I’m confused now. According the standards, there shouldn’t be any communication between the investment banking side of the firm and the brokerage side, who are issuing reports and recommendations. That’s why they suggest implementing “firewalls.” In Reading 4 (ROS), it says that “firms may permit investment banking or corporate finance personnel to review a research report only to verify factual information or to identify potential conflicts of interest…” So, is this allowed, just as long as they don’t communicate the proposed recommendation??
My understanding is that the communication of factual info can take place, but it has to go through compliance / be supervised. There shouldn’t be any direct unsupervised communication between the departments.
Whenever we hold a conference call with Investment Banking (I am in Equity Research), someone from our compliance has to be on the phone. Same with emails (they all go through compliance before being forwarded to IB). Both departments can share models / insight about an industry as long as everything said has already been put out there for the clients / public. It’s just like an outside investor calling in the ER analyst to get more info about his models.
As long as the IB department does not have an influence on the opinion of the research analyst, or even able to change his/her proposed recommendation on the stock just to make their client “look good”, communication is allowed…but still mostly under supervision of compliance. It’s an “open” backdoor to allow at least some communication between both departments, mostly because the investment bankers are not as strong with valuation models as research analysts and valuation is important for IPOs, etc. Of course, there are also bankers with a knack for valuation, no offense here.