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Capital market regulator Sebi is considering a common advertising code for all intermediaries, Moneycontrol has learnt from people familiar with the development.

A common advertising policy for brokers will be ushered in first, and gradually, a wider policy for other intermediaries, including investment advertisers, research analysts, portfolio management services, mutual funds and others will be rolled out, said one source.

“The industry has raised various operational issues in getting approval for advertisements, hence a common advertising code is under deliberation, so the issue gets settled for all,” the source said.

An email sent by Moneycontrol to Sebi seeking comments didn’t elicit any immediate response.

The basic purpose of the proposed advertising code is to ensure ads stay accurate, fair, clear, unambiguous and concise, so that investors can make informed decision about their investments.

As per industry insiders, each exchange has its own view on advertisements, and what one exchange may clear has faced objections from others, making advertisements difficult to plan and design. One industry source added, “Companies have to incur huge cost for advertisement, and usually it is planned for all platforms to be launched at the same time. If any regulator has objections, then the plan gets spoiled.”

It is also proposed that if one exchange approves an advertisement, it shall have to be accepted by all exchanges.

Current regulations require brokers to obtain prior approval from the stock exchanges for all their advertisements beforehand, along with compliance with the respective Code for Advertisements, as prescribed by each exchange. Non-compliant brokers may face disciplinary proceedings as well as a penalty of Rs 50,000. Advertisement for brokers includes any content on brokers website or their social media platforms that promotes products, services, brokerage plans, etc. Any content which amounts to solicitation for account opening is also advertisement. Employees, associates or channel partners posting any content related to the solicitation or brand promotion is covered under advertisement.

There is a separate advertisement code for Investment Advisers (IA) and Research Analysts (RA) which they have to comply, that requires ads shall include all forms of communications, issued by or on behalf of IA/RA, that may influence investment decisions of any investor or prospective investor.

Advisers and analysts also have to get their advertisements cleared by the BSE Administration and Supervision Ltd, a supervisory body notified by Sebi for RAs and RIAs.

The existing code also prohibits any promise or guarantees of assured or risk-free return to the investors. The advertisement shall not imply that the investment advice/recommendation of research report is risk-free and/or not susceptible to market risks and/or that it can generate returns with any level of assurance, according to the code.

Sebi has also announced the setting up of Past Risk and Return Verification Agency (PaRRVA), which will carry out the verification of risk-return metrics for Investment Advisors, Research Analysts, Algorithmic Trading, and others.

Similarly, for portfolio management services, Sebi has prescribed that an advertisement shall be considered as misleading if it contains statements on the performance or activities of the Portfolio Manager without explanatory or qualifying statements, which may give an exaggerated picture of the performance or activities of the portfolio manager. Extensive use of technical or legal terminology, or complex language, and inclusion of excessive details which may detract the investors should be avoided, according to the code.

Mutual Funds have a separate code for advertisement, which says that advertisements shall not be so designed that it may be misunderstood or likely to disguise the significance of any statement. Advertisements shall not contain statements which directly, or by implication, or by omission may mislead the investor.

Sebi is also likely to review the existing advertising codes for the intermediaries after take feedback from industry, advertising experts and investor associations before finalizing the proposed common code of advertisement.

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