maintain records of research reports, recommendations and the basis for them for at least five years.
Example. An analyst retains her models and reports on file for five years.
Exam trap. This statement is false: Records must be kept for only six months.
Compliance officer
Registered research entities must appoint a compliance officer who monitors compliance and reports to SEBI as required.
Example. A firm assigns a person to monitor adherence to regulations.
Exam trap. This statement is false: A compliance officer is optional.
Chinese wall
A Chinese wall is a set of information barriers that separates research from other business such as investment banking and trading to prevent misuse of sensitive information.
Example. The research desk is kept apart from the banking desk.
Exam trap. This statement is false: A Chinese wall allows free flow of information.
Front running
Front running is trading ahead of a client's order or an upcoming report to profit from its expected impact, and is prohibited.
Example. An analyst buys shares before releasing a strong buy report.
Exam trap. This statement is false: Front running is allowed if disclosed at a later date.
Insider information
An analyst must not use or share unpublished price-sensitive information, which is an offence under insider trading rules.
Example. An analyst learns of a merger from a source and trades on it.
Exam trap. This statement is false: Using inside information is permitted for research analysts.
Client agreement
An analyst providing services to clients must sign an agreement stating the services, fees and terms, and give disclosures.
Example. A client signs a document setting out the services and fees.
Exam trap. This statement is false: A written agreement is unnecessary.
Public appearance disclosures
When an analyst makes a public appearance, she must disclose any conflicts or holdings in the stocks she discusses.
Example. A television analyst states that she owns the stock she is recommending.
Exam trap. This statement is false: Disclosures are required only in written reports.
Prohibited compensation
A research analyst must not accept compensation from a subject company that could influence the opinion, and any compensation must be disclosed.
Example. An analyst refuses payment from the company she is covering.
Exam trap. This statement is false: An analyst may accept gifts from the company with no disclosure.
Grievance and penalties
Violations of the regulations can lead to penalties, suspension or cancellation of registration by SEBI.
Example. A registered analyst whose rules violations are proven faces a regulatory penalty.
Exam trap. This statement is false: SEBI has no power to penalise research analysts.
Recommendation requirements
Each recommendation must be supported by research data and a rating system, and reports must carry the required disclaimers and disclosures.
Example. A report includes disclosures and the basis of the rating.
Exam trap. This statement is false: Reports need not carry any disclaimers.
Associate's trading
The trading restrictions and disclosure duties also apply to an analyst's associates and relatives where specified in the regulations.
Example. The analyst's spouse trading ahead of a report breaches the rule.
Exam trap. This statement is false: Restrictions apply to analysts only, never to relatives.
Rating and price target history
A research entity should keep and show past ratings and price targets, so readers can see the track record.
Example. A report includes a table of previous ratings.
Exam trap. This statement is false: Past ratings are removed from reports.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which statement best describes “Client agreement”?
- MACD is the difference between a 12-period and 26-period EMA, with a 9-period signal line; crossovers indicate momentum changes.
- Support is a price level where buying interest is strong enough to stop a decline temporarily.
- The cost of carry includes storage, insurance and financing costs, and links futures prices to spot prices.
- An analyst providing services to clients must sign an agreement stating the services, fees and terms, and give disclosures.
Q2. Which term is described here? An analyst must not use or share unpublished price-sensitive information, which is an offence under insider trading rules.
- Cyclical industry
- Fiscal deficit
- Insider information
- Risk disclosure in reports
Q3. Which statement best describes “Research entity”?
- Transparent, timely and consistent disclosure builds trust; poor or selective disclosure is a warning sign.
- A research entity is a person such as a broker or company that issues research reports and must be registered; it can employ analysts.
- The business cycle consists of expansion, peak, contraction and trough, with different sectors outperforming in each phase.
- The cash conversion cycle is inventory days plus receivable days minus payable days, showing how long cash is tied up in operations.
Q4. Which statement best describes “Assured returns prohibited”?
- The stochastic oscillator compares a closing price with the range over a period; above 80 is overbought and below 20 oversold.
- A double top is a bearish reversal pattern in which price makes two peaks at a similar level and then breaks below the trough between them.
- A research analyst must not provide, or claim to provide, assured or guaranteed returns.
- Management quality is judged by track record, capital allocation, transparency, integrity and alignment with shareholders.
Q5. Which statement best describes “Compliance officer”?
- Registered research entities must appoint a compliance officer who monitors compliance and reports to SEBI as required.
- A defensive industry sells essentials with stable demand, such as FMCG, utilities and pharma, and holds up better in downturns.
- Agricultural commodities show seasonal price patterns tied to harvests and demand cycles.
- A simple moving average is the average closing price over a set number of periods, smoothing price data to show the trend.
Q6. Which statement best describes “Record keeping”?
- Many commodities are priced in dollars, so a weaker rupee raises their domestic prices, other things equal.
- Delisting is the removal of a company's securities from an exchange, either voluntarily or compulsorily.
- A price move accompanied by rising volume is considered more reliable than one on thin volume.
- Research analysts must maintain records of research reports, recommendations and the basis for them for at least five years.
Frequently asked questions
How much of NISM Series XV comes from Unit 14?
Unit 14 (Legal and regulatory environment) usually carries about 10% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series XV Unit 14?
Registration and qualification. Conflicts and disclosures. Trading restrictions. Records and client agreement.
Are these NISM Series XV practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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