Introduction

Welcome to Research Activities, Research Analyst Supervision, and Public Appearances: the rulebook that keeps a broker-dealer's (BD's) research department insulated from the firm's investment banking business, governs what gets disclosed in a research report and on a CNBC appearance, and sets the quiet periods around offerings the firm has just underwritten. This is the research-supervision layer of Function 5 on the Series 24 exam.

Exam Weight: Part of 21% (~32 questions across Function 5)

What You'll Learn

In this unit, you'll cover:

• What Counts as "Research": The two-part research-report test under FINRA's research-analyst conflicts rule, the carve-outs for macro commentary and broad-index discussions, the definition of a research analyst triggering Series 86/87 qualification, and the Exchange Act "investment discretion" hook
• The Research-Analyst Conflicts Framework: Written supervisory policies for research conflicts, the information barrier between research and investment banking, the prohibition on IB review of research conclusions, the anti-retaliation rule, and personal-trading restrictions on analysts
• Compensation, Approval, and Disclosure: The annual compensation review by a committee that excludes investment banking, the Series 16 Supervisory Analyst (SA) approval requirement, front-page disclosure obligations (1% beneficial ownership, IB compensation in past 12 months / next 3 months, rating distribution), and third-party research distribution rules
• Research Safe Harbors During Offerings: How a participating broker-dealer publishes research during a registered distribution without the report becoming an illegal prospectus: the different-class research safe harbor and the regular-coverage safe harbor for issuer-specific or industry research
• Quiet Periods Around Offerings: The 10-calendar-day post-IPO quiet period, the 3-calendar-day post-secondary quiet period, the EGC (Emerging Growth Company) carve-out, the elimination of lock-up quiet periods, and the significant-news authorization
• Public Appearances and Regulation AC: The definition of a public appearance under the research-analyst conflicts rule, the on-air disclosure obligations, the per-report Reg AC certification, and the quarterly public-appearance certification with its 120-day disclosure consequence on missed certifications
• Soft Dollars: The buy-side safe harbor that lets a money manager pay above-lowest commissions for research and brokerage services, the eligible/ineligible categories, the mixed-use allocation rule, and the records requirement

Why This Matters

The Series 24 exam tests three principal-level questions on this material:

• Whether the firm has built and supervised an information barrier that keeps investment banking out of research conclusions, compensation decisions, and pre-publication review under the research-analyst conflicts rule
• Whether disclosures in research reports and public appearances (1% firm ownership, IB compensation history, analyst conflicts, ratings distribution, Reg AC certification) have been captured on time and on the front page where the research-analyst conflicts rule requires them
• Whether the firm has stayed off the air during the 10-day post-IPO and 3-day post-secondary quiet periods, stayed inside the research safe harbors when publishing during a deal, and documented the significant-news authorization when it published during a quiet period

Three concrete examples of Function-5 violations:

• A research analyst whose compensation gets influenced by an investment banking head has just violated the research-analyst conflicts rule
• A CNBC appearance on a stock the firm just underwrote five days ago has violated the 10-day IPO quiet period
• A research report on a company that initiates coverage the day a follow-on prices is gun-jumping under the Securities Act offering rules because the regular-coverage safe harbor's regular-course condition was not met

Every one of these is a Function-5 question on the principal exam.

Let's start with what actually counts as "research" - because the rest of this unit only applies if a communication crosses the research-report line.