SEBI prepares guidelines for proxy advisers

The concept of a “proxy adviser” is of Western import, and, despite its nascency, has slowly and steadily gained importance in the Indian market as a critical intermediary and a rather persuasive influencer of a company’s decision making and policies through the shareholders.

Proxy advisers mainly cater to institutional shareholders’ needs by providing them with independent and fact-based research input and insight to enable them to make informed decisions.

Accordingly, proxy advisers tend to gain a certain vantage owing to the trust placed in them by institutional shareholders, which in turn, by virtue of the exercise of the voting power by such shareholders, has ramifications on the governance and corporate decision making of the company, impacting shareholder value, the markets and the economy as a whole.

To regulate proxy advisers, given their unique position in the market structure, the Securities and Exchange Board of India (SEBI) had rolled out the SEBI (Research Analysts) Regulations, 2014 (RA regulations), which require mandatory registration of the proxy adviser as a research analyst with the SEBI.

The regulations provide an elementary regulatory framework in terms of management of conflict of interest and disclosure requirements, and an eight-point code of conduct. Such regulation was, and continues to be, a rarity from a global perspective, since in most countries proxy advisers are not regulated.