Research Analyst Conflicts of Interest and Prohibited Conduct
Structural conflicts
Rule 2241 requires information barriers between research and investment banking. Analysts may not be supervised by investment banking, may not solicit investment banking business, and may not have compensation tied to investment banking revenue or to specific recommendations. Promising favorable research or threatening unfavorable research to win business is prohibited, as is retaliation against an analyst who gives an adverse view.
Quiet periods
After an IPO, a managing underwriter generally may not publish research for 10 days; a co-manager is subject to a 3-day period. For a secondary offering, the managing underwriter faces a 3-day quiet period. These are calendar traps, so identify the role and the offering type before counting days.
Personal trading and conduct
Analysts face restrictions on trading securities they cover and generally must pre-clear personal trades. Front-running client orders or trading ahead of a recommendation is prohibited. Analysts may not disclose material nonpublic information or accept gifts or entertainment that create a conflict.
Worked example
An analyst is invited to a pitch meeting. Analysts may participate in due diligence but may not engage in solicitation or help win the mandate. If a banker says, 'Just tell them you will initiate coverage at Buy,' the analyst must refuse; that is an improper promise of favorable research.
Rule of thumb
Ask whether a payment, review, or promise ties the analyst's conclusion to a business outcome. If it does, the conflict must be eliminated, managed, or disclosed.