Chapter 11.6

Question 1

Definition of debt research report

Answer 1

Any written communication that includes an analysis of a debt security or an issuer of a debt security and that provides information reasonably sufficient upon which to base an investment decision

Question 2

A debt research report would not include communications that:

Answer 2

• Constitute statutory prospectuses that are filed as part of the registration statement
• Constitute private placement memoranda and comparable offering-related documents, other than those that purport to be research
• Are limited to the following, if they do not include an analysis of, or recommend or rate, individual debt securities or issuers:
  
  • Discussions or broad-based indices
  • Commentaries on economic, political or market conditions
  • Commentaries on or analyses or particular types of debt securities or characteristics of debt securities
  • Technical analyses concerning the demand and supply for a sector, index, or industry based on trading volume and price
  • Recommendations regarding increasing or decreasing holdings in particular industries or sectors or types of debt securities; or
  • notices of ratings or price target changes, provided that the member simultaneously directs the readers of the notice to the most recent debt research report on the subject company that includes all current applicable disclosures required by the rule and that such debt research report does not contain materially misleading disclosure, including disclosures that are outdated or no longer applicable.
• Are limited to the following:
  
  • Statistical summaries of multiple companies financial data
  • An analysis prepared for a specific person or a limited group of fewer than 15 persons
  • Periodic reports or other communications prepared for investment company shareholders or discretionary investment account clients that discuss individual debt securities in the context of a fund’s or accounts past performance or the basis for previously made discretionary investment decisions; or
  • Internal communications that are not given to current or prospective customers

Question 3

Debt research analyst

Answer 3

An associated person who is primarily responsible for, and any associated person who reports directly or indirectly to a debt research analyst in connection with, the preparation of the substance of a debt research report, whether or not any such person has the job title of “research analyst”.

Question 4

Debt Security

Answer 4

Any security as defined in section 3(a)(10) of the securities act of 1934, except debt security does not include any “equity security”, any “municipal security”, and “security-based swap”, and any “U.S. Treasury Security”

Question 5

The debt rules differ from the equity rules in 3 important ways

Answer 5

• Institutional debt research provided solely to certain institutional investors(Qualified institutional buyers) is exempt from most of the provisions regarding supervision, coverage determinations, budget and compensation determinations, and all of the disclosure requirements applicable to retail debt research reports. However, certain general disclosures must be made on the front page of an institutional debt research report:
  
  • The report is intended only for institutional investors and does not carry all of the independence and disclosure standards of retail debt research reports
  • If applicable, the views in the report may differ from the views offered in retail debt research reports
  • If applicable, the firm’s proprietary trading interests or discretionary trading interest may be contrary to the recommendations in the report.

**The rule requires either positive or negative written consent for QIBs to receive the less protected institutional debt research.

Question 6

Information barriers

Answer 6

Debt research analysts and principal trading personnel and sale and trading personnel, in addition to investment banking personnel must have information barriers to prevent those people from attempting to influence the analyst’s opinions or views

Question 7

Who can be exempt from the review, supervision, budget, and compensation provisions that protect research analysts from undue influence from other department personnel?

Answer 7

Firms that have limited investment banking activity and/or limited principal trading activity.