CFA Institute Research Objectivity Standards Objectives Flashcards
Objectives of CFA Institute Research Objectivity Standards
- To prepare research reports, make investment recommendations, and take investment actions; and develop policies, procedures, and disclosures that always place the interests of investing clients before their employees’ or the firm’s interests.
- To facilitate full, fair, meaningful, and specific disclosures of potential and actual conflicts of interest of the firm or its employees to its current and prospective clients.
- To promote the creation and maintenance of effective policies and procedures that would minimize and manage conflicts of interest that may jeopardize the independence and objectivity of research.
- To support self-regulation through voluntary industry development of, and adherence to, specific, measurable, and demonstrable standards that promote and reward independent and objective research.
- To provide a work environment for all investment professionals that supports, encourages, and rewards ethical behavior and supports CFA Institute members, CFA charterholders, and CFA candidates in their adherence to the CFA Institute Code and Standards.
Requirement of Research Objectivity Standards
- Research Objectivity Policy
- Public Appearances
- Reasonable and Adequate Basis
- Investment Banking
- Research Analyst Compensation
- Relationship with Subject Companies
- Personal Investments and Trading
- Timeliness of Research Reports and Recommendations
- Compliance and Enforcement
- Disclosure
- Rating System
- Research Objectivity Policy
Firms must have
- Written policy on independence and objectivity of research that is available to clients and prospective clients and all firm employees.
- Supervisory procedures that reasonably ensure that the firm and its covered employees comply with the provisions of the policy and all applicable laws and regulations.
- A senior officer of the firm who attests annually to clients and prospective clients to the firm’s implementation of, and adherence to, the Policy.
- Public Appearances
Firms that permit research analysts and other covered employees to present and discuss their research and recommendations in public appearances must require these employees to fully disclose personal and firm conflicts of interest to the host or interviewer and, whenever possible, to the audience.
- Reasonable and Adequate Basis
Firms must require research reports and recommendations to have a basis that can be substantiated as reasonable and adequate.
An individual employee (supervisory analyst who is someone other than the author) or a group of employees (review committee) must be appointed to review and approve all research reports and recommendations.
- Investment Banking
- Research Analyst Compensation
Firms must establish and implement salary, bonus, and other compensation for research analysts that:
- Align compensation with the quality of the research and the accuracy of the recommendations over time; and
- Do not directly link compensation to investment banking or other corporate finance activities on which the analyst collaborated (either individually or in the aggregate).
- Relationship with Subject Companies
Firms must implement policies and procedures that manage the working relationships that research analysts develop with the management of subject companies.
Research analysts must be prohibited from:
- Sharing with, or communicating to, a subject company, prior to publication, any section of a research report that might communicate the research analyst’s proposed recommendation, rating, or price target; and
- Directly or indirectly promising a subject company or other corporate issuer a favorable report or a specific price target, or from threatening to change reports, recommendations, or price targets.
- Personal Investments and Trading
Firms must have policies and procedures that:
- Manage covered employees’ “personal investments and trading activities” effectively
- Ensure that covered employees do not share information about the subject company or security with any person who could have the ability to trade in advance of (“front run”) or otherwise disadvantage investing clients;
- Ensure that covered employees and members of their immediate families do not have the ability to trade in advance of or otherwise disadvantage investing clients relative to themselves or the firm;
- Prohibit covered employees and members of their immediate families from trading in a manner that is contrary to, or inconsistent with, the employees’ or the firm’s most recent, published recommendations or ratings, except in circumstances of extreme financial hardship; and
- Prohibit covered employees and members of their immediate families from purchasing or receiving securities prior to an IPO for subject companies and other companies in the industry or industries assigned.
- Timeliness of Research Reports and Recommendations
Firms must issue research reports on subject companies on a timely and regular basis.
- Compliance and Enforcement
Firms must:
- Have effective enforcement of their policies and compliance procedures to ensure research objectivity;
- Implement appropriate disciplinary sanctions for covered employees, up to and including dismissal from the firm, for violations;
- Monitor and audit the effectiveness of compliance procedures; and
- Maintain records of the results of internal audits.
- Disclosure
- Firms must provide full and fair disclosure of all conflicts of interest to which the firm or its covered employees are subject.
- Rating System
- Firm must establish a rating system that is (a) useful for investors and for investment decision-making and (b) provides investors with information for assessing the suitability of the security to their own unique circumstances and constraints.
