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← Series 79: Section 4
Series 79 practice questionhardResearch Analyst Conflicts (Global Settlement)

The Global Research Analyst Settlement of 2003 imposed restrictions on the relationship between investment banking and research departments at major firms. Which of the following practices is prohibited under these settlement provisions and related FINRA rules?

  1. AResearch analysts attending pitch meetings with investment banking clients to discuss their published, publicly available research
  2. BInvestment banking personnel directly supervising research analysts, influencing the content of research reports, or tying analyst compensation to specific investment banking revenue✓ Correct answer
  3. CResearch analysts publishing initiating coverage reports on companies within sectors they specialize in
  4. DInvestment banking and research departments occupying the same physical building, provided they are on different floors
Explanation

Why B — Investment banking personnel directly supervising research analysts, influencing the content of research reports, or tying analyst compensation to specific investment banking revenue

The Global Research Analyst Settlement and related FINRA rules (including Rules 2241 and 2242) prohibit investment banking departments from exercising direct supervisory control over research analysts or influencing the content of research reports. Additionally, analyst compensation cannot be directly tied to specific investment banking transactions. These restrictions were implemented after investigations revealed that analyst research had been compromised by investment banking interests, leading to biased recommendations that harmed investors during the dot-com era.

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