Table Of Contentffirs.indd iv 7/2/10 7:34:03 AM
Book reviews/press comments for the fi rst edition (2007)
“. . . is very timely . . . a good analysis . . . a highly readable and incisive
book . . . provides a clear guide to industry insiders . . . and a detailed
understanding for those who read research”.
Geoff de Freitas, Shanghai Business Review, May 2008
“. . . sharp, readable and timely book . . .”
The Correspondent, the magazine of the Foreign Correspondents’ Club of
Hong Kong, Sept/Oct 2007 issue
“. . . defi nitive best-practice guide . . . a very readable and engaging book
fi lled with sound advice and workable recommendations”.
Keith Hall, China Daily, April 13, 2007
“. . . excellent book”.
R. Sivanithy, Singapore Business Times, April 2, 2007
“. . . an essential textbook for securities professionals around the world”.
Johannes Ridu, Malaysian Business/New Straits Times, April 1, 2007
“It ought to be mandatory reading for courses focused on securities
research”.
MoneyLife, India, July 5, 2007
“Extensive case studies are also well-used and interesting. This is a sound
and generally useful piece of work for all investment market professionals
and, indeed, investors everywhere”.
James Rose, Corporate Governance Asia
“. . . plenty of practical examples”.
CPA Australia, June 2007
ffirs.indd i 7/2/10 7:34:02 AM
Endorsements of the fi rst edition (2007)
There is a strong need for this book . . . This book is relevant in any set
ting. It will equip analysts with many useful tools to help them achieve
success.
Mark Mobius, President of Templeton Emerging Markets Fund
This guide to doing it properly is an obvious selection for the bookshelf
of anyone who aspires to offer investment advice and a fi ne reference for
anyone who receives such advice.
Jake van der Kamp, Financial Columnist of South China Morning Post
At last, here’s a comprehensive yet easy-to-read guide explaining all the
best practice principles involved in writing securities research. It is full of
useful information . . . I highly recommend it.
Anthony Espina, Chairman of Hong Kong Stockbrokers Association
. . . essential reading for all people involved in writing securities research.
Andrew Leeming, author of The Super Analysts
ffirs.indd ii 7/2/10 7:34:03 AM
Writing Securities Research
A Best Practice Guide
Second Edition
ffirs.indd iii 7/2/10 7:34:03 AM
ffirs.indd iv 7/2/10 7:34:03 AM
Writing Securities Research
A Best Practice Guide
Second Edition
Jeremy Bolland
John Wiley & Sons (Asia) Pte. Ltd.
ffirs.indd v 7/2/10 7:34:03 AM
Copyright © 2010, 2007 Jeremy Bolland
Published in 2010 by John Wiley & Sons (Asia) Pte. Ltd.
2 Clementi Loop, #02–01, Singapore 129809
All rights reserved.
No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic, mechanical, photocopying,
recording, scanning, or otherwise, except as expressly permitted by law, without
either the prior written permission of the Publisher, or authorization through payment
of the appropriate photocopy fee to the Copyright Clearance Center. Requests for
permission should be addressed to the Publisher, John Wiley & Sons (Asia) Pte. Ltd.,
2 Clementi Loop, #02–01, Singapore 129809, tel: 65–6463–2400,
fax: 65–6463–4605, e-mail: [email protected].
This publication is designed to provide accurate and authoritative information in
regard to the subject matter covered. It is sold with the understanding that the
publisher is not engaged in rendering professional services. If professional advice or
other expert assistance is required, the services of a competent professional person
should be sought.
Neither the authors nor the publisher are liable for any actions prompted or caused
by the information presented in this book. Any views expressed herein are those of the
authors and do not represent the views of the organizations they work for.
Other Wiley Editorial Offi ces
John Wiley & Sons, 111 River Street, Hoboken, NJ 07030, USA
John Wiley & Sons, The Atrium, Southern Gate, Chichester, West Sussex, P019 8SQ,
United Kingdom
John Wiley & Sons (Canada) Ltd., 5353 Dundas Street West, Suite 400, Toronto, Ontario,
M9B 6HB, Canada
John Wiley & Sons Australia Ltd., 42 McDougall Street, Milton, Queensland 4064,
Australia
Wiley-VCH, Boschstrasse 12, D-69469 Weinheim, Germany
Library of Congress Cataloging-in-Publication Data
ISBN 978-0-470-82602-7
Typeset in 10/12pt Cheltenham by MPS Limited, A Macmillan Company, Chennai, India
Printed in Singapore by Toppan Security Printing Pte. Ltd.
10 9 8 7 6 5 4 3 2 1
ffirs.indd vi 7/2/10 7:34:04 AM
Contents
Foreword xv
Preface xix
Summary points and recommendations xix
Background xxii
Background to the second edition xxii
Background to the fi rst edition xxvi
The changing regulatory environment xxvii
Introduction xxx
More education rather than more regulation xxx
The need to identify investment risk xxxi
Target readership xxxiii
Commercial benefi ts to compliance xxxiii
Local differences and specifi c circumstances xxxiv
Summary xxxiv
Case studies and examples xxxv
Themes xxxvii
Research coverage xxxvii
Sourcing information xxxviii
Reasonable basis for recommendations and risk assessment xxxix
Confl icts of interest xl
Writing in general xli
Acknowledgments xlv
Abbreviations Used in This Book xlvii
Chapter 1: Principles of Research 1
Key points 2
Defi nition and supervision of research 2
Supervision and control of research 2
Marketing research to the U.S. by foreign broker-dealers 3
Stock-picking tips 8
Continuing education 9
Cheating in tests 10
The realm of research 11
Ambit of securities regulations (bonds) 12
Ambit of securities research regulations
(equity and credit research analysts) 13
Ambit of securities regulations (swaps and other derivatives) 16
vii
TOC.indd vii 7/2/10 9:11:13 PM
viii Contents
Ambit of securities research regulations
(marketers of research, including hedge fund research) 19
Ambit of securities research regulations
(analysts as experts on sales desks) 20
Ambit of securities research regulations
(stock-tipping bloggers) 21
Ambit of securities research regulations
(media commentators) 23
Minimizing approval and publishing risks 26
Honesty and fair treatment of clients 28
Common securities-related violations
cited by the SEC and FINRA of the U.S. 28
Regulations tightening up around the world (Hong Kong) 29
Regulations tightening up around the world (China) 31
Regulations tightening up around the world (Japan) 32
Front-running and selective distribution of research 35
Front-running and selective distribution of
research (huddles) 35
Front-running of research 36
Selective distribution of research 37
Selective distribution of research (fact-checking) 39
Selective distribution of research (greater conviction of view) 39
Insider dealing and selective disclosure 41
Use/dissemination of price-sensitive information (general) 44
Use/dissemination of price-sensitive information (U.S.) 47
Use/dissemination of price-sensitive information (U.K.) 48
Use/dissemination of price-sensitive information (Hong Kong) 50
Use/dissemination of price-sensitive information
(serial insider trading) 53
Use/dissemination of price-sensitive information (pillow talk) 54
Use/dissemination of price-sensitive information (economists) 56
Specifi c requests and proprietary information 58
Defi nition of publishing 59
Unfair portrayal of past recommendations 60
Performance of past recommendations 60
Confl icts of interest and disclosure of interests 62
Catering to investors with specifi c investment criteria 62
Shari’ah law implications for securities research
analysts (stocks) 64
Shari’ah law implications for securities research
analysts (bonds) 65
The virtues of a vice portfolio 67
Analyst surveys 67
Playing the voting “game” 68
Sourcing information 71
Acknowledging the source 71
Gathering confi dential information 72
Receiving confi dential information 76
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