9.3. Research Analysts and Research Reports

In 1999, the SEC launched an investigation into possible conflicts of interest between broker-dealers’ investment banking and research departments. They found that some firms were implicitly or explicitly promising positive research coverage in exchange for investment banking business. This finding threatened the veracity and credibility of research reports. Since then, FINRA rules related to research analysts and research reports have become increasingly stringent. These rules aim to both protect research departments from interference and prevent deceptive or manipulative behavior from within the departments themselves.

Before becoming more familiar with these rules, let’s look at some terms that will figure prominently throughout this section.

A research report is any written (including electronic) communication analyzing a security or issuer, and containing information reasonably sufficient to base an investment decision on. Research reports are prepared by research analysts. Research analysts are associated persons whose primary job function is