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NISM Series XXV-A study materials
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NISM Series XXV-A practice questions

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Question 1Persons Associated with Research Services (Sales and Other Non-Core Services)

Under the SEBI (Research Analysts) Regulations, which activity by a sales or relationship person attached to a research service would require that person to obtain research analyst registration or certification?

  1. Logging a client complaint about delayed report delivery into the grievance register
  2. Collecting KYC documents from a client who subscribes to research services
  3. Passing along a published report to a client exactly as issued, without commentary
  4. Preparing a summary of a research report that includes a recommendation on a security and sharing it with clients Correct answer.

Explanation

The research analyst framework attaches to any person who prepares or is responsible for research content, including recommendations on securities, and circulates it. Merely distributing an unaltered published report, doing onboarding paperwork, or handling grievances does not amount to preparing research. The dividing line is whether the individual exercises judgment over the substance of a recommendation.

Question 2Persons Associated with Research Services (Sales and Other Non-Core Services)

A distributor of research reports who is not a research analyst must, under the SEBI (Research Analysts) Regulations, comply with which requirement before circulating third-party research to clients?

  1. File the report with the stock exchange before distribution
  2. Obtain prior written consent of the research analyst or entity that prepared the report Correct answer.
  3. Register with SEBI as an investment adviser instead of a research analyst
  4. Recalculate every target price in the report using its own model

Explanation

Persons who distribute research prepared by someone else must have the prior written consent of the party that authored the research, and they remain responsible for the content they circulate. They do not need to re-model target prices or register as advisers for pure distribution. Exchange filing is not the gate for ordinary distribution.

Question 3Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson in the research desk of a registered research analyst receives a draft report before publication and trades in the recommended security in a personal account. Which conflict-of-interest rule is most directly breached?

  1. The rule requiring reports to be published in English
  2. The rule requiring research reports to be dated
  3. The rule requiring a minimum number of reports per year
  4. The rule prohibiting dealing in securities ahead of the publication of research Correct answer.

Explanation

Research entities and their associated persons are barred from front-running their own research, meaning they cannot trade on the basis of a recommendation before clients see it. This protects the integrity of the recommendation and prevents misuse of non-public research intent. Dating, volume, and language requirements exist but do not address this abuse.

Question 4Persons Associated with Research Services (Sales and Other Non-Core Services)

A person associated with a research analyst is approached by a client asking for a verbal 'off-the-record' view on a stock that the analyst covers. What is the appropriate handling under the conduct rules?

  1. Give the view only if the client promises not to trade on it
  2. Provide the view but record it in the client's KYC file
  3. Give the view verbally since it is not written research
  4. Decline to provide an independent view outside the published research and direct the client to the published report Correct answer.

Explanation

Associated persons should not provide independent research views outside the established research process, because such views bypass review, record-keeping, and disclosure controls. The correct response is to channel the client to published research. Verbal or 'off-the-record' advice does not escape the regulatory framework.

Question 5Persons Associated with Research Services (Sales and Other Non-Core Services)

Which of the following best describes the intended role of sales and other non-core staff within a research service?

  1. To distribute research and service clients while keeping research content free from commercial pressure Correct answer.
  2. To independently set target prices for covered securities
  3. To act as the compliance officer for the research entity
  4. To approve the research methodology used in valuation models

Explanation

Non-core staff such as sales and client servicing exist to distribute research and manage client relationships, not to shape its conclusions. Their role must be ring-fenced so that commercial incentives do not influence research content. Setting targets, approving methodology, and performing compliance are core or control functions assigned elsewhere.

Question 6Persons Associated with Research Services (Sales and Other Non-Core Services)

A research analyst entity's sales team is compensated partly on the trading volumes generated by clients who receive its reports. What is the principal regulatory concern?

  1. Sales staff may lack the technical skill to explain reports
  2. Compensation linked to volumes may create pressure on research to produce favourable recommendations Correct answer.
  3. Clients may receive reports later than scheduled
  4. Reports may not be archived for the required period

Explanation

Compensation structures that tie sales rewards to trading activity can create indirect pressure on research to favour issuers or securities that generate business. The regulatory concern is the integrity and independence of research, not the technical competence of sales staff. Timing and archiving are separate operational requirements.

Question 7Persons Associated with Research Services (Sales and Other Non-Core Services)

A client emails a salesperson asking whether a rumour about a company's earnings is true. The salesperson has no verified information. The appropriate response is to:

  1. Confirm the rumour to maintain the client relationship
  2. State that the firm does not comment on unverified market rumours and refer the client to published research Correct answer.
  3. Ask the covering analyst to confirm the rumour privately
  4. Share the rumour with other clients to test its accuracy

Explanation

Sales staff must not pass on unverified rumours as if they were research or fact, because doing so can mislead clients and breach market-conduct standards. The proper course is to decline comment and point to published, reviewed material. Seeking private confirmation or spreading the rumour compounds the risk.

Question 8Persons Associated with Research Services (Sales and Other Non-Core Services)

When a research entity uses a third-party research provider, what must the distributing entity ensure about the content it passes to clients?

  1. That the content excludes all forward-looking statements
  2. That the content is re-bylined under its own analysts' names
  3. That the content is translated into every client's language
  4. That the content is not misleading and that the source is appropriately disclosed Correct answer.

Explanation

A distributor remains responsible for the material it circulates, so it must ensure the research is not misleading and that the third-party source is disclosed. Re-bylining would misrepresent authorship, and translation or exclusion of forecasts are not general conditions. Responsibility for accuracy does not disappear because the content originated elsewhere.

Question 9Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson learns from a client that the client intends to place a large order that will likely move a stock price. The salesperson wishes to trade personally beforehand. This conduct would most clearly be:

  1. Acceptable if disclosed to the compliance officer after the trade
  2. Acceptable if the trade is small relative to the client's order
  3. Acceptable because the information came from the client, not from research
  4. A misuse of client information and a breach of conduct obligations Correct answer.

Explanation

Trading ahead of a client's known order misuses confidential client information and harms the client, regardless of the size of the trade or the source of the information. Post-trade disclosure does not cure the conflict. Associated persons must place client interests first and avoid personal dealing on confidential information.

Question 10Persons Associated with Research Services (Sales and Other Non-Core Services)

Which record must a research analyst entity typically maintain regarding recommendations circulated by its sales staff to clients?

  1. Only the marketing brochures used at events
  2. Records of the research reports distributed and the basis of recommendations Correct answer.
  3. Only the final client complaint records
  4. Only the attendance sheets of investor meetings

Explanation

Research entities must keep records of the research they distribute and the rationale behind recommendations so that regulators can reconstruct what was said and why. Complaint records, brochures, and attendance sheets may be kept for other purposes but do not substitute for research records. Record-keeping supports accountability for the recommendations circulated by sales staff.

Question 11Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity plans to have its sales staff appear in promotional videos recommending specific stocks. What condition must be satisfied for this to be permissible?

  1. The videos must be shown only to institutional clients
  2. The sales staff must hold a dealer registration
  3. The videos must be shorter than two minutes
  4. The recommendations must conform to the published research and applicable disclosure requirements Correct answer.

Explanation

Promotional communications containing recommendations must be consistent with the entity's published research and carry the required disclosures, because the medium does not change the substance. Duration, audience type, and dealer registration are not the governing conditions. Sales staff cannot make recommendations that depart from reviewed research.

Question 12Persons Associated with Research Services (Sales and Other Non-Core Services)

Under the research analyst framework, which of the following must a research entity disclose in its report when the analyst holds securities of the issuer covered?

  1. The analyst's residential address
  2. The analyst's educational background only
  3. The nature of the analyst's holding in the covered security Correct answer.
  4. The names of the analyst's family friends

Explanation

Analysts and their associates must disclose holdings in the securities they cover so that clients can assess potential bias. Disclosing the nature of the holding addresses the conflict directly. Personal details such as addresses or the identities of family friends are irrelevant and would raise privacy concerns.

Question 13Persons Associated with Research Services (Sales and Other Non-Core Services)

A client asks a salesperson to explain why an analyst downgraded a stock. The salesperson disagrees with the downgrade. What is the appropriate conduct?

  1. Explain the published rationale and, if the salesperson has a differing view, escalate it internally rather than contradicting the research to clients Correct answer.
  2. Tell the client the downgrade is wrong and the analyst is mistaken
  3. Provide the salesperson's own contrary recommendation to the client
  4. Refuse to discuss the report entirely

Explanation

Sales staff should explain the published research faithfully and channel disagreements through internal review rather than undermining the research in client conversations. Offering a contrary personal recommendation would create unreviewed research. Refusing to discuss the report entirely is unhelpful but not the correct affirmative standard.

Question 14Persons Associated with Research Services (Sales and Other Non-Core Services)

Which statement correctly describes the boundary between research analyst activity and investment advisory activity for a salesperson?

  1. Sales staff are exempt from both frameworks
  2. Research and advisory rules are identical and interchangeable
  3. Personalised advice tailored to a client's portfolio falls under investment advice rules, while general research is covered by research analyst rules Correct answer.
  4. Any personalised advice to a client is research, not advice

Explanation

General research is distributed broadly and governed by the research analyst framework, whereas advice tailored to a specific client's circumstances falls within investment advice regulation. The two frameworks are distinct and not interchangeable. Sales staff are not exempt from either framework.

Question 15Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity wants to distribute a report that includes a rating scale. What is essential for clients to interpret the rating correctly?

  1. The rating scale must be hidden from clients
  2. Ratings must be changed weekly
  3. The meaning of each rating and the time horizon must be clearly explained Correct answer.
  4. Only the highest rating should be disclosed

Explanation

A rating is meaningful only if clients understand what each label signifies and the horizon over which it applies. Clear explanation of the scale and horizon prevents misinterpretation of recommendations. Hiding the scale, disclosing only one rating, or mandating weekly changes would not achieve clarity.

Question 16Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson is invited by an issuer covered by research to an all-expenses-paid overseas trip. Under conflict-of-interest principles, the salesperson should:

  1. Accept only if the analyst also attends
  2. Decline or seek compliance approval, as such hospitality may compromise independence Correct answer.
  3. Accept if the trip is disclosed to clients afterwards
  4. Accept because hospitality does not affect research

Explanation

Gifts and hospitality from issuers covered by research can compromise independence and must be declined or cleared through compliance. Post-hoc disclosure does not neutralise the conflict, and the analyst's attendance does not legitimise it. Firms typically maintain gift and hospitality registers to enforce this.

Question 17Persons Associated with Research Services (Sales and Other Non-Core Services)

A client asks for a copy of a research report that was published six months earlier. What should the salesperson do?

  1. Refuse because only current reports may be shared
  2. Rewrite the report with today's prices before sharing
  3. Provide only the target price without the report
  4. Provide the archived report along with any material updates or note that it is historical Correct answer.

Explanation

Historical research may be shared, but clients should understand that it reflects conditions at the time of publication and may be outdated. Providing the archived report with a note about its date and any material updates avoids misleading the client. Rewriting it would create new, unreviewed research.

Question 18Persons Associated with Research Services (Sales and Other Non-Core Services)

Which of the following is a core obligation of a research analyst entity with respect to its sales staff who interact with clients?

  1. Ensuring sales staff approve each report before release
  2. Ensuring sales staff are trained on the research process and applicable conduct requirements Correct answer.
  3. Ensuring sales staff set the firm's compliance budget
  4. Ensuring sales staff personally know every analyst

Explanation

Research entities must ensure that associated persons, including sales staff, understand the research process and the conduct obligations that apply to them. Training supports consistent, compliant client communication. Personal relationships with analysts, report approval, and budget-setting are not obligations of sales staff.

Question 19Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity's sales team wants to offer a discount on research subscription fees to clients who agree to route all their brokerage through the entity. What is the main regulatory concern?

  1. Discounts are always prohibited in research services
  2. The entity may lose revenue
  3. Clients may not understand the discount
  4. Bundling research with brokerage may create inducements that compromise the independence of research Correct answer.

Explanation

Tying research access to brokerage volumes can create inducements that pressure research to favour revenue-generating clients, undermining independence. The concern is the conflict created by bundling, not discounts in themselves. Client comprehension and revenue effects are commercial rather than regulatory considerations.

Question 20Persons Associated with Research Services (Sales and Other Non-Core Services)

When a research entity's sales staff communicates a recommendation to clients, which of the following must accompany the communication to satisfy disclosure norms?

  1. The names of all clients who received the report earlier
  2. The analyst's personal phone number
  3. Disclosures about the entity's and analyst's interests in the recommended security Correct answer.
  4. The internal draft versions of the report

Explanation

Recommendations must be accompanied by disclosures of the entity's and analyst's interests so clients can judge potential bias. Personal contact details, client lists, and internal drafts are not part of the required disclosure. Disclosure supports informed assessment of the recommendation.

Question 21Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson at a research entity is asked by a journalist to comment on a stock the firm covers. The salesperson has no authority to speak to the media. The correct action is to:

  1. Answer only questions about the firm's revenue
  2. Refer the request to the designated spokesperson and avoid making independent recommendations Correct answer.
  3. Decline and provide the firm's internal draft report
  4. Give a personal opinion on condition of anonymity

Explanation

Media communications should be routed through designated spokespersons so that public statements are consistent with published research and disclosures. Giving anonymous personal opinions or sharing internal drafts risks unreviewed recommendations. Revenue questions are also better handled by the designated spokesperson.

Question 22Persons Associated with Research Services (Sales and Other Non-Core Services)

Which of the following best explains why research entities maintain a 'Chinese wall' between research and other business functions such as investment banking?

  1. To prevent commercial pressures and confidential information from influencing research conclusions Correct answer.
  2. To ensure sales staff are promoted faster
  3. To reduce the cost of research production
  4. To avoid paying registration fees

Explanation

Information barriers protect research independence by keeping investment banking pressures and confidential deal information away from analysts and sales staff. This safeguards the objectivity of recommendations and prevents misuse of inside information. Cost, promotion, and fees are unrelated to the purpose of the barrier.

Question 23Persons Associated with Research Services (Sales and Other Non-Core Services)

A client complains that a salesperson's summary of a report omitted a key risk disclosure. What should the entity do?

  1. Ignore the complaint because summaries are informal
  2. Remove the salesperson from all client contact permanently without review
  3. Ask the client to delete the summary
  4. Investigate, correct the communication, and reinforce procedures to ensure summaries reflect the report's disclosures Correct answer.

Explanation

Summaries that drop material disclosures can mislead clients, so the entity should investigate, correct the record, and strengthen controls. Immediate punitive action without review or asking the client to delete material are not appropriate remedies. The focus is on remedying the misleading communication and preventing recurrence.

Question 24Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity discovers that a salesperson has been sharing a client's confidential portfolio details with the firm's trading desk. Which obligation has been breached?

  1. The obligation to maintain a minimum number of analysts
  2. The obligation to maintain the confidentiality of client information Correct answer.
  3. The obligation to publish reports in a timely manner
  4. The obligation to hold an annual general meeting

Explanation

Client information must be kept confidential and used only for the purpose for which it was provided; sharing portfolio details with the trading desk breaches that duty. Timeliness of reports, analyst headcount, and shareholder meetings are unrelated obligations. Confidentiality is a core conduct requirement for associated persons.

Question 25Persons Associated with Research Services (Sales and Other Non-Core Services)

Two research entities agree that one will distribute the other's reports and that the distributor will not alter the recommendations. Which statement is correct?

  1. The distributor must re-register as a research analyst for each report
  2. The distributor need not disclose that the research is prepared by another entity
  3. The distributor must disclose the identity of the preparing entity and obtain its consent Correct answer.
  4. The distributor becomes the author of the research automatically

Explanation

A distributor of third-party research must obtain the preparing entity's consent and disclose its identity so clients know who authored the recommendation. The distributor does not automatically become the author, nor must it re-register for each report. Transparency about authorship is the central requirement.

Question 26Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity's sales desk prepares a short client note that summarises an analyst's 'Buy' recommendation and repeats the target price. Under the research analyst framework, what must the sales note carry alongside the recommendation?

  1. The trading desk's view on the stock to add context
  2. The analyst's name and the date of the underlying report, plus the required disclosures Correct answer.
  3. Only the target price, since the recommendation is already public
  4. A verbal caveat that clients should read the full report

Explanation

When sales staff restate a recommendation, the communication must be attributed to the analyst and dated to the underlying report, and must carry the same disclosures required in the report itself. This lets clients trace the view to its author and see conflicts. A sales note is not a freestanding opinion of the sales desk.

Question 27Persons Associated with Research Services (Sales and Other Non-Core Services)

Which activity by a salesperson would most clearly fall outside the permissible role of sales staff in a research entity?

  1. Originating a new 'Buy' rating on a stock the research team does not cover Correct answer.
  2. Describing the key risks disclosed in a report to a client
  3. Clarifying the date on which a recommendation was issued
  4. Explaining the rating scale used in a published report

Explanation

Sales staff may communicate and explain research that analysts have produced, but they may not create new ratings or recommendations of their own. Issuing an original rating is research analyst activity reserved for the research function. The other listed tasks are communication, not origination.

Question 28Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity's sales staff routinely forward full reports to clients. Which control best supports the entity's obligation regarding the accuracy of what sales staff communicate?

  1. Letting sales staff forward reports only after the trading desk approves them
  2. Allowing sales staff to edit the recommendation wording to suit each client
  3. Permitting sales staff to summarise reports from memory without reference to the text
  4. Requiring sales staff to pass a periodic test on the firm's rating definitions and disclosure requirements Correct answer.

Explanation

Entities must ensure sales staff understand rating scales, disclosures and the limits of their role, so periodic training and testing is an appropriate control. Editing recommendation wording or relying on memory undermines accuracy. Trading desk approval would improperly entangle trading with research distribution.

Question 29Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson at a research entity is asked by a client to confirm the firm's current rating on a stock. The rating was changed two days ago. What is the appropriate response?

  1. Give the current published rating and note the date it was issued Correct answer.
  2. Decline to discuss ratings with clients entirely
  3. State a personal view because the client asked directly
  4. Quote the rating as of the last report the client received, without checking

Explanation

The salesperson should communicate the current published rating and identify when it was issued, so the client can judge how fresh it is. Quoting stale information misleads the client, and substituting a personal view crosses into prohibited territory. Refusing all rating discussion is unnecessary.

Question 30Persons Associated with Research Services (Sales and Other Non-Core Services)

What is the primary reason a research entity restricts sales staff from promising clients a specific future rating change before the research team publishes it?

  1. It would effectively disseminate unpublished research and may constitute selective disclosure Correct answer.
  2. It would breach the exchange's listing requirements for issuers
  3. It would breach the firm's marketing budget rules
  4. It would breach the client's confidentiality agreement

Explanation

Promising a rating change ahead of publication gives selected clients advance access to research conclusions, which is selective dissemination of unpublished research. The restriction protects fair treatment of clients and market integrity. Confidentiality, budgeting and listing rules are not the operative concern here.

Question 31Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity's sales manager wants to rank salespeople by the number of client trades executed after each research call. Which concern does this raise under the research analyst framework?

  1. It is prohibited only for institutional clients
  2. It is acceptable because trade counts are objective data
  3. It is prohibited only if the trades exceed a fixed monetary threshold
  4. It may link sales compensation to research-driven transactions and create pressure to promote ratings regardless of merit Correct answer.

Explanation

Tying sales rewards to trades generated after research calls can pressure staff to push recommendations for revenue rather than accuracy, undermining research integrity. The concern is structural and applies regardless of thresholds or client type. Objective measurement does not cure the conflict.

Question 32Persons Associated with Research Services (Sales and Other Non-Core Services)

A client asks a salesperson whether a stock is suitable for the client's retirement portfolio. The salesperson knows the client's circumstances well. Under the research entity framework, how should the salesperson respond?

  1. Explain that suitability assessment is outside the sales role and refer the client to the appropriate advisory channel Correct answer.
  2. Give a personal suitability opinion, since the client asked
  3. Refuse to speak to the client again
  4. Recommend the stock because the research rating is favourable

Explanation

Assessing personal suitability is investment advisory activity, which sits outside the sales role in a research entity. The salesperson should explain the boundary and route the client to the proper advisory function. A favourable rating is not a suitability determination.

Question 33Persons Associated with Research Services (Sales and Other Non-Core Services)

Which record-keeping practice best supports a research entity's supervision of recommendations communicated by sales staff to clients?

  1. Retaining a log of the recommendations communicated, the date and the clients informed Correct answer.
  2. Keeping only the marketing materials used in client events
  3. Keeping only the final client trade confirmations
  4. Retaining only the analyst's original working papers

Explanation

A log linking each recommendation communicated to the date and the clients informed allows the entity to reconstruct what was said to whom. This supports supervision and complaint handling. Trade confirmations, working papers and marketing materials each capture only part of the picture.

Question 34Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity's sales team wants to send clients a one-line text message repeating a 'Sell' recommendation. What minimum content must the message include to satisfy the framework?

  1. The recommendation and the client's account balance
  2. The stock name and the salesperson's mobile number
  3. Only the word 'Sell' and the stock name
  4. The recommendation, the analyst's identity and the required disclosures, or a clear pointer to where they are available Correct answer.

Explanation

Even a short message restating a recommendation must identify the analyst and carry the required disclosures, or clearly direct the client to a document containing them. Brevity does not excuse omission. Account balances are irrelevant and confidential.

Question 35Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson learns that the research team is about to publish an upgrade and mentions it to a favoured client before publication. Which principle has been breached?

  1. The principle that reports must be printed in the client's preferred language
  2. The principle that analysts must hold a specific professional certification
  3. The principle that clients must receive equal trading allocations
  4. The principle that research must be disseminated to clients on an equitable basis rather than selectively Correct answer.

Explanation

Research conclusions must reach clients on an equitable basis, so tipping a favoured client ahead of publication breaches fair dissemination. Trading allocation and certification rules address different obligations. Language preference is a service matter, not the principle at stake.

Question 36Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity uses a chat group where sales staff discuss covered stocks with clients. Which control is most appropriate for the entity to adopt?

  1. Permitting chat only for stocks with a 'Hold' rating
  2. Banning all client communication outside formal reports
  3. Applying the same supervision, record retention and disclosure rules to chat as to other client communications Correct answer.
  4. Allowing chat discussion only when the analyst is present

Explanation

Electronic communications with clients are client communications, so supervision, retention and disclosure requirements apply equally to chat. Banning all informal contact is unnecessary, and conditioning chat on analyst presence or rating does not address the compliance obligations.

Question 37Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson is asked to present the firm's research at a client seminar. Which preparation best aligns with the framework?

  1. Using the published report content, including its disclosures, and avoiding new recommendations Correct answer.
  2. Preparing slides that add the salesperson's own price targets
  3. Presenting only the most favourable past calls
  4. Inviting the covered issuer's executives to answer questions on the analyst's behalf

Explanation

Sales presentations should reflect published research faithfully, including required disclosures, and should not introduce new recommendations or targets. Selective presentation of favourable calls misleads clients, and issuer executives cannot substitute for the analyst's view.

Question 38Persons Associated with Research Services (Sales and Other Non-Core Services)

A client tells a salesperson that the client's own analyst has produced a conflicting view on a covered stock. How should the salesperson handle the client's request for a reaction?

  1. Promise to have the firm's analyst change the rating
  2. Dismiss the client's view and insist the firm's rating is correct
  3. Acknowledge the difference, explain the firm's published rationale and avoid issuing a new recommendation Correct answer.
  4. Adopt the client's view as the firm's position

Explanation

The salesperson may explain the firm's published reasoning while acknowledging that views can differ, but cannot issue a new recommendation or promise a rating change. Dismissing the client or adopting the client's view oversteps the sales role.

Question 39Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity's sales staff receive a client complaint that a summary email omitted a conflict-of-interest disclosure present in the report. What is the most appropriate first step?

  1. Ignore it because the full report contained the disclosure
  2. Ask the analyst to remove the disclosure from future reports
  3. Refund the client's subscription without further review
  4. Log the complaint, review the communication against the disclosure requirements and correct the practice Correct answer.

Explanation

The entity should record the complaint and review the sales communication against disclosure requirements, then remediate. Relying on the full report does not cure a deficient summary, and removing disclosures would worsen the breach. A refund without review leaves the underlying problem unaddressed.

Question 40Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson is offered a bonus by a client for early sight of a draft research note. What should the salesperson do?

  1. Accept, provided the bonus is disclosed to the firm
  2. Decline and report the approach to compliance Correct answer.
  3. Share the draft but delay the bonus until publication
  4. Accept, because drafts are not final recommendations

Explanation

Sharing a draft gives the client advance access to unpublished research, and accepting payment for it compounds the breach. The salesperson should decline and report the approach. Disclosure to the firm does not legitimise the arrangement, and drafts remain unpublished research.

Question 41Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity wants sales staff to help market a new subscription tier. Which approach is consistent with the framework?

  1. Give subscribers reports one week before other clients
  2. Offer a higher rating on a stock if the client subscribes
  3. Guarantee investment returns to subscribers
  4. Describe the research service and its coverage without linking subscription to specific recommendations Correct answer.

Explanation

Marketing may describe the service and coverage, but must not tie subscription to ratings, guarantee returns, or create preferential access to research. Those practices compromise independence and fair dissemination.

Question 42Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson is asked to sit on a committee that reviews the research entity's marketing materials before release. What is the main compliance value of this arrangement?

  1. It provides a check that client-facing materials are consistent with published research and carry required disclosures Correct answer.
  2. It lets the sales desk approve its own compensation
  3. It allows the sales desk to set analyst ratings
  4. It removes the need for compliance review

Explanation

Sales input into pre-release review can catch inconsistencies between marketing materials and published research and confirm that disclosures are present. It does not extend to setting ratings or compensation, and it supplements rather than replaces compliance review.

Question 43Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity discovers that a salesperson has been describing a 'Strong Buy' rating as a personal guarantee that the stock will rise. What is the appropriate corrective action?

  1. Retrain the salesperson on rating definitions, require correction with affected clients and monitor future communications Correct answer.
  2. Reassign the salesperson to the trading desk
  3. Publish a new rating to support the claim
  4. Take no action because ratings are opinions

Explanation

Misrepresenting a rating as a guarantee is a communication failure, so retraining, client correction and monitoring are appropriate. Moving the person to trading worsens the boundary problem, publishing a new rating to fit the claim compromises research, and inaction leaves clients misled.

Question 44Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity's sales team proposes to publish a weekly 'top picks' list drawn from analyst ratings. Which condition is essential for this list to be consistent with the framework?

  1. The list must be limited to five stocks
  2. The list must be approved by the covered issuers
  3. The list must accurately reflect the underlying ratings, identify the analysts and carry the relevant disclosures Correct answer.
  4. The list must exclude any stock the firm's clients hold

Explanation

A derived list must faithfully reflect the underlying published ratings, attribute them to the analysts and carry the relevant disclosures. Excluding client-held stocks, fixing a number and seeking issuer approval are not framework requirements and some would create new problems.

Question 45Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson receives a request from a client for the firm's research on a sector the firm has stopped covering. What is the best response?

  1. Present the archived reports as current recommendations
  2. Provide the archived reports with a clear note that coverage has ceased and the reports are historical Correct answer.
  3. Refuse to acknowledge that the firm ever covered the sector
  4. Create a new sector rating to meet the request

Explanation

Archived research may be shared if it is clearly identified as historical and coverage has ceased, so the client does not mistake it for current advice. Presenting it as current misleads, creating a new rating exceeds the sales role, and denying the prior coverage is inaccurate.

Question 46Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity wants to measure whether sales staff are communicating research accurately. Which approach gives the most direct evidence?

  1. Sampling recorded client communications and comparing them with the published reports Correct answer.
  2. Surveying clients on their satisfaction with the firm's trading execution
  3. Counting the number of reports downloaded by clients
  4. Reviewing the sales team's travel expenses

Explanation

Sampling actual client communications and comparing them with the published reports directly tests accuracy of what was said. Download counts, expense records and execution satisfaction surveys measure other things and cannot show whether communications matched the research.

Question 47Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson wants to include an analyst's verbal comment from an internal call in a client email, even though the comment is not in any published report. What is the correct treatment?

  1. Treat it as unpublished research that should not be passed to clients until it is published through proper channels Correct answer.
  2. Include it if the client signs a confidentiality agreement
  3. Include it freely because the analyst said it
  4. Include it only if the comment is favourable to the client's holdings

Explanation

Unpublished research conclusions, even informal verbal comments, must not be selectively passed to clients; they should go through the normal publication and disclosure process. A confidentiality agreement does not authorise selective dissemination, and favourability to the client is irrelevant.

Question 48Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity's sales director proposes that sales staff receive the draft report 24 hours before clients so they can 'prepare talking points'. Which safeguard would make this practice most defensible?

  1. Restricting the pre-release access to preparing communications, with no external sharing and no trading, under supervision Correct answer.
  2. Allowing sales staff to trade on the draft during the 24-hour window
  3. Requiring sales staff to share the draft with their largest clients first
  4. Extending the window to one week for better preparation

Explanation

Pre-release access can be defensible only if it is tightly confined to preparing client communications, with no external dissemination and no trading on the information, and it is supervised. Trading, tipping large clients or lengthening the window all magnify the selective-disclosure risk.

Question 49Persons Associated with Research Services (Sales and Other Non-Core Services)

A salesperson is asked to explain a rating change to a client who holds a large position in the stock. The salesperson's explanation includes a forward-looking statement about the company that the analyst did not make. What is the principal problem?

  1. The salesperson created a new research conclusion attributed implicitly to the firm Correct answer.
  2. The analyst should have consulted the client before changing the rating
  3. The client held too large a position to receive research
  4. The rating change should not have been explained at all

Explanation

Adding a forward-looking view the analyst did not make amounts to creating a new research conclusion under the firm's name, which is outside the sales role. Position size does not bar research communication, explanation is permitted, and analysts are not required to consult clients before rating changes.

Question 50Persons Associated with Research Services (Sales and Other Non-Core Services)

A research entity's sales staff want to build a client-facing dashboard that automatically displays the latest ratings. Which design choice best addresses the framework's concerns?

  1. Displaying ratings without dates so the dashboard always looks current
  2. Showing only ratings that have outperformed since issue
  3. Allowing clients to edit the ratings to reflect their own views
  4. Displaying each rating with its issue date, the analyst's identity and a link to the full report and disclosures Correct answer.

Explanation

Automated distribution must preserve attribution, dating and access to the full report and disclosures so clients can interpret each rating correctly. Omitting dates, filtering to winners or letting clients edit ratings would all distort the research record.