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CFA Level I · CFA Level I Exam · Equity Analyst Research Reports

A sell-side analyst's employer is the lead underwriter on a pending bond offering for a company the analyst covers. Which action by the analyst is most appropriate?

The most appropriate action is to disclose the employer's underwriting relationship in the report. This lets readers judge possible bias. Leaving it out because of no personal interest, or raising the rating to help the deal, violates independence and disclosure expectations.

  1. ADisclose the underwriting relationship in the report so readers can assess possible biasCorrect
  2. BOmit the relationship from the report because the analyst personally has no financial interest
  3. CRaise the rating to support the offering and disclose the relationship only if clients ask

Explanation

Investment banking relationships create a potential conflict of interest that must be disclosed prominently, regardless of the analyst's personal holdings. Withholding the disclosure or inflating the rating breaches the duty of independence and objectivity.

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