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Series 87 > Chapters 1/2 > Flashcards

Chapters 1/2 Flashcards

1
Q

What is a research report?

A

FINRA Rule 2241 defines a research report as a written or electronic communication that includes an analysis of equity securities of individual companies or industries. The content in the report should be reasonably sufficient for someone to base an investment decision.

  • The definition DOES NOT include a report on an open-end company not listed on an exchange
  • Any drafts and the final copy of a research report MUST be kept for 3 years.
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2
Q

Examples of things NOT considered a research report:

A
  • A discussion concerning broad-based indices (ex: S&P)
  • Commentary on economic, political, or general market conditions.
  • Technical analysis concerning the supply and demand for a sector, index, or industry based on trading volume and price.
  • Statistical summaries of mutliple firms’ financial data, including listings of current ratings.
  • Recommendations regarding increasing or decreasing holdings in a particular sector or industry (ex: recommending that a client increase their weighting in the tech sector)
  • Notice of ratings or price target changes, provide the firm simultaneously directs the reader to the most recent research report on the subject company.
  • Any communication that’s distributed to < 15 people.
  • Any internal communication that’s not given to clients.
  • Periodic reports or other communications that are prepared for investment company shareholders or discretionary investment accounts which discuss individual securities in the context of the funds’ or accounts’ past performance. (ex: annual reports given to shareholders of mutual funds).
  • Communication that constitutes statutory prospectuses
  • Communication which is part of a propsectus or pvt placement memorandum.

  • Although these are not research reports, they must still be approved by a principal
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3
Q

Who is a research analyst?

A

FINRA Rule 2241 states that anyone who directly or indirectly reports to a research analyst (whether or not their title is research analyst) in connection w/ the preperation of a research report.

  • Persons who report on fixed income securities are exempt.
  • PS and convertible debt are considered equity.
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4
Q

What is a research analyst’s household

A

Anyone person whose principal residence is the same as the research analyst (ex: spouse, children). This definition DOES NOT include an unrelated person who lives at the same residence as the RA, but is financially independent.

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5
Q

True or false: Although other analysts may assist w/ the preperation of a report, the analyst whose name is on the cover is the analyst responsible for the report and its content?

A

True

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6
Q

What designations must a supervisory person who reviews research reports have?

A

After a research report is prepared, it must be approved by a supervisory analyst who has obtained the General Securities Principal (Series 24) and passed the Series 87 and passed Series 16.

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7
Q

True or false: A supervisory analyst cannot approve their own reports?

A

False

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8
Q

True or false: If the supervisory analyst is not qualified in a particular area of research, co-approval by another supervisory person is permitted?

A

True

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9
Q

What info can be included in a research report?

A
  • Company overview
  • Industry overview
  • Business Model analysis
  • Financial Position
  • Quality/quantity of earnings
  • Valuation of a firm’s stock
  • Dividend outlook
  • Sensitivity of company costs and revenues
  • Review of recently released financial data
  • Quality of mgmt
  • Industry and company outlook
  • Competitive position
  • Review of recent news
  • Investment thesis
  • Ratings or recommendations
  • Risks of investment
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10
Q

Required regulatory disclosures that must be included in a research report:

A
  • Price chart w/ historical info
  • Meanings of ratings
  • % of ratings issued by the firm
  • Firm’s ownership and trading capacity of securities
  • Risks involved w/ investing
  • Disclosures of any compensation/relationship w/ the subject company(ies)
  • Certifications of the analyst and researching firm
  • Risks to achievement of a price target
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11
Q

Price charts

A

A price chart shows the price a firm’s stock over a period of time and highlights which BD assigned or changed a rating or price target. Price charts are required when a research analyst has a rating on a stock for at least a year. The info on a price chart IS NOT required to be more than 3 years old.

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12
Q

Meanings of ratings

A

Every firm must disclose what its rating means

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13
Q

Percentage of ratings issued by the firm

A

In the research report, the analyst who prepares the report must disclose the percentage of ratings that are issued by the firm. Ex: 50% buy, 25% hold, 25% sell.

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14
Q

Firm’s ownership and trading capacity of securities

A

If the research analyst has any form of ownership in the subject company, that MUST be disclosed in the research report. This disclosure must be made when the report is written or when it’s published. The firm must also disclose whether it’s a market maker (actively trades the securities of the subject firm).

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15
Q

Risks of not reaching a price target

A

If a research report includes a price target, a disclosure concening the risks that may prohibit the firm reaching it’s price target must be described. Additionally, the report must describe the valuation method that’s used to determine the price target.

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16
Q

Certifications

A

The research analyst must make certifications concerning the info within the report. SEC Reg AC states that an analyst must certify that the opinions in the report are their own.

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17
Q

Regulatory requirements regarding compliance:

A
  • A research report must be approved or reviewed by research department personnel prior to publication
  • Under certain circumstances, approval from the legal and compliance department must be obtained.
  • Prior to dissemination, the research report must contain disclosure about the firm’s compensation within the prior 12 months and the compensation of the analyst. The analyst’s compensation may not have been derived from investment banking department gains or received from the company that’s the subject of the research report. These disclosures must also accompany any public appearance.
  • Communications restrictions surrounding a research report must be followed. These restrictions include rules that require the creation of information barriers between the research department and the
    investment banking department as well as quiet periods surrounding a new issue in which a research report may not be published.
  • A research analyst must protect confidential info from their household members.
  • Firms that publish research reports must adhere to all regs regarding recordkeeping and document retention.
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18
Q

Earnings analysis

A

Generally conducted at the end of each quarter or when a firm does something that changes its earnings estimates. This type of report includes earnings previews and earnings wraps (a.k.a. review reports).

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19
Q

In-depth Fundamental (Basic) Report

A

An in-depth fundamental or basic report outlines a company, its mgmt team, its product(s), and its financial info. A fundamental report also contains the analyst’s opinion of the company, info about the sector in which the subject company conducts its business, recent developments within the company, insider holding information, peer comparison and future company plans.

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20
Q

Topical reports on relevant issues or theme
pieces

A

Review particular aspects of an issuer or industry

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21
Q

Short notes and summaries of pertinent news

A

The research department of a firm may issue notes and
summaries regarding an issuer if that issuer has released material info or there has been news in the media regarding the issuer.

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22
Q

Methods an analyst can present their reports/info to the media?

A
  • Telephone
  • Facsimile
  • Email
  • Using the firm’s website
  • News info sources
  • Recorded messages sent to voicemails
  • Videos
  • Podcasts
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23
Q

Research analyst account

A

Any account where the research analyst or member of the research analyst household has a financial interest OR any account where the research analyst exercises discretion or control.

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24
Q

True or false: A registered investment company (mutual fund) where the research analyst or a member of their household has discretion or control, provided neither has a financial interest in the company (other than receiveing a performance or mgmt fee) IS NOT considered a research analyst account?

A

True

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25
Q

True or false: A blind trust that’s controlled by a person other than the research analyst or by a member of the research analyst’s household for which neither the research analyst nor a member of the research analyst’s household knows of the account’s investments or investment transactions is considered a research analyst account?

A

False

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26
Q

True or false: A report written on a mutual fund is considered a research report?

A

False

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27
Q

Definition of a public appearance

A

Any participation in a conference call, seminar, forum, or public speaking engagement to 15 or more persons OR with at least 1 representative of the media where the RA makes a recommendation or offers an opinion.

A forum can be in-person OR virtual

  • During the event, the research analyst who appears at the event must correct and update any disclosures in the research report that are inaccurate, misleading, or no longer applicable.
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28
Q

Examples of things that DO NOT constitute a public appearance:

A
  • A password protected webcast
  • Conference call
  • Event w/ 15 or more existing customers, provided that all of the event participants previously received the most current research report that contains the required disclosures.
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29
Q

True or false: FINRA requires member firms to establish, maintain, and enforce written policies and procedures that are reasonably designed to identify and effectively manage conflicts of interest?

A

True. A member’s written policies and procedures must be reasonably designed to promote objective and reliable research that reflects the truly held opinions of research analysts and to prevent the use of research reports or research analysts from manipulating or conditioning the market, or favoring the interests of the member or a current or prospective customer or class of customers.

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30
Q

What are investment banking services?

A

Acting as an underwriter (debt or equity), participating in a selling group in an offering for the issuer, acting as an adviser in M&A, providing venture capital or equity lines of credit, or servicng as a placement agent for the issuer or otherwirse acting in furtherance of a public offering of the issuer. PIPE- public investment in PE is considered IB services.

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31
Q

Investment banking department

A

Any department of a BD that provides IB services.

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32
Q

Sales and trading personnel

A

Persons who perform any sales or trading on behalf of a member firm. Persons who work in the institutional equities division are considered S&T personnel.

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33
Q

Joint Due Dilligence

A

FINRA Rule 2241 prohibits joint due dilligence meetings between research departments and other departments (ex: IB or S&T) prior to the selection of underwriters for IB services transaction. The concern is that bankers may pressure researchers to produce favorable research to increase the chances of the firm getting to become an underwriter for an offering. Once an underwriter has been selected, joint due diligence is permitted provided there is a compliance analyst there as well.

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34
Q

Specific requirements related to due diligence

A

Written procedures must be designed to:
* The prepublication, clearance, or approval of research reports by persons engaged in IB activities is prohibited. LEGAL and COMPLIANCE ARE PERMITTED TO REVIEW IT.
* Any input from other departments w/ regards to research coverage decisions MUST be restricted or limited. IB PERSONNEL MUST BE PROHIBITED.
* Prohibit persons engaged in IB activities from supervision or control of research analysts, including influence or control over research analyst compensation, evaluation, and determination
* IB personnel CANNOT be involved in determining the research department’s budget
* Safeguards MUST be in place to ensure that research professionals are not pressured by IB professionals.
* Any promise of positive research in exchange for business is prohibited.

  • IB personnel can review research reports after or concurrent to publishing. Just not before.
  • Procedures must indicate the circumstances in which prepublication review by other non-research personnel is appropriate.
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35
Q

True or false: Members may generally submit research reports to the subject company?

A

False, member firms may not submit research reports to the subject company unless the sole purpose is for fact verification. Even then, only relevant sections made be submitted.

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36
Q

Conditions when a member firms provides a subject company or IB personnel w/ a research report:

A
  • A complete draft is submitted to legal or compliance before any relevant sections are sent to the subject firm or IB personnel.
  • The sections of the report submitted to the subject firm or IB personnel DO NOT contain the research summary, research rating, or price target.
  • If after submitting the relevant sections, the research department intends to change the proposed rating or price target, it must first provide written jutification and receive authorization from the legal or compliance personnel.
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37
Q

True or false: Research analysts are permitted to paticipate in pitch meetings or any solicitation of IB services transactions?

A

False, research analysts are prohibited. Research analysts ARE permitted to solicit non-IB business (ex: S&T).

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38
Q

Road show

A

IB meetings w/ prospective clients and brokers that is generally held prior to a securities offering. Research analysts ARE NOT allowed to sit in on road shows.

39
Q

True or false: Research analysts are permitted to listen to or view a live webcast of a transaction-related road show or other widely attended presentation by investment banking to investors or to the sales
force from a remote location, or in another room if they’re in the same location (the company’s office). However, they may not be identified as participants?

A

True

40
Q

True or false: IB personnel are permitted to direct or ask research personnel to engage in communication w/ a client or prospective client about IB services transactions?

A

False, this is prohibited.

  • This restrictions DOES NOT apply to non-IB personnel
41
Q

True or false: An institutional salesperson is prohibited from directing a research analyst to engage in sales or marketing efforts or from communicating w/ prospective clients?

A

False, this is allowed. Just as long as it’s not IB personnel.

42
Q

True or false: FINRA considers the publication in a pitch book or related materials of a research analyst’s industry ranking to imply the potential outcome of future research because of the manner in which these rankings are compiled. In the pitch materials, a firm is permitted to include the fact of coverage and the name of the research analyst because this information by itself doesn’t imply favorable coverage?

A

True

43
Q

Non-deal road show

A

A road show that’s not related to IB services transactions. Research analysts are allowed to attend these.

44
Q

3 way communications

A

When research professionals communicate w/ clients or prospective clients in the presence of IB personnel or personnel from the issuing company. These are prohibited by FINRA since it’s believed a research analyst may feel pressured to give a positive report.

45
Q

When can a research analyst communicate w/ both prospective and existing customers, as well as personnel from their own firm about research and IB transaction services?

A

If:
1. Any oral or written communication is fair and not misleading
2. No personnel from IB or company mgmt is present

46
Q

Quiet period

A

A period where an IB client MAY NOT be the subject of a research report or public appearance. Quiet periods apply to IPOs AND secondary offerings. During this period, no research reports may be filed AND analysts may not make any public appearances about the offering or issuer.

Individual firms may have longer periods.

  • The quiet period for secondary offerings doesn’t apply to issuers whose securities are actively
    traded as defined under Regulation M of the Securities Exchange Act of 1934. This applies to both research reports and public appearances.
    The quiet period following secondary offerings doesn’t apply to unregistered
    offerings. Therefore, there’s no quiet period regarding private placements of Rule 144A securities and securities offerings conducted outside the of the U.S. under Regulation S
47
Q

Quiet period timelines:

A

For managers in an IPO: 10 calendar days
For participating firms in an IPO: 10 calendar days
For manager/comanager in a secondary offering: 3 calendar days
For participating firms in a secondary offering: no restriction

Memorize that it’s calendar days, not business days

  • If a firm is not involved in the IB process of an offering, a research report or public appearance may happen right away
48
Q

Actively traded securities

A

Securities that have an average daily trading volume (ADTV) of >= $1MM, which is issued by an entity whose CE securities have a public float >= $150MM.

49
Q

True or false: The occurance of significant news or events can allow for research reports to be published during a quiet period as long as authorization from the legal and compliance department is received?

A

True

  • Significant news items or events are those that make a material impact or material change in a
    company’s financial condition, operations, or earnings, and require the filing of SEC Form 8-K.
50
Q

Jumpstart Our Business Startup (JOBS) Act

A

An Act created in 2012 that created a new category of issuer that’s referred to as an emerging growth company (EGC). An EGC is a firm that has total annual revenues < $1.07B during the most recently completed fiscal year. With EGCs, no quiet period exists after issuance. RAs may attend pitch meetings in connection with an EGC IPO, as long as they do not engage in IB solicitations.

51
Q

Fair Access to Investment Research (FAIR) Act of 2017

A

Implemented by the SEC in 2019 to extend the safe harbor provisions to covered investment funds. This Act also states that SROs ARE NOT permitted to prohibit the publishing of covered investment funds.

52
Q

Covered investment fund

A

An investment company that is registered w/ the SEC and trading on a national exchange. Ex: ETF, closed-end investment firm, and a business development company. Reports on mutual funds ARE NOT a type of research report, however reports on ETFs, closed-end investment firms, and a business development companies ARE considered research reports Business development companies (BDCs) are considered covered investment funds as well.

53
Q

True or false: Quiet periods apply to covered investment funds?

A

False

54
Q

True or false: It is strictly prohibited to compensate research analysts based on specific IB deals, or on a % basis for IB deals?

A

True. Deal-related bonsues are similarly prohibited. If an analyst’s compensation is in any way based on the member firm’s IB revenue, this fact MUST be disclosed in any research reports authored by the analyst.

55
Q

Compensation committee

A

Member firms must have a compensation committee that is responisble for reviewing and approving the compensation for research analysts at least annually. This committe must also report to the board and document the reasoning behind an analyst’s compenstion. The committee IS NOT allowed to be comprised of any member of IB.

56
Q

Factors looked at when determining an analyst’s compensation

A
  • Individual performance of the analyst
  • Correlation between analyst recommendations and performance of securities
  • A review of a spectrum of ratings from clients, the sales force, and other internal or external professionals.
57
Q

True or false: A research analyst and their household is prohibited from buying or selling a security in a manner that’s inconsistent w/ their recommendation to buy or sell?

A

True. Ex: An analyst cannot recommend longing a security and then sell it themselves in their own accounts. There is an exception is the analyst can claim financial hardship- meaning that they need to sell the stock for immediate money.

58
Q

True or false: Research analysts are allowed to own stock in a company pre-IPO if it is in the same sector they cover?

A

False

59
Q

When after a research report is published can a research analyst buy/sell a security?

A

FINRA requires that firms have their own policy.

60
Q

In a research report, where must the disclosures be?

A

Either on the front page of the publication or a reference must be provided to indicate the page where they appear. The disclosures MAY NOT be written in fine print. Firms are permitted to use a hyperlink in electronic formats.

61
Q

What disclosures must be made in a research report?

A
  1. Whether the RA or a member of the analyst’s household has ANY financial interest in the subject company.
  2. Whether the firm or its affiliates has an ownership interest in the subject security of 1% or greater of the outstanding CE of the subject firm.
  3. Whether the firm is making a market in the subject security (always ready to buy/sell) at the time of publication or distribution of the research report.
  4. Whether the member firm or any affiliates have received compensation for or expect to receive compensation (within the next 3 months) from IB activity from the subject company in the last 12 months.
  5. Whether the member firm or any affiliates have managed or co-managed a public offering for the subject company in the preceding 12 months.
  6. Whether, as of the end of the month immediately preceding the date of publication or distribution of a research report (or the end of the second most recent month if the publication or distribution date is less than 30 calendar days after the end of the most recent month), the member or its affiliates have received any compensation for products or services from the subject company other than IB services in the previous 12 months
  7. Whether the research analyst’s compensation is based on the member firm’s IB revenues
  8. Whether the research analyst received compensation from the subject company in the previous 12 months
  9. Whether the subject firm has been a client of the member firm in any way in the preceeding 12 months. If so, details must be described.
  10. If a price target is included, the valuation method used.
  11. A clear outline of the rating system.
  12. The % of all securities the firm has rated in each category.
  13. If a research report contains a rating or price target for AT LEAST ONE YEAR, the report must include a price chart lf the cubject firm’s actual performance for the past 3 years.
  14. Any other material conflict of interest.

  • The front page must contain these disclosures or provide a reference to the pages where the disclosures are.
62
Q

True or false: Research reports must provide a definition of ratings?

A

True. The explanation should include the time horizon and any benchmarks on which the rating is based. This info must be current as of the end of the most recent calendar quarter, or the second most recent calendar quarter if
the publication date of the report is less than 15 calendar days after the most recent calendar quarter. Remember, firms must disclose the % of companies in each ratings category (buy, hold, sell). Additionally, research reports must disclose the % of subject companies within each ratings category that the firm has provided IB services to in the last 12 months.

63
Q

Price target requirements in a research report

A

If an analyst has a rating or price target on a firm for at least a year, the report must include a line graph for the period that the member has assigned the price target/rating OR for 3 years, whichever is shorter. The graph must indicate any dates that ratings were changed.

64
Q

True or false: The use of promissory, exaggerated or flamboyant statements are considered prohibited in a research report?

A

True, they’re considered misleading

65
Q

Compendium reports

A

A research report that covers 6 or more companies. In compendium reports, firms are allowed to direct readers to where they can find disclosures versus making the disclosures within the report. In an electronic format, a hyperlink is permitted and in a paper report, a toll-free number to call, a website, or an address where a letter may be sent when requesting the required disclosures is permitted.

66
Q

Globally branded research report

A

A single identity that encompasses a member firm and an foreign affiliate(s). Additional disclosure requirements concerning globally branded research reports include the name of the affiliates that contributed to the report, the names of the foreign analysts who contributed to the report, and a statement
that such analysts are not qualified by examination in the U.S. If the research is gloablly branded, non US analysts who prepare the research ARE NOT required to be registrered in the US

67
Q

What disclosures must be made in globally branded research reports?

A
  • Each affiliate that contributed to the report.
  • The names of the foreign analysts who contributed to the report.
  • A statement that such analysts are not qualified by the exam
68
Q

Mixed-team research report

A

Any research report by a member firm that is not globally branded and includes a contribution by a research analyst who IS NOT considered an associated person by the member firm. For a report prepared by a mixed team that includes US and non-US analysts, each analyst must be registered in the US.

69
Q

3rd party research report

A

A research report that has been prepared by an affiliate of a BD or at the request of a BD that maintains editorial influence over the content of the report. This type of report must be reviewed and approved by a Supervisory analyst (Series 16) or a registered principal (Series 24).

70
Q

Rules regarding 3rd party research reports

A
  • A firm may not distribute 3rd party research if it knows or has reason to know the research is not objective or reliable.
  • A member firm must have written policies and procedures to mitigate the risk of any untrue statements in 3rd party research.
  • Whether the member firm or any affiliates have received compensation for or expect to receive compensation (within the next 3 months) from IB activity from the subject company in the last 12 months.
  • Whether the member firm or any affiliates have managed or co-managed a public offering for the subject company in the preceding 12 months.
  • Whether the research analyst’s compensation is based on the member firm’s IB revenues
  • Whether the firm or its affiliates have an ownership interest in the subject security of 1% or greater of the outstanding CE of the subject company.
  • Whether the firm is making a market in the subject security at the time of publication or distribution of the research report.
  • Any other material conflicts of interest
71
Q

Independent third party research report

A

A research report prepared by a person or firm that has no affiliation or contractual relationship w/ the distributing member AND makes content determinations w/o any input from the distributing member of the member firm’s affiliates. The distributing BD has no editorial control and is not required to pre-approve the report.

  • The required disclosures included in the report apply to the firm that prepares the report, NOT the firm that distributes the report.
72
Q

True or false: Independent research firms w/o IB divisions and also w/o S&T divisions do not need approval by supervisory personnel?

A

True

73
Q

When do the rules regarding 3rd party research reports (#71) not appy to independent 3rd party research?

A

If the research provided by the firm:
- was requested by the customer
- Through the firm’s website
- To a customer in connection w/ a solicited order in which the RR had informed the customer of the availability of independent research and then the customer requests it.

74
Q

True or false: A print article where a research analyst makes a recommendation or offers an opinion on a security is considered a public appearance?

A

True

75
Q

Disclosures that must be made in regards to a public appearance

A
  1. Whether the research analyst or a member of their household has a financial interest
  2. Whether the firm or its affiliates has an ownership interest in the subject security of 1% or greater of the outstanding CE of the subject firm.
  3. Any material conflict of interest
  4. To the extent the RA knows, or has reason to know, whether the member of an affiliate has received compensation from the subject firm in the last 12 months.
  5. Whether the RA received compensation from the subject company in the past 12 months.
  6. To the extent the RA knows, whether the subject company is or was in the 12 month period prior to the distribution of the report, a client of the member firm. If so, any services provided to the subject company must be disclsoed.
76
Q

True or false: Member firms must retain records of all public appearances by their RAs for 5 years from the date of appearance?

A

False, 3 years

77
Q

Catch all disclosure

A

A disclosure that must be made in any research report or public appearance of any material conlfict or interest the RA or member of the analyst’s household has.

  • The catch all disclosure requirement extends further to research reports than to public appearances by adding the requirement to disclose any material conflict of interest by an associated person of the firm with the ability to influence the content of a research report (ex: An MD of the IB department).
  • A firm or RA is not required to make a disclosure of any future IB transactions OR any material nonpublic info
78
Q

Disclosure surrounding termination of research coverage

A

When an RA terminates coverage on a subject company, the BD is required to notify its clients promptly. This must be accompanied by a note that states the analyst’s final recommendation or rating.

  • A BD that’s terminating research coverage is not required to discontinue market making in the subject security.
79
Q

True or false: Member firms are permitted to distribute their research reports selectively?

A

False, firms are required to have written procedures to ensure that research reports ARE NOT selectively distributed. However, firms are permitted to have different research products and services available to different types of clients (ex: short-term trading research vs long-term). Firms can have different recommendations and ratings depending on these different categories of clients.

  • Firms that offer different research products and recommendations for different categories of clients must inform all clients of the different categories and products they offer. This disclosure IS NOT required to be in every research report.
80
Q

True or false: Although firms are permitted to have different categories of customers, firms may not differentiate a research product based on the timing of the receipt of a recommendation, rating, or other potentially marketmoving information. Additionally, a firm cannot label a research product with substantially the same content as a different product as a means of allowing certain customers to trade in advance of other customers?

A

True

81
Q

Limited IB exception

A

A limited IB is a very small IB. Personnel in this case may act in duel capacities. This exception is available to firms that have over the previous three years, on an average per year, participated in 10 or fewer investment banking service transactions as manager or co-manager and have generated $5 million or less in gross investment banking services revenues from these transactions. This definition of investment banking services transactions includes underwriting of both corporate debt and equity, but excludes underwriting of municipal securities.

  • Although these small firms are not required to separate the IB and research departments, they must establish info barriers or other institutional safeguards that are reasonably designed to ensure that RAs are insulated from pressure by persons who are engaged in IB services activites.
82
Q

True or false: With both globally branded and mixed team research, some reports ARE NOT subject to pre-use approval?

A

False, ALL reports are subject to pre-approval.

83
Q

True or false: In general, a RA can have a hold recommendation but recommend that an individual client buy the security?

A

False

84
Q

Things an RA is permitted to do regarding an IB services transaction:

A
  • Discuss an IB services transaction w/ a client or potential client. This is permitted as long as no one from IB is there during the conversation.
  • Discuss an IB services transaction w/ internal personnel, again, as long as no IB personnel is there.
  • Attend a non-IB or non-deal roadshow.
  • Listen/view IB roadshow from a remote location.

  • These rules are in place so that RAs can discuss their research w/o being pressured from the IB department.
  • In any case where a RA is talking to clients on internal personnel regarding IB transactions, communications must be fair and balances AND IB and firm mgmt cannot be present.
85
Q

True or false: If an RA has a sell recommendation, they can buy calls and if they have a buy recommendation, they can buy puts?

A

False, this is considered inconsistent trading

86
Q

True or false: An RA can sell a stock short?

A

True, permitted that there recommendation is sell

87
Q

True or false: An roommate is considered part of a RA’s household?

A

False

88
Q

Exceptions to the personal trading rules regarding RA accounts or accounts of RA households:

A
  1. RAs can sell securities if they have a buy recommendation if an unanticipated change in their personal financial circumstances occurs.
  2. RAs can disregard the rules of the transactions are in a registered investment company.
  3. RAs can disregard the rules if the transactions in the accounts are not controlled by the analyst for investment funds in which the analyst has no investment discretion (ex: blind trust)
89
Q

What happens if an RA moves to a new firm that has a stock that the RA owns in its coverage universe?

A

FINRA leaves this up to the firms. FINRA states that the firms must have written procedures in this case. These procedures must be approved by legal/compliance.

90
Q

A RA covers 8 transportation firms and has been promoted to market strategist. Their assistant will resume coverage of 5 of the issuers and 3 will be eliminated. What’s the requirement:
A. To initiate new price charts on the issuers that will continue to be covered.
B. To write termination of coverage reports on the eight issuers.
C. To write termination of coverage reports on three issuers.

A

C. Termination of coverage reports should be prepared for the 3 issuers that are no longer being covered. Price charts will be continued on the other 5 issuers.

91
Q

True or false: An analyst may answer questions outside of their coverage universe?

A

True, as long as all appropriate disclosures are made

92
Q

What disclosures are required to be disclosed in a research report but NOT when conducting a public appearance?

A
  • Whether a member firm has acted as a manager or comanager of IB services transactions on behalf of the subject firm
  • Whether a member firm expects to receive compensation for IB services transactions within the next 3 months
  • Whether a member firm makes a market in the securities of the subject company
  • Price chart
  • Meanings of ratings
  • Any form of distribtuion of ratings

Do not need to write down

93
Q

A RA covers Firm A which is also his wife’s employer. If she owns shares of BMO industries in her 401k and the analyst prepares a research report on firm A, the RA should:
A. Disclose his wife’s holiding if he’s the beneficiary of the account
B. Disclose his wife’s holding since she’s a household member
C. Indicate his wife’s specific holdings and the dates of each purchase
D. Not disclose info since the analyst has no influence over this account

A

B. Disclosure is required since the wife is a member of the RA’s household. Any houshold holdings is required to be disclosed in a research report whether they have influence over the account or not.

Series 87 (5 decks)

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