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The Netherlands

Europe-Securities guidelines on the use of analysts’ reports

A new government regulation and a related policy notice from the regulatory agency STE place important limitations on the use of analysts' reports by the securities firms from where they originate. The relevant provisions draw a distinction between analysts' reports consisting only of public information on the business or company researched, (which reports may freely be published or used by the securities firm in question), and reports containing conclusions or recommendations based on the information analyzed. In the second case, the information contained in the report may constitute insider information, the use of which is subject to certain restrictions. Two situations are provided for in this regard:

The report is not published. In this case, the firm may use conclusions or recommendations contained in the report for purposes of its own transactions and may furthermore circulate the information to a limited group of persons (both in-house and external). A practical problem is that no guidance is provided as to what exactly such a limited group entails.

The report is published. Should the securities firm know or reasonably have known (in the light of factors such as previous experiences and the reputation of the publishing firm) that the report would influence the relevant securities' price, it is prohibited from circulating the information contained in the report prior to publication. The firm is itself also prohibited from using conclusions or recommendations contained in the report in pre-publication transactions, and must therefore ensure that insider information is not circulated to non-research personnel, particularly traders, who may abuse it. A firm may prevent any semblance of abuse of insider knowledge by erecting Chinese Walls between its research and trading departments. But the erection of Chinese Walls may hold negative implications for firms which have previously relied on a research/trade synergy.

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