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Research Policy

Under the FSA’s principles-based approach, firms are responsible for identifying and managing any conflicts of interest arising in their business that might compromise the impartiality of the firm’s research analysts and their research. ADS has issued this  policy which sets out the potential conflicts of interest which may affect the impartiality of ADS’s investment research and the systems, controls and procedures employed to ensure, as far as is practicable, those conflicts are effectively managed.

The EU Directive on Market Abuse and its implementing measures add to these provisions by requiring that investment analysis meets specified standards as to content and includes certain disclosures to enable those to whom it is distributed to make an informed judgement as to whether or not it may be biased.

The new requirements apply in respect of ‘research recommendations’, and this term is not synonymous with investment research – the term used by the FSA in its rules and guidance on investment research. The term ‘research recommendations’ only relates to information concerning financial instruments admitted to trade on a regulated market. The term ‘investment research’, although narrower in meaning, is not restricted to information about securities traded on regulated markets, and therefore extends to securities traded on unregulated markets.

ADS has adopted the policy of making the required disclosures where appropriate irrespective of whether the information concerns financial instruments traded on a regulated market or not.

In addition, ADS maintains a “restricted list” of companies upon which research is being prepared which is monitored by Compliance Department with respect to employee share dealing.

This policy explains the measures that Alexander David Securities Limited (“ADS”) have introduced to handle any conflicts of interest in respect of investment research. Its purpose is also to clearly distinguish between investment research, issued by ADS and identified as being impartial, and non-independent research, issued by ADS and identified as non-impartial.    

This policy is issued pursuant to our requirement to comply with the FSA’s Conduct of Business Rules and is not intended to create any third party rights or duties that would not exist if the Policy had not been made available, or to form part of any contract between ADS and any other person.

The FSA has distinguished between “Investment Research” and “Non-Independent Research”.
Investment Research can only be produced by persons who do not have responsibilities that might conflict with the interests of the clients who may rely upon that piece of research. It must be labelled or described as investment research or in similar terms, or is otherwise presented as objective, impartial or an independent explanation of the matters contained in the recommendation. Non-Independent Research is categorised as such because it has been prepared by persons who may be exposed to such conflicts of interest and is considered non-objective or non-impartial. It is also referred to as a “Marketing Communication”.

ADS is divided into departments with physical restrictions to the Corporate Finance and Research Departments. Certain research by analysts may also be conducted externally i.e. outside the office

ADSs’Research Department is the only department that produces research material that comes within the definition of “Investment Research”as defined by the FSA. The department also produces “Non-Independent Research” as defined by the FSA, but this may be to supplement or assist non-objective research and financial promotion that may have been conducted in another department within the organisation.  

ADS currently employs one research analyst who, on a day-to-day basis, is supervised directly by, and reports to, the Chief Executive but who also reports to the Board of Directors. The reporting line is structured so as to avoid certain conflicts of interest, however, the Chief Executive is also the Head of Corporate Finance and as such conflicts of interests may exist. Given the size and nature of our business, it is standard practice that the Chief Executive should oversee all parts of the business and determine, together with the Board of Directors, the overall strategy of ADS. In doing so the Chief Executive is required to, and does, maintain independence of action in respect of the different business lines, including the research function. Accordingly, we are satisfied that the investment research function is an independent function and that the actions of the Chief Executive will not affect ADS’s ability to produce impartial investment research.   

ADSs’research on large companies will normally be classified as investment research and will be based upon our own research of the company and research from third parties. In the event that it is not impartial it will be marked as marketing communication (see below).

ADSs’ investment research on smaller companies, investment trusts, convertible and preference share information may be gathered through discussions with the company management and/or by conducting independent sector research and analysis. Research on these companies and investment types may be considered non-independent research where analysts for certain purposes represent the interests of companies referred to in the research (by, for example, attending roadshows to market any new issues by the company). Similarly, conflicts of interest can also arise where duties and obligations are owed to corporate finance clients, broking clients as well as ADS’s own interests or those of its employees (see also ADS’s Conflicts of Interest Policy).

Whenever non-independent research is produced it will be clearly identified with the following disclaimer “This research is classified as being a ""marketing communication"" as defined by the FSA’s Handbook”.In accordance with the FSA Handbook COBS 12.3, it will also contain a clear and prominent statement that it has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Marketing communication is a form of financial promotion and is therefore subject to FSA’s financial promotion rules in COB 4, including the requirement for it to be fair, clear and not misleading.    

Whenever ADS produce written research material, which includes emails, it will be accompanied by a disclaimer which will clearly identify the research as being impartial or non-impartial. ADS’s policy is not to distribute non-independent research to its private customers as it is not considered suitable to promote such material. 

Investment research is subject to oversight and approval by the Compliance Department prior to distribution.

Analysts may assist in the research of corporate finance business opportunities and provide ideas to sales or trading staff subject to the firm’s controls and procedures to prevent dealing ahead of research.

Subject to the firm’s Chinese wall policy and to Corporate Finance leading the pitch, analysts may assist in promoting the firm’s services to potential corporate clients, and advise Corporate Finance on the merits (or otherwise) of the proposed business. However, analysts are required to advise potential clients that they will exercise professional judgement in the preparation of their research and that it will be produced independently of the subject company. Notwithstanding the foregoing, analysts may, at their discretion, submit their draft research to the subject company for the checking of factual statements (see below).

Editorial control over draft research is not to be given to Corporate Finance, the subject company or anyone else whose role or commercial interest could conflict with the interests of investment clients. However, draft research may be submitted to the subject company for the sole purpose of checking facts and to the firm’s Corporate Finance Department for the same purpose. A record is kept of any subject company comments.

Analysts may attend road shows and answer questions on pre-existing research. However, they must not participate in a manner, which could reasonably be perceived to be an endorsement of the issuer.

Analysts may answer calls from investment clients concerning their pre-existing research and the new issue, but their answers must be factual and not include any implicit or explicit recommendations.

The research analyst will maintain a file record of all source materials used in the production of any investment research.

The research analyst is required to disclose to ADS any interest which he or she (or a member of his or her household) has in a security that is the subject of investment research. Where such an interest exists which may affect impartiality of the research, the investment research will not be regarded as impartial and a disclosure to that effect will be included on the investment research.   

The remuneration of research analysts is determined by the Board of Directors and is not linked to specific transactions or to recommendations contained in investment research. Remuneration may be based on a number of factors including, but not limited to, the experience of the analyst, quality and accuracy of research, the firm’s overall performance and/or the aggregate result of other activities. In structuring analysts’ remuneration, care is taken so as not to create, or reasonably suggest the creation of, an incentive-based payment policy.   

All employees of ADS, including research analysts, are prohibited from soliciting or accepting any inducement offered by an issuer or by others with a material interest in the subject matter of investment research to provide favourable research. Employees are also prohibited from offering or giving inducements.

Research issued by ADS includes information and disclosures as required by applicable law and regulation, including the disclosure of relevant conflicts of interest (see also ADS’s Conflicts of Interest Policy).

Research analysts are required to comply with all policies and procedures of ADS, including, in particular, personal account dealing rules. Research analysts are prohibited from dealing ahead of the publication of any investment research and may not carry out a transaction within a month of publication of investment research in a stock in respect of which ADS act as broker.

Research analysts are not permitted to be involved in activities which are likely to appear inconsistent with providing an impartial assessment of the value or prospects of relevant investments. Specifically, research analysts are not usually permitted to participate in efforts to solicit corporate banking business, on the basis of independent research, or otherwise be involved in a marketing capacity for ADS nor to act in a way that appears to be representing the issuer of an investment, such as taking part in road shows related to issues or allocations of investments.

Individuals who have responsibilities that might reasonably be considered to conflict with the interest of the clients to whom ADS’s investment research is published or distributed are prohibited from:

• any responsibility for the day to day supervision or control of investment analysts;
• involvement in decisions on the subject matter or content of investment research or the timing of publication (although such an individual may be involved in checking the accuracy of the facts relied on in the investment research); and
• determining the remuneration of an investment analyst.

ADS have procedures to ensure that confidential material and other non-public information is disclosed only to those that need to know that information in order to perform their functions for ADS and its clients. These procedures include:

• information barriers (i.e. Chinese Walls, see ADS’s Conflict of Interest Policy) restricting the flow of confidential material between different parts of ADS;
• restrictions on the disclosure to personnel outside the research department of both the timing and content of forthcoming research reports or disclose other material non-public information; and
• restrictions on the trading activity of any person inside or outside the  research department with knowledge of the investment research.

Printed research is only distributed through the firm’s usual channels (i.e. by email, post or the firm’s website). Research reports are made available to all recipients simultaneously and, so far as is practical, by the same channel. ADS must not give preference to selected clients by providing research that other clients, in the same research-recipient category do not simultaneously receive.

Under no circumstances, are ADS’s internal departments given any priority, for example the sales teams.

Prior to the intention to publish research, sales may be consulted about likely investor interest in the prospective research. The analyst is prohibited from divulging either the likely timing or content of the research. Staff who conduct a dual role as an analyst and a salesperson are prohibited from divulging either the timing or content of the research to trading or sales or selectively to clients or acting upon the forthcoming research (otherwise in accordance with ADS’s procedures) until the research is published.

Following approval and prior to distribution the analyst may, in a formal meeting after 16:30 the day before the research is published, communicate information relating to the research report to brokers. The analyst may speak about the company and take questions from the brokers.

The FSA rules in respect of dealing ahead prevent ADS or any affiliate executing any proprietary orders until the research has been communicated to all clients who are intended to receive it and until they have had time to consider placing an order.

Research reports or ideas which are for internal purposes only, must not be distributed to clients without the prior permission from the Compliance Department.

• Marketing Communications

The following situations are to be treated as non-objective research:

Where ADS has a significant role in an offering of securities, in addition to complying with any restrictions imposed by applicable law, ADS will restrict the publication of investment research relating to the issuer (and potentially on companies related to it), or the inclusions of opinions and/or recommendations relating to the issuer or its related parties, for a period of seven days before publication of the prospectus and for a period of seven days after the offering, in order to avoid any confusion between its research and the prospectus and other offering documentation. The decision whether to impose such a restriction and, if so, the nature, timing and length of restriction appropriate will be made by compliance department, sometimes in conjunction with external legal advisers, and will depend on the circumstances of the offering.

ADS may impose similar restrictions after the announcement of a significant merger, acquisition or restructuring on which it is advising, with respect to its research on the bidder or target (and their respective related parties) or both.

Unless otherwise set out in a research report, a definition of our research ratings can be found in the Research section of our website at Research Ratings.

The FSA Handbook (COBS 12.4) requires firms to disclose the proportion of all research recommendations published during the relevant quarter that are “buy”, “hold”, sell or equivalent terms, and the proportion of these recommendations where ADS provided investment banking services during the past 12 months to the issuer. This information can be found in the Research section of our website at Research Ratings.

This policy is subject to regular review by ADS’ senior management to ensure that it remains appropriate for the business.