Research Activities

The whole unit on one sheet: what counts as research, the conflict framework, disclosures, quiet periods, safe harbors, and soft dollars.

What Counts as "Research"

• Two-part test: (1) information, opinion, or recommendation about an equity security or issuer, AND (2) information reasonably sufficient to base an investment decision on. Both must be present.
• Form is irrelevant: research note, morning call, slide deck, email blast, portal post, podcast transcript, or webinar all qualify if both elements are met.
• Excluded: broad-index commentary, economic/political/market notes, technical analysis of sectors, statistical summaries, security listings, and internal due-diligence reports.
• A research analyst is anyone whose primary job is producing research or specific recommendations (regardless of title), triggering Series 86 (analysis) and Series 87 (regulatory) qualification.

The Conflict Framework: Research vs. Investment Banking

• Written policies required: identify and manage conflicts, promote objective research, and prevent research being used as an IB marketing tool.
• Information barrier: no IB pre-publication review of conclusions (factual review through legal/compliance only), research owns coverage decisions, substantive research/IB communications are chaperoned, no analyst participation in deal pitches or road shows.
• Compensation: may not be tied directly or indirectly to specific IB deals; reviewed at least annually by a committee that excludes IB; a bonus pool sized by IB revenue is the subtle violation.
• Anti-retaliation: no retaliation (or threats) for unfavorable research; a bonus cut or demotion after a sell rating that cost a deal is the trap.
• Personal trading: no front-running a pending report; no trading inconsistent with the analyst's most recent published recommendation. Extends to derivatives, concentrated funds, and anyone able to influence content.

The One-Liners That Win Points

• Series 16 approves reports; Series 24 owns the framework. A Supervisory Analyst (Series 16) or Research Principal must approve every report before publication.
• The 1% ownership disclosure is firm-wide, not just the analyst: prop desk, affiliates, and error accounts aggregate.
• Front-page disclosures must be prominent (or a clear front-page pointer); a buried disclosure fails.
• Fair and equitable distribution: no selective pre-publication tipping, not even to the firm's own trading desk.
• Regular course is the safe-harbor make-or-break: a firm that never covered an issuer cannot initiate coverage during its offering and claim a safe harbor.
• A convertible security is treated as the same class as the underlying common stock for the different-class safe harbor.
• The booster shot (first report after an offering) must clear the quiet period, or it breaks both the conflicts rule and the distribution safe harbor.
• Emerging Growth Companies (EGCs) are exempt from the quiet periods.

Numbers to Lock In

Distribution Safe Harbors and Soft Dollars

• Different-class safe harbor: participating broker may publish on a different class than the one being distributed, issuer current in reporting, in the regular course. Convertibles count as the underlying common.
• Regular-coverage safe harbor (two paths): issuer-specific research (issuer eligible for the short-form seasoned registration) OR industry research covering a substantial number of companies with no disproportionate prominence. Fund research was added later.
• Soft-dollar safe harbor protects the buy-side money manager (not the broker-dealer): needs investment discretion, an eligible research/brokerage service, and a good-faith reasonableness determination.
• Eligible soft dollars: research reports, analyst discussions, arranged executive meetings, analytical software, governance research. Ineligible (hard dollars): hardware, mass-market publications, dues, legal fees, travel, pure execution software.
• Mixed-use item (Bloomberg-style terminal): reasonable allocation, hard-dollar the ineligible portion, document the method.

Top Gotchas

• Quiet periods are calendar days, not business days; a Friday-priced IPO clears on the second Monday, not 10 trading days later.
• The IPO quiet period reaches underwriters AND dealers; the secondary reaches managers and co-managers only.
• Analyst/banking separation is structural: an IB head on the comp committee is a per-se violation even with neutral votes.
• Reg AC has two triggers: a per-report certification on every report AND a quarterly public-appearance certification; missing the quarterly one drives the 120-day disclosure.
• Social media posts and podcast spots are public appearances if they recommend a security; disclosures must be made during the appearance, not after.
• Failing a distribution safe harbor makes the report an illegal prospectus (a federal violation), not just a FINRA problem.

One-Breath Recap

A research report is written analysis of an equity or issuer that gives enough to base a decision on, and the moment a communication crosses that line the conflicts rule walls research off from investment banking: no IB conclusion review, no IB-driven pay from a committee that excludes IB, anti-retaliation, and personal-trading limits. Every report gets Supervisory Analyst (Series 16) approval and prominent front-page disclosures (firm-wide 1% ownership, IB compensation past 12 and next 3 months, ratings distribution). Stay off the air for 10 calendar days after an IPO and 3 after a secondary (EGCs exempt), publish during a deal only inside the different-class or regular-coverage safe harbor in the regular course, certify each report and each quarter under Regulation Analyst Certification, and keep the soft-dollar safe harbor to eligible research with the ineligible portion hard-dollared.

Need more than the recap? This is a condensed summary. If it is not enough, read the full Research Activities unit for the complete lesson.