Series 87 cheat sheet

Research report (FINRA Rule 2241): a written or electronic communication that includes an analysis of a security or an issuer and provides information reasonably sufficient upon which to base an investment decision, including a rating or recommendation.

Reasonable basis: every recommendation, rating, and price target must rest on a reasonable basis; reports may not contain material misstatements or omit facts necessary to make the statements made not misleading.

Facts versus opinions: analyst estimates, opinions, and projections must be clearly labeled and separated from factual statements so readers can tell certainty from judgment.

Scope: Rule 2241 governs equity research; debt research is governed by Rule 2242, which allows institutional-investor exemptions from specified disclosure, supervisory, and quiet-period provisions.

Regulation AC: each report must contain each research analyst's certification that the views expressed accurately reflect the analyst's personal views and that no part of compensation is tied to the specific recommendation or views.

Quiet periods (Rule 2241(b)(2)): a firm that acted as manager or co-manager may not publish research on the issuer for 25 calendar days after an IPO, or 10 calendar days after a secondary offering.

Mandatory conflict disclosures include the firm's market-making activity, beneficial ownership of 1% or more of the issuer's equity, investment banking compensation received in the past 12 months or expected in the next 3 months, and the analyst's own financial interest in the security.

Approval: research reports must be reviewed and approved before publication by a registered principal or qualified supervisory analyst under the firm's written supervisory procedures.

Anti-retaliation: a member may not retaliate, or threaten to retaliate, against a research analyst for issuing negative or unfavorable research or for a rating that adversely affects investment banking business.

Information barriers: investment banking personnel may not direct, supervise, or control analysts or the content of research; analyst compensation must be reviewed by management outside the investment banking department.

Solicitation prohibition: analysts may not participate in pitching investment banking business, road shows, or other marketing of investment banking services; limited due-diligence and market-color discussions are permitted.

Prohibited conduct includes promising favorable research, threatening unfavorable research, and changing a rating or price target to obtain or retain investment banking business.

Compensation limits: analyst pay may be based on overall firm revenue (including investment banking revenue) but may not be based on specific investment banking transactions or on the specific recommendations the analyst makes.

Personal trading: analysts may not trade securities they cover in a manner inconsistent with their published views; firms impose pre-clearance, blackout periods, and restricted lists.

Gifts and entertainment: analysts may not accept payments, gifts, or issuer-paid travel and entertainment that could compromise objectivity; firm gift limits and pre-approval requirements apply.

Payments from issuers: accepting compensation from a covered company in exchange for coverage or a favorable rating is prohibited; any consideration received for publishing research triggers Securities Act Section 17(b) disclosure.

Rule 2210 core standard: all communications must be fair and balanced, must not be false or misleading, must not omit material facts, and must present risks with prominence comparable to benefits.

Correspondence is a written communication sent to 25 or fewer retail investors within 30 calendar days; retail communication is a written communication sent to more than 25 retail investors within 30 calendar days.

Public appearance: participation in a seminar, forum, radio or television interview, or other public speaking where a research analyst recommends or offers an opinion on securities; interactive electronic forums are excluded.

Pre-approval: research reports and retail communications require approval by a registered principal before first use; correspondence is subject to supervision, review, and filtering procedures rather than pre-approval.

Forecasts and projections require a reasonable basis and disclosure of assumptions; hypothetical or back-tested performance may be used only when the conditions of Rule 2210(d)(1) are satisfied.

Testimonials must be genuine, must disclose whether the person was paid, and may not imply that past performance will be repeated.

Performance presentations must disclose the time period covered, whether results are gross or net of fees, and the benchmark or index used for comparison.

Anti-fraud provisions apply to every communication and public appearance, including Securities Act Section 17(a), Exchange Act Section 10(b) and Rule 10b-5, and FINRA Rules 2010 and 2020.

Rule 3110: firms must maintain written supervisory procedures, designate a registered principal responsible for supervision, hold at least one annual compliance meeting, and inspect offices of supervisory jurisdiction at least annually.

Rule 4511: books and records required under FINRA rules, including research reports, public appearance records, and complaint records, must be preserved for at least three years with the first two years readily accessible.

Regulation AC records: analyst certifications and the records supporting them must be retained for at least three years, the first two in an easily accessible place.

Rule 3120 requires an annual supervisory control system report, and Rule 3130 requires an annual chief executive officer certification of compliance processes for firms with covered functions.

Regulation FD: an analyst who receives material nonpublic information from an issuer may not trade on it or pass it on; the issuer must publicly disclose the information, and the analyst must escalate the contact to compliance.

Securities Act Section 17(b): a person who publishes research describing a security for consideration from an issuer, underwriter, or dealer must disclose the amount and type of consideration received.

Registration: research analysts must be registered with FINRA, which requires passing the Series 86 and Series 87 exams, with the SIE as a prerequisite to the Series 87.

Continuing education: the Regulatory Element must be completed annually within 120 days of the registration anniversary, and the Firm Element must be delivered annually based on a written needs analysis.