Chapter 11.5

Question 1

What must a research analyst disclose in any research report or public appearance?

Answer 1

• Any financial interest in the securities of the subject company by the analyst or member of the analyst’s household
• If the member firm owns 1% or more of any class of common equity securities of the subject company
• If the research analyst or a member of the research analyst’s household serves as an officer, director, or is an advisory board member of the subject comapny
• Any other actual or potential conflict of interest including disclosure of material conflicts known by any associated person of the member with the ability to influence the content of a research report

**Exception: These provisions do not apply to research reports prepared by an independent 3rd party that are made available by a member to its customers upon request, or through the member’s maintained website.

Question 2

What must a research analyst must disclose in public appearances?

Answer 2

• If, to the extent the research analyst knows, the member or any affiliate received any compensation from the subject company in the past 12 months
• If the research analyst received any compensation from the subject company in the past 12 months
• If, to the extent the research analyst knows, the subject company currently is, or during the 12-month period preceding the date of distribution of the research report, was, a client of the member. In such cases, the research analyst also must disclose the types of services provided to the subject company, if known by the research analyst

Question 3

What must a member firm disclose in research reports?

Answer 3

• The price at the time the recommendation is made
• If the research analyst who prepared the research report is compensated by the member firm’s investment banking department
• If the member firm or its affiliates managed or co-managed a public offering of securities for the subject company in the past 12 months
• If the member firm received compensation for investment banking services from the subject company in the past 12 months
• If the member firm intends to seek compensation for investment banking services from the subject company in the next 3 months
• The rating of the subject company and the meaning of the rating and must further disclose if the analyst would assign a “buy, hold, or sell” rating on the subject security.
• A line graph of the securities daily closing prices for the period to which the member has assigned any rating or for the last 3 year, whichever is shorter. The line graph must indicate the dates on which the member assigned or changed each rating or target price and be updated at least quarterly.
• If it was making a market in the subject company’s securities at the time that the research report was published.
• The valuation methods used to determine price targets, There must be a “reasonable basis” for price targets and a disclosure of the risks that may impede the achievement of the price target.
• The above listed disclosure requirements must be presented on the front page of the research report or the front page must refer to the page on which such disclosures can be found.

Question 4

SEC Regulation AC requires B/D’s include what in their research reports?

Answer 4

Certifications by the research analyst that the views expressed in the report accurately reflect his or her personal views, and disclose whether or not the analyst received compensation in connection with his or her specific recommendations or views. B/D’s would also be required to obtain periodic certifications by research analysts in connection with the analyst’s public appearances.

Question 5

If a member distributes or makes available any research report that is produced by another member or independent 3rd party, the member must disclose:

Answer 5

• Any financial interest in the securities of the subject company by the analyst or member of the analyst’s household
• If the member firm owns 1% or more of any class of common equity securities of the subject company
• Any other actual or potential conflict of interest

**Exception: The disclosure requirements shall not apply to research reports prepared by an independent 3rd party which are made available to customers upon request or made available on the member’s website.

Question 6

Third party research requirements

Answer 6

• All 3rd party research distributed by a member must be reviewed and approved by a registered principal or a supervisory analyst
• 3rd party research reports must be clearly labeled as such so that there is no confusion on the part of the recipients as to the person or entity that prepared the research report.

Question 7

Payments involving publications that influence the market price of a security

Answer 7

Members are prohibited from giving anything of value to any person for the purpose of influencing or rewarding the action of such person in connection with the publication or circulation in any electronic or public media of any matter that has an effect upon the market price of any security.

• *Exceptions apply to compensation paid to a person in connection with the publication or circulation of:
  
  • Communication that is clearly distinguishable as paid advertising
  • A communication that discloses the receipt of compensation and the amount
  • A research report

**A B/D is not allowed to compensate anyone to publish favorable or unfavorable information about securities in which the firm makes a market