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NISM Certifications · NISM-Series-XV: Research Analyst · Introduction to Research Analyst Profession

A research analyst at a brokerage wants to cover a company for which the brokerage's investment banking arm is the lead manager of an upcoming public issue. Which approach best manages the conflict?

The conflict is best managed by keeping research separate from and independent of the investment banking team and disclosing the relationship in the report. Letting bankers approve ratings or tying analyst pay to the issue's success would compromise objectivity, and non-listing does not excuse disclosure.

  1. AMaintain separation between research and investment banking, with research not subject to influence by the banking team, and disclose the relationship in the reportCorrect
  2. BLet the investment banking head approve the rating before release
  3. CLink the analyst's variable pay to the success of the issue
  4. DWithhold disclosure since the issue is not yet listed

Explanation

Independence of research requires a functional separation (a 'Chinese wall') and disclosure of the relationship. Giving the banking head approval power or linking pay to the issue creates influence on the rating. Non-listing does not remove the need for disclosure.

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