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Research dissemination policy


INTRODUCTION

Rule 3600 of the Canadian Investment Regulatory Organization (CIRO) sets out the standards that Laurentian Bank Securities ("LBS") research analysts must meet when disseminating research reports or making recommendations. These requirements must be implemented to minimize the risk of actual or potential conflicts of interest.

 

OBJECTIVES

 

This policy is a summary of the main regulatory provisions on the dissemination of its research reports with which LBS must comply. The objective of this policy is to provide an appropriate framework for the dissemination of LBS research reports, in accordance with the rules and standards of the securities industry.

SCOPE 

This policy applies to the Equity Research Department of LBS.

DEFINITIONS

For the purposes of procedure, the terms or expressions below have the following meaning: 

"Advisory Capacity" means providing advice to an issuer in return for remuneration, other than advice with respect to trading and related services.

"Analyst" means any Director, Officer, Employee, agent of LBS or Approved Person   who is held out to the public as an analyst or whose responsibilities to LBS include the preparation of any research report for distribution to clients or prospective clients of LBS, which includes a recommendation with respect to a security.

"Covered Issuer" refers to an issuer whose equity securities are the subject of a research report or a recommendation for public intervention. 

"Equity Related Security" means a security whose performance is based on the performance of an underlying equity security or a basket of income producing assets. Securities classified as an equity related security include, without limitation, convertible securities and income trust units.

"Head of the Research Sector" The Head of the Research Sector reports to the Executive at LBS in charge of the Research Sector. The Head of the Research Sector must not be the same person who heads LBS' Investment Banking, or report to this person.

"Investment Banking" refers to the Investment Banking Sector at LBS and includes, as part of the activities in this Sector but is not limited to, acting as an underwriter in an offering for the issuer; acting as a financial adviser in a merger or acquisition; providing venture capital, lines of credit, or serving as a placement agent for the issuer.

"Remuneration" means any benefit or consideration, including goods and service, monetary or otherwise that could be provided to or received by an Analyst. 

"Research Report" means any written or electronic communication that LBS distributes to its clients or the general public, which contains an Analyst's recommendation concerning the purchase, sale or holding of a security (but shall exclude all government debt and government guaranteed debt).

"Supervisory Analyst" means an LBS officer designated as being responsible for research. Where feasible by virtue of the number of Analysts, the Management Committee should appoint one or more Supervisory Analysts or heads of research to be responsible for reviewing and approving research reports; such persons should be Directors or Officers of LBS.

KEY COMPONENTS FOR THIS PROCEDURE

Research report disclosures and best practices

In each research report, LBS shall prominently disclose in a clear, meaningful comprehensive and prominent manner  some mandatory information and any matter which might reasonably indicate an existing or potential conflict of interest for LBS, which includes, but is not limited to, the following information:

LBS' activities and relationships or those of the LBS Analyst: any information regarding its, or its Analyst's business with or relationship with any Covered Issuer which is the subject of the research report which might reasonably be expected to indicate a potential conflict of interest on the part of LBS or the Analyst in making a recommendation with regard to the Covered Issuer; 

Equity Holdings in the Covered Issuer: Whether, as of the end of the month immediately preceding the date of issuance of the research report or the end of the second most recent month, if the issue date is less than 10 calendar days after the end of the most recent month, LBS and its affiliates collectively beneficially own 1% or more of any class of the Covered Issuer's equity securities; 

Remuneration: Whether any Director, Officer or Analyst involved in the preparation of a report on the Covered Issuer has, during the preceding 12 months, provided services to the Covered Issuer for remuneration other than normal course investment advisory or trade execution services; and 

Whether in the previous 12 months, the LBS Analyst in charge of preparing the report has received compensation based upon on LBS' Investment Banking revenues;

Investment Banking: Whether LBS has provided Investment Banking services for the Covered Issuer during the 12 months preceding the date of issuance of the research report or recommendation;

Position or role within the Covered Issuer: The name of any Director, Officer, Employee or agent[1] of LBS who is also an officer, director or employee of the Covered Issuer, or who serves in any advisory capacity to the Covered Issuer;

Equity position in the Covered Issuer: Whether the Supervisory Analyst or Analyst responsible for the report or recommendation, any person having ties with him or her, or any individuals directly involved in the preparation of the report, hold or are short of any of the Covered Issuer's securities directly or through derivatives; 

Market Making: Whether LBS is making a market in an equity or Equity Related Security of the Covered Issuer;

Viewing the Material Operations of the Covered Issuer: Whether, and to what extent when applicable, an LBS Analyst has viewed the material operations of a Covered Issuer. LBS must also disclose, if applicable, where there has been a payment or reimbursement by the Covered Issuer of the Analyst's travel expenses for such visit;

Meaning and dissemination of qualitative ratings: The system used by LBS to rate investments, and how each recommendation fits within the system. LBS shall also disclose on its websites or otherwise, quarterly, the percentage of its recommendations that fall into each category of its recommended terminology. To this end, LBS includes in any research report the definition of each qualitative rating on which its rating system is based and explains how each recommendation fits within the system. The definition of each qualitative rating shall be consistent with its true meaning. In addition, independently from the rating system used by LBS, it shall disclose, in each research report published on its website or by other means, the percentage of all securities rated by LBS for which it made a "purchase," "keep/neutral" or "sell" recommendation. To comply with the foregoing, LBS presents the information in the report or discloses in the report where such information can be obtained; 

Policies and procedures: The policies and procedures with respect to the dissemination of research; 

Sources and opinions: Distinguish clearly between information provided by the Covered Issuer or obtained elsewhere and the Analyst's own assumptions and opinions. In cases where the Analyst relies on any report or study by experts other than the analyst himself or herself, the names of such experts should be disclosed in the research report and the recommendations;

Price targets: The valuation methods used to set price targets. These methods must be well-founded. Further, price targets must be accompanied by a disclosure of the risks that could eventually prevent their fulfilment;

Specific terminology: LBS should use specific securities terminology where required to do so by securities legislation. Otherwise, LBS should use the specific technical terminology that is required by the relevant industry, professional association or regulatory authority or in the absence of required specific technical terminology, use technical terminology that is customarily in use. Where necessary, for full understanding, a glossary should be included.

Any other real, potential, or apparent conflict of interest to which the Analyst is exposed and that the latter or LBS is aware of or has every reason to believe when the research report is published or public intervention takes place, must be disclosed.

Where LBS distributes: 

  • A research report covering at least six Covered Issuers, the report may direct the reader to where the disclosures required may be found.
  • A research report electronically, the report may direct the reader to where the disclosures required and may be accessed by electronic means, such as through the use of a hyperlink.

In addition, where LBS distributes a research report prepared by an independent third party to its clients under the third party name, LBS must disclose all of the information described above. This requirement does not apply in the following cases:

  • Reports published by a brokerage firm member of FINRA.
  • Reports published by persons governed by other regulators approved by CIRO.
  • When LBS provides to clients only access to the independent third party research reports or provides independent third party research at the request of clients. 

However, in such cases, LBS must nonetheless disclose that such research report is not prepared subject to the disclosure requirements set out in this procedure and prescribed by Canadian regulations.

Public comments by LBS Employees 

Where a research analyst of LBS makes an interview (including radio or television) or any public comment (which shall include a seminar, a public forum, any other public speaking activity, or the  writing of an article in which an employee or approved person comments about an issuer or security)  about the merits of a Covered Issuer or its securities, a reference must be made to the existence of any relevant research report issued by LBS, containing the Information to be disclosed as set out above.

Analysts participating in interviews must disclose, or arrange for the interviewer to disclose, any conflict of interest that could affect their opinions, within desirable limits and in a general manner. 

 

Position or role held at a Covered Issuer 

LBS shall not issue a research report on a Covered Issuer when an Analyst or any person having ties with the Analyst, serves as an officer, director or employee of the Covered Issuer or serves the Covered Issuer in any advisory capacity.

Where a Supervisory Analyst at LBS serves as well as an officer or director of a Covered Issuer, then LBS must not provide research on the Covered Issuer.

 

Distribution of research reports to clients or potential clients

LBS shall make its research reports widely available to all of its clients that it grants such privilege to, at the same time, through its websites or other means of communication.

 

Restrictions regarding the trading of securities or derivatives 

Any trading by LBS' Directors, Officers, Employees or agents resulting in an increase, a decrease, or liquidation of a position in a listed security, or a derivative instrument the value of which is based principally on a listed or quoted security, with knowledge of or in anticipation of the distribution of a research report, a new recommendation or a change in a recommendation relating to the security in question that could reasonably be expected to have an effect on the price of the security, is strictly prohibited. 

No individual directly involved in the preparation of a research report can trade in any security of a Covered Issuer, or a derivative instrument whose value depends principally on the value of a security of a Covered Issuer, for which the Analyst has an outstanding recommendation for a period of 30 calendar days before and five calendar days after the research report is published, unless that individual receives the previous written approval of Compliance. No approval may be given to allow an Analyst or any individual involved in the preparation of the report to make a trade that is contrary to the Analyst's current recommendation, unless special circumstances exist.

 

Restrictions on Analyst compensation

LBS cannot pay any bonus, salary or other form of compensation to an Analyst that is directly based upon a financing or a specific project from the Investment Banking Sector.

 

Prohibition to promise the publication of favourable research reports 

LBS shall not, directly or indirectly, offer or promise to offer favourable research, a specific rating or a specific price target, a delay in changing a rating or price target or threaten to change research, a rating or a price target of a Covered Issuer as consideration or in exchange of business or inducement for the receipt of business or compensation from a Covered Issuer.

 

Relationship between Covered Issuers and the Investment Banking Sector

LBS has mechanisms in place to prevent recommendations in research reports from being influenced by the Investment Banking division or the Covered Issuer. Such procedures aim to:

  • Prohibit approval of research reports by the Investment Banking Sector;.
  • Prevent the Investment Banking Sector from receiving advance notice of ratings or rating changes on covered companies.
  • Establish systems to control the flow of information between Analysts and the Investment Banking Sector regarding Covered Issuers that are the subject of current or prospective research reports and to keep records of the flow of information.

With this in mind, LBS requires compliance with the following requirements and principles:

  • LBS may, as needed, submit for review purposes to a Covered Issuer  some sections of a research report prior to its issuance for the sole purpose of ensuring the accuracy of the facts reported and this, provided that the sections of the research report submitted to the Covered Issuer exclude the valuation discussion, the rating and the price target set for the Covered Issuer. 
  • LBS is free to disclose to a Covered Issuer its wish to change the rating set for its securities, provided that such notice is communicated on the business day immediately preceding the announcement of the firm's change in rating and this, after the closure of the market where most of the Covered Issuer's securities are traded. 

In addition, a system has been implemented to control the exchange of information between Analysts and Investment Banking. 

 

Restrictions on publishing research reports

LBS is prohibited from issuing or distributing a research report for an equity or an Equity Related Security regarding a Covered Issuer, for which LBS acted as manager or co-manager of: 

  • An initial public offering of equity or equity related securities, for 10 calendar days following the date of the offering;.
  • A secondary offering of equity or equity related securities, for three calendar days following the date of the offering.

LBS is prohibited from publishing or distributing a research report regarding the effects of significant news about or a significant event affecting the Covered Issuer within the applicable 10- and 3-day period. The aforementioned restrictions do not apply where the subject securities are exempted from restrictions under provisions relating to market stabilization in securities legislation or in the Universal Market Integrity Rules.

End of coverage

LBS must issue notice of its intention to suspend, interrupt or discontinue coverage of a Covered Issuer. However, no issuance is required when the sole reason for the suspension of coverage is that a Covered Issuer has been placed on LBS's restricted list.

Updates to financial estimates and securities recommendations

LBS has standards in place for research coverage. These standards include the obligation to maintain and publish current financial estimates and recommendations on securities followed, and to revisit such estimates and recommendations within a reasonable time following the release of material information by a Covered Issuer or the occurrence of other relevant events. 

1. An individual who is subject to the principal and agent relationship requirements set out in Rule 2300 CIRO.