Research Reports
Research reports are a distinct category of broker-dealer communication. They carry their own rules about when they can be published (quiet periods), how they can be distributed, and what happens when a firm uses reports from outside sources.
Quiet Periods
A quiet period restricts research analysts from publishing research reports about an issuer around the time of a securities offering. The purpose is to prevent research from being used as a marketing tool to hype the offering.
Current Quiet Period Durations
| Offering Type | Who Is Restricted | Quiet Period Duration |
|---|---|---|
| IPO | Syndicate managers and members | 10 days after the offering |
| Secondary offering | Managers and co-managers | 3 days after the offering |
| Secondary offering | Other syndicate members | No quiet period |
These rules are codified in FINRA Rule 2241 and represent a significant reduction from the original 40-day (IPO) and 25-day (secondary) quiet periods that were in effect before the 2015 amendments.
Exam Tip: Gotchas
- Research report quiet periods for IPOs are 10 days (not the old 40-day rule). For secondary offerings, only 3 days for managers/co-managers, and no quiet period at all for other syndicate members. The exam tests the current, shorter timeframes.
Exceptions to Quiet Periods
The quiet period does not prevent a member from publishing a research report if:
- The issuer is an Emerging Growth Company (EGC)
- The offering involves a covered investment fund
- Significant news or a significant event occurs that affects the issuer, and legal or compliance personnel authorize the publication before it is issued
Distribution of Research Reports
Selective Distribution Prohibited
- Research reports must not be selectively distributed to internal trading personnel or particular customers in advance of other entitled customers
- Firms must have written policies and procedures to prevent selective distribution
- The goal is to ensure a level playing field; no customer gets an unfair informational advantage
Fair and Simultaneous Access
When a firm publishes research, all entitled clients should receive it at substantially the same time. Giving a research report to a hedge fund client hours before retail clients would violate the selective distribution prohibition.
Exam Tip: Gotchas
- Selective distribution is prohibited. All entitled clients must get research at substantially the same time. Giving one client early access is a violation, even if the delay is only hours.
Third-Party Research
Broker-dealers sometimes distribute research produced by independent firms. Special rules apply:
Requirements
- Third-party research reports must be clearly labeled as third-party research
- Firms may only distribute third-party research they believe to be objective and reliable
- Firms must review third-party research to ensure it contains no untrue statements of material fact and no false or misleading information
When Distribution Is NOT Deemed to Occur
A member is not considered to have "distributed" third-party research if it is:
- Made available upon customer request (the customer asked for it)
- Available through a member-maintained website (passive availability)
- Provided to a customer in connection with a solicited order where the representative informed the customer of the availability of independent research
Think of it this way: If a customer comes to you and asks for a report, or finds it on your firm's website, the firm did not "push" it out. Only active distribution (sending research to clients) triggers the review and labeling requirements.
Exam Tip: Gotchas
- Third-party research made available on a website or upon customer request is NOT considered "distributed" by the firm. Only actively sending research out triggers the review and labeling requirements.
- Firms must still review third-party research for accuracy before distributing it, even though they did not write it.