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NISM Certifications · NISM-Series-XV: Research Analyst · Qualities of a Good Research Report

An analyst's report recommends 'Buy' on a stock. Her firm's proprietary desk holds a large position in it, and she has no personal holding. Considering what a high-quality, compliant report should do, which action is most appropriate?

The report should disclose the firm's relevant interest or conflict so readers can weigh the recommendation. The analyst having no personal holding does not remove the firm's conflict, and changing the view or telling only compliance would not inform investors.

  1. AOmit any mention because she personally holds no shares
  2. BDisclose the firm's relevant interest or conflict in the report so readers can weigh the recommendation accordinglyCorrect
  3. CChange the recommendation to Hold to avoid any conflict
  4. DDisclose only to the compliance team and not in the report

Explanation

Credibility rests on disclosure of material conflicts, including those of the firm and not just the analyst. Silently altering the view distorts the analysis, and internal-only disclosure does not inform readers. The correct step is to disclose the interest in the report.

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