Topic 6 - Analyse and interpret financial analysis and information sources Flashcards
What rules do Periodic Reporting fall under?
Firms that fall under:
- Markets in Financial Instruments Directive MiFID II
- MIFID II rules in FCA COBS 16.A4
- Must provide timely, adequate financial reports
COBS 16A.4 states that a retail client investor must be provided with periodic statements by the firm that manages the investment on the client’s behalf, unless provided by another person.
Under the COBS Rules what must be included in a periodic statement to a retail client with MIFID eligible retail investments?
Periodic Statement to provide fair & balanced review of activities and performance of portfolio. Where relevant:
- Investment Firm Name
- Name of client account
- Statement of contents
- Valuation of portfolio
- Holdings within portfolio and market values
- Cash balance at start and end of period
- Performance of portfolio of period
- Comparison of performance against any benchmark
- Itemised fees and charges incurred
- Total management fees
- Total costs associated with execution
- Statement that more detailed breakdown provided on request
- Total dividends, interest and payments recieved
What does material information include?
How can material information be disclosed?
Material Information provided by firms vary but include:
- Charges
- Cancellation Rights
- Early Repayment Charges
- Risk Warnings
- Client protections
- Ongoing servicing arrangements
- Other special & non standard terms
Must also be provided by financial planner.
No prescribed format to how disclosure should bemade but can be done through:
- Suitability Report
- Key Investor Information Document
- Prospectuses
-
If holding client money within investments, what must they disclose?
- Protection for investments such as FSCS
- How investments will be held - ring fenced or pooled
- Terms which the firm has discretion over investments
- Advise that investments may held by 3rd party
- Advice on firm responsibility for acts & ommissions of 3rd party
- Advice on what happens if 3rd party becomes insolvent
What are Ad Hoc Announcements?
Give some examples of Ad Hoc Announcements?
Warns shareholders, potential investors & analysts of possible changes to profit forecasts and share price sensitive information. Such as:
- Profit Warnings
- Management Changes
- Legal Proceedings
- Regulatory Dealings
What rules and directives oversee the rules around disclosures? Also give a brief discription of each one?
Disclosure Guidance and Transparency Rules (DTR):
Companies who issue securities must ensure confidentiality of market sensitive info and timely disclosure of market sensitive information via appropriate news sources
Transparency Obligations Directive:
Details rules for ongoing disclosure such as periodic reporting
Market Abuse Directive
Details rules to prevent market abuse and includes disclosure and control of inside information.
What are the requirements for Annual Financial Reports under the DTR Rule 4.1? What must they include?
- Applicable to issuers of equities, depository receipts or retail debt to produce audited annual report within 4 months of period end.
- Publicly available for at least 10 years
- Management report providing fiar review of issuers business, principle risks and uncertainties
- Responsibility Statement that reports give a true and fair review of business and performance
What are the Half-Yearly Financial Report rules under DTR Rule 4.2? What must they include?
Half -Yearly Financial Reports applicable to firms listing equities or retail debt within 3 months of period end.
To contain condensed financial statements
Interim management report with indication of important events that have occured within 6 months and impact on statements and risks and uncertainties for next 6 months.
Must have a responsibility statement.
What are the requirements on Interim Management Statements under DTR Rule 4.3
Interim Management Statements applicable to Issuers of equity shares in each 6 month period of financial year and between 10 weeks after beginning and 6 weeks before.
Explanation of material events and transactions that have taken place during relevant period and impact on financial position of issuer. General financial position too.
What news services might investment managers use?
Provide a short description of them?
Regulatory News Service (RNS);
Central service where company can send out regulatory info such as profit warnings, management changes etc
Secondary Information Providers (SIPs).
How the RNS releases market information it recieves
SIPs collect and package info to be sold via data stream services such as BBC, CNN, Bloomberg.
What rules monitor conflicts of interest?
What are some of these management arrangements to prevent conflicts of interest?
Investment research is covered by COBS 12.2.
Ensures advisers have adequate conflict of interest management in place through outcome based objective
Arrangements might include:
- Personal transactions by analysts, accountants, spouses prohibited until public has had reasonable chance to act
- Firm / analyst must not accept inducements to give favourable recommendations on particular companies
- Not allow unconnected person/analyst to review recommendations and research before public release
How are Sales Note research classified?
What is the main drawback of sales notes in making an investment decision?
Sales notes A.K.A ‘sales advice appendix’
Classed as non-independent research and non independent marketing information of a particular fund or security etc.
Drawback is that is allows for unjustified and non-factual opinion of analyst of which unsuitable investment decisions could be made off the back of it.
What is the purpose of Financial Journalism?
What factors should be considered for content targeted at retail investors?
How does content targeted for professional investors differ?
Keeps tracks of trends, market sentiment, industry commentary and breaking news.
Targeted at advisers, retail investors, professional investors
If for retail then jargon is explained, articles are shorter, jovial, eye catching or even scathing.
If for professional then normally published in niche media, lack explanations of jargon, longer articles, message may draw on related matters with additional critical analysis.
What do the DTR rules say about shareholder ownership?
What is defined as a connected party?
Under DTR all shareholders must report within 2 business days when shareholding breaches 3% or other set amount. Company will release information to market via RNS.
Includes shares held by connected parties which include:
- Shares directly held by investor
- Shares held by spouse or child under 18
- Shares held by controlled company (1/3 ownership)
- Concert Party - Group acting independently but colluded in secret to act together.
