Series 87 common mistakes
Series 87 · Understand the traps and how to avoid them.
Applies the full disclosure block only to initiating-coverage reports, so rating-change notes and update reports are published without restating the 1%-or-more beneficial ownership disclosure, the investment-banking-compensation received/expected disclosures, and the manager or co-manager role disclosure.
Candidates study disclosures as a feature of the long 'initiation' report and mentally file them under formatting, not under a rule that attaches to every research report each time it is published.
What to do instead
Build a one-page per-report checklist covering every required disclosure item and apply it to every report version - initiations, rating changes, price-target changes and routine updates - with a documented sign-off before release.
Treats the post-offering publication restrictions as one uniform blackout, for example holding a report on a company the firm served only as a non-managing participant for the same period as a lead manager, or applying an equity-IPO window to a follow-on or debt offering.
The rules use several overlapping variables - manager/co-manager versus other participant, IPO versus secondary offering, and the lock-up expiration window - and candidates collapse them into a single memorized number.
What to do instead
Rebuild the rule as a matrix with rows for the firm's role in the offering and columns for IPO, secondary offering, and lock-up expiration, and test yourself by classifying fact patterns rather than reciting day counts; note that the same blackout applies to public appearances that convey the substance of a report.
Publishes a research report containing recommendations and views without the analyst's Regulation AC certification, or assumes the certification can be satisfied by a general compliance statement elsewhere on the website.
Candidates confuse the Regulation AC certification (that the views accurately reflect the analyst's personal views and that no part of compensation is tied to the specific recommendation) with the FINRA conflict disclosures and assume one set of language covers both.
What to do instead
Memorize the two elements of the certification verbatim, place it inside the report itself, and file the signed certification with the report so the record-keeping obligation is satisfied at the same time.
Allows investment banking personnel to review a draft report and to delete or soften a negative conclusion or a 'sell' rating, on the theory that the review is permitted for 'accuracy.'
Candidates remember that banking may see drafts before publication and stop reading at that point, missing that the permissible review is limited to checking factual accuracy and that the analyst retains authority over the rating and conclusions.
What to do instead
Practice writing the boundary explicitly: banking review is for factual accuracy only, must be documented, and any disagreement about conclusions is escalated to compliance with the analyst's view prevailing on the rating and price target.
Permits a covering analyst to buy shares in a company the analyst covers shortly before publishing a favorable report, or to acquire pre-IPO shares of a company the analyst will cover, treating the trades as ordinary personal investing.
Candidates separate 'research rules' from 'personal trading rules' and do not realize the analyst's own trading in covered securities, particularly trading against the analyst's own recommendation or accepting pre-IPO allocations, is a prohibited conduct issue in its own right.
What to do instead
Learn the analyst personal-trading prohibitions as a short, closed list and apply it to facts: no trading contrary to the analyst's own recommendation, no pre-IPO shares of a company the analyst will cover, and pre-clearance plus restricted-period monitoring by the firm.
Treats an informal oral assurance to a prospective issuer that 'we will get coverage initiated' as harmless sales talk, or accepts a hiring or bonus arrangement in which the analyst's pay is directly tied to a specific investment banking transaction.
Candidates look for a written agreement or a formal rating guarantee and miss that the prohibition covers implicit promises of favorable research and compensation structures tied to specific transactions.
What to do instead
Memorize the two prohibited endpoints - promising favorable research as an inducement for business, and tying analyst compensation to specific investment banking transactions or contributions - and evaluate any arrangement by asking whether it creates an incentive to produce a particular rating.
Treats a podcast interview, a live webinar, a video update or a chat-room answer as outside the research rules because it is not a written document, and lets the analyst speak without pre-approval or disclosure.
Candidates associate research compliance with printed or PDF reports and picture 'public appearances' as television and radio only, so digital and interactive formats fall through the mental gap.
What to do instead
Apply the definition test to every format: an unscripted or interactive forum with a security recommendation is a public appearance, so it requires supervisory pre-approval where applicable, the oral disclosures, and a retained record of what was said.
Makes no oral disclosure during a broadcast or conference appearance, assuming that the written disclosure block in the firm's published report or on its website satisfies the obligation.
Candidates memorize the long written disclosure list and never build the separate, much shorter list of items that must be stated aloud, so they default to 'the disclosures are on the website.'
What to do instead
Create a scripted three-to-four line oral disclosure covering the analyst's financial interest in the security, any officer, director or advisory board relationship, and the investment banking compensation arrangements, and rehearse saying it at the start of every appearance.
Keeps research files for three years but stores them in an inaccessible archive, and keeps no record of public appearances, supervisory pre-approvals, or the analyst certifications that accompanied each report.
Candidates retain a single number ('three years') and stop there, missing both the requirement that records be readily accessible for the earlier portion of the retention period and the separate records generated by appearances and approvals.
What to do instead
Memorize the retention period together with the accessibility condition, then list every record type the research process generates - drafts, approvals, certifications, appearance scripts and notes, and complaint or conflict logs - and confirm where each is stored and for how long.
Accepts a supervisory structure in which the research department reports to, or has its budget and compensation set by, the head of investment banking, and treats a general code-of-conduct provision as sufficient written procedure.
Candidates treat supervision as a generic 'have procedures' answer and do not connect the conflict rules to specific structural safeguards such as reporting lines, compensation determination, and anti-retaliation provisions.
What to do instead
For any supervisory fact pattern, check three structural points: research does not report to investment banking, banking personnel have no input into analyst evaluations or pay, and written procedures expressly prohibit retaliation against analysts for unfavorable conclusions.