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Standard Bank Group Research Policy

Standard Bank Group (SBG) policies for managing conflicts of interest in connection with Investment Research

Introduction

This note summarises certain policies (together the “Policy”) adopted by SBG for the management of conflicts of interest in connection with investment research. This Policy is not intended to create third party rights or duties that would not already exist if the policy was not made available, nor does it form part of any contract between SBG and any client.

Investment Research


Investment research is material that generally contains either:

  • Analysis of factors likely to influence the future performance of an investment or issuers; or
  • Advice or recommendations based on those results or that analysis. It is substantive analysis that incorporates the critical and careful consideration and assessment of new and existing facts. Any material containing substantive analysis into investments or issuers is likely to be viewed as investment research.

SBG` policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. Such research may be produced and published only by employees of the Research Department.

Integrity

Investment Research Analysts (“Analysts”) are required to observe high standards of integrity and ethical behaviour. All investment research reports (“research reports”) must be based on strict standards of truthfulness and fair dealing, and must be presented in a manner such that they are fair, clear and not misleading. Analysts are required to ensure that they have a reasonable basis for their analysis and recommendations. SBG has policies giving guidance to Analysts regarding the proper presentation of facts and opinions in research reports, for example regarding verification of facts and the avoidance of superlative, flamboyant, emotional, libellous or promissory statements. SBG operates procedures to ensure the independence of expression of views by Analysts and to prevent improper influence on Analysts’ professional judgement. All personnel, but especially Analysts themselves, are required immediately to report to either Research senior management or the Compliance Department any improper attempt to influence or restrict the expression of an Analyst’s views. Analysts are required to certify in each research report that:

“The views expressed in the report accurately reflect their personal views about any and all of the investments or issuers to which the report relates; and

No part of the Analyst’s remuneration was, is or will be directly or indirectly related to the specific recommendations or views expressed in the report.”

Identification of Conflicts

Firms are responsible for identifying and managing any conflicts of interest arising in the business that might compromise the impartiality of the firm’s research analysts and their research.

Such conflicts could include conflicts between recipients of research reports and SBG`s investment clients (in particular sales and trading customers) and the personal interests of SBG’s officers and employees.

SBG’s policies in this regard include:

  • The provision of internal guidance and training on the identification of possible issues of conflict as and when they arise;
  • Escalation procedures for ensuring that issues identified are referred to and considered at the appropriate level within the Firm, and on use of and reducing the risk of inappropriate exercise of influence;
  • Compliance monitors potential conflicts arising out of the publication of research;
  • Internal guidance and arrangements for regulating the flow of information between and within business areas. These include locating Analysts separately from Sales and Trading employees; requiring that any research report is produced in an area away from Sales and Trading businesses and having arrangements, including “Chinese Walls” and other information barriers, to stop and control the flow of information between the Research Department and other parts of the business;
  • Editorial guidelines and procedures for supervisory review of research prior to publication; and
  • Limiting the production and publication of investment research to employees of the Research Department and only allowing the publication of investment research that is impartial.

Supervision and Remuneration of Analysts

All members of the Research Department are supervised by Research Management. No members of the Research Department are directly supervised by, or report directly to Sales and Trading personnel or Investment Banking.

All decisions on research coverage, timing and content issues are the responsibility of Research senior management, subject to any restrictions imposed by Compliance. In making decisions on coverage, Research senior management may consider input from senior management within Sales and Trading. However, the final decision on coverage rests with Research senior management.

Analysts’ remuneration is determined by Research senior management, the factors that are taken into account in determining an Analyst’s remuneration include:

  • The Analyst’s individual performance and productivity;
  • The overall quality and accuracy of the Analyst’s research;
  • Evaluations by investor clients and employees in other parts of SBG with whom the Analyst interacts,
  • The size and trading value of, the profitability of, and the potential interest of SBG’s investor clients in Research with respect to the asset class covered by the Analyst; and
  • SBG’s overall performance.

Analysts’ Activities

Analysts are restricted from roles that could prejudice, or appear to prejudice the independence of their research or conflict with their duties to the recipients of their research, but are otherwise free to use their expertise for the benefit of SBG’s clients, subject to them maintaining independence.

Normal business contact between Analysts and Sales and Trading employees or between Analysts and investment clients of SBG may be permitted provided this does not give rise to a perception of lack of impartiality in the Analyst’s research. Such contact allows Analysts to give their views on individual companies, sectors or other relevant market news, provided they do not disclose the timing or content of forthcoming research reports or receive other material non-public information in the course of their dialogue.

Inducements and Inappropriate Influences

SBG’s policies to prevent any inappropriate influence over Analysts or the preparation of research reports include:

  • Analysts and other employees of SBG are not permitted to accept any remuneration or other benefit from the company or any other party in respect of the publication of research;
  • Analysts and other employees of SBG are not permitted to offer or accept any inducement for the production of favourable research, including selective disclosure by a company of material information not generally available;
  • Analysts and other SBG employees are not permitted to directly or indirectly offer favourable research, specific ratings or specific price targets as consideration or inducement for the receipt of business or compensation;
  • Analysts and other SBG employees are not permitted to directly or indirectly offer or threaten to change research, a rating or price target as consideration or inducement for the receipt of business or compensation;
  • Analysts may not discuss unpublished or draft research reports (“unpublished reports”) with anyone outside of the Research department including Sales and Trading employees, or any portions of such reports, either verbally or in writing, other than with the prior approval of Compliance;
  • The Research department has editorial control over the content of research reports and no other business areas are permitted to review or comment on unpublished reports, other than for the purpose of verifying factual information with the prior approval of Compliance;
  • Companies may be sent unpublished draft reports for the purpose of verifying their factual accuracy. These reports must exclude the research summary, the research rating and price target and be marked draft. Any material changes to an unpublished report that are required following the verification of factual accuracy by the company, require the approval of Research senior management. Any changes to report following a review by the Company for factual accuracy checking will also require a disclosure to this effect;
  • Analysts are located separately from Investment Banking, Sales and Trading employees but may have free access to the Firm’s trading floors in order to maintain an active dialogue with Sales and Trading employees.

Method and Timing of Publication

The timing and content of unpublished research reports may not be disclosed by any means to anyone, either inside or outside of SBG, until the information is broadly disseminated. SBG’s policies require research reports to be published or distributed only through its usual channels and to ensure that they are made available simultaneously to clients and SBG employees within the Sales and Trading areas.

Where SBG is restricted due to a securities offering or an investment banking transaction to which it is connected, SBG’s policy is to restrict the publication or content of investment research relating to a company (and potentially on companies related to it) for the duration of the transaction.

Disclosure of Interests and Personal Account Dealing

Where research reports provide an investment view or recommendation regarding a specific security, SBG will add disclosures as required by various legal and regulatory requirements. These include:

  • An explanation of the meaning of the Firm's ratings; information relating to the valuation methods used by the Firm; the percentage of securities on which the Firm has a rating of outperform, neutral or underperform; and a chart depicting the share price of the companies referred in research reports over time and the points at which the Firm assigned or changed a rating or price target;
  • Whether SBG holds 1% or more of the securities of companies referred to in research reports;
  • Whether research has been sent to any of the companies referred in research reports for fact checking and whether it has been changed as a result;
  • Whether SBG acts as a market maker in the securities of companies referred to in research reports;
  • Information regarding any directorships or other material relationships of individual officers of SBG with companies referred to in research reports;
  • Any personal interest of the Analyst or close relations of the Analyst in securities of companies referred to in research reports;
  • Subject to legal and confidentiality constraints on disclosure, current or prospective relationships between SBG and companies referred to in research reports, or the fact that such relationships may exist; and
  • The organisational and administrative arrangements for the prevention of conflicts of interest.

Standard New York Securities (“SNYS”) acts as distributor of SBG research in the United States of America. As such, in accordance with regulatory requirements, SBG research includes certain disclosures in relation to potential material conflicts of interest disclosures for SBG:

  • Whether SBG has managed or co-managed a public offering of securities for the subject companies within the last 12 months;
  • Whether SBG expects to receive investment banking related compensation from the subject companies in the next three months;
  • Whether SBG holds 1% or more of the securities of companies referred to in research reports;
  • Whether SBG acts as a market maker in the securities of companies referred to in research reports;

Any other material conflict of interest that SBG may have with the subject companies discussed in the research report which may be accessed by contacting Standard Bank Research Compliance on +27-11-415-4272.

The following policies apply to all Analysts with regard to personal account dealing and outside business activities:

  • Analysts are generally prohibited from trading in any securities, loans, derivatives or other instruments of companies (and their affiliates) in their coverage industry globally, whether or not they currently provide research coverage of the company;
  • Analysts are required to comply with SBG’s rules on personal account dealing, which include the requirement to pre-clear any proposed dealings;
  • Analysts are prohibited from serving as an officer, director or member of a supervisory board of any publicly quoted company;

Analysts are required to comply with SBG’s rules on outside business activities, which will require approval from Research Management and Compliance.