FC Chapter 4 Flashcards
If an analyst’s spouse owns options on a stock covered by the analyst, is disclosure required?
Yes. Disclosure is required if the analyst (or member of his household) has a financial interest in a subject company.
When must a research report be approved?
Prior to first use by a Supervisory Analyst
If nonpublic information is unintentionally disclosed to an analyst, when must it be disclosed to the public?
Within 24 hours of its disclosure
In what format should a firm’s research reports be written?
Plain English
What exception allows an underwriting manager to immediately publish research on a company due to a significant event?
The Hot News exception
When would a gathering of investors be considered a public appearance?
When there are 15 or more separate investors in attendance
If nonpublic information is intentionally disclosed to an analyst, when must it be disclosed to the public?
Simultaneously
A member firm’s research reports should be written in a ______________ format.
A member firm’s research reports should be written in a plain English format.
The _______ and ___________ of an underwriting may not immediately issue research reports on investment banking clients.
The manager and comanager of an underwriting may not immediately issue research reports on investment banking clients.
What is the primary purpose of Regulation FD?
To prevent the selective disclosure of material inside information to securities professionals.
A firm preparing research must disclose whether it received underwriting compensation within the last ____ months.
A firm preparing research must disclose whether it received underwriting compensation within the last 12 months.
How often must anti-money laundering (AML) programs be tested?
Annually, by an independent source
A gathering of fewer than ____ separate investors is not considered a public appearance.
A gathering of fewer than 15 separate investors is not considered a public appearance.
True or False: If an analyst issues a buy recommendation on a stock, his spouse may short the subject company’s stock.
False. The analyst and his household members may not trade against his recommendation.
True or False: Plain and consistent meanings of ratings must be used in research reports.
True
According to industry rules, what is a research analyst prohibited from attending?
A road show in connection with an investment banking transaction
An analyst covering the oil industry is not permitted to receive pre-IPO shares in a company in the ______________.
An analyst covering the oil industry is not permitted to receive pre-IPO shares in a company in the same sector.
As it relates to research reports, define subject company.
The company on which a research report is created
As it relates to investment banking activities, communication between research and investment banking is ____________.
As it relates to investment banking activities, communication between research and investment banking is prohibited.
An underwriting manager must wait ____ calendar days before publishing research on the issuer’s IPO.
An underwriting manager must wait 10 calendar days before publishing research on the issuer’s IPO.
How long must an underwriting manager wait before publishing research on the issuer’s IPO?
10 calendar days
When may telemarketers place calls to prospective clients?
From 8:00 a.m. to 9:00 p.m. on any day of the year
What is the purpose of an information barrier between trading and research departments?
To prevent the trading department from learning of an impending report about a stock in which the firm has a position
A trader who is aware of a research report’s contents may execute ____________ client orders.
A trader who is aware of a research report’s contents may execute unsolicited client orders.
When is an analyst considered to be making a public appearance?
When making a recommendation for an equity security in a public or electronic forum, or on radio or TV
Can an analyst that works at the lead underwriter for an IPO, release a research report one month after the IPO date?
Yes. Research analysts are only restricted from releasing research for 10 days after an IPO.
True or False: If a BD is involved in an offering it may not publish research during the offering process.
False, Rules 138 and 139 allow BDs to publish research if involved in an underwriting in limited situations.
If a firm owns ___% or more of a subject company, a disclosure must be made in a research report.
If a firm owns 1% or more of a subject company, a disclosure must be made in a research report.
A BD is ready to issue a favorable research report. What must exist for the BD to continue regular trading operations?
Effective information barriers must be in place.
True or False: The name and certifications of the analyst preparing a research report is not required to be disclosed.
False. These details must be disclosed.
A BD is ready to issue a favorable research report. Information barriers must exist between what two departments?
Trading and research
Communication between a research department and investment banking department must be routed through ______________.
Communication between a research department and investment banking department must be routed through Legal/ Compliance.
If an analyst’s firm just published research on a company, how long must he wait before trading the stock?
Although there is no restriction, a research analyst must follow his firm’s procedures.
Who must approve a research report?
Supervisory analyst
If a member firm makes a recommendation to a client, what types of conflicts must be disclosed?
Whether the member firm owns the security, makes a market in the security, or acted as an underwriter for that company
What must be implemented to limit the flow of communication between research and investment banking departments?
Information barriers
Under Regulation FD, an acceptable method of public disclosure would be the filing of Form ____ with the SEC.
Under Regulation FD, an acceptable method of public disclosure would be the filing of Form 8-K with the SEC.
What is a firm prohibited from doing if it has material, nonpublic knowledge of a research report’s contents?
It may not establish, increase, decrease, or liquidate an inventory position in a security or its derivative.
Define research reports.
Written or electronic communication about equities, including information for a client to make an investment decision.
True or False: Analysts must disclose when serving as officer, director, or advisory board member of a subject company.
True. The same disclosure is required for a member of the analyst’s household.
True or False: Firms writing research reports must disclose potential conflicts of interest.
True (e.g., firm makes a market in the stock or has had or will have an investment banking relationship with the issuer)
An underwriting manager must wait _____ calendar days before publishing research on the issuer’s secondary offering.
An underwriting manager must wait three calendar days before publishing research on the issuer’s secondary offering.
What does it mean for an analyst (or household members) to have a financial interest in a subject company?
The analyst (or household members) own shares, warrants, or options of the company being followed.
True or False: Three-way communication between research, investment banking, and a client is allowed.
False. Three-way communication would be prohibited since legal/compliance is not involved.
What does Regulation AC require of research analysts?
Analysts must certify the truthfulness of their views expressed in research reports and public appearances.
What must be stated in an analyst’s certification?
The research accurately reflects the analyst’s views and states whether compensation is tied to the views expressed.
May issuers selectively release insider information if the person receiving the information promises not to act on it?
No. The selective release of insider information is prohibited.
How long must a syndicate member wait before publishing research on the issuer’s IPO?
10 calendar days
May a firm with knowledge of a research report’s contents execute proprietary orders?
No. Executing proprietary orders is prohibited until the information is made public.
May firms allow for the free flow of information between their research department and investment banking department?
No, these two departments must be separated to avoid conflicts of interest.
What regulation prohibits an issuer from disclosing material non-public information to securities professionals?
Regulation FD (Fair Disclosure)
True or False: A research analyst may compensate a newspaper writer for placing his recommendations in his column.
False. This type of compensation is strictly prohibited by the regulators.
In a public appearance, what is offered by an analyst?
Recommendations and opinions concerning equity securities
What is the purpose of Regulation FD?
To prohibit the selective release of insider information to securities professionals (FD stands for Fair Disclosure.)
May an RR in the research area be supervised by the investment banking department?
No
True or False: A BD with knowledge of a research report’s contents may adjust its inventory if the report is negative.
False. Inventory adjustments are prohibited regardless of whether the report is positive or negative.
True or False: A research analyst may attend a road show if accompanied by a member of the Compliance Department.
False. A research analyst is prohibited from attending a road show.
A syndicate member must wait ____ calendar days before publishing research on the issuer’s IPO.
A syndicate member must wait 10 calendar days before publishing research on the issuer’s IPO.
True or False: A firm preparing research need not disclose underwriting compensation it receives in the future.
False. The firm preparing research must disclose underwriting compensation it receives within the next three months.
What does AC stand for in Regulation AC?
Analyst Certification
True or False: If a BD is not involved in an underwriting, it may publish research during the cooling-off period.
True, Rule 137 allows BDs to publish research if not involved in the underwriting.
Why are control rules established relating to interaction between research and investment banking departments?
To ensure that investment banking does not influence its research department’s recommendations
What are the approval rules regarding research reports published by a member firm?
The reports must be approved prior to use by a Supervisory Analyst (Series 16) of the member firm.
