10. INVESTMENT RESEARCH
10.1. Application
This section applies to an Authorised Firm preparing or publishing Investment Research that is intended to be distributed to Clients of the Authorised Firm or to the public.
10.2. Conflicts of interest
An Authorised Firm that prepares and publishes Investment Research must have adequate procedures and controls in place to ensure that the Rules in COB 7 in respect of conflicts of interest are properly implemented in order to manage or prevent any conflicts arising in respect of Investment Research.
10.3. Restrictions on transactions
10.3.1. Restrictions on investment analysts
An Authorised Firm must have arrangements in place to ensure that an investment analyst does not undertake a Personal Transaction in an Investment if the investment analyst is preparing Investment Research:
- (a) on that Investment or its Issuer; or
- (b) on a related Investment, or its Issuer;
until the Investment Research has been made available to its intended recipients, and those recipients have had a reasonable opportunity to act upon it.
10.3.2. Restrictions on own account transactions
An Authorised Firm or its Associate must not knowingly execute a transaction on its own account in an Investment or related Investments, which is the subject of Investment Research, prepared either by the Authorised Firm or its Associate, until the Investment Research has been made available to its intended recipients, and those recipients have had a reasonable opportunity to act upon it. This restriction does not apply if:
- (a) the Authorised Firm or its Associate is following a Market Making Strategy in the relevant Investment;
- (b) it is not expected to materially affect the price of the Investment.
10.4. Physical separation
The Authorised Firm must put in place:
- (a) a physical separation between the investment analysts preparing Investment Research and other Employees whose interests may conflict with those of the intended recipients of the Investment Research; or
- (b) if physical separation is not appropriate to the nature and size of the Authorised Firm's business, such information barriers as are required to manage or prevent any conflicts of interest.
10.5. Key information
When an Authorised Firm publishes Investment Research, it must take reasonable steps to ensure that the Investment Research:
- (a) states the identity, job title, and relevant financial regulator of the person providing the
Investment Research;
- (b) identifies the types of Clients for whom it is principally intended;
- (c) specifies the date when it was first published;
- (d) distinguishes fact from opinion or estimates;
- (e) includes references to sources of data and the extent of their reliability;
- (f) labels all projections, forecasts, and price targets, together with any assumptions supporting them;
- (g) summarises the basis for the valuation or methodology and any underlying assumptions;
- (h) indicates where detailed information on the valuation or methodology can be accessed;
- (i) contains a clear and unambiguous explanation of the rating or recommendation system used, such as "buy", "sell", or "hold";
- (j) specifies the recommended period for the Investment;
- (k) explains the related risk including a sensitivity analysis of the assumptions;
- (l) states the planned frequency of updates to the recommendation;
- (m) includes a distribution of the different ratings or recommendations, in percentage terms:
- (i) for all Investments;
- (ii) for Investments in each sector covered; and
- (iii) for Investments, if any, where the Authorised Firm has undertaken corporate finance business with or for the Issuer over the past 12 months; and
- (n) if intended for use only by a Professional Client or Market Counterparty, contains a clear warning that it should not be relied upon by or distributed to Retail Clients;
- (o) where the recommendation differs from a previous recommendation concerning the same Investment or Issuer that has been disseminated in the preceding 12-month period, the change(s) and date of the previous recommendation;
- (p) a list of all recommendations relating to the relevant instrument or issuer from the previous 12 months, along with the date of dissemination, price target, the price at the time of the recommendation, the direction of the recommendation, the recommended time period of the recommended investment, and the price target, along with the identity of the person(s) who made the recommendation; and
- (s) disclosure of any interests or conflicts of interest in accordance with COB 10.6.
10.6. Disclosure of conflicts of interests
For the purposes of this section, an Authorised Firm must take reasonable steps to ensure that when it publishes Investment Research, and in the case where a representative of the Authorised Firm makes a Public Appearance, disclosure is made of the following matters:
- (a) any financial interest or material interest that the Investment Analyst or a Family Member of the analyst has, which relates to the Investment;
- (b) the reporting lines for Investment Analysts and their remuneration arrangements where such matters give rise to any conflicts of interest which may reasonably be likely to impair the impartiality of the Investment Research;
- (c) any shareholding by the Authorised Firm or its Associate of 1 per cent or more of the total issued share capital of the Issuer;
- (d) if the Authorised Firm or its Associate acts as corporate broker for the Issuer;
- (e) any material shareholding by the Issuer in the Authorised Firm;
- (f) any corporate finance business undertaken by the Authorised Firm with or for the Issuer over the past 12 months, and any future relevant corporate finance business initiatives; and
- (g) that the Authorised Firm is a Market Maker in the Investment, if that is the case.
10.7. Restrictions on publication during public offer
If an Authorised Firm acts as a manager or co-manager of an initial public offering or a secondary offering, it must take reasonable steps to ensure that:
- (a) it does not publish Investment Research relating to the Investment during a Quiet Period; and
- (b) an Investment Analyst from the Authorised Firm does not make a Public Appearance relating to that Investment during a Quiet Period.
10.8. Offers of securities
10.8.1. General requirement
When an Authorised Firm carries out a mandate to manage an Offer of Securities or an Offer of Units, it must implement adequate internal arrangements to manage any conflicts of interest that may arise as a result of the Authorised Firm’s duty to two distinct sets of Clients namely the corporate finance Client and the investment Client.
10.8.2. Disclosure
For the purposes of COB 10.8.1, when an Authorised Firm accepts a mandate to manage an Offer, it must take reasonable steps to disclose to its corporate finance Client:
- (a) the process the Authorised Firm proposes to adopt in order to determine what recommendations it will make about allocations for the Offer;
- (b) details of how the target investor group, to whom it is planned to Offer the Securities or Units in a Listed Fund, will be identified;
- (c) the process through which recommendations are prepared and by whom; and
- (d) (if relevant) that it may recommend placing Securities or Units in a Listed Fund with a Client of the Authorised Firm for whom the Authorised Firm provides other services, with the Authorised Firm’s own proprietary book, or with an Associate, and that this represents a potential conflict of interest.