FINRA’s disciplinary actions in 2017: increased restitution ordered with minimal changes in number of cases

Purpose The purpose of this paper is to analyze the Financial Industry Regulatory Authority’s (FINRA) 2017 disciplinary actions, the issues that resulted in the most significant fines and restitution and the emerging enforcement trends from 2017 and beyond. Design/methodology/approach The approach of this paper discusses the disciplinary actions in 2017 and prior years, details the top 2017 enforcement issues measured by total fines assessed, including anti-money laundering, trade reporting, electronic communications, books and records, research analysts and research reports, and explains current enforcement trends, including restitution, suitability cases and technological issues. Findings In 2017, restitution more than doubled from the prior year, resulting in the fourth highest total sanctions (fines combined with restitution and disgorgement) assessed by FINRA over the past 10 years. Practical implications Firms and their representatives should heed the trends in both the substantial restitution FINRA is ordering and the related enforcement issues in the cases FINRA has brought. Originality/value This paper provides expert analysis and guidance from experienced securities enforcement lawyers.

Factors Mitigating Firm-specific Information Asymmetry and Target Price Accuracy in India

Executive Summary Over the last decade, efforts have been made to improve the quality of financial reporting and corporate governance standards prevailing in emerging markets. Even after 20 years of globalization, emerging markets continue to trade as a separate class ( Bekaert & Harvey, 2014 ). On account of a weak regulatory environment, firm-specific information asymmetry is expected to be on the higher side as compared to developed markets. In such an environment, any factors which mitigate information asymmetry may help improve efficiency of information providers such as equity research analysts. The role of equity research analysts is to process financial information and provide estimates which may be used by investors to make informed investment decisions. This study investigates whether the factors which mitigate firm-specific information asymmetry improve analyst target price accuracy in India. We expect sophisticated financial intermediaries such as equity research analysts to produce more accurate target price forecasts for firms with higher frequency of corporate announcements, higher analyst coverage, and higher foreign institutional holdings. Past research suggests that these three factors reduce information asymmetry and this reduction could possibly help analysts produce superior results. Our results show that higher frequency of corporate announcements creates short-term noise which reduces target price accuracy at the end of one-year forecast horizon. Our findings reveal that higher analyst coverage leads to better flow of firm-specific private information and improves target price accuracy anytime during or at the end of one year. We report that higher foreign institutional holding possibly improves stock liquidity, attracting more traders, which eventually leads to better target price accuracy at the end of forecast horizon. Our key finding is that there is a reduction in firm-specific information asymmetry due to the presence of more number of analysts and higher percentage of institutional holding.

Up the Value Chain: Transition from Law Librarian to Research Analyst

This paper is based on a parallel session at the BIALL Conference 2016 which was given by Helen Marshall and Kelly Taylor from Pinsent Masons. Pinsent Masons has a ground-breaking team of research analysts providing the firm with in-depth sector and market analysis. This innovative approach has benefits for Pinsent Masons and also for the research team. These include increased visibility within the firm and developing a role as a trusted adviser to the business. The team are drawn from a variety of backgrounds, including experienced law librarians. In this article, Kelly and Helen, who are both from a law librarian background, will explain Pinsents' unique approach to business and sector insight. The article covers how the team adds value to the firm and charts the development of our existing skillsets to meet this new challenge. The article also includes some practical insight into approaching business research and how to overcome common obstacles, notably the challenge in expanding our output from traditional legal research to more business and commercially aware pieces.

SEC approves long-anticipated FINRA research rules

Purpose To analyze the changes to the FINRA equity research rules and evaluate concerns that may be important to and have an impact on equity research activities following the effective date. Design/methodology/approach This article provides an overview of the changes reflected in FINRA Rule 2241 pertaining to equity research analysts and research reports, as well as changes to licensing requirements for equity research analysts. It highlights potential issues for firms and provides some commentary on how these issues should be considered in light of FINRA’s articulated position and assurances FINRA has given to the SEC. Findings This article concludes that firms should anticipate these changes and begin a comprehensive review of research policies and procedures, the personnel who prepare research reports and the scope of their research products so as to be compliant with Rule 2241 from its effective date. Firms should also begin an investigation of technologies used to gather, produce and disseminate research and required disclosures to ensure they meet the new requirements when they are effective. Originality/value This article provides insight into the new FINRA Rule 2241 and practical guidance from experienced securities lawyers.