Research Report Approval, Disclosures, and Dissemination
Quick Answer
Every research report must be approved before publication by a registered Supervisory Analyst (Series 16) or a Research Principal (Series 24 + Series 16 or Series 87). The SA reviews factual basis, conclusions, analyst certifications, and required disclosures. The research-analyst conflicts rule requires front-page (or front-page-pointer) disclosures: analyst ownership of any financial interest in the subject company, material conflicts, member firm 1%-or-greater beneficial ownership, investment banking compensation received in the past 12 months, expected IB compensation in the next 3 months, whether the firm managed or co-managed a public offering in the past 12 months, whether the firm makes a market in the security, rating distribution with the % of each category that received IB services, and definitions of rating terms. Distribution must be fair and equitable to all entitled clients - no selective pre-publication tipping.
The supervisory-analyst approval and the front-page disclosures are how the research-analyst conflicts framework gets enforced report-by-report. Skipping the approval step or leaving a disclosure off the front page makes the violation visible on the document itself.
Supervisory Analyst Approval: Series 16
Research reports must be approved before publication by a person registered as either:
- A Supervisory Analyst under FINRA's principal-registration framework (Series 16 qualification), OR
- A Research Principal (Series 24 General Securities Principal qualification combined with Series 16 or Series 87)
The Series 16 exam is the supervisory qualification specifically for approving research. The Series 24 exam covers the firm's overall research-supervision framework (the research-analyst conflicts procedures, the information barrier, the compensation committee). Most firms maintain at least one person who holds both qualifications because the SA is the report-by-report gatekeeper while the General Securities Principal is the framework owner.
What the SA reviews on each report:
- Factual basis for the analyst's conclusions
- Conclusions must be reasonable on the facts presented
- Analyst certifications (Reg AC certification on the report itself)
- Required disclosures (the front-page disclosures required by the research-analyst conflicts rule)
- Consistency with FINRA communications-with-the-public standards
The SA does not have to agree with the analyst's investment view. The SA has to find that the view has a factual basis, the conclusions follow from the facts, the certifications are present, and the disclosures are complete.
Exam Tip: Gotchas
- Series 16 is the report-approval qualification; Series 24 is the framework qualification. The exam tests the distinction. A firm that has Series 24 principals but no Series 16 SA cannot pre-publication-approve research reports under FINRA rules.
- The SA approves before publication, not after. Post-publication review is supervision but is not approval; the research-analyst conflicts rule requires the approval to be pre-publication.
- The SA does not have to share the analyst's view. The review is for factual basis and disclosure completeness. Disagreement with the conclusion is not grounds for refusing approval if the analyst has a documented basis.
Required Disclosures in Research Reports
Every research report must prominently disclose, on the front page (or with the front page directing the reader to the page where the disclosures appear), the following items:
| Disclosure Category | What Must Be Disclosed |
|---|---|
| Analyst ownership | Ownership by the analyst (or household members) of any financial interest in the subject company, including options, rights, warrants, or futures |
| Material conflicts | Material conflicts of interest of the analyst or member firm of which the analyst knows or has reason to know |
| Firm 1%-or-greater ownership | Member firm ownership of 1% or more of any class of common equity of the subject company (calculated under SEC beneficial-ownership rules) |
| IB compensation past 12 months | Compensation received by the firm from the subject company for investment banking services in the past 12 months |
| IB compensation next 3 months | Whether the firm expects to receive or seek IB compensation from the subject company in the next 3 months |
| Past offering manager role | Whether the firm managed or co-managed a public offering of the subject company's securities in the past 12 months |
| Market making | Whether the firm makes a market in the subject company's securities |
| Insider relationship | Whether the analyst (or member of the analyst's household) is an officer, director, or advisory board member of the subject company |
| Rating distribution | The rating distribution of the firm's universe (e.g., "Buy 50%, Hold 35%, Sell 15%") AND the percentage of each rating category to which the firm has provided IB services in the past 12 months |
| Definitions of rating terms | What "Buy," "Hold," "Sell" mean for this firm, plus a price chart for the subject company plotting recommendations and price target history (where required) |
The disclosure can sit on a separate page if the front page clearly directs the reader to it. Electronic research reports may use a hyperlink to the disclosures provided the link is clear, comprehensive, and prominent.
The 1% beneficial-ownership disclosure is the most heavily tested item because it covers firm-level ownership, not just analyst ownership. Prop desk holdings, affiliate holdings, and even error-account holdings count toward the 1% threshold under the SEC's beneficial-ownership aggregation rules. The SA who approves the report has to confirm the firm-wide aggregate is below 1% (or, if at or above 1%, that the disclosure is on the report).
Exam Tip: Gotchas
- The 1% disclosure is FIRM-WIDE, not analyst. Aggregate holdings across the firm's prop desk, affiliates, and error accounts count. A firm at 1.5% on aggregate that has the analyst at 0% must still disclose because the firm is the disclosure subject.
- Disclosures must be PROMINENT and on the FRONT PAGE (or front-page-pointed). A buried disclosure in a 50-page report does not satisfy the research-analyst conflicts rule.
- The rating-distribution disclosure includes BOTH numbers. The % in each rating category AND the % of each rating category that got IB business. Missing either number is the violation.
- The 12-month / 3-month windows are the IB-compensation disclosure benchmarks. Past 12 months looks backward (received compensation); next 3 months looks forward (expected compensation). The exam tests both directions.
Third-Party Research Distribution
A member firm that distributes third-party research has to comply with a parallel framework:
| Distribution Type | What It Requires |
|---|---|
| Affirmatively distributed third-party research | The firm specifically pushes the research to clients - subject to written policies ensuring it is not materially misleading AND a principal review equivalent to in-house research |
| Independent third-party research | The firm makes the research available without endorsement (e.g., through a portal) - subject to lighter requirements but the firm must disclose the third-party source clearly |
The distinction is whether the firm is "pushing" (curating, recommending, distributing as if it were the firm's own view) versus "shelving" (making available without endorsement). Pushing triggers in-house-equivalent review. Shelving requires only source disclosure.
Exam Tip: Gotchas
- "Affirmatively distributed" is a content-based test, not just a delivery-channel test. The question is whether the firm endorses or curates the third-party research, not whether it sends an email versus posting it to a portal.
- Source disclosure is required for both categories. Whether affirmatively distributed or independently shelved, the third-party origin must be clear.
- Reg AC also applies to third-party research. The firm must obtain the analyst certification or disclose if it cannot. This is covered in the Public Appearances and Reg AC topic.
Fair and Equitable Distribution
A firm may NOT selectively distribute research to favored clients before broader dissemination. All customers entitled to the research must receive it on a fair and equitable basis.
The rule has two sides:
- Pre-publication: Pre-publication disclosure of the substance or timing of a research report to trading desks, sales force, or clients who could trade ahead is prohibited. This is part of the research-analyst conflicts rule's information barrier framework
- Once published, the research goes to all entitled clients on the same timing or, where firm policies tier clients, on tiers that have been documented and approved as a matter of policy rather than case-by-case favoritism
The principal who supervises distribution maintains a distribution log showing when and how each report went out, and the firm's distribution policy is a research-analyst-conflicts document subject to FINRA examination.
Exam Tip: Gotchas
- Pre-publication tipping is a research-analyst-conflicts violation, even to internal trading desks. Letting the firm's own prop desk see a pending downgrade ahead of publication is the textbook front-running setup and a per-se distribution violation.
- "Fair and equitable" allows tiered distribution if the tiers are policy-documented. The exam tests whether the tiers were established by policy or applied ad-hoc to favored clients. Ad-hoc favoritism is the violation.
- The distribution log is the audit trail. A regulator examining the firm's research distribution will ask for the log; the principal's job is to make sure it exists and is contemporaneous.