18. Supervision of Research Related Activities

Question 1

Equity research reports require these two statements…

Answer 1

1) a statement attesting that all the views reflect the RAs personal views

2) a statement discussing whether any of the RA’s compensation is related to the recommendation within the report

Question 2

Equity Research Required Disclosure

Any investment banking business with the subject company in the past ______months or anticipated in the next _____ months

Answer 2

Past 12 months

Next 3 months (note would not need to disclosure if disclosure would jeopardize nonpublic information)

Question 3

Equity Research Required Disclosure

If the firm is a ________ in the securities

Answer 3

market maker

NOTE - a firm must disclose market making in subject company ONLY IF it is a market maker AT TIME OF PUBLICATION
(Vs. at some point in the past)

Question 4

Equity Research Required Disclosure

If the firm owns _______% or more of the subject company’s equity securities

Answer 4

1%

NOTE - Ownership above the 1% threshold need not be specified only that it’s above 1%

Question 5

Equity Research Required Disclosure

If the RA or ________ has a financial interest in the subject company’s equity or is a __________ of the subject company

Answer 5

Household member

Director, officer or advisory board member

Question 6

Equity Research Required Disclosure

If RA has received compensation from the subject company in the last ______

Answer 6

12 months

Question 7

Equity Research Required Disclosure

_______ only for reports which include a rating or target and have don so for at least ______

Answer 7

price chart

One year

Question 8

Equity Research Required Disclosure

If RA has received compensation based on the firm’s _______

Answer 8

Investment banking revenues

Question 9

Equity Research Required Disclosure

Any _______ known at time of publication

Answer 9

Conflicts of interest

Question 10

When is a research analyst required to make disclosures when making public appearances?

Answer 10

when speaking to 15 or more people (or in public media) AND making equity recommendations

Question 11

When making public appearances, research analysts are required to make the same disclosures as for written reports EXCEPT

Answer 11

1) firm’s status as a market maker

2) whether firm intends to provide IB services in next 3 months to company

Question 12

True / false: research analysts may trade the stock they cover AND can be inconsistent with their recommendations

Answer 12

true - they can trade

But false - trading MUST be consistent w recommendations

Question 13

True / false: research analysts may trade stocks they cover as soon as their report has been released

Answer 13

false - must allow enough time for the investors to have opportunity to act

Question 14

Yes / no

Research analysts can conduct joint due diligence with IBK?

Standard issuer:

EGC:

Answer 14

Standard issuer: No

EGC: Yes

Question 15

Yes / no

Research analysts can particpate in IBK bake-offs?

Standard issuer:

EGC:

Answer 15

Standard issuer: No

EGC: Yes

Question 16

Yes / no

Research analysts can attend deal road shows (marketing new securities)

Standard issuer:

EGC:

Answer 16

Standard issuer: No

EGC: No

Question 17

Yes / no

Research analysts can publish equity research immediately after an IPO

Standard issuer:

EGC:

Answer 17

Standard issuer: No - 10 CALENDAR day black out period for syndicate

EGC: Yes

Question 18

Yes / no

Research analysts can publish equity research immediately after a follow-on

Standard issuer:

EGC:

Answer 18

Standard issuer: No - 3 CALENDAR day black out period

EGC: Yes

Question 19

What are three types of research?

Answer 19

member research - a research report produced by the BD

Third party research - a research report produced by a person OTHER than the BD (but not arms length)

Independent third party research - third party research where there is 1) NO affiliation with the distributing firm and 2) makes independent content determinations

Question 20

What disclosures are required by distributing firm for third party research and what level of review before publication?

Answer 20

All disclosures except firm’s buy / hold / sell ratings table

A principal must do a limited review to ensure no untrue statements, and not false / misleading

Question 21

What disclosures are required by distributing firm for INDEPENDENT third party research and what level of review before publication?

Answer 21

No disclosures by distributing

No principal review required

NOTE - must be CLEARLY identified on the cover page as being authored by an independent firm

Question 22

_______ is a practice where a BD adjusts inventory positions based on advanced knowledge of research forthcoming

Answer 22

Trading ahead

This is PROHIBITED

THE ADVANCED KNOWLEDGE triggers this obligation

Question 23

True / false: a terminating report is not required in order for a RA to drop coverage

Answer 23

false - a terminating report is always required but may be shorter than prior reports or exclude a rating / target if it would not be practical to include (otherwise must be as thorough as previous reports)

Question 24

Associated persons may not give, permit to be given or offer to give __________ to influence media designed to _________. Except when 1)____, 2)____ or 3)____

Answer 24

anything of value

Influence market prices

Exceptions
1) Information is clearly labeled as paid advertising

2) it’s a research report

3) there is disclosure of compensation from an issuer or UW

Question 25

To fall under the safe harbor available to “industry-wide research reports,” what is the requirement for any rating included in the report?

Answer 25

Ratings may be no more or less favorable than in the same analyst’s prior report NOTE- analysts can’t cherry pick the timing of industry wide research reports releases - must follow prior patterns of releases by the same analysts

Question 26

Even if a research analyst makes a purely generic public appearance (no companies mentioned) and no disclosure is required, must a principal still supervise the appearance (and must it be documented)? If so, how long must documents be kept?

Answer 26

Yes, must have principal supervision and documentation Documentation must be kept for 3 years

Question 27

What must be the “as of” date of the ratings table in a report? What’s the key exception?

Answer 27

The table must be current as of the end of the calendar quarter following publication of the report HOWEVER, if the report is published fewer than 15 days after the end of the most recent quarter, information must then be as of the SECOND MOST RECENT quarter