.08 Ability to influence the content of a research report. For the purposes of this rule, a related person with the ability to influence the content of a research report is a related person who is required to review the content of the research report or who has exercised the authority to review or amend the research report prior to its publication or distribution. This term does not include legal or compliance staff who may review a research report for compliance purposes, but who are not authorized to prescribe a particular recommendation, evaluation, or price target. While there are important differences in research rules that reflect the differences between stock and bond markets and the type of research for those markets, there are also many areas of overlap for equity research and bond research. These areas are discussed below, noting the main differences. Unless expressly stated, these provisions do not apply to debt instruments eligible for the institutional research exemption.  See FINRA Rule 2241(c)(4)(E) and (d)(1)(E); FINRA Rule 2242(c)(4)(E) and (d)(1)(D). Such disclosure is only required for public appearances to the extent that the analyst is aware of it or has reason to know. FINRA`s Office of the General Counsel (OGC) staff provide broker-dealers, lawyers, registered agents, investors and other interested parties with interpretive advice regarding FINRA`s rules. For more information, see Interpreting Rules. The amendments largely retain the current content and disclosure requirements for equity research reports. However, the amendments add a new requirement that a dealer-dealer establish, maintain and apply written policies and procedures reasonably designed to ensure that the facts contained in research reports are based on reliable information and that the recommendations, ratings or price targets contained in a research report have an appropriate basis and are based on a clear explanation of the information used.
an assessment method and an accurate presentation of all associated risks. Notwithstanding the above, the amendments allow dealers to apply procedures that, in the event of «financial hardship,» would allow research analysts to trade in securities of an affected company in a manner inconsistent with the research analyst`s recent recommendation. The old rules required prior approval from legal and compliance staff before a research analyst could execute such transactions. The amendments provide additional guidance on the selective or progressive dissemination of a company`s research reports. The new rule requires broker-dealers to establish, maintain and apply reasonably designed written policies and procedures to ensure that a research report is not selectively distributed to internal trading staff or to a particular client or class of clients before other clients that the Corporation has previously determined eligible to receive the research report. The rule changes for stock analysts were proposed by FINRA in November 2014 and approved by the SEC in July 2015 after receiving and reviewing public comments. FINRA intends to announce the effective date of the rules in a regulatory notice no later than mid-September 2015 and has stated that the effective date should be no later than 180 days after the issuance of the regulatory notice announcing the SEC`s approval. The amendment would also exempt dealers with limited investment banking activities (i) from the requirement that the remuneration of a research analyst be reviewed and approved by a committee reporting to the board of directors, which committee may not have investment banking staff, (ii) provisions that limit or restrict the scope of research and budget decisions, and (iii) the requirement to establish information barriers to protect research analysts from scrutiny or oversight by investment banking staff or others who may be biased in their judgment or oversight. However, these firms are still required to establish, maintain and apply written policies and procedures reasonably designed to ensure that research analysts are protected from pressure from investment banks and other non-research personnel who may be biased in their judgment or oversight. The new general provision requires dealers to establish, maintain and apply written policies and procedures reasonably designed to effectively identify and manage conflicts of interest related to (i) the preparation, content and dissemination of equity research reports, (ii) public appearances by stock analysts and (iii) interaction between research analysts and persons outside the research department.
handle. including investment banking and broker-dealer sales and trading staff, companies whose equity securities are the subject of a research report, and clients. Written policies and procedures shall be reasonably designed to promote objective and reliable research that reflects the genuinely represented views of research analysts and to prevent the use of research reports or research analysts to manipulate or condition the market or to further the interests of the Company or any client or class of clients or classes of current or potential clients. In general, FINRA`s stock and debt research rules require clear, complete and visible disclosure of conflicts of interest in research reports and public appearances by research analysts. The rules also prohibit certain types of behaviour when conflicts are deemed too pronounced to be resolved by disclosure. Several provisions of the Equity Research Rules implement the provisions of the Sarbanes-Oxley Act of 2002 («Sarbanes-Oxley»), which requires the separation of research from investment banking, prohibits conduct that could affect the objectivity of a research analyst, and requires specific information in research reports and public appearances. FINRA`s stock research rules are also compliant with The Jumpstart Our Business Startups Act of 2012. The following FINRA rules apply to research analysts, research reports, and the registration of research analysts and supervisors.
The purpose of FINRA`s Rules for Stock and Debt Research Analysts is to promote objectivity and transparency in research reports and public appearances, and to provide investors with more reliable and useful information for making investment decisions. Under the old rules, in addition to a litany of disclosures required, a dealer-dealer was required to disclose in research reports any other real and material conflict of interest of the research analyst or broker-dealer that the research analyst who prepared the report knew or had reason to know. The amendments expand this backstop obligation to require disclosure of other significant conflicts of interest of the research analyst or broker-dealer who are known to the research analyst or a «person related to the member with the ability to influence the content of a research report» or who have reason to know at the time of publication or dissemination of a research report. This is to cover conflicts of interest that can only be known to a supervisor or the person in charge of research, for example. FINRA`s amendments to the stock research rules largely codify and reorganize the existing rules and interpretations that govern equity research. However, the most important changes are summarized below.  These voluntary guidelines have been adopted by the industry as principles to help firms manage potential conflicts of interest that may arise in their fixed income research activities. See Guidelines for Promoting Integrity in Fixed Income Research, available at www.sifma.org/services/standard-forms-and-documentation/cross-product/cross-product_guiding-principles-to-promote-integrity-of-fixed-income-research/.