Preserving Market Integrity

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7. Conculsion

Although the current guidelines provide a suitable framework for addressing conflicts of interest, sell-side institutions and investors require a more defined line on the acceptable standards of conduct within the current framework of the principles and rules. Furthermore, as investment firm take on a global presence it is also important that the respective financial regulatory bodies around the world similar address the concerns of conflicts of interest and investment research in a consistent manner (potentially with the IOSCO principles) to restore investor confidence. Thoroughly targeted international proposals would also be effective in promoting enhanced standards of independence and objectivity whilst avoiding a disproportionate compliance burden.
While all the attention has focused on regulatory requirements dealing with conflicts of interest with equity investment research it is critical not to forget that research in respect to non-equity investment instruments must also fall within the same regulatory requirements. This includes non-equity investment research, such as, bonds, hybrid securities, managed funds and derivatives, which must also be objective and free from the effects from conflicts of interest.
Continued efforts by regulatory authorities around the world to address the issues regarding investment analyst research are critical to ensuring financial market integrity. It is imperative that all market participants continue to play a role in creating an environment that supports, facilitates and encourages research objectivity. This includes removing the major incentives that encouraged research analysts to issue biased research in the past, strict rules and regulations governing analyst conduct and serve financial penalties for non-compliance.
At a minimum, without transparency and disclosure, investors have the right to doubt that investment firms are serious to addressing the concerns about conflicts of interest, something which raises justifiable concern about the quality of their research product and the extent to which markets integrity is in fact being promoted and protected by dint of analyst scrutiny.

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