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

Analyst Meera, a registered research analyst, plans to buy shares of a company two days before her firm publishes a 'Buy' report on it, expecting the price to rise. Which statement is correct?

Meera's purchase is prohibited because it is trading ahead of her own report, a form of front-running and a serious conflict of interest. Neither a short holding period, a small trade value nor later disclosure makes it acceptable under the research analyst regulations and code of conduct.

  1. AIt is permitted if she sells within a week
  2. BIt is permitted if the quantity is below Rs 1 lakh
  3. CIt is a conflict of interest and a front-running type of conduct that breaches the code of conduct and regulationsCorrect
  4. DIt is permitted if she discloses the trade in the report after publication

Explanation

Trading ahead of one's own recommendation exploits non-public information about the report and is front-running, which is prohibited. Holding period, trade size or later disclosure does not cure it. Analysts must avoid trading in a manner contrary to or ahead of their recommendations.

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