Market commentary is common stuff we frequently read. Sometimes it is issued for a marketing purpose, while in other situations it is made by research analysts. Market commentary is usually concerning compliance when it is related to a specific product.
This week SFC finalized the Guidelines on Marketing Materials for Listed Structured Products (effective from 1 Oct 2006) following the announcement of the Six-Point Plan in the Report for Derivatives Warrant Market.
There is no new thing under the sun. The Guidelines reiterate the high level principle that marketing materials should not be false, biased, misleading or deceptive and should include appropriate & prominent risk warnings. What interested me is just the requirement that the issuer should ensure disclosure of its commercial / business relationship with any person making a market commentary about its specific products. If such relationship exists, then the objectivity or independence of those comments would be undermined.
I was once asked whether market commentary covered by the Guidelines would also be subject to Paragraph 16 of the Code of Conduct. My answer is No. Paragraph 16 is governing investment research (which is supposed to be neutral), while the Guidelines are covering marketing materials (which would never be neutral). Both kinds of stuff should be clearly differentiated.
The problem is: When we now see a firm's employee appearing in the media, it is not easy to ascertain whether he is a salesperson or an analyst.
Para. 16 is a pain in the XXX.
ReplyDeleteFor the sake of publicity, licensed respresentatives (no matter of their licence type) insist to contribute articles. appear on TV shows, receive interview by journalists etc. yet disregarding the requirements of the Code.
All I could do was to "advise" them not to make any recommendation on specific securities so as to make their comments like an analysis on the marco and a factual representation of info on the securities.
Recently, it has been seen in the news that the regulator is concerned about people providing investment advices on the internet (e.g. chat rooms).
ReplyDeleteI have been approached by someone for views on the topic of giving advices. I was asked questions on distribution of research reports.
My response to one particular query was:
Whether research reports can be distributed (e.g. by mail, by email) to our securities account clients?
My view is, according to 6.1 of the Code, a written agreement has to be executed before services are provided, thus research reports can be distributed to securities clients as providing advices is incidential to securities trading.
Yet, my concern is sending reports to people who have no relationship with our firm (ie the world at large) My concern is 2 folds: (1) contravention of 6.1 and (2) possibly cold calling.
The person went saying he was not sure about my concern.
Would viewers comment my view above?
If the research reports are distributed without target audience (e.g. published on websites), I don't think S6.1 of CoC would be triggered. This is also not cold calling as there is no interactive dialogue with the recipient.
ReplyDeleteThat confirms my view after further studying of the Rules.
ReplyDeleteYet, I have not come across anything that allows sending research reports to people who have no client relationship with the firm (e.g. they are prospective clients only. The reports are sent to them for marketing purpose.)and hence a service agreement must be executed beforehand. Otherwise, the firm is providing advices without an agreement in place.
I discussed this point with the person. He maintained that a formal client relationship is not necessary and he commented that 6.1 concerns trading accounts and not provision of advices.
I hope he is wrong.
Further comments.