Legal and Regulatory

Pillar 3 Disclosures


The policy for dealing with any possible conflicts of interest in relation to Research

1. INTRODUCTION

1.1 This Policy Statement discloses the organisational and administrative arrangements within Numis Securities Limited (“Numis”) for the prevention and avoidance of conflicts of interest with respect to its research investment recommendations.

 

2. REGULATORY FRAMEWORK

2.1 Numis is authorised and regulated by the Financial Conduct Authority (the “FCA”).

2.2 Under the FA’s Handbook, Numis is required to take all reasonable steps to identify conflicts of interest between:

2.2.1 the firm, including its managers, employees and appointed representatives, or any person directly or indirectly linked to them by control, and a client of the firm; or

2.2.2 one client of the firm and another client  
that arise or may arise in the course of the firm providing certain services. These services include financial analysis and other forms of general investment recommendation relating to transactions in financial instruments.

2.3 Under the FCA’s Handbook, Numis is also required to disclose, in general terms, its organisational and administrative arrangements for the prevention and avoidance of conflicts of interest with respect to research investment recommendations.

3. NUMIS’ RESEARCH INVESTMENT RECOMMENDATIONS

3.1 Numis publishes research that is classified by the FCA as ‘non-independent research’. Non-independent research is a research investment recommendation that relates to financial instruments and does not constitute investment research.

3.2 A research investment recommendation is research or other information recommending or suggesting an investment strategy, explicitly or implicitly, concerning one or several financial instruments or the issuers of financial instruments, including any opinion as to the present or future value or price of such instruments, intended for distributiochannels or for the public, and in relation to which the following conditions are met:

3.2.1 It is labelled or described as investment research or in similar terms, or is otherwise presented as an objective or independent explanation of the matters contained in the investment recommendation.

3.2.2 If the investment recommendation in question were to be made by an investment firm to a client, it would not constitute the provision of a personal investment recommendation.

 

4. HOW NUMIS IDENTIFIES CONFLICTS OF INTEREST

4.1 Numis has conducted a mapping exercise to identify potential sources of conflicts of interest within its business departments and within Numis as a whole. Numis’ conflicts map identifies potential sources of conflicts relating to the production and dissemination of its research. Potential sources of conflicts that have been identified include:

4.1.1 the independence of the research analysts versus other parties’ desires, such as: corporate entities’ desires for research to position them in a positive light; institutional investors’ desires for research to support their existing positions; and other Numis departments’ desires, for example Corporate Finance’s, desire for research to support their clients and transactions;

4.1.2 analysts’ personal desires to issue research that is attention-grabbing versus the requirement for research to be clear, fair and not misleading;

4.1.3 analysts’ compensation structures compromising the integrity of their research;

4.1.4 analysts’ reporting structures compromising the integrity of their research;

4.1.5 analysts’ use of alpha capture that is not in line with an analyst’s existing research note;

4.1.6 early disclosure f research to selected clients in advance of wider distribution of reports;

4.1.7 Numis acting to position itself ahead of the publication of its own analysts’ research; and

4.1.8 analysts becoming privy to confidential/sensitive information.

Numis’ Compliance department also maintains a register of conflicts that is updated when new conflicts arise.

 

5. HOW NUMIS MANAGES CONFLICTS

5.1 Numis maintains and operates effective organisational and administrative arrangements for the prevention and avoidance of conflicts of interest.

5.2 Some of these arrangements operate specifically within/in relation to the Research Department, due to the unique nature of the conflicts and risks associated with its work. Others apply on a firm wide basis, including to the Research Department. Details of the key arrangements in place are set out below. 

5.2.1 Research specific arrangements

The Research Department has a specific policies and procedures manual which outlines in detail the requirements surrounding production and dissemination of Numis’ research. This explains to research analysts the controls in place relating to Numis’ research, including:

5.2.1.1 a physical segregation between the Research Department and Corporate Finance/Corporate Broking, with access to the latter restricted by card-key controlled doors;

5.2.1.2 a prohibition on research analysts seeking or accepting comments from employees working in potentially conflicted departments prior to the publication of research (although factual clarifications are permitted);

5.2.1.3 a prohibition on research analysts providing unpublished research to Numis’ dealing staff;

5.2.1.4 requirements for research analysts to apply due skill, care and diligence when drafting research reports;

5.2.1.5 strict procedures to be followed in the event that analysts become in possession of inside information;

5.2.1.6 requirements for certain research to be pre-cleared or subject to peer review prior to its publication, for example pre-flotation research;

5.2.1.7 procedures to ensure fair disclosure and prevent selective pre-release of research; and

5.2.1.8 restrictions and controls to prevent front running.
Research analysts are also given tailored training on the potential risks relating to conflicts of interest and their behavioural obligations.

5.2.2 Firm-wide arrangements

The arrangements which Numis has implemented on a firm-wide basis include:

5.2.2.1 Policies and procedures:

A number of Numis’ policies ensure that Numis and its employees act appropriately in situations which may give rise to conflicts of interest.

These include a conflicts of interest policy which applies to all Numis’ employees, contractors located at its premises and anyone engaged by Numis (including interns and long-term temporary employees). This identifies circumstances which constitute or may give rise to a conflict of interest and specifies procedures to be followed and measures to be adopted in order to manage such conflicts. 

Numis also has a personal account dealing policy that prevents employees from engaging in certain activities in order to avoid actual or potential conflicts of interest. Pre-approval is also required for dealing in certain instruments such as shares.

5.2.2.2 Chinese Walls:

Chinese Walls seek to act as an information barrier to prevent sensitive information from being passed between different business areas of Numis. Numis uses physical barriers to segregate the working spaces of employees with access to different information types. Numis also uses information flow barriers, whereby employees are not permitted to access and/or share certain information with employees in certain other business areas. Numis also utilises insider lists and wall crossing procedures.

5.2.2.3 Individual responsibility for management, identification and reporting of conflicts:

Numis employees have ultimate responsibility for identification of conflicts of interest. Through the conflicts policy and through training, Numis ensures that employees are aware of the extent and nature of the risk that their activities or business area poses in terms of conflicts of interest and are made familiar with the processes that should be followed in the event of a potential conflict arising.

5.2.2.4 Remuneration:

Numis has a remuneration policy that is intended to ensure that Numis’ employees are not incentivised to engage in poor conduct or to act inappropriately in a conflicts of interest situation.

5.2.2.5 External business interests:

Numis’ employees are required to notify and obtain pre-approval from the Compliance and HR departments before accepting or participating in outside business interests and employment.

5.2.2.6 Disclosure:

Numis may also disclose to its clients the nature of a particular conflict that has been identified by Numis if, for example, it feels that its arrangements are not sufficient to ensure that risks of damage to the interests of the client would be prevented. This is in order to allow the client to make an informed decision about the impact of the conflict.