Analyst Objectivity: Analyst Education and Ethics:

Trading on Research

 

Controls on Analysts’ Personal Trading

Position: Investment analysts should be allowed to trade securities they cover for their own account under strict supervision of the firm’s compliance department and in accordance with policies and procedures that:

• Require analysts to notify and receive approval from compliance prior to trading
• Establish rules against front running, including restricting trading in subject securities for 30 calendar days before and 15 days after research is published.
• Prohibit analysts from trading against their recommendations
• Require analysts to regularly update details about investments made by themselves and their immediate families
• Require analysts to hold securities at least 60 calendar days, and
• Include strict rules on exceptions for extreme financial hardships

Rationale: Such policies and procedures will help deter analysts from engaging in trading activities that could impair the interests of investment clients. Investment firms should immediately disclose to their clients all transactions and relevant circumstances about an analyst’s trades that are contrary to his/her published recommendation, and do so in an addendum to the research report carrying the contrary recommendation to make investors aware of the trades and permit them to assess the recommendation.

Where stated: EAC - FSA CP 171;  EAC - FSA DP 15;  APAC - SGX Trading Rules

 

Personal Holdings Disclosures

Position: Investment analysts should disclose all investment interests, including short and long positions in equity, debt, or derivative instruments, that could be perceived to impair the analysts’ objectivity.

Rationale: Small holdings of securities or derivative instruments may account for significant portions of analysts’ personal holdings and could therefore affect the objectivity of their opinions and recommendations. Disclosure of such positions permits investors to assess the objectivity of the analysts’ recommendations for themselves.

Where stated: EAC - FSA CP 171;  EAC - FSA DP 15;  APAC - SGX Trading Rules

 

Firm’s Holdings Disclosures

Position: Investment firms should disclose positions in all securities or derivative instruments issued by companies that are the subject of research that they publish when those holdings represent 1% or more of the outstanding shares or voting interests of the securities, and when the investment firms make markets in securities of subject companies.

Rationale: Such disclosures will alert investors to potential conflicts of interest at the investment firms that may have affected the opinions and recommendations expressed in the firms’ research.

Where stated: EAC - FSA CP 171