Investor Alert:
CIRO is issuing a warning to Canadian investors regarding Canada Token Trade.
This guidance provides assistance to Dealer Members (Dealers) regarding Part B of IIROC Rule 3600 by setting out best practices that Dealers should consider when publishing research reports.
The definition of "analyst" is set out in clause 3606(1)1 . The definition is not meant to include Registered Representatives who produce reports and recommendations that appear to be similar to research reports. Such communications from Registered Representatives are not subject to the research report requirements under Part B of Rule 3600, instead they are governed by the advertisements, sales literature and correspondence requirements under Part A of Rule 3600.
A Dealer should ensure that it’s Registered Representatives:
The definition of "research report" is broad and applies to any material distributed to clients or the public, which contains an analyst's recommendation concerning the purchase, sale or holding of a security. The definition is not limited to a formal published report.
The following are not considered research reports:
In general, Dealers should ensure that individuals who prepare sales and marketing material are aware of the definition of “research report” so they do not inadvertently issue something that would be classified as research.
When making a recommendation related to fixed income securities, Dealers may not use the same language as they use in the equities markets. This may result in a Dealer making an implied recommendation that would bring a report within the research report requirements under Part B of Rule 3600. For example, if a Dealer used terminology respecting fixed income securities such as stating that an issue is underpriced, this would be considered a recommendation.
However, Dealers may provide the following factual information:
which will not be considered equivalent to making a recommendation.
Under section 3610, a Dealer must ensure that research report disclosures are made in a clear, meaningful, comprehensive and prominent manner. Accordingly, this would be reflected in disclosure that is:
A Dealer’s conflict of interest disclosure obligations includes, but is not limited to, the matters set out in subsection 3608(2). Dealers should exercise their judgment in determining what is material and must therefore be disclosed. A Dealer is in the best position to know what event will trigger its obligation to disclose potential conflicts. For example, a Dealer should decide when investment banking discussions become firm enough to put the Dealer in a potential conflict of interest situation requiring disclosure. When in doubt, the Dealer should err on the side of caution and make the necessary disclosure.
A Dealer must disclose whether any person involved in creating the content of a research report has an ownership interest in the subject issuer’s securities. When disclosing ownership interests, a Dealer is not required to include information relating to administrative or clerical staff involved in preparing a research report.
Clause 3608(2)(iii):
A Dealer must disclose if it is making a market in an equity or equity related security of the issuer. In addition, a Dealer must make the same disclosure in a fixed income research report if the Dealer is making a market in an equity or equity related security of the issuer.
A Dealer may have separate systems for assigning ratings to the different types of securities on which it provides research reports. However, the Dealer may limit its disclosure to the rating system used for the type of security that is the subject of the research report.
A Dealer’s policies and procedures for disseminating research reports should address all of the following:
Under subsection 3611(2), the disclosures set out in sections 3608 and 3609 are not required in the case of independent third party research reports that are issued by members of the Financial Industry Regulatory Authority or persons governed by other regulators approved by IIROC.
To date, IIROC has approved, subject to conditions the following regulators for the purposes of subsection 3611(2):
If a Dealer distributes a research report consistent with clause 3612(1)(ii), the report may direct the reader to the disclosures required under sections 3608, 3609 and 3616 through various means. This includes, but is not limited to, the following:
a hyperlink,
However, if a Dealer publishes a hyperlink it should also provide an additional method of accessing the information, such as a toll-free number to call or a postal address to write. This ensures that clients who do not have access to the internet will nevertheless be able to obtain disclosures required by Part B of Rule 3600.
If a Dealer distributes a research report electronically (consistent with clause 3612(1)(ii)), the Dealer may direct clients to disclosure through various means, including, but not limited to, the following:
A Dealer must disclose any visit to view the issuer’s material operations, whether or not it was in connection with the preparation of a research report, since it is impossible to determine whether a later research report is based in part on information obtained during the course of such a visit.
For the purposes of Rule 3600, a public comment includes any comment made by a Dealer’s employee or Approved Person about the quality of a security or issuer, during any of the following:
The Dealer should provide guidelines and training for any employee or Approved Person making a public comment. A best practice for meeting the requirements of Part B of Rule 3600 includes ensuring employees or Approved Persons of the Dealer make reasonable efforts to disclose the existence of any relevant research report, or the fact that one does not exist.
The trading restrictions on individuals who prepare research reports do not apply to fixed income research reports that only discuss classes of issuers or sectors of the market. However, if the research report contains specific security recommendations, or implied recommendations, than the trading restrictions would apply.
Disclosure of an analyst’s compensation from investment banking revenues does not include compensation based on the overall revenues or profits of the Dealer, which may include investment banking revenue or profits. Disclosure is required only where the analyst’s compensation is directly based upon a specific investment banking transaction.
For the purposes of subsection 3622(1), the “date of the offering” means the following:
The count for the ten and three day quiet periods set out in subsection 3622(1) starts on the day after the date of the offering. In other words, the date of the offering is not the first day of this count. For example:
In each research report, a Dealer should consider the following principles:
A glossary of terms may also be included.
Dealers should consider adopting standards of research coverage that include the following practices:
Part B of Rule 3600 requires a Dealer to have policies and procedures governing the conduct of analysts, the publishing of research reports and the making of recommendations by analysts.
When the number of research analysts requires it, a Dealer should appoint additional Supervisors to oversee the review and approval of research reports. A Dealer should ensure that Supervisors and analysts have a Chartered Financial Analyst designation or other appropriate qualifications.
Section 3621 requires a Dealer to have policies and procedures in place to restrict the influence of the investment banking department on the activities of the research department. As a best practice, no one in the research department should report to the investment banking department.
IIROC Rules this Guidance Note relates to:
This guidance replaces the following:
This Guidance Note is related to:
This Guidance Note was published under Notice 20-0007 – Notice of Approval/Implementation – Guidance Review Project – Group 1.