Member Article

Proposed guidelines have been formulated to prevent analysts’ trading activities or financial interests from prejudicing their investment research and recommendations. The guidelines are scheduled to come into effect on 1 April 2005 and are to form part of the Code of Conduct for Persons Licensed by or Registered with the SFC. The guidelines cover only shares, stock warrants or stock options listed in Hong Kong or investment research that has an influence on such securities. Investment research does not include any analysis on macro-economic or strategic issues. Research on fixed income securities, foreign exchange and collective investment schemes is also excluded. The proposed changes in the guidelines include: • Extension of blackout period A longer trading blackout period will be imposed, so that for 30 days prior to and three business days after the issuance of investment research, analysts should not deal in or trade any relevant securities. Similarly, analysts will not be allowed to publish research on relevant securities for 30 days after trading such securities. However certain exemptions may apply. Firms and analysts are allowed to issue research during the blackout periods upon the occurrence of a major, publicly known event that would affect the prices of relevant securities. • Mandatory disclosure at media appearances Licensed persons are no longer allowed to write for print media using pseudonyms. An analyst making a media appearance will be required to disclose his/her name, licence status and whether he/she has a financial interest in the securities covered when making the media appearance. Where unsolicited questions regarding specific securities are raised by the audience or journalists during such media appearances, subject to making the abovementioned disclosures, the analyst may respond and comment or give recommendations, notwithstanding that his and/or his associate(s) may have traded in those securities during the preceding 30 days. • Analysts’ reporting lines and compensation To avoid potential conflicts of interest, a firm that has an investment banking function should not directly link its analysts’ compensation to any specific investment banking transaction, and should not ordinarily pre-approve analyst reports or recommendations. Firms are expected to put in place appropriate control procedures governing information flow between the research and other functions to avoid any potential conflicts of interest.

 

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