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The personal trading of analysts is highly regulated and closely supervised by the firm and by regulators. Many analysts are very influential. Their opinions and research reports can dramatically impact the price of a stock. In order to ensure that analysts who issue research reports do not profit by trading the security just before or after they issue the report, the following rules have been enacted:
• Analysts may not trade against their recommendations.
• An analyst who is working on a research report may not trade the security that is the subject of the report until such time as the intended recipients of the report have had an opportunity to act on the report.
• Analysts may not receive pre-IPO shares from a company in a sector the analyst covers.
The personal trading rules apply to accounts owned by the analyst or under the control of the analyst or any member of the analyst’s household. Exceptions would be made for hardship or emergency sales by analysts. Each exemption would have to be approved by the firm’s legal or compliance department. It’s important to note that a hardship exemption would not allow the analyst to trade against their own recommendation to cover expenses they knew were coming up, such as college tuition. Analysts may invest in mutual funds without restriction so long as the analyst does not own 1 percent or more of the fund and the fund does not invest more than 20 percent of its assets in a sector covered by the analyst. A broker dealer may prohibit analysts from owning securities issued by the companies or in the sector covered by the analyst. Should a broker dealer hire an analyst or assign a company to an analyst who already owns the stock in the company or sector they are now going to cover, the broker dealer must handle the sale of the securities in line with its policy of not allowing an analyst to own such securities.