9.3.7.2. Joint Due Diligence
A firm’s research analysts can work on due diligence matters, but their work must be independent of the firm’s investment bankers. Joint due diligence refers to any due diligence activities performed by a research analyst in the presence of personnel from the firm’s investment banking department—for example, a due diligence meeting with the client’s management (or the client’s other advisors, such as legal counsel or accountants) attended by both investment bankers and research analysts. Unless the client is an EGC, joint due diligence is prohibited for any investment banking transaction prior to the issuer selecting an underwriter. This restriction is intended to insulate the research analyst from pressure to market the investment bank’s services to prospective clients.
FINRA Rules 2241 and 2242, SEC Release No. 34-75471
|
Summary Table |
|
|
RULES REGARDING RESEARCH ANALYSTS |
|
|
Rules for Client Interactions |
|
|
Rule |
Exemption If Client Is EGC? |
|
No joint due diligence prior to selection of an underwriter |
Yes |
|
Research analysts may not participate in bake-offs |
Partial: analysts may attend but not participate in soliciting business |
|
Research analysts may not participate in road shows |
No |
|
Marketing materials for an offering may not imply that favorable research coverage will be given to the offering |
No |
|
Quiet period after start date of offering (10 days for IPO, 3 for secondary offering) |
Yes |
|
Internal Rules |
|
|
Legal and compliance staff checking for | |