Guiding Principles to Promote the Integrity of Fixed Income Research

This document includes the guiding principles, recommendations supporting those principles, and accompanying commentary regarding fixed income research practices (collectively, the “Guiding Principles”). Taken as a whole, the Guiding Principles are intended to enhance investor protection by promoting greater awareness of how potential conflicts of interest can be managed by integrated sell-side financial institutions that underwrite and trade debt securities and distribute to investors research about those securities.

Summary

The Guiding Principles represents a first step as part of an extensive collaborative effort of Association member firms to share their thinking about recommended practices and to standardize to the greatest extent possible those practices, so that market participants have a common framework for evaluating and understanding the role and function of fixed income research and the various disclosures made by member firms. The Guiding Principles articulate voluntary recommendations that are not intended to be a set of immutable rules. They are not intended to replace the need for individual member firms to develop and implement their own tailored procedures. They are designed, however, to serve as a helpful reference point as firms review and modify their own fixed income research practices.

The principles-based approach embodied in the Guiding Principles will help to ensure that the differing organizational structures and geographical markets of Association member firms, their varied uses of fixed income research, as well as the unique attributes of the fixed income markets (even within and among the multiple asset classes that comprise the global bond markets) are appropriately reflected in the specific fixed income research policies and practices adopted by individual member firms. In our view, this is the best and most efficient way to ensure a behavioral framework that promotes reliable information flow to debt market participants, including investors and issuers.

Although much of the public and regulatory focus in recent years has been in the area of equity research, the Association believes it is critically important to address the issue of research integrity in the fixed income markets in a manner that takes into account their unique characteristics. Differences from the equity markets such as the quantitative emphasis of fixed income research, the importance of objective benchmarks and relative values, the existence of independent research resources, the important role of the sales and trading function in producing relevant high-quality information for investors, and the sophistication of market participants warrant a unique approach than from that employed to manage potential conflicts of interest involving equity research, as the regulatory community has itself repeatedly acknowledged. Nevertheless, the Association believes it is incumbent on firms to manage potential conflicts that fixed income research analysts may face in connection with both investment banking and sales and trading concerns by taking steps to prevent inappropriate influences over fixed income research and to disclose to investors the existence of material potential conflicts.