COB 6.3 COB 6.3 Investment Research and Offers of Securities
COB 6.3.1 COB 6.3.1
This section applies to an
Authorised Firmpreparing or publishing Investment Research.
COB 6.3.1 Guidance
Researchis seen as a significant potential source of conflicts of interest within an Authorised Firmand therefore an Authorised Firmpreparing or publishing investment research is expected to have adequate procedures, systems and controls to manage effectively any conflicts that arise.
COB 6.3.2 COB 6.3.2
Authorised Firmthat prepares and publishes Investment Researchmust have adequate procedures and controls to ensure:(a) the effective supervision and management of Investment Analysts;(b) that the actual or potential conflicts of interest are proactively managed in accordance with COB section 3.5 ;(c) that the Investment Researchissued to Clientsis impartial; and(d) that the Investment Researchcontains the disclosures described under Rules COB 6.3.3 and COB 6.3.4.
COB 6.3.2 Guidance
Authorised Firm'sprocedures, controls and internal arrangements, which may include Chinese Walls, should limit the extent of Investment Analystsparticipation in corporate finance business and sales and trading activities, and ensure remuneration structures do not affect their independence.
Disclosures in Investment Research
COB 6.3.3 COB 6.3.3
Authorised Firmpublishes Investment Research, it must take reasonable steps to ensure that the Investment Research:(a) clearly identifies the types of Clientsfor whom it is principally intended;(b) distinguishes fact from opinion or estimates, and includes references to sources of data and any assumptions used;(c) specifies the date when it was first published;(d) specifies the period the ratings or recommendations are intended to cover;(e) contains a clear and unambiguous explanation of the rating or recommendation system used;(f) includes a distribution of the different ratings or recommendations, in percentage terms:(i) for all Investments;(ii) for Investmentsin each sector covered; and(iii) for Investments, if any, where the Authorised Firmhas undertaken corporate finance business with or for the Issuerover the past 12 months; and(g) if intended for use only by a Professional Clientor Market Counterparty, contains a clear warning that it should not be relied upon by or distributed to Retail Clients.
COB 6.3.3 Guidance
Authorised Firmmay consider including a price chart or line graph depicting the performance of the Investmentfor the period that the Authorised Firmhas assigned a rating or recommendation for that investment, including the dates on which the ratings were revised for the purposes of the requirements such as in (d) and (e) of COB Rule 6.3.3.
COB 6.3.4 COB 6.3.4
For the purposes of this section, an
Authorised Firmmust take reasonable steps to ensure that when it publishes Investment Research, and in the case where a representative of the Authorised Firmmakes a Public Appearance, disclosure is made of the following matters:(a) any financial interest or material interest that the Investment Analystor a Close Relativeof the analyst has, which relates to the Investment;(b) the reporting lines for Investment Analystsand their remuneration arrangements where such matters give rise to any conflicts of interest which may reasonably be likely to impair the impartiality of the Investment Research;(c) any shareholding by the Authorised Firmor its Associateof 1% or more of the total issued share capital of the Issuer;(d) if the Authorised Firmor its Associateacts as corporate broker for the Issuer;(e) any material shareholding by the Issuerin the Authorised Firm;(f) any corporate finance business undertaken by the Authorised Firmwith or for the Issuerover the past 12 months, and any future relevant corporate finance business initiatives; and(g) that the Authorised Firmis a Market Makerin the Investment, if that is the case.
COB 6.3.4 Guidance
The requirements in COB Rule 6.3.4(a) and (b) apply to an
Authorised Firmin addition to other requirements in the DFSA Rulebook. For example, an Authorised Firmis required to take reasonable steps to identify actual or potential conflicts of interest and then prevent or manage them under GEN Rule 4.2.7 (Principle 7 – Conflicts of Interest). Further, COB Rule 6.3.2 requires an Authorised Firmto have adequate procedures and controls when it prepares or publishes Investment Research.[Added] DFSA RM97/2012 (Made 24th July 2012) [VER20/07-12]
Restrictions on Publication
COB 6.3.5 COB 6.3.5
Authorised Firmacts as a manager or co-manager of an initial public offering or a secondary offering, it must take reasonable steps to ensure that:(a) it does not publish Investment Researchrelating to the Investmentduring a Quiet Period; and(b) an Investment Analystfrom the Authorised Firmdoes not make a Public Appearancerelating to that Investmentduring a Quiet Period.
COB 6.3.5 Guidance
The DFSA does not consider the same conflicts of interest mentioned in this section arise if an
Investment Analystprepares Investment Researchsolely for an Authorised Firm'sown use and not for publication. For example, if the research material is prepared solely for the purposes of the Authorised Firm'sproprietary trading then the use of this information would fall outside the restrictions placed on publications.
Restriction on Own Account Transactions
COB 6.3.6 COB 6.3.6(1) Unless (2) applies, an
Authorised Firmor its Associatemust not knowingly execute an Own Account Transactionin an Investmentor related Investments, which is the subject of Investment Research, prepared either by the Authorised Firmor its Associate, until the Clientsfor whom the Investment Researchwas principally intended have had a reasonable opportunity to act upon it.(2) The restriction in (1) does not apply if:(a) the Authorised Firmor its Associateis a Market Makerin the relevant Investment;(b) the Authorised Firmor its Associateundertakes an Execution-Only Transactionfor a Client; or(c) it is not expected to materially affect the price of the Investment.
COB 6.3.6 Guidance
The exceptions in COB Rule 6.3.6(2) allow an
Authorised Firmto continue to provide key services to the market and to its Clientseven if the Authorised Firmwould be considered to have knowledge of the timing and content of the Investment Researchwhich is intended for publication to Clients, for example when it is impractical for an Authorised Firmto put in place a Chinese Wallbecause the Authorised Firmhas few Employeesor cannot otherwise separate its functions.
Offers of Securities
Authorised Firmcarries out a mandate to manage an Offerof Securities, it must implement adequate internal arrangements, in accordance with COB section 3.5, to manage any conflicts of interest that may arise as a result of the Authorised Firm'sduty to two distinct sets of Clientsnamely the corporate finance Clientand the investment Client.
COB 6.3.8 COB 6.3.8
For the purposes of COB Rule 6.3.7, when an
Authorised Firmaccepts a mandate to manage an Offer, it must take reasonable steps to disclose to its corporate finance Client:(a) the process the Authorised Firmproposes to adopt in order to determine what recommendations it will make about allocations for the Offer;(b) details of how the target investor group, to whom it is planned to Offerthe Securities, will be identified;(c) the process through which recommendations are prepared and by whom; and(d) (if relevant) that it may recommend placing Securitieswith a Clientof the Authorised Firmfor whom the Authorised Firmprovides other services, with the Authorised Firm'sown proprietary book, or with an Associate, and that this represents a potential conflict of interest.
COB 6.3.8 Guidance
It is the DFSA's expectation that an
Authorised Firm'sprocedures to identify and manage conflicts of interest should extend to the allocation process for an offering of Securities.