COBS 6.4 COBS 6.4 Investment Research and Offers of Securities
COBS 6.4.1 COBS 6.4.1 Application(a) This section applies to an Authorised Person preparing or publishing Investment Research.
Guidance1. Investment Research is seen as a significant potential source of conflicts of interest within an Authorised Person and therefore an Authorised Person preparing or publishing investment research is expected to have adequate procedures, systems and controls to manage effectively any conflicts that arise.2. An Authorised Person that prepares and publishes Investment Research must have adequate procedures and controls to ensure:(i) the effective supervision and management of Investment Analysts;(ii) that the actual or potential conflicts of interest are proactively managed in accordance with Rule 3.5;(iii) that the Investment Research issued to Clients is impartial; and3. An Authorised Person's procedures, controls and internal arrangements, which may include Information Barriers, should limit the extent of Investment Analysts' participation in Corporate Finance Business and sales and trading activities, and ensure remuneration structures do not affect their independence.
COBS 6.4.2 COBS 6.4.2 Disclosures in Investment Research(a) When an Authorised Person publishes Investment Research, it must take reasonable steps to ensure that the Investment Research:(i) clearly identifies the types of Clients for whom it is principally intended;(ii) distinguishes fact from opinion or estimates, and includes references to sources of data and any assumptions used;(iii) specifies the date when it was first published;(iv) specifies the period the ratings or recommendations are intended to cover;(v) contains a clear and unambiguous explanation of the rating or recommendation system used;(vi) includes a distribution of the different ratings or recommendations, in percentage terms:(A) for all Investments;(B) for Investments in each sector covered; and(C) for Investments, if any, where the Authorised Person has undertaken Corporate Finance Business with or for the Issuer over the past twelve months; and(vii) 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.(b) An Authorised Person must consider whether it would be appropriate to include a price chart or line graph depicting the performance of the Investment for the period that the Authorised Person has assigned a rating or recommendation for that investment, including any dates on which the ratings were revised.(c) For the purposes of this section, an Authorised Person must take reasonable steps to ensure that when it publishes Investment Research, and in the case where a representative of the Authorised Person makes a public appearance, disclosure is made of the following matters:(i) any financial interest or material interest that the Investment Analyst or a Close Relative of the analyst has, which relates to the Investment;(ii) 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;(iii) any shareholding by the Authorised Person or its Associate of 1% or more of the total issued share capital of the Issuer;(iv) if the Authorised Person or its Associate acts as corporate broker for the Issuer;(v) any material shareholding by the Issuer in the Authorised Person;(vi) any Corporate Finance Business undertaken by the Authorised Person with or for the Issuer over the past twelve months, and any future relevant Corporate Finance Business initiatives; and(vii) that the Authorised Person is a Market Maker in the Investment, if that is the case.
GuidanceThe requirements in this Rule 6.4.2 apply to an Authorised Person in addition to other requirements under FSMR and any rules made thereunder. For example, an Authorised Person is required to take reasonable steps to identify actual or potential conflicts of interest and then prevent or manage them under GEN 3.3.21-3.3.24. An Authorised Person must also have adequate procedures and controls when it prepares or publishes Investment Research.
COBS 6.4.3 Restrictions on Publication(a) If an Authorised Person acts as a manager or co-manager of an initial public offering or a secondary offering, it must take reasonable steps to ensure that:(i) it does not publish Investment Research relating to the Investment during a Quiet Period; and(ii) an Investment Analyst from the Authorised Person does not make a public appearance relating to that Investment during a Quiet Period.(b) The same conflicts of interest mentioned in this section do not arise if an Investment Analyst prepares Investment Research solely for an Authorised Person's own use and not for publication. For example, if the research material is prepared solely for the purposes of the Authorised Person's proprietary trading then the use of this information would fall outside the restrictions placed on publications.
COBS 6.4.4 COBS 6.4.4 Restriction on Own Account Transactions(a) An Authorised Person or its Associate must not knowingly execute an Own Account Transaction in an Investment or related Investments, which is the subject of Investment Research, prepared either by the Authorised Person or its Associate, until the Clients for whom the Investment Research was principally intended have had a reasonable opportunity to act upon it.(b) The restriction in Rule 6.4.4(a) does not apply if:(i) the Authorised Person or its Associate is a Market Maker in the relevant Investment;(ii) the Authorised Person or its Associate undertakes an Execution-Only Transaction for a Client; or(iii) it is not expected to materially affect the price of the Investment.
GuidanceThe exceptions in Rule 6.4.4(b) allow an Authorised Person to continue to provide key services to the market and to its Clients even if the Authorised Person would be considered to have knowledge of the timing and content of the Investment Research which is intended for publication to Clients, for example when it is impractical for an Authorised Person to put in place an information barrier because the Authorised Person has few Employees or cannot otherwise separate its functions.
COBS 6.4.5 Offers of Securities
When an Authorised Person carries out a mandate to manage an Offer of Securities, it must implement adequate internal arrangements, in accordance with Rule 3.5, to manage any conflicts of interest that may arise as a result of the Authorised Person's duty to two distinct sets of Clients namely the corporate finance Client and the investment Client. An Authorised Person's primary duty in relation to the pricing of any Offer of or for Securities in the context of Corporate Finance Business is to its corporate finance Client.
COBS 6.4.6 COBS 6.4.6 Disclosure(a) When an Authorised Person accepts a mandate to manage an Offer, it must take reasonable steps to disclose to its corporate finance Client:(i) the process the Authorised Person proposes to adopt in order to determine what recommendations it will make about allocations for the Offer;(ii) details of how the target investor group, to whom it is planned to Offer the Securities, will be identified;(iii) the process through which recommendations are prepared and by whom; and(iv) (if relevant) that it may recommend placing Securities with a Client of the Authorised Person for whom the Authorised Person provides other services, with the Authorised Person's own proprietary book, or with an Associate, and that this represents a potential conflict of interest.
GuidanceIt is the Regulator's expectation that an Authorised Person's procedures to identify and manage conflicts of interest should extend to the allocation process for an offering of Securities.