en Managing Conflicts of Interest
CS Policies for Managing Conflicts of Interest in Connection with Investment Research
This note summarises certain policies (together the "Policy") adopted by Credit Suisse AG or its subsidiaries or affiliates (collectively "CS") for compliance with the requirements of the Financial Conduct Authority (the "FCA") in the United Kingdom and for compliance with the requirements under Article 20 of the Market Abuse Regulation in the European Union relating to the management of conflicts of interest in connection with investment recommendations. The Policy applies to all investment research prepared by the Sustainability, Research and Investment Solutions ("SRI") Securities Research department of CS that is distributed or made available in the EU.
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The production of investment research outside the EU may be subject to additional local requirements, policies and procedures. In particular, the requirements of the US, Japan, Korea, Canada and Switzerland impose additional restrictions on the activities of research analysts. This Policy has been prepared for compliance with the FCA's conduct of business rules, and the European Market Abuse Regulation other and is not intended to create third party rights or duties that would not already exist if the policy was not made available, nor does it form part of any contract between CS and any client.
2. Investment Research
Investment research is material that generally contains either:
- Analysis of factors likely to influence the future performance of an investment or issuers; or
- Advice or recommendations based on those results or that analysis.
It is substantive analysis that incorporates the critical and careful consideration and assessment of new and existing facts. Any material containing substantive analysis into investments or issuers is likely to be viewed by CS as investment research.
CS's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. Such research may be produced and published only by employees of the SRI Securities Research department.
Research Analysts ("Analysts") are required to observe high standards of integrity and ethical behaviour. All investment research reports ("research reports") must be based on strict standards of truthfulness and fair dealing, and must be presented in a manner such that they are fair, clear and not misleading. Analysts are required to ensure that they have a reasonable basis for their analysis and recommendations. CS has policies giving guidance to Analysts regarding the proper presentation of facts and opinions in research reports, for example regarding verification of facts and the avoidance of superlative, flamboyant, emotional, libelous or promissory statements. CS operates procedures to ensure the independence of expression of views by Analysts and to prevent improper influence on Analysts' professional judgement. All personnel, but especially Analysts themselves, are required immediately to report to either Research senior management or the Compliance department any improper attempt to influence or restrict the expression of an Analyst's views. Analysts are required to certify in each research report that:
- The views expressed in the report accurately reflect their personal views about any and all of the investments or issuers to which the report relates; and
- No part of the Analyst's remuneration was, is or will be directly or indirectly related to the specific recommendations or views expressed in the report.
4. Identification of Conflicts
The United Kingdom Financial Conduct Authority's principles based approach requires that firms are responsible for identifying and managing any conflicts of interest arising in the business that might compromise the impartiality of the firm's research analysts and their research. Such conflicts could include conflicts between recipients of research reports and corporate finance clients (including issuers of investments covered by the research), CS's investment clients (in particular sales and trading customers), CS's proprietary trading and investment banking activities, and the personal interests of CS's officers and employees.
CS's policies in this regard include:
- The provision of internal guidance and training on the identification of possible issues of conflict as and when they arise;
- Escalation procedures for ensuring that issues identified are referred to and considered at the appropriate level within CS. CS's Compliance Control Room, monitors potential conflicts arising out of the publication of research in the period before, during and after investment banking transactions;
- Internal guidance and arrangements for regulating the flow of information between and within business areas. These include locating Analysts separately from investment banking and sales and trading employees; requiring that any research report is produced in an area away from the investment banking or sales and trading businesses and having arrangements, including "Chinese Walls" and other information barriers, to stop and control the flow of information between the Securities Research department and other parts of the business;
- Editorial guidelines and procedures for supervisory review of research prior to publication; and
- Limiting the production and publication of investment research to employees of the Securities Research department and only allowing the publication of investment research that is impartial.
5. Supervision and Remuneration of Analysts
Research Analysts are not directly supervised by, or report directly to investment banking or sales and trading businesses. All decisions on research coverage, timing and content issues are the responsibility of Research senior management. In making decisions on coverage, Research senior management may consider input from senior management within investment banking or the sales and trading businesses, subject to local restrictions outside the EU. However, the final decision on coverage rests with Research senior management. It is the general practice of the Securities Research department to provide pre-deal research in certain jurisdictions and to initiate research coverage of issuers if CS acts as lead or co-manager of a public equity offering on behalf of the issuer. The timing of publication of pre-deal research will in practice be dictated by the timetable for the transaction, as well as CS's policy regarding the imposition of quiet periods prior to the commencement of the issuer's marketing of the transaction.
Analysts' remuneration is determined by Research senior management. Investment banking personnel may not have any input into such decisions. In addition, Analysts' remuneration is not linked to specific investment banking transactions. Factors that are taken into account in determining an Analyst's remuneration include:
- The Analyst's individual performance and productivity;
- The overall quality and accuracy of the Analyst's research;
- Evaluations by investor clients and employees in other parts of CS with whom the Analyst interacts, excluding investment banking employees;
- CS's overall performance, which may include, in part, the profitability of investment banking businesses.
6. Analysts' Activities
Analysts are restricted from roles that could prejudice, or appear to prejudice the independence of their research or conflict with their duties to the recipients of their research, but are otherwise free to use their expertise for the benefit of CS's clients, subject to the restrictions outlined below, which are designed to reinforce their independence:
- Analysts are not permitted to participate in deal related pitches for specific investment banking transactions; and
- Analysts are not permitted to act in a way that reasonably appears to be representing the issuer of a relevant investment. Analysts may not therefore attend company roadshows relating to an investment banking transaction or to issues or allocations of investments.
Normal business contact between Analysts and investment banking or sales and trading employees, or between Analysts and investment clients of CS may be permitted, provided this does not give rise to a perception of lack of impartiality in the Analyst's research, and subject to local restrictions outside the UK. Such contact allows:
- Analysts to give their views on individual companies, sectors or other relevant market news, provided they do not disclose the timing or content of forthcoming research reports or receive other material non-public information in the course of their dialogue;
- Subject to local rules and regulations, Analysts to meet potential investment banking clients prior to the award of a mandate for purposes of one-way due diligence;
- Analysts to undertake vetting or due diligence on a company to assist CS's decision to be involved in a transaction; discussions between Analysts and investment banking employees on vetting require the prior approval of Research senior management;
- Subject to local rules and regulations, Analysts to provide feedback to Syndicate employees on the pricing or structuring of a securities offering or provide background on market sentiment and the likely reception of an offering; and
- Analysts to participate in investor education meetings with investing clients not involving the presence of company management nor investment banking employees.
In connection with securities offerings where CS acts as lead or co-manager, Analysts may be permitted to educate the market in respect of the transaction and to provide independent pre-deal research for this purpose. Procedures in respect of pre-deal research include:
- Pre-deal research is produced outside the US and is not distributed in the US or any other jurisdiction in which its production and distribution would be inconsistent with local regulations;
- Pre-deal research is prepared and published on the same basis and in accordance with the same policies and procedures as any other research report published by CS. It must be impartial and represent the independent views of the Analyst;
- Pre-deal research will not include investment recommendations or price targets; and
- Issuers, counsel to the issuer, underwriters counsel and investment banking employees may review draft pre-deal research in redacted form only to verify factual accuracy and consistency with the prospectus or offering circular, provided all such comments are provided to Compliance and not directly to the Analyst. Any significant proposed changes to the draft pre-deal research require approval from Research senior management.
7. Inducements and Inappropriate Influences
CS's policies to prevent any inappropriate influence over Analysts or the preparation of research reports include:
- Analysts and other employees of CS are not permitted to accept any remuneration or other benefit from the issuer or any other party in respect of the publication of research;
- Analysts and other employees of CS are not permitted to offer or accept any inducement for the production of favourable research, including selective disclosure by an issuer of material information not generally available;
- Analysts and other CS employees are not permitted to directly or indirectly offer favourable research, specific ratings or specific price targets as consideration or inducement for the receipt of business or compensation;
- Analysts and other CS employees are not permitted to directly or indirectly offer or threaten to change research, a rating or price target as consideration or inducement for the receipt of business or compensation;
- Analysts may not discuss unpublished or draft research reports ("unpublished reports") with investment banking or sales and trading employees.
- The Research department has editorial control over the contents of research reports and no other business areas are permitted to review or comment on unpublished reports.
- Subject to local rules and regulations, issuers may be sent unpublished reports in redacted form for the purpose of verifying their factual accuracy. These reports must exclude the research summary, the research rating and price target. Any material changes to an unpublished report that are required following the verification of factual accuracy by the issuer, require the approval of Research senior management;
- Analysts are located separately from investment banking employees; and
- Analysts may have access to the CS's trading floors in order to maintain an active dialogue with sales and trading employees, although Analysts may not prepare research on the trading floor or discuss unpublished reports with anyone outside of the Research department.
8. Method and Timing of Publication
The timing and content of unpublished research reports may not be disclosed by any means to anyone, either inside or outside of CS, until the information is broadly disseminated. CS's policies require research reports to be published or distributed only through its usual channels and to ensure that they are made available simultaneously to clients and CS employees within the sales and trading areas.
Where CS has a significant role in an offering of securities, CS's policy is to restrict the publication of investment research relating to an issuer (and potentially on companies related to it) in order to avoid any confusion between the research product and the prospectus and other offering documentation or the perception that the research would not be impartial. The decision whether to impose such a restriction and the nature, timing and length of restriction appropriate will be made by Compliance.
Where CS has a significant role in an investment banking transaction, CS's policy is to limit the content of research reports from the time the transaction is publicly announced until the transaction closes. This may include the removal of any investment recommendation, price target, expression of views on the possible outcome of the transaction and limiting updates to estimates or forecasts to reasonable inferences that may be drawn from publicly available information. The decision whether to impose such a restriction on content and the nature, timing and length of restriction appropriate will be made by Compliance.
9. Disclosure of Interests and Personal Account Dealing
Where research reports provide an investment view or recommendation regarding a specific security, CS will add disclosures as required by various legal and regulatory requirements, including the European Market Abuse Regulation. These include:
- An explanation of the meaning of CS's ratings; information relating to the valuation methods used by CS; the percentage of securities on which CS has a rating of outperform, neutral or underperform; and a chart depicting the share price of the companies referred in research reports over time and the points at which CS assigned or changed a rating or price target;
- Whether CS holds 1% or more of the securities of companies referred to in research reports;
- If CS owns a net long or short position exceeding the threshold of 0.5% of the total issued share capital of the company referred to in research reports, calculated in accordance with Article 3 of Regulation (EU) No 236/2012 and with Chapter III and IV of Commission Delegated Regulation (EU) No 918/2012;
- Whether CS has significant holdings in the securities of companies referred in research reports;
- Whether companies referred in research reports hold more than 5% in Credit Suisse Group AG;
- Whether research has been sent to any of the companies referred in research reports for fact checking and whether it has been changed as a result;
- If CS has been lead manager or co-lead manager over the previous 12 months of any publicly disclosed offer of financial instruments of the company referred to in research reports;
- Whether CS acts as a market maker in the securities of companies referred to in research reports or if CS is party to an agreement with the issuer in relation to the provision of services of investment firms set out in Sections A and B of Annex I of Directive 2014/65/EU of the European Parliament and of the Council;
- Information regarding any directorships or other material relationships of individual officers of CS with companies referred to in research reports;
- Any personal interest of the Analyst or close relations of the Analyst in securities of companies referred to in research reports;
- Past significant relationships of CS with companies referred to in research reports, including investment banking or other advisory assignments or relationships;
- Subject to legal and confidentiality constraints on disclosure, current or prospective relationships between CS and companies referred to in research reports, or the fact that such relationships may exist; and
- The organisational and administrative arrangements for the prevention of conflicts of interest.
The following policies apply to all Analysts with regard to personal account dealing and outside business activities:
- Analysts are generally prohibited from trading in any securities, loans, derivatives or other instruments of companies (and their affiliates) in their coverage industry globally, whether or not they currently provide research coverage of the company;
- Analysts are required to comply with CS's rules on personal account dealing, which include the requirement to pre-clear any proposed dealings with Compliance and/or Research senior management;
- Analysts are prohibited from serving as an officer, director or member of a supervisory board of any publicly quoted company; and
- Analysts are required to comply with CS's rules on outside business activities, which will require approval from Research senior management and Compliance.