Best Practice Guidelines for Research Integrity

The Best Practice Guidelines for Research Integrity have been developed by the Securities Institute and the Securities & Derivatives Industry Association to assist analysts and their firms in managing potential conflicts of interest which may influence research reports and investment recommendations.

Whilst recognising that the Guidelines are not mandatory, the following organisations believe that the Guidelines provide a benchmark for best practice and support their adoption by the industry.

These Guidelines are intended to assist in maintaining and raising standards in the securities and financial services industry by fostering ethical and effective markets and by advocating the highest levels of professional conduct, and are a general guideline only. Readers should seek professional advice relating to their particular circumstances. The Securities Institute of Australia, the Securities & Derivatives Industry Association and the supporting organisations listed on page 1 do not warrant or represent that compliance with the Suggested Guidelines will eliminate the possibility of potential conflicts of interest or guarantee the integrity of research outcome, and the Securities Institute of Australia, the Securities & Derivatives Industry Association and the supporting organisations listed on page 1 do not authorise the making of any such representation. These Guidelines do not constitute an endorsement of any participant in the industry.

The Securities Institute of Australia is a self-financing professional organisation representing people engaged in and connected with investment and securities markets.

The Securities & Derivatives Industry Association is a national self-regulatory industry body representing the interests of stockbroking firms and Practitioner members in Australia.

FOREWORD

The HON. Joe Hockey MP
Minister for Financial Services & Regulation
Parliament House
Canberra ACT 2600
Australia
Telephone (61 2) 6277 7230
Facsimile (61 2) 6273 4075
www.joehockey.com
joe@joehockey.com

Guidelines for Research Integrity

As Australia's first Minister for Financial Services & Regulation I have been interested in the potential conflicts of interest that analysts and their firms face. Analyst independence has significant implications for the integrity of our markets, and I am concerned that investors should have access to truly independent broker research. It is essential that Australia foster the highest levels of professional conduct in the Australian securities and financial services industry.

The United States Securities Exchange Commission recently urged investors not to rely solely on analyst recommendations when deciding to buy, sell or hold stock. The SEC was concerned that analysts were making recommendations about the performance of companies that, in many cases, their firms and broking houses also work for.

In other cases, the firm or the analysts may themselves own shares in the companies that they are recommending. Similarly, I understand that Japan's Financial Services Agency has asked the Japan Securities Dealers Association to draw up a strict code of conduct for stock analysts. Against this background I welcome the contribution made by the Securities Institute of Australia and the Securities & Derivatives Industry Association through these "Best Practice Guidelines for Research Integrity". Resolving the complexities of our modern securities practice is never easy. Unfortunately, there are very few "magic wands" capable of solving complex issues like the one's discussed in these guidelines.

I welcome these guidelines as an important contribution to a debate that needs to be had about independent broker research. We must ensure this research is not rendered meaningless and that Australian practitioners are operating in accordance with best practice.

Hon Joe Hockey MP
Minister for Financial Services & Regulation

PREFACE

The Best Practice Guidelines for Research Integrity have been prepared by the Securities Institute of Australia and the Securities & Derivatives Industry Association in consultation with industry bodies, investor groups, regulators and other key stakeholders.

The Guidelines reflect a commitment to raising standards in the securities and financial services industry by fostering ethical and effective markets and advocating the highest levels of professional conduct. They are based on the premise that all market participants have a duty to establish and maintain a corporate culture that protects and promotes the integrity of the market.

Whilst the Guidelines are intended for use by analysts and their firms, the industry recognises that in addition to their primary responsibility to keep the market fully informed, corporate issuers also have a responsibility to respect and promote the integrity of research.

Investors, too, bear responsibility for conducting sufficient research to enable them to make a confident and informed investment decision, rather than simply relying on an analyst's investment recommendation.