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Morgan Stanley Policy for Managing Conflicts of Interest in Relation to Investment Research
Introduction This policy applies to investment research published by the global Equity Research and Fixed Income Research departments of Morgan Stanley and its affiliated companies ("the Firm", "we" or "us"). This policy is available from us on request and is made available on our public website at www.morganstanley.com/institutional/research/conflictpolicies and, for our investor clients, on the research pages of our ClientLink website. We reserve the right to amend or supplement this policy at any time. For the current policy, please check our website. In this policy, we use the terms "research analyst" and "analyst" interchangeably to describe research analysts who publish research reports. We use the term Research Management to describe the senior management teams of the respective research departments. For the Equity Research and Fixed Income Research departments of Morgan Stanley & Co. International Limited in the United Kingdom that publish research from our London office, this policy represents the conflict management policy required by the Principles for Businesses issued by its regulator, the Financial Services Authority, and its Conduct of Business Rules 7.16.5, with respect to the management of conflicts of interest in connection with the publication of impartial investment research. Morgan Stanley & Co. International Limited does not itself distribute research that has not been published from the London office. Note on applicable regulation Our policies comply with laws and regulations applicable to our research and in many cases go beyond what is required by those laws and regulations. Morgan Stanley & Co. Incorporated is party to the equity research settlement with U.S. federal and state regulators of April 2003 (the "Research Settlement"), and our policies are also designed to comply with the Research Settlement. The Research Settlement applies to equity research analysts based in North America and to analysts publishing equity research relating to companies incorporated or headquartered in the United States or whose principal equity trading market is in the United States. We refer to these companies as "U.S. Companies". In addition, we have voluntarily applied many of the requirements of the Research Settlement to Fixed Income Research and to Equity Research relating to issuers that are not U.S. Companies taking into account the specific characteristics of fixed income and other non-equity products and markets, as well as local regulatory requirements and market practices outside the United States. With respect to Fixed Income Research, our policies are also designed to comply with and in many respects go beyond the Guiding Principles to Promote the Integrity of Fixed Income Research published by The Bond Market Association. 1. Identification and disclosure of possible conflicts Our policies and internal procedures are designed to assist us in identifying possible conflicts of interest, or the appearance of conflicts of interest, that might affect or raise questions about the impartiality of our research. We provide training for research analysts and other Firm personnel with whom analysts interact on the identification of potential conflicts. Research Management and the Law Division, provide assistance and guidance to Firm personnel as issues arise. Individual Firm personnel are responsible for raising identified conflicts or potential conflicts with their supervisors to ensure that all conflict questions are referred to and considered at the appropriate level within the Firm. Compliance monitors the application of the Firm's policy regarding the publication of research in the period before, during and after investment banking transactions, as described further in "Timing and content of research". We also have automated systems that facilitate the required disclosures in research reports of interests and activities of the Firm which may appear to represent a conflict of interest (see "Disclosure of interests"). The primary analyst responsible for a research report is required to ensure that the views expressed in each research report accurately reflect his or her personal views (see "Certification on each research report"). The Firm's usual disciplinary procedures apply in case of breaches of the policies referred to herein. Failure of Firm personnel to adhere to the requirements of our policies may result in a range of sanctions, up to and including termination of employment. 2. Supervision and remuneration of research analysts Research analysts are not directly supervised by personnel from other areas of the Firm (in particular investment banking or trading personnel) whose interests or functions may conflict with those of the research analysts. The evaluation and appraisal of research analysts for purposes of career advancement, remuneration and promotion is structured so that non-research personnel do not exert inappropriate influence over analysts. Supervision and reporting lines: Analysts who publish research reports are supervised by, and report to, Research Management. Research analysts do not report to, and are not supervised by, any investment banking or any sales or trading personnel. Senior Research Management personnel report either directly to Firm Management or to the most senior management level in the related sales and trading business. Evaluation and remuneration: The remuneration of research analysts is determined on the basis of a number of factors, including quality, accuracy and value of research, productivity, experience, individual reputation, and evaluations by investor clients and employees in other parts of the Firm with whom analysts interact (e.g., salespeople). Analysts' remuneration, however, may not be directly linked to specific transactions or the profitability of particular trading desks or investment banking groups, but will in part reflect the overall profitability of the Firm as a whole, including the profitability of the Institutional Securities Group, which includes investment banking and sales and trading businesses. We do not permit investment banking personnel to participate in the Firm's evaluation of research analysts. Research Management is responsible for ensuring that any evaluation input by sales and trading personnel are not communicated to analysts in a way that could amount to inappropriate pressure on the individual analyst. 3. Activities of analysts We restrict research analysts from performing roles which could prejudice, or appear to prejudice, the independence of their research. Pitches: Research analysts are not permitted to participate in sales pitches for investment banking mandates or to prepare or review materials for those pitches. Pitch materials may not contain the promise of research coverage. No promotion of issuers' transactions: Research analysts may not be involved in promotional or marketing activities of an issuer of a relevant investment that would reasonably be construed as representing the issuer. For this reason, analysts are not permitted to attend "roadshow" presentations by issuers that are corporate clients of the Firm relating to offerings of securities or any other investment banking transaction. Analysts may, however, observe roadshows without asking questions by videolink or telephone in order to help ensure that they have access to the same information as their investor clients. Fixed income research analysts, with Research Management's prior approval, may attend roadshows passively (i.e. as a member of the audience, neither asking nor responding to questions). Analysts are permitted to attend ordinary course investor presentations by issuers, including those that are corporate clients of the Firm, that do not relate to offerings of securities or other investment banking transactions, provided that (except in the case of widely-attended conferences mentioned below) investment banking personnel are not present. No three-way meetings: As a general rule, analysts (other than economists and strategists who do not analyze specific issuers) are not permitted to attend meetings with corporate finance clients of the Firm jointly with investment banking personnel. After the Firm has been awarded a mandate for a securities offering or other investment banking transaction, our policies permit these three-way meetings to occur only for the purposes of fact finding, due diligence and verification, or certain other purposes with Research Management approval. However, these three-way meetings are not permitted for North America-based equity research analysts or equity research analysts with respect to transactions involving U.S. Companies, for which the analysts' due diligence must be conducted outside the presence of investment banking personnel. Widely-attended conferences: Analysts are permitted to attend and speak at widely-attended conferences at which investment banking colleagues and clients, among others, may also be present. These widely-attended conferences may include some investor presentations by corporate clients of the Firm. Other permitted activities: Analysts may be consulted by investment banking and sales and trading personnel on matters such as market and industry trends, conditions and developments and the structuring, pricing and expected market reception of securities offerings or other market operations. Analysts may also carry out preliminary due diligence and vetting of issuers which may be prospective subjects of research or prospective investment banking clients, or both, and may meet issuers at that time for this purpose (or otherwise upon the issuer's request) provided investment bankers are not present. Analysts may not, however, be provided with material or confidential non-public information regarding an issuer or investment, unless the analyst is brought "over the wall" (variously known as the "information barrier", "ethical wall" or "Chinese wall") in accordance with our procedures. This requires the prior consent of Research Management and a record to be made by Compliance , and potentially results in restrictions on the analyst's activities until the relevant non-public information has become public or stale. In connection with a securities offering or other transaction and during the course of such an offering or transaction, our policies permit analysts to meet and speak with potential investors, at meetings and in conversations not involving the issuer or investment banking colleagues, for purposes of investor education and information. Analysts' personal dealings: Analysts are prohibited from trading in securities or related derivatives of any issuer which they cover or which is in the analyst's global coverage sector (usually the MSCI sub-industry category(ies) for the issuers covered by the analyst). The prohibition on personal account trading therefore applies not only to all the issuers covered by the analyst, but also to similar issuers. Exceptions may be made with the prior approval of Research Management and Compliance in special circumstances such as for disposal of (i) positions already held under a previous policy, when joining the Firm or when initiating coverage and (ii) positions obtained as a result of a merger, fund distribution or other involuntary acquisition. Where such special circumstances apply, analysts are required to disclose their interests in research reports and are permitted to trade only during prescribed window periods away from the time of publication of a research report. Any trades that analysts make must be in line with their recommendation(s), if any. Analysts are also required to disclose all other material personal conflicts relevant to the issuers or investments that are the subject of their research. An analyst is prohibited from covering an issuer if the analyst serves as an officer, director or member of the board of the issuer. If an analyst's household member serves in such a capacity, the analyst is required to disclose that fact in any relevant research report and Research Management will consider whether, based on the facts and circumstances, the analyst should cease covering the issuer. Where personal account trading is permitted, within the rules described above, analysts are required to comply with the Firm's rules and procedures on personal account dealing, which include requirements for dealings to be conducted through an account with the Firm (or, in limited circumstances, in other permitted accounts held outside the Firm) and to be pre-cleared with Research Management. Pre-clearance is not required for certain transactions, including transactions in the most liquid sovereign and government- related fixed income securities, Morgan Stanley stock (during permitted window periods), diversified mutual funds, or for permitted trading in a discretionary account or blind trust where the analyst has ceded all investment discretion to an investment manager or financial adviser. 4. Inducements and inappropriate influences We prohibit research analysts from soliciting or receiving any inducement in respect of their publication of research and we restrict certain communications between research analysts and personnel from other business areas within the Firm which might be perceived to result in inappropriate influence on analysts' views. Remuneration and other benefits: Our procedures prohibit analysts from accepting any remuneration or other benefit from an issuer or any other party in respect of the publication of research and from offering or accepting any inducement (including the selective disclosure by an issuer of material information not generally available) for the publication of favourable research. These restrictions do not preclude the acceptance of reasonable hospitality in accordance with the Firm's general policies on entertainment, gifts and corporate hospitality. Inappropriate influences: We have implemented policies and procedures, where appropriate, to regulate communications between our research analysts and other business areas of the Firm. Research analysts have office space separate from that of investment bankers. Equity research analysts globally and European-based fixed income research analysts are located in separate space from that of sales and trading personnel. Fixed income analysts in other regions will shortly have space separate from sales and trading. There are also security restrictions on access to the analysts' areas by non-analysts and to investment banking areas by analysts. In addition:
Coverage decisions: Decisions to initiate, resume, suspend or discontinue research coverage of an issuer or investment are made by Research Management in conjunction with the research analyst concerned. Research Management is permitted to take into account input with respect to research coverage from other business areas, including investment banking and sales and trading. Input from investment banking with respect to equity research coverage involving North America-based analysts or of U.S. Companies is limited to a discussion of the merits of coverage of particular sectors or other general categories and may not be issuer-specific. Certification on each research report: The primary analyst responsible for a research report on a specific issuer or issuers of securities is required to certify, at the time of publication, that the views expressed in the report accurately reflect his or her personal views about the subject securities, instruments or issuers, and that no part of his or her compensation was, is or will be directly or indirectly related to the specific views or recommendations contained therein. This certification can be found on each such research report. 5. Review and comment on research Our policies are designed to ensure that parties with interests which may potentially conflict with those of recipients of research are not able to review or comment on research in a manner which might affect the impartiality of the research. Review of research: Prior to publication, all research reports relating to securities are reviewed by a supervisory analyst. Equity research is also reviewed by a member of the equity research editorial team. The purpose of these reviews is to confirm compliance with the Firm's editorial guidelines and regulatory requirements, including the requirement that research be clear, fair and not misleading. Thereafter, all such reports that contain any discussion of a company or other entity in relation to which we have an investment banking mandate (which would not necessarily be limited to the issuer the Firm represents in that mandate) are reviewed by the Law Division to monitor compliance with any legal or policy restrictions on timing or content as described in "Timing and content of research". [The supervisory analyst/editor is primarily responsible for ensuring that the appropriate disclosures are included in the research reports. Compliance also assists in monitoring compliance with applicable disclosure requirements. An analyst may also check the accuracy of factual statements with the relevant issuer that is the subject of a research report, prior to publication. This may be achieved by providing the issuer with a summary of facts for checking or a redacted version of the draft research report that contains no valuation, investment conclusion, recommendation or price target. Investment bankers are not permitted to review any research report prior to publication, except research prepared by non-North American based analysts to be published in advance of an initial public offering of non-U.S. Company's shares. Investment bankers may review such research solely for the purposes of verification of factual statements. Our policies permit analysts to review the factual content of draft research reports pre-publication with the subject issuer. Our policies further require analysts to record the reasons for any subsequent material change made to a research report after factual matters have been reviewed by issuers or investment bankers (where review is permitted as provided above). This record must be submitted to and approved by both Research Management and Compliance prior to publication of the report. Role of review committees: We have a Stock Selection Committee for Equity Research and a Research Review Committee for Fixed Income Research. Each committee is made up of senior members of the relevant research department and may include members of other departments (excluding investment banking). In addition to improving the quality of research content and delivery, each committee aims to reinforce the prevention of undue influence on research analysts from other employees, issuers and investors. Committee approval is required for all initiations, resumptions, suspensions and discontinuations of coverage, changes to ratings (including industry views) and certain changes to price targets and model portfolios, publication of new research periodicals and certain other matters. Complaints: Any complaints concerning the content of research reports should be referred to, and are dealt with by, the relevant research department, where appropriate in conjunction with Compliance in compliance with the Firm's complaint handling procedures, and not by investment banking personnel. Retaliation policy: Neither the Firm nor investment banking personnel may retaliate or threaten to retaliate against any research analyst for adversely negative or otherwise unfavourable research that may adversely affect the Firm's present or potential investment banking relationships. 6. Timing and content of research Our policies are designed to ensure that decisions on the timing and content of research are not made, or inappropriately influenced, by persons with interests conflicting with those of users of research and that new research and other material statements of a research analyst's views are not disclosed selectively before being made generally available. Timing and content of research: The timing of publication of a research report is determined primarily by the analyst on the basis of events affecting the issuer or investment concerned, perceived investment opportunities for research clients and developments in the analyst's opinion. Investment bankers and sales and trading personnel have no control over, or input into, decisions on timing of publication of individual research reports. The Firm has policies that may restrict the publication of research or the inclusion of opinions and/or recommendations in research, relating to the issuer or its related parties, at certain times when the Firm is involved in investment banking transactions. In the case of a merger or acquisition, the restriction may be applied both to bidder and target, regardless of which we are advising. The nature, timing and length of the restriction will depend on the nature of the transaction. For example, we generally restrict the publication of research on an issuer for a short period after the announcement of a material merger, acquisition or restructuring in which we are involved, and during the pendency of the deal we may limit our analysts' ability to publish opinions or recommendations. In relation to offerings of securities, we follow the customary practice, and in some jurisdictions we are required by law, to impose a "quiet period" or "blackout period" before and/or after the offering. A longer period is usual for initial public offerings of shares than for offerings involving listed issuers, and the period is typically shorter still (or there may be no quiet period) for offerings of investment grade debt securities. Once advised of our role in a transaction by investment banking, Compliance is responsible for monitoring compliance with the appropriate quiet periods and other restrictions. We include disclosure of our role in relevant research reports published at a time when certain material transactions involving Morgan Stanley has been publicly announced. Dissemination of research and updated views: Research reports are made available to clients through a number of established distribution channels (including via e-mail and web-based portals). Any material update of a research analyst's view, for example an immediate response to issuer news in advance of a full research report, is made available to clients through similar channels. Our policies do not allow research reports to be made available to non-research personnel of the Firm, including our traders, before they are made available to our clients. Disclosure of interests: The Firm discloses in its research reports, in accordance with applicable law and regulation, particulars of interests, including those of the Firm and the analyst, that are or may be material in the context of the relevant report. Important Notes This policy is not intended to create third party rights or duties that would not already exist if the policy had not been made available, or to constitute or form part of any contract between us and any client or customer of the Firm (or any other person). This policy is supplemented by more detailed policies and procedures adopted by the Firm. Variations and exceptions to this policy may be approved by Research Management and the Law Division in individual cases, with a view to promoting the objectives of this policy in the particular circumstances. References to investment banking include capital markets and corporate broking personnel. |
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