1The purpose of this chapter is to:2

1. (1)

   2set out specific requirements 2relating to the production and dissemination of investment research and non-independent research; and

2. (2)

   3provide guidance on matters in the 3Market Abuse Regulation relating to the disclosures to be made in, and about, 3investment recommendations.

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The EEA territorial scope rule modifies the general rule of application to the extent necessary to be compatible with European law (see paragraph 1.1 of Part 2 of COBS 1 Annex 1). This means that COBS 12.2 and COBS 12.3.4 G also apply to passported activities carried on by a UKMiFID investment firm from a branch in another EEA state, but do not apply to the United Kingdombranch of an EEAMiFID investment firm in relation to its MiFID business.

The concept of dissemination of investment research to clients or to the public is not intended to include dissemination exclusively to persons within the group of the firm.

Persons whose responsibilities or business interests may reasonably be considered to conflict with the interests of the persons to whom investment research is disseminated include corporate finance personnel and persons involved in sales and trading on behalf of clients or the firm.

Firms are reminded that they must also comply with COBS 11.7 (Rule on personal account dealing).

Knowledge by a financial analyst or other relevant person that the firm intends to produce or disseminate investment research to its clients or to the public (including in circumstances where research material has not yet been written) could constitute knowledge of the likely timing and content of investment research under COBS 12.2.5 R (1).

For the purposes of COBS 12.2.5 R (2):

1. (1)

   current recommendations should be considered to be those recommendations contained in investment research which have not been withdrawn and which have not lapsed; and

   [Note: recital 34 of the MiFID implementing Directive]

2. (2)

   exceptional circumstances in which financial analysts and other relevant persons may, with prior written approval, undertake personal transactions in financial instruments to which investment research relates should include those circumstances where, for personal reasons relating to financial hardship, the financial analyst or other relevant person is required to liquidate a position.

   [Note: recital 31 of the MiFID implementing Directive]

Small gifts or minor hospitality below a level specified in the firm'sconflicts of interest policy and mentioned in the description of that policy that is made available to clients in accordance with COBS 6.1.4 R (8) should not be considered as inducements for the purposes of COBS 12.2.5 R (3).

A financial analyst should not become involved in activities other than the preparation of investment research where such involvement is inconsistent with the maintenance of the financial analysts objectivity. The following should ordinarily be considered as inconsistent with the maintenance of a financial analyst's objectivity:

1. (1)

   participating in investment banking activities such as corporate finance business and underwriting; or

2. (2)

   participating in 'pitches' for new business or 'road shows' for new issues of financial instruments; or

3. (3)

   being otherwise involved in the preparation of issuer marketing.

The FCA would expect a firm'sconflicts of interest policy to provide for investment research to be published or distributed to its clients in an appropriate manner. For example, the FCA considers it will be:

1. (1)

   appropriate for a firm to take reasonable steps to ensure that its investment research is published or distributed only through its usual distribution channels; and

2. (2)

   inappropriate for an employee (whether or not a financial analyst) to communicate the substance of any investment research, except as set out in the firm'sconflicts of interest policy.

The FCA would expect a firm to consider whether or not other business activities of the firm could create the reasonable perception that its investment research may not be an impartial analysis of the market in, or the value or prospects of, a financial instrument. A firm would therefore be expected to consider whether its conflicts of interest policy should contain any restrictions on the timing of the publication of investment research. For example, a firm might consider whether it should restrict publication of relevant investment research around the time of an investment offering.

The FCA considers that the significant conflicts of interest which could arise are likely to mean it is inappropriate for a financial analyst or other relevant person to prepare investment research which is intended firstly for internal use for the firm's own advantage, and then for later publication to its clients (in circumstances in which it might reasonably be expected to have a material influence on its clients' investment decisions).

In accordance with SYSC 10, a firm will be expected to take reasonable steps to identify and manage conflicts of interest which may arise in the production of non-independent research. Situations where conflicts of interest can arise include:

1. (1)

   relevant persons trading in financial instruments that are the subject of non-independent research which they know the firm has published or intends to publish before clients have had a reasonable opportunity to act on it (other than when the firm is acting as market maker in good faith and in the ordinary course of market making, or in the execution of an unsolicited client order); and

2. (2)

   preparation of non-independent research which is intended firstly for internal use by the firm and then for later publication to clients.

The disclosures required under article 20(3) of the Market Abuse Regulation2 may, if the person2 so chooses, be made by graphical means (for example by use of a line graph).

A person may choose to disclose significant shareholdings above a lower threshold than is required by article 20(3) of the Market Abuse Regulation.2

In relation to companies limited by shares and incorporated in Great Britain, the most meaningful measure of "total issued share capital" is likely to be the concept of "paid up and issued share capital" under the Companies Act 1985 or Companies Act 2006 (as applicable)1.

Where article 20(3) of the Market Abuse Regulation requires a disclosure of the proportions of all investment recommendations published that are “buy”, “hold”, “sell” or equivalent terms, the FCA considers it important for these equivalent terms to be consistent and meaningful to the recipients in terms of the course of actions being recommended, particularly for non-equity material.2