Recommendations & Analysis

Recommendations

In this context a recommendation is research or other information recommending or suggesting an investment strategy, explicitly or implicitly concerning financial instruments or their issuers.  It includes opinions as to the present or future value or price of such instruments intended for distribution to the public.

Research or other information recommending or suggesting investment strategy means information produced by an independent analyst, an investment firm, a credit institution or any other person whose business is to produce recommendations or a person working for any of them that, directly or indirectly, expresses a particular investment recommendation in respect of a financial instrument or its issuer.

Research or other information etc. also includes information produced by persons other than those above which directly recommends a particular investment decision in respect of a financial instrument.

Duty of Person Recommending

A person who produces or disseminates recommendations shall take reasonable care to ensure that the recommendations are fairly presented and disclose any interest or conflicts of interests concerning the financial instruments and issuer to which the recommendation relates.

Any person who produces a recommendation shall ensure that the recommendation clearly and prominently discloses the name and title of the individual who prepared the recommendation and the name of the person responsible for its production.

Where the entity responsible for the preparation and production of a recommendation is an investment firm or credit institution, they shall ensure the recommendation clearly and permanently indicates the identity of the relevant competent regulator for the investment firm or credit institution.  Where the person responsible for the preparation and production of a recommendation is neither a credit institution or investment firm but is subject to self-regulatory codes of standards, the relevant person should ensure that there is a clear and permanent reference to those codes or standards in the recommendation.

A person responsible for the preparation and production of a recommendation shall take reasonable care to ensure that

• the facts are clearly distinguished from interpretations, estimates, opinions and other types of non-factual information,
• that all sources are reliable or where there is any doubt as to whether a source is reliable that it is clearly indicated and,
• all projections forecasts and price targets are clearly labelled as such and
• that material assumptions made in producing or using them are indicated.

The relevant person shall take reasonable care to ensure that a recommendation can be justified to the regulator if justification is sought for the recommendation.

Independent Analysis

In the case of an independent analyst, investment firm, credit institution-related company or any other person whose main business is to produce recommendations, that person and persons working for them are to ensure that all substantially material sources are indicated, including a description of the relevant issuer, whether or not the recommendation has been disclosed to that issuer and whether or not following such a disclosure the recommendation has been amended before being disseminated. Any basis, evaluation, or other methodology used to evaluate a financial instrument or its issuer or to set a price target for a financial instrument must be adequately summarised.

Recommendation Requirements

The meaning of any recommendation made such as buy, sell or hold which may include the time horizon of the investment to which the recommendation relates is to be adequately explained and any appropriate risk warning including a sensitivity analysis of the relevant assumptions indicated.

Reference is to be made to the planned frequency of updates of the recommendation and to any major changes in the coverage policy previously announced.  The date on which the recommendation was first released is to be indicated clearly and permanently as well as any relevant date and time for any financial instrument price mentioned.  Where a recommendation differs from recommendations concerning the same financial instrument or issuer issued during the previous 12 months, this change and the date of the earlier recommendation are to be indicated clearly and prominently.

Where the first three requirements above (sources, valuation basis, meaning of recommendation) would be disproportionate in relation to the length of the recommendation distributed, it is sufficient to make clear and prominent reference in the recommendation to a place where the required information can be directly and easily accessed by the public, such as a direct Internet link to that information on the appropriate site of that person provided that there has been no change in the methodology or basis of valuation used.

Disclosure in Recommendations

A person shall disclose in any recommendation all relationships and circumstances that may reasonably be expected to impair the objectivity of the recommendation.  In particular, where the person concerned has a significant financial interest in one or more of the instruments, the subject of the recommendation or there is a significant conflict of interest with respect to an issuer to which the recommendation relates, this must be disclosed.

Where the relevant person above is a company or other corporation, the information disclosed shall apply to conflicts of interest of related companies that are accessible or reasonably accessible to the person involved in the preparation of the recommendation and conflicts of interest of the company or related companies known to persons who although not involved in the preparation had or could reasonably be expected to have access to the recommendation prior to its publication.  Generally, where the person is a company, the obligation applies to persons providing a service as an employee or otherwise to the company.

Where disclosure under the regulations would be disproportionate, it is sufficient in some cases, to make reference to a place where it can be usually accessed such as an Internet site.

Where in the cases of independent analysis, an investment firm, a credit institution, a related company or anyone whose main business is to produce recommendations, the person making the recommendation shall clearly and prominently disclose the following

• information on their interests and conflict of interests
• major shareholding that exists between that person or a related company and the issuer concerned.
• other significant financial interests held by that person or related company in the issuer.
• where applicable, a statement that the person or the related company is a market maker or liquidity provider in the instruments of the issuer.
• where applicable, a statement that the relevant person or the related company has been the lead manager or co-lead manager during the previous 12 months of a publicly disclosed offer of financial instruments of the issuer.
• where applicable, a statement that the relevant person or any related company is party to any other agreement with the issuer relating to the provision of investment banking services, provided this would not entail the disclosure of any confidential commercial information and the agreement has been in effect during the previous 12 months, or has given rise during the same period to payment of compensation.
• where applicable, a statement that the relevant person or related company is party to an agreement with the issuer relating to the production of the recommendation.

Major shareholdings include any shareholdings that, alone or together with holdings by related companies, exceed 5 % of the total shareholding of the issuer.

General Disclosures

An investment firm or a credit institution shall clearly and prominently disclose, in general terms,

• the organisational and administrative arrangements within the firm for the prevention and avoidance of conflicts of interest with respect to recommendations, including information barriers,
• with respect to persons working for the firm as employees or providing other services, who are involved in preparing a recommendation, whether or not such remuneration is tied to banking transactions performed by the firm or a related company,
• where persons above receive or purchase shares of the issuers prior to a public offering, the price at which the shares were acquired and the date of acquisition,
• on a quarterly basis, the proportion of all recommendations that fall within the categories buy, hold, sell or equivalent terms, as well as the proportion of issuers corresponding to each categories to which the investment firm or the credit institution, has supplied material investment banking services over the previous 12 months.

Where disclosure would be disproportionate, it is sufficient to make clear and prominent reference in the recommendation to a place where the disclosure can be directly and easily accessed by the public, such as an Internet link.

Another’s Recommendation

Relevant person who disseminates recommendations produced by third party shall ensure that it indicates clearly and prominently the identity of that relevant person.

Where there is a dissemination of a summary of a recommendation produced by a third party, persons disseminating the summary shall ensure that it

• is clear and not misleading,
• mentions such of the following that are publicly available source documents and where disclosures relating to the source document can be easily accessed by the public.

Where in the case of an investment firm or credit institution or a person working for them as employee or service provider, it disseminates recommendations produced by a third party, they should ensure that the recommendations includes a clear and prominent disclosure of the name of the regulator of the investment firm or credit institution.  Where a producer of a recommendation above has not already disseminated the recommendation through a distribution channel, the requirements are to be met by the disseminator of the recommendation.

Where an investment firm or credit institution substantially alters a recommendation, the above obligation shall apply with all necessary modifications.

The above obligations may be satisfied, in the case of a non-written recommendation, by reference to a place where the information concerned may be directly and easily accessed by the public, such as a direct Internet link.

Alteration

Where a recommendation produced by a third party is substantially altered within the disseminated information, the person disseminating the information shall clearly indicate the substantial alteration in detail.

Where a substantial alteration above consists in the change of the direction of the recommendation, the person disseminating the substantial alteration shall comply with the above obligations in respect of the substantial alteration.

A person who disseminates a substantially altered recommendation shall have a written policy so that the persons receiving the information can be directed to where they can have access to such of the following that are publicly available –

• identity of the producer of the recommendation,
• disclosure of the producer’s interests or conflicts of interest.

The above obligations do not apply to news reporting on recommendations produced by third parties where the substance of the recommendation is not altered.

Journalists

The above obligations do not apply to recommendations produced or disseminated by journalists in the State subject to equivalent appropriate regulation.

Where a journalist acts in his professional capacity as such, the dissemination of information will be assessed for the purposes of the definition of “market manipulation”, taking into account the code of conduct governing the journalist’s profession, unless the journalist derives directly or indirectly, advantage or profit from the dissemination of the information concerned.

Appointment of Assessor

As well as the general systems of enforcement available to the Central Bank such as powers to appoint authorised officers, there is a special mechanism whereby the bank may appoint as a assessor to consider where it is suspected that a prescribed contravention is being committed.  The assessor conducts an assessment as to whether or not there has been a contravention.  If he so finds, he reports on what he considers to be the appropriate sanction.

The assessor need not be an officer or official of the Bank.  The Central Bank may provide the assessor with such administrative, technical, and legal services as it considers necessary.

The assessor shall consider submissions made by the person being assessed and conduct investigations in relation to the assessment as he considers appropriate before issuing the assessment.

Where the assessor decides that there has been a prescribed contravention, he shall ensure the assessment includes the grounds, statement in summary form of the evidence on which it is based, statement of the sanction he considers appropriate. The assessment may constitute the Bank’s decision.

There are a range of powers including powers of authorised officers to investigate, take documents etc.  There is power to require witnesses to appear and give evidence, produce documents and attend before an assessor.  An oath may be administered. The Bank or the assessor may refer a question of law for the determination of the court.

Where an assessor is of the opinion that the assessee is committing or has committed a prescribed contravention, the Central Bank is to give a copy of the adverse assessment to the assessee.  The assessee may appeal to the court under the Regulation.  The Bank may apply to a court for an order confirming the adverse assessment.   The assesse may appeal against a adverse assessment within 28 days or such further period as the court allows.

Adverse Assessment

In the case of an adverse assessment, the Central Bank may impose a range of sanctions including

• private caution or recommend a reprimand,
• public caution or reprimand,
• direction to pay a penalty up to €2,500,000,
• direction disqualifying the assessee from being concerned in the management of any regulated financial service provider,
• An order directing the committing of the prescribed contravention in order to pay costs.

Where there is no appeal against the adverse assessment or the appeal is lodged but withdrawn or varied, the Central Bank may apply to the court for an order confirming the adverse assessment, including the specified sanction.

The court, if they do so, confirms or varies the adverse assessment or sets it aside, whether in whole or part or admits the case to be decided again by the Central Bank in accordance with the directions of the court.  The court must ensure the assessor has the opportunity to appear.  It may make interim or interlocutory orders as the court considers appropriate.