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Ebooks / CFA Level 2 - Ethics and Professional Standards / Chapter 6 of 8

Research Objectivity Standards (ROS)

📊Investment ManagementMarch 11, 2012 · 2 min read

  • The Research Objectivity Standards are a set of guiding principles developed by CFAI.

  • The ROS are not laws, but a voluntary code of conduct.

  • Note: The legal requirements of some jurisdictions may overlap with the intent of an ROS standard.

  • The ROS are aligned with the CFAI’s professional standards of conduct.  Unlike the Soft Dollar Standards, a firm would not publicly claim compliance to ROS.  However, at the member/candidate level, by violating an ROS standard, the individual may also be violating mandatory professional standard of conduct as well.

  • Requirements.  Each standard is followed by one requirement, not necessarily the only one.  CFAI makes further recommendations for compliance.

  • Research objectivity policy – must: be written and sent to all employees, contain supervisory procedures, and owned by a senior firm officer.

  • Public appearances – firm speaker must disclose any personal or firm conflicts of interest to the audience.

  • Reasonable and adequate basis – a supervisory analyst or committee must exist in the firm to review and approve all investment recommendations.

  • Firewall – firms must ensure that activities of the investment bank unit do not influence research or recommendations in the investment management unit.

  • Analyst compensation – must be aligned with research accuracy over a period of time; cannot be tied to any investment banking activity.

  • Subject companies – investment firm cannot promise a company with a specific investment recommendation or stock price target.

  • Personal investments and trading – firms must prevent employees from trading in ahead of clients.

  • Timeliness of recommendations – must be issued regularly; quarterly is the guidance, with updates as needed in response to significant events.

  • Compliance and enforcement – firms must keep records of their internal audit activities.

  • Disclosure – firms must disclose all conflicts of interest that affect the firm and covered employees.

  • Rating system – firms must establish a rating system that investors find useful in making decisions.