FINRA Podcast Outlines Required Equity Research Policies
FINRA reviewed various forms of prohibited conduct under its research conflicts rules. In the second podcast in a four-part series, FINRA outlined the prohibited conduct required to be included in a firm's written policies and procedures.
A firm's written policies and procedures must:
- require quiet periods of at least ten days after an initial public offering and at least three days after a secondary offering, during which times: (i) firms must not publish or otherwise distribute research reports related to the issuer if the firms were underwriters or dealers in the IPO or managers or co-managers of the secondary offering; and (ii) research analysts must not make public appearances concerning the issuer;
- limit research-analyst account trading and securities from their research with personal-trading restrictions;
- permit research analysts to liquidate their holdings as is consistent with firms' conflict management;
- prohibit explicit or implicit promises of favorable research as inducements for business or compensation;
- prohibit investment bankers from directly or indirectly directing a research analyst to engage in sales or marketing efforts related to an investment-banking services transaction;
- set up, maintain and enforce written policies and procedures "reasonably designed" to ensure that purported facts in its research reports are based on reliable details;
- disclose the percentage of all rated securities to which the firm would assign a buy, hold or sell ratings, as well as the percentage of subject companies within each category for which the firm has provided investment banking services in the previous twelve months in each research report;
- require disclosure if the research analyst or any member of his or her household has a financial interest in the subject company's securities;
- require "catch-all disclosure" of any other analyst or firm material conflict of interest, as well as disclosure of the analyst's knowledge or reason to know at the time of the report's publication or distribution;
- provide an exception for disclosures that would reveal materially non-public information about the subject company's specific potential future investment banking transactions; and
- require the display of disclosures on the research report's front page, or a reference on the front page to the disclosures page.