This chapter applies 2to a firm.2

1. (1)

   2[deleted]

2. (2)

   2[deleted]

This section applies to a firm which produces, or arranges for the production of, investment research that is intended or likely to be subsequently disseminated to clients of the firm or to the public, under its own responsibility or that of a member of its group.

A firm must ensure the implementation of all of the measures for managing conflicts of interest in SYSC 10.1.11 R in relation to the financial analysts involved in the production of investment research and other relevant persons whose responsibilities or business interests may conflict with the interests of the persons to whom investment research is disseminated.

A firm must have in place arrangements designed to ensure that the following conditions are satisfied:

1. (1)

   if a financial analyst or other relevant person has knowledge of the likely timing or content of investment research which is not publicly available or available to clients and cannot readily be inferred from information that is so available, that financial analyst or other relevant person must not undertake personal transactions or trade on behalf of any other person, including the firm, other than as market maker acting in good faith and in the ordinary course of market making or in the execution of an unsolicited client order, in financial instruments to which the investment research relates, or in any related financial instruments, until the recipients of the investment research have had a reasonable opportunity to act on it;

   [Note: article 25(2)(a) of the MiFID implementing Directive]

2. (2)

   in circumstances not covered by (1), financial analyst and any other relevant persons involved in the production of investment research must not undertake personal transactions in financial instruments to which the investment research relates, or in any related financial instrument, contrary to current recommendations, except in exceptional circumstances and with the prior approval of a member of the firm's legal or compliance function;

   [Note: article 25(2)(b) of the MiFID implementing Directive]

3. (3)

   the firm itself, financial analysts1, and other relevant persons involved in the production of investment research must not accept inducements from those with a material interest in the subject matter of the investment research;

   [Note: article 25(2)(c) of the MiFID implementing Directive]

4. (4)

   the firm itself, financial analysts, and other relevant persons involved in the production of investment research must not promise issuers favourable research coverage; and

   [Note: article 25(2)(d) of the MiFID implementing Directive]

5. (5)

   issuers, relevant persons other than financial analysts, and any other persons must not, before the dissemination of investment research, be permitted to review a draft of the investment research for the purpose of verifying the accuracy of factual statements made in that investment research, or for any other purpose other than verifying compliance with the firm's legal obligations, if the draft includes a recommendation or a target price.

   [Note: article 25(2)(e) of the MiFID implementing Directive]

A firm which disseminates investment research produced by another person to the public or to clients is exempt from complying with the requirements in COBS 12.2.3 R and COBS 12.2.5 R if the following criteria are met:

1. (1)

   the person that produces the investment research is not a member of the group to which the firm belongs;

2. (2)

   the firm does not substantially alter the recommendations within the investment research;

3. (3)

   the firm does not present the investment research as having been produced by it; and

4. (4)

   the firm verifies that the producer of the investment research is subject to requirements equivalent to those in COBS 12.2.3 R and COBS 12.2.5 R in relation to the production of that investment research, or has established a policy setting such requirements.

This section applies to a firm that produces or disseminates non-independent research.

A firm which produces or disseminates non-independent research must ensure that it:

1. (1)

   is clearly identified as a marketing communication; and

2. (2)

   contains a clear and prominent statement that (or, in the case of an oral recommendation, to the effect that) it:

   1. (a)

      has not been prepared in accordance with legal requirements designed to promote the independence of investment research; and

   2. (b)

      is not subject to any prohibition on dealing ahead of the dissemination of investment research.

The financial promotion rules apply to non-independent research as though it were a marketing communication.

1. (1)

   This section applies to a firm that prepares or disseminates research recommendations.

2. (2)

   This section does not apply to the extent that the Investment Recommendation (Media) Regulations 2005 apply to a firm.

3. (3)

   If a firm is a media firm subject to equivalent appropriate regulation, only COBS 12.4.2 G, COBS 12.4.4 R, COBS 12.4.15 R and COBS 12.4.16 R apply.

A firm must take reasonable care:

1. (1)

   to ensure that a research recommendation produced or disseminated by it is fairly presented; and

2. (2)

   to disclose its interests or indicate conflicts of interest concerning relevant investments.

1. (1)

   A firm must, in a research recommendation produced by it:

   1. (a)

      disclose clearly and prominently the identity of the person responsible for its production, and in particular:

      1. (i)

         the name and job title of the individual who prepared the research recommendation; and

      2. (ii)

         the name of the firm; and

   2. (b)

      (where the firm is an investment firm or a credit institution) disclose the identity of the competent authority of the firm.

2. (2)

   The requirements in (1) may be met for non-written research recommendations by referring to a place where the disclosures can be directly and easily accessed by the public, such as an appropriate internet site of the firm.

1. (1)

   A firm must take reasonable care to ensure that:

   1. (a)

      facts in a research recommendation are clearly distinguished from interpretations, estimates, opinions and other types of non-factual information;

   2. (b)

      its sources for a research recommendation are reliable or if there is any doubt as to whether a source is reliable, this is clearly indicated;

   3. (c)

      all projections, forecasts and price targets in a research recommendation are clearly labelled as such and the material assumptions made in producing or using them are indicated; and

   4. (d)

      the substance of its research recommendations can be substantiated as reasonable, upon request by the FCA.

2. (2)

   The requirements in (1) do not apply, in the case of non-written research recommendations, to the extent that they would be disproportionate.

3. (3)

   A firm must make and retain sufficient records to disclose the basis of the substantiation required in (1)(d).

1. (1)

   In addition a firm must take reasonable care to ensure that, in a research recommendation, at least:

   1. (a)

      all substantially material sources are indicated, including, if appropriate, the issuer, and in particular the research recommendation indicates whether the research recommendation has been disclosed to that issuer and amended following this disclosure before its dissemination;

   2. (b)

      any basis of valuation or methodology used to evaluate a security, a derivative or an issuer, or to set a price target for a security or a derivative, is adequately summarised;

   3. (c)

      the meaning of any recommendation made, such as "buy", "sell" or "hold", which may include the time horizon of the security or derivative to which the research recommendation relates, is adequately explained and any appropriate risk warning, including a sensitivity analysis of the relevant assumptions, indicated;

   4. (d)

      reference is made to the planned frequency, if any, of updates of the research recommendation and to any major changes in the coverage policy previously announced;

   5. (e)

      the date at which the research recommendation was first released for distribution is indicated clearly and prominently, as well as the relevant date and time for any security or derivative price mentioned; and

   6. (f)

      if the substance of a research recommendation differs from the substance of an earlier research recommendation, concerning the same security, derivative or issuer issued during the 12-month period immediately preceding its release, this change and the date of the earlier research recommendation are indicated clearly and prominently.

2. (2)

   If the requirements in (1)(a), (b) or (c) would be disproportionate in relation to the length of the research recommendation, a firm may, instead, make clear and prominent reference in the research recommendation to the place where the required information can be directly and easily accessed by the public (such as a hyperlink to that information on an appropriate internet site of the firm) provided that there has been no change in the methodology or basis of valuation used.

3. (3)

   In the case of a non-written research recommendation, the requirements of (1) do not apply to the extent that they would be disproportionate.

1. (1)

   A firm must disclose, in a research recommendation:

   1. (a)

      all of its relationships and circumstances that may reasonably be expected to impair the objectivity of the research recommendation, in particular a significant financial interest in any relevant investment which is the subject of the research recommendation, or a significant conflict of interest with respect to a relevant issuer; and

   2. (b)

      relationships and circumstances, of the sort referred to in (a), of each legal or natural person working for the firm who was involved in preparing the substance of the research recommendation, including, in particular, for a firm which is an investment firm, disclosure of whether his remuneration is tied to investment banking transactions performed by the firm or any affiliated company.

2. (2)

   If the firm is a legal person, the information to be disclosed in accordance with (1) must at least include the following:

   1. (a)

      any interests or conflicts of interest of the firm or of an affiliated company that are accessible, or reasonably expected to be accessible, to the persons involved in the preparation of the substance of the research recommendation; and

   2. (b)

      any interests or conflicts of interest of the firm or of affiliated companies known to persons who, although not involved in the preparation of the substance of the research recommendation, had or could reasonably be expected to have access to the substance of the research recommendation prior to its dissemination, other than persons whose only access to the research recommendation is to ensure compliance with relevant regulatory or statutory obligations, including the disclosures required under this section.

3. (3)

   If the disclosures required under (1) and (2) would be disproportionate in relation to the length of the research recommendation distributed, a firm may, instead, make clear and prominent reference in the research recommendation to the place where such disclosures can be directly and easily accessed by the public (such as a hyperlink to the disclosure on an appropriate internet site of the firm).

4. (4)

   The requirements in (1) do not apply, in the case of non-written research recommendations, to the extent that they are disproportionate.

1. (1)

   A research recommendation produced by a firm must disclose clearly and prominently the following information on its interests and conflicts of interest:

   1. (a)

      major shareholdings that exist between it or any affiliated company on the one hand and the relevant issuer on the other hand, including at least:

      1. (i)

         shareholdings exceeding 5% of the total issued share capital in the relevant issuer held by the firm or any affiliated company; or

      2. (ii)

         shareholdings exceeding 5% of the total issued share capital of the firm or any affiliated company held by the relevant issuer;

   2. (b)

      any other financial interests held by the firm or any affiliated company in relation to the relevant issuer which are significant in relation to the research recommendation;

   3. (c)

      if applicable, a statement that the firm or any affiliated company is a market maker or liquidity provider in the securities of the relevant issuer or in any related derivatives;

   4. (d)

      if applicable, a statement that the firm or any affiliated company has been lead manager or co-lead manager over the previous 12 months of any publicly disclosed offer of securities of the relevant issuer or in any related derivatives;

   5. (e)

      if applicable, a statement that the firm or any affiliated company is party to any other agreement with the relevant issuer relating to the provision of investment banking services, provided that:

      1. (i)

         this would not entail the disclosure of any confidential commercial information; and

      2. (ii)

         the agreement has been in effect over the previous 12 months or has given rise during the same period to a payment or to the promise of payment; and

   6. (f)

      if applicable, a statement that the firm or any affiliated company is party to an agreement with the relevant issuer relating to the production of the research recommendation.

2. (2)

   A firm must disclose, in general terms, in the research recommendation the effective organisational and administrative arrangements set up within the firm for the prevention and avoidance of conflicts of interest with respect to research recommendations, including information barriers.

3. (3)

   In the case of an investment firm or a credit institution, if a legal or natural person working for the firm who is involved in the preparation of a research recommendation, receives or purchases shares of the relevant issuer prior to a public offering of those shares, the price at which the shares were acquired and the date of acquisition must also be disclosed in the research recommendation.

4. (4)

   A firm, which is an investment firm or a credit institution, must publish the following information on a quarterly basis, and must disclose it in its research recommendations:

   1. (a)

      the proportion of all research recommendations published during the relevant quarter that are "buy", "hold", "sell" or equivalent terms; and

   2. (b)

      the proportion of relevant investments in each of these categories, issued by issuers to which the firm supplied material investment banking services during the previous 12 months.

5. (5)

   If the requirements under (1) to (4) would be disproportionate in relation to the length of the research recommendation, a firm may, instead, make clear and prominent reference in the research recommendation to the place where such disclosure can be directly and easily accessed by the public (such as a hyperlink to the disclosure on an appropriate internet site of the firm, or, if relevant, to the firm'sconflicts of interest policy).

6. (6)

   In the case of non-written research recommendations, the requirements of (1) do not apply to the extent that they are disproportionate.

If a firm disseminates a research recommendation produced by a third party, the research recommendation must identify the firm clearly and prominently.

1. (1)

   If a research recommendation produced by a third party is substantially altered before dissemination by a firm:

   1. (a)

      the disseminated material must clearly describe that alteration in detail; and

   2. (b)

      if the substantial alteration consists of a change of the direction of the recommendation (such as changing a "buy" recommendation into a "hold" or "sell" recommendation or vice versa), the requirements laid down in COBS 12.4.5 R to COBS 12.4.11 G on producers must be met by the firm, to the extent of the substantial alteration.

2. (2)

   A firm which disseminates a substantially altered research recommendation must have a formal written policy so that the persons receiving the information may be directed to where they can have access to the identity of the producer of the research recommendation, the research recommendation itself and the disclosure of the producer's interests or conflicts of interest, provided that these elements are publicly available.

3. (3)

   If a firm disseminates a summary of a research recommendation produced by a third party, it must:

   1. (a)

      ensure that the summary is fair, clear and not misleading;

   2. (b)

      identify the source research recommendation; and

   3. (c)

      identify where (to the extent that they are publicly available) the third party's disclosures relating to the source research recommendation can be directly and easily accessed by the public.

4. (4)

   Paragraphs (1) and (2) do not apply to news reporting on research recommendations produced by a third party where the substance of the research recommendation is not altered.

If a firm, which is an investment firm or a credit institution, disseminates a research recommendation produced by a third party:

1. (1)

   the name of the competent authority of the firm must be clearly and prominently indicated on the disseminated material;

2. (2)

   if the producer of the research recommendation has not already disseminated it, the requirements in COBS 12.4.10 R must be met by the firm as if it had produced the research recommendation itself; and

3. (3)

   if the firm has substantially altered the research recommendation, the requirements laid down in COBS 12.4.4 R to COBS 12.4.10 R must be met by the firm as if it had produced the research recommendation itself.