Conflict Management Policies
- Introduction
- Note on applicable regulation
- 1. Identification and disclosure of possible conflicts
- 2. Supervision and remuneration of research analysts
- 3. Activities of analysts
- 4. Inducements and inappropriate influences
- 5. Review and comment on research
- 6. Timing and content of research
- Important Notes
Introduction
This policy applies to research published by the Research Department of Morgan Stanley Wealth Management (also referred to herein as the "Firm"), which is the trade name of Morgan Stanley Smith Barney LLC, a registered broker-dealer in the United States. This policy is available from Morgan Stanley Wealth Management on request and is made available on the public website at https://www.morganstanley.com/online/researchdisclosures. Morgan Stanley Wealth Management reserves the right to amend or supplement this policy at any time. For the current policy, please check the website.
In this policy, the terms "research analyst" and "analyst" are used interchangeably to describe research analysts who publish research reports. The term Research Management is used to describe the senior management teams of the Research Department.
Note on applicable regulation
The policies comply with laws and regulations applicable to research and in many cases go beyond what is required by those laws and regulations.
Morgan Stanley Wealth Management, is an affiliate of Morgan Stanley & Co. LLC, which was a party to the equity research settlement with U.S. federal and state regulators of April 2003 (the "Research Settlement"). Therefore these Morgan Stanley Wealth Management policies are also designed to comply with the Research Settlement. The Research Settlement applies to research analysts based in North America and to analysts publishing equity research relating to companies incorporated or headquartered in the United States or whose principal equity trading market is in the United States. These companies are referred to as "U.S. Companies".
In addition, the Firm has voluntarily applied many of the requirements of the Research Settlement to issuers that are not U.S. Companies taking into account the specific characteristics of fixed income and other non-equity products and markets, as well as local regulatory requirements and market practices outside the United States. With respect to Fixed Income Research, Morgan Stanley Wealth Management policies are also designed to comply with and in many respects go beyond the Guiding Principles to Promote the Integrity of Fixed Income Research published by The Bond Market Association in May 2004.
1. Identification and disclosure of possible conflicts
Morgan Stanley Wealth Management policies and internal procedures are designed to assist the Firm in identifying possible conflicts of interest, or the appearance of conflicts of interest, that might affect or raise questions about the impartiality of research.
Morgan Stanley Wealth Management provides training for research analysts, and other Firm personnel with whom analysts interact, on the identification of potential conflicts. Firm Research Management and the Firm Legal and Compliance Division provide assistance and guidance to Firm personnel as issues arise. Individual Firm personnel are responsible for raising identified conflicts or potential conflicts with their supervisors to ensure that all conflict questions are referred to and considered at the appropriate level within the Firm.
The Firm Legal and Compliance Division monitors the application of the Firm's policy regarding the publication of research in the period before, during and after investment banking transactions, including those of its affiliates, including, but not limited to Morgan Stanley & Co. LLC (hereinafter referred to as "affiliates"), as described further in "Timing and content of research". Morgan Stanley Wealth Management also has automated systems that facilitate the required disclosures in research reports of interests and activities of the Firm that may appear to represent a conflict of interest (see "Disclosure of interests").
The primary analyst responsible for a research report is required to ensure that the views expressed in each research report accurately reflect his or her personal views (see "Certification on each research report").
The Firm's usual disciplinary procedures apply in case of breaches of the policies referred to herein. Failure of Firm personnel to adhere to the requirements of Morgan Stanley Wealth Management policies may result in a range of sanctions, up to and including termination of employment.
2. Supervision and remuneration of research analysts
Research analysts are not directly supervised by personnel from other areas of the Firm whose interests or functions may conflict with those of the research analysts. The evaluation and appraisal of research analysts for purposes of career advancement, remuneration and promotion is structured so that non-research personnel do not exert inappropriate influence over analysts.
Supervision and reporting lines: Analysts who publish research reports are supervised by, and report to, Research Management. Research analysts do not report to, and are not supervised by, any investment banking personnel or any sales or trading personnel. Senior Research Management personnel report either directly to Firm Management or to the most senior management level in the Firm´s related sales and trading business.
Evaluation and remuneration: The remuneration of research analysts is determined on the basis of a number of factors, including quality, accuracy and value of research, productivity, experience, individual reputation, and evaluations by investor clients and employees in other parts of the Firm with whom analysts interact. Analysts' remuneration, however, may not be directly linked to specific transactions or the profitability of particular trading desks or investment banking groups of our affiliates, but will in part reflect the overall profitability of the Firm as a whole. Morgan Stanley Wealth Management does not permit its own or its affiliates´ investment banking personnel to participate in the Firm's evaluation of research analysts. Research Management is responsible for ensuring that any evaluation input by sales and trading personnel are not communicated to analysts in a way that could amount to inappropriate pressure on the individual analyst.
3. Activities of analysts
Morgan Stanley Wealth Management restricts research analysts from performing roles that could prejudice, or appear to prejudice, the independence of their research.
Pitches: Research analysts are not permitted to participate in sales pitches for Firm investment banking mandates or for mandates of its affiliates and are not permitted to prepare or review materials for those pitches. Pitch materials may not contain the promise of research coverage.
No promotion of issuers' transactions: Research analysts may not be involved in promotional or marketing activities of an issuer of a relevant investment that would reasonably be construed as representing the issuer.
For this reason, analysts are not permitted to attend "road show" presentations by issuers that are corporate clients of the Firm relating to offerings of securities or any other investment banking transaction from our affiliates. Analysts may, however, observe road shows remotely, without asking questions, by video link or telephone in order to help ensure that they have access to the same information as their investor clients. Fixed income research analysts, with Research Management's prior approval, may attend road shows passively (i.e. as a member of the audience, neither asking nor responding to questions).
Analysts are permitted to attend ordinary course investor presentations by issuers, including those that are corporate clients of the Firm, that do not relate to offerings of securities or other investment banking transactions in which the Firm or its affiliates are participating, provided that (except in the case of widely-attended conferences mentioned below) investment banking personnel are not present.
No three-way meetings: As a general rule, analysts (other than economists and strategists who do not analyze specific issuers) are not permitted to attend meetings with corporate finance clients of the Firm jointly with investment banking personnel of our firm or our affiliates. These meetings are referred to as three-way meetings. Specifically, three-way meetings are not permitted for North America-based research analysts or research analysts outside North America with respect to transactions involving U.S. Companies. Research analysts' due diligence must be conducted outside the presence of any investment banking personnel.
Widely-attended conferences: Analysts are permitted to attend and speak at widely-attended conferences at which Firm investment banking colleagues and those of the Firm´s affiliates and our clients, among others, may also be present. These widely-attended conferences may include investor presentations by corporate clients of the Firm.
Other permitted activities: Analysts may be consulted by Firm investment banking and our affiliates´ investment banking and sales and trading personnel on matters such as market and industry trends, conditions and developments and the structuring, pricing and expected market reception of securities offerings or other market operations. Analysts may also carry out preliminary due diligence and vetting of issuers that may be prospective subjects of research or prospective investment banking clients of ours or our affiliates, or both, and may meet issuers at that time for this purpose (or otherwise upon the issuer's request) provided investment bankers are not present. Analysts may not, however, be provided with material or confidential non-public information regarding an issuer or investment, unless the analyst is brought "over the wall" (variously known as the "information barrier", "ethical wall" or "Chinese wall") in accordance with Morgan Stanley Wealth Management procedures. Wall crossing requires the prior consent of Firm Research Management and a record to be made by the Firm's Legal and Compliance Division, specifically the Firm's Control Group. Wall crossing will potentially result in restrictions on the analyst's activities until the relevant non-public information has become public or stale.
In connection with a securities offering or other transaction and during the course of such an offering or transaction, Morgan Stanley Wealth Management policies permit analysts to meet and speak with potential investors, at meetings and in conversations not involving the issuer or Firm or affiliates´ investment banking personnel, for purposes of investor education and information.
Analysts' personal dealings:
Employees are restricted from trading specific securities during the following black-out periods:
- CEF and ETF teams: 30 calendar days before and five calendar days after publishing a research report relating to a specific ETF or CEF, and to the extent that any individual ETF or CEF has a rating, the analyst may only trade that ETF or CEF in line (i.e. purchase) with the rating.
- Equity Model Portfolio Solution Analysts: 30 calendar days before and five calendar days after publishing a research report relating to securities in their equity model portfolios, or on their recommended lists, or about which they issue research reports.
Where personal account trading is permitted, within the rules described above, analysts are required to comply with the Firm's rules and procedures on personal account dealing, which include requirements for dealings to be conducted through an account with the Firm (or, in limited circumstances, in other permitted accounts held outside the Firm) and to be pre-cleared with Research Management. Pre-clearance is not required for certain transactions, including but not limited to transactions in, Morgan Stanley stock (during permitted window periods) or for permitted trading in a discretionary account where the analyst has ceded all investment discretion to an investment manager or financial advisor. In general, Research personnel may trade options to hedge existing positions as long as the resulting combined position is consistent with the Firm's rules and procedures.
An analyst is prohibited from covering an issuer if the analyst serves as an officer, director or member of the board of the issuer. If an analyst's household member serves in such a capacity, the analyst is required to disclose that fact in any relevant research report and Research Management will consider whether, based on the facts and circumstances, the analyst should cease covering the issuer.
Personal trading of personnel in Research Management who oversee research analysts must be preapproved by the Firm´s Legal and Compliance Division to the extent that a transaction involves equity securities of subject companies covered by the research analysts who the Research Management personnel oversee.
4. Inducements and inappropriate influences
Morgan Stanley Wealth Management prohibits research analysts from soliciting or receiving any inducement in respect of their publication of research and restricts certain communications between research analysts and personnel from other business areas within the Firm, which might be perceived to result in inappropriate influence on analysts' views.
Remuneration and other benefits: Morgan Stanley Wealth Management procedures prohibit analysts from accepting any remuneration or other benefit from an issuer or any other party in respect of the publication of research and from offering or accepting any inducement (including the selective disclosure by an issuer of material information not generally available) for the publication of favorable research. These restrictions do not preclude the acceptance of reasonable hospitality in accordance with the Firm's general policies on entertainment, gifts and corporate hospitality.
Inappropriate influences: Morgan Stanley Wealth Management has implemented policies and procedures, where appropriate, to regulate communications between Morgan Stanley Wealth Management research analysts and other business areas of the Firm.
Research analysts have office space separate from that of Firm and affiliates´ investment bankers. In addition, access to the office space where analysts work is subject to security restrictions to prevent access by non-analysts and access to Firm and affiliates´ investment banking areas also is subject to security restrictions to prevent access by persons who are not part of investment banking. In addition Firm and affiliates´ investment bankers, salespeople and traders are prohibited from attempting to influence the timing or content of any analyst's research report, and research analysts are prohibited from disclosing to any other business area of the Firm (other than the Legal and Compliance Division) the timing or content of a research report prior to its publication (see "Timing and content of research").
- Firm and affiliates´ investment bankers are prohibited from providing analysts with material or confidential non-public information regarding an issuer or investment, unless the analyst is brought "over the wall" in accordance with Morgan Stanley Wealth Management procedures (see "Other permitted activities").
- The investment bankers are also prohibited from asking an analyst to initiate coverage of an issuer or investment(see "Coverage decisions") and from using equity analysts to identify or strategize about potential investment banking business of our affiliates.
Coverage decisions: Decisions to initiate, resume, suspend or discontinue research coverage of an issuer or investment are made by Research Management in conjunction with the research analyst concerned. Research Management is permitted to take into account input with respect to research coverage from other business areas, including our own and our affiliate´s investment banking and sales and trading. Input from investment banking with respect to equity research coverage involving North America-based analysts or of U.S. Companies is limited to a discussion of the merits of coverage of particular sectors or other general categories and may not be issuer-specific.
Certification on each research report: The primary analyst responsible for a research report on a specific issuer or issuers of securities is required to certify, at the time of publication, that the views expressed in the report accurately reflect his or her personal views about the subject securities, instruments or issuers, and that no part of his or her compensation was, is or will be directly or indirectly related to the specific views or recommendations contained therein. This certification can be found on each such research report.
5. Review and comment on research
Morgan Stanley Wealth Management policies are designed to ensure that parties with interests which may potentially conflict with those of recipients of research are not able to review or comment on research in a manner which might affect the impartiality of the research.
Review of research: Prior to publication, all research reports relating to securities are reviewed by a supervisory analyst. The purpose of this review is to confirm compliance with the Firm's guidelines and regulatory requirements, including the requirement that research be clear, fair and not misleading. Thereafter, all such reports that contain any discussion of a company or other entity in relation to which Morgan Stanley Wealth Management or its affiliates has an investment banking mandate (which would not necessarily be limited to the issuer the Firm represents in that mandate) are reviewed by Firm Legal and Compliance to monitor compliance with any legal or policy restrictions on timing or content as described in "Timing and content of research".
An analyst may also check the accuracy of factual statements with the relevant issuer that is the subject of a research report, prior to publication. This may be achieved by providing the issuer with a summary of facts for checking or a redacted version of the draft research report that contains no valuation, investment conclusion, recommendation or price target.
Morgan Stanley Wealth Management policies further require analysts to record the reasons for any subsequent material change made to a research report after factual matters have been reviewed by issuers or Firm or affiliates´ investment bankers (where review is permitted as provided above). This record must be submitted to and approved by both Research Management and Legal and Compliance prior to publication of the report.
Role of Research Oversight Committee: The Research Department has an Oversight Committee made up of senior members of the research department and may include members of other departments (excluding Investment Banking). In addition to improving the quality of research content and delivery, the committee aims to reinforce the prevention of undue influence on research analysts from other employees, issuers and investors. Committee approval is required for all initiations, resumptions, suspensions and discontinuations of coverage, changes to ratings (including industry views), and publication of new research periodicals and certain other matters.
Complaints: Any complaints concerning the content of research reports should be referred to, and are dealt with by, Research Management and where appropriate in conjunction with Legal and Compliance in compliance with the Firm's complaint handling procedures.
Retaliation policy: Neither the Firm nor the Firm´s or our affiliates´ investment banking personnel may retaliate or threaten to retaliate against any research analyst for any adverse, negative or otherwise unfavorable research that may adversely affect our affiliates present or potential investment banking relationships.
6. Timing and content of research
Morgan Stanley Wealth Management policies are designed to ensure that decisions on the timing and content of research are not made, or inappropriately influenced, by persons with interests conflicting with those of users of research and that new research and other material statements of a research analyst's views are not disclosed selectively before being made generally available
Timing and content of research: The timing of publication of a research report is determined primarily by the analyst on the basis of events affecting the issuer or investment concerned, perceived investment opportunities for research clients and developments in the analyst's opinion. Firm and affiliates´ investment bankers and sales and trading personnel have no control over, or input into, decisions on timing of publication of individual research reports.
The Firm has policies that may restrict the publication of research or the inclusion of opinions and/or recommendations in research, relating to the issuer or its related parties, at certain times when the Firm or our affiliates are involved in investment banking transactions. In the case of a merger or acquisition, the restriction may be applied both to bidder and target, regardless of which the Firm is advising. The nature, timing and length of the restriction will depend on the nature of the transaction.
For example, Morgan Stanley Wealth Management generally restricts the publication of research on an issuer for a short period after the announcement of a material merger, acquisition or restructuring in which the Firm or one its affiliates is involved, and during the pendency of the deal Morgan Stanley Wealth Management may limit an analyst´s ability to publish opinions or recommendations.
In relation to offerings of securities, Morgan Stanley Wealth Management follows the customary practice, and in some jurisdictions, law requires Morgan Stanley Wealth Management, to impose a "quiet period" or "blackout period" before and/or after an offering involving of its affiliates. A longer period is usual for initial public offerings of shares than for offerings involving listed issuers, and the period is typically shorter still (or there may be no quiet period) for offerings of investment grade debt securities.
Once the Firm or an affiliate´s investment banking department advises Legal and Compliance of a role in a transaction, Legal and Compliance is responsible for monitoring compliance with the appropriate quiet periods and other restrictions.
Morgan Stanley Wealth Management includes disclosures of its own or an affiliate´s role in investment banking transactions in relevant research reports published at a time when certain material transactions involving Morgan Stanley Wealth Management have been publicly announced.
Dissemination of research and updated views: Research reports are made available to clients through a number of established distribution channels (including via e-mail and web-based portals). Any material update of a research analyst's view, for example an immediate response to issuer news in advance of a full research report, is made available to clients through similar channels. Morgan Stanley Wealth Management policies do not allow research reports or their content or timing to be made available to non-research personnel of the Firm, including traders, before they are made available to Morgan Stanley Wealth Management clients.
Disclosure of interests: The Firm discloses in its research reports, in accordance with applicable law and regulation, conflicts of interest including those of the Firm and the analyst that are or may be material in the context of the relevant report.
Significant Financial Interest: For an explanation of Morgan Stanley & Co. LLC.'s determination of significant financial interest, please refer to their applicable research.
Important Notes
This policy is not intended to create third party rights or duties that would not already exist if the policy had not been made available, or to constitute or form part of any contract between the Firm and any client or customer of the Firm (or any other person).
This policy is supplemented by more detailed policies and procedures adopted by the Firm. Variations and exceptions to this policy may be approved by Research Management and the Legal and Compliance Division in individual cases, with a view to promoting the objectives of this policy in the particular circumstances.
References to investment banking include those capital markets or other personnel involved in structuring and pricing transactions and corporate broking personnel.
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