What is FINRA Rule 2241?

FINRA Rule 2241, titled "Research Analysts and Research Reports," aims to address conflicts of interest in the preparation and publication of equity research reports and public appearances by research analysts employed by FINRA member firms.

Here's a breakdown of its key features:

Goals:

• Reduce conflicts of interest: Mitigate any potential biases that might impact the objectivity and accuracy of research reports due to financial incentives or other influences.

• Promote investor protection: Ensure investors receive unbiased and reliable information to make informed investment decisions.

• Maintain market integrity: Foster a fair and efficient market environment by encouraging accurate and truthful research.

Requirements for Member Firms:

• Establish and enforce written policies and procedures: These policies should identify and manage potential conflicts of interest related to research analysts' preparation, content, and distribution of research reports and public appearances.

• Separate supervision and compensation: Investment banking activities cannot control or supervise research analysts, including influencing their compensation evaluation and determination.

• Prohibited communication: No communication suggesting analysts were influenced by investment banking or other firm activities regarding the researched companies.

• Disclosure of material conflicts: Any material conflicts of interest involving the analyst or the firm must be disclosed in the research report.

• Pre-publication review: Establish a process for reviewing research reports before publication to ensure compliance with the rule.

• Compliance with other applicable laws and regulations: The rule operates alongside other regulations concerning market manipulation and insider trading.

Benefits:

• Increased investor confidence: Helps investors trust the objectivity and reliability of research information.

• Fairer and more efficient markets: Creates a level playing field for investors by reducing potential biases in research.

• Compliance with industry standards: Maintains alignment with best practices in financial research.

Important Note:

• FINRA Rule 2241 only applies to equity research. There is a separate rule (2242) for debt research.