Research Analyst Rules
The aim of FINRA's equity and debt research analyst and research report rules is to foster objectivity and transparency in research reports and public appearances and provide investors with more reliable and useful information to make investment decisions.
In general, FINRA's equity and debt research rules require clear, comprehensive and prominent disclosure of conflicts of interest in research reports and public appearances by research analysts. The rules further prohibit certain conduct where the conflicts are considered too pronounced to be cured by disclosure. Several of the equity research rules' provisions implement provisions of the Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley"), which mandates separation between research and investment banking, proscribes conduct that could compromise a research analyst's objectivity and requires specific disclosures in research reports and public appearances. FINRA's equity research rules also conform to the JOBS Act (The Jumpstart Our Business Startups Act) of 2012.
The following FINRA rules apply to research analysts, research reports, and the registration of research analysts and research principals.
Research Analysts and Research Reports
FINRA Rule 2241- Research Analysts and Research Reports
This rule governs conflicts of interest in connection with the publication of equity research reports and public appearances by research analysts. The rule requires firms to establish and implement policies and procedures to identify and manage research-related conflicts of interest. Among other things, the policies must separate research from investment banking with respect to supervision of research analysts, budget determinations and compensation of analysts. The rule further prohibits promises of favorable research and analyst participation in solicitation of investment banking business and road shows. The rule also requires disclosure of investment banking and other material conflicts of interest, such as personal and firm ownership of a subject company's securities.
FINRA Rule 2242 - Debt Research Analysts and Debt Research Reports
This rule governs conflicts of interest in connection with the publication of debt research reports and public appearances by debt research analysts. The rule imposes requirements similar to Rule 2241 on debt research distributed to retail investors, with some modifications to reflect the unique nature of the debt markets. The rule specifies the prohibited and permissible interactions between the debt research personnel and sales and trading and principal trading personnel. The rule also exempts from many of its provisions and all of the specific disclosure requirements debt research that is distributed only to eligible institutional investors.
Research Analyst Registration
These rules require equity research analysts to be registered with FINRA and pass a qualification examination or obtain a waiver. The Series 86 / 87 - Research Analyst Qualification Examinations (RS) assess the competency of an entry-level equity research analyst candidate to perform the critical job functions of a research analyst, including preparing and analyzing equity securities or individual companies and industry sector research reports.
There currently is no equivalent requirement for debt research analysts.
Research Principal Registration
NASD Rule 1022(a)(5) – General Securities Principal (Equity Research)
This rule requires supervisors of equity research analysts and supervisory analysts to register as a Research Principal and pass the appropriate qualification examinations (i.e., the Series 24 plus either the Series 16 or the Series 87).