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SEBI releases procedural guidelines for proxy advisors

The new guidelines would come into force from September 1, the Securities and Exchange Board of India (Sebi) said in a circular

twitter-logoPTI | August 3, 2020 | Updated 19:33 IST
SEBI releases procedural guidelines for proxy advisors

Markets regulator Sebi on Monday came out with procedural guidelines for proxy advisors, wherein they need to formulate the voting recommendation policies and disclose the updated one to their clients.

The new guidelines would come into force from September 1, the Securities and Exchange Board of India (Sebi) said in a circular.

"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," Sebi said.

It, further, said the recommendation policies should also disclose the circumstances when not to provide a voting recommendation.

Proxy advisors will have to disclose the methodologies and the processes followed in the development of their research and corresponding recommendations to its clients.

It will alert clients within 24 hours of receipt of information about any factual errors or material revisions to the report.

Proxy advisors will have a stated process to communicate with their clients and the company.

Also, they will have to share their report with their clients and the company at the same time. This sharing policy should be disclosed by proxy advisors on their website.

Sebi said timeline to receive comments from the company may be defined by proxy advisors and all comments or clarifications received from the company, within timeline, will 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 viewpoint may either revise the recommendation in the addendum report or issue an addendum to the report with its remarks, as considered appropriate, it added.

Proxy advisors will have to 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 standard.

In addition, they will have to 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.

Proxy advisors will 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.

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