Securities research is a discipline within the financial services

Financial services

Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...

 industry. Securities research professionals are known most generally as "analysts," "research analysts," or "securities analysts;" all the foregoing terms are synonymous. Securities analysts are commonly divided between the two basic kinds of securities: equity

Stock

The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...

 analysts (researching stocks and their issuers) and fixed income analysts (researching bond

Bond (finance)

In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...

 issuers). However, there are some analysts who cover all of the securities of a particular issuer, stocks and bonds alike.

Securities analysts are usually further subdivided by industry specialization (or sectors) -- among the industries with the most analyst coverage are biotechnology

Biotechnology

Biotechnology is a field of applied biology that involves the use of living organisms and bioprocesses in engineering, technology, medicine and other fields requiring bioproducts. Biotechnology also utilizes these products for manufacturing purpose...

, financial services

Financial services

Financial services refer to services provided by the finance industry. The finance industry encompasses a broad range of organizations that deal with the management of money. Among these organizations are credit unions, banks, credit card companies, insurance companies, consumer finance companies,...

, energy, and computer hardware, software and services. Fixed income analysts are also often subdivided by asset class—among the fixed income asset classes with the most analyst coverage are convertible bond

Convertible bond

In finance, a convertible note is a type of bond that the holder can convert into shares of common stock in the issuing company or cash of equal value, at an agreed-upon price. It is a hybrid security with debt- and equity-like features...

s, high yield bonds (see high-yield debt

High-yield debt

In finance, a high-yield bond is a bond that is rated below investment grade...

), and distressed bonds (see distressed securities

Distressed securities

Distressed securities are securities of companies or government entities that are either already in default, under bankruptcy protection, or in distress and heading toward such a condition. The most common distressed securities are bonds and bank debt...

). (Although technically not securities, syndicated bank loans typically fall within the domain of fixed income analysts, and are covered, as if they were bonds, by reference to the industry of their borrowers or asset class in which their credit quality would place them.)

In the broadest terms, securities analysts seek to develop, and thereafter communicate to investors, insights regarding the value, risk, and volatility

Volatility (finance)

In finance, volatility is a measure for variation of price of a financial instrument over time. Historic volatility is derived from time series of past market prices...

 of a covered security, and thus assist investors to decide whether to buy, hold, sell, sell short, or simply avoid the security in question or derivative securities (see: derivative

Derivative (finance)

A derivative instrument is a contract between two parties that specifies conditions—in particular, dates and the resulting values of the underlying variables—under which payments, or payoffs, are to be made between the parties.Under U.S...

). To gather the information required to do so, securities analysts review periodic financial disclosures (such as made by United States-listed issuers to the S.E.C.) of the issuer and other relevant companies, read industry news and use trading history and industry information databases, interview managers and customers of the issuer, and (sometimes) perform their own primary research.

Securities research firms

Securities research falls into two broad categories: that provided by investment banks and that provided by independent equity research boutiques. The former group offer research as part of a broad set of financial services including broking and corporate finance. Independent equity research has largely sprung into existence as a result of scandals such as Enron

Enron

Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...

, Lernout & Hauspie

Lernout & Hauspie

Lernout & Hauspie Speech Products, or L&H, was a leading Belgium-based speech recognition technology company, founded by Jo Lernout and Pol Hauspie, that went bankrupt in 2001...

 and Worldcom where investment banks wrote positive research despite deteriorating fundamentals or fraudulent management.

Major Investment Banks

• Bank of America Securities
• Barclays Capital
  Barclays Capital
  Barclays Capital is a global British investment bank. It is the investment banking division of Barclays plc which has a balance sheet of over £1.2 trillion . Barclays Capital provides financing and risk management services to large companies, institutions and government clients. It is a primary...
  
  
• Deutsche Bank
  Deutsche Bank
  Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
  
  
• Citi
• Credit Agricole Corporate and Investment Bank
• Credit Suisse
  Credit Suisse
  The Credit Suisse Group AG is a Swiss multinational financial services company headquartered in Zurich, with more than 250 branches in Switzerland and operations in more than 50 countries.-History:...
  
  
• Goldman Sachs
  Goldman Sachs
  The Goldman Sachs Group, Inc. is an American multinational bulge bracket investment banking and securities firm that engages in global investment banking, securities, investment management, and other financial services primarily with institutional clients...
  
  
• JPMorgan Chase
• Macquarie Group
  Macquarie Group
  Macquarie Group Limited is a global investment banking and diversified financial services group, providing banking, financial, advisory, investment and funds management services to institutional, corporate and retail clients and counterparties around the world...
  
  
• Morgan Stanley
  Morgan Stanley
  Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
  
  
• Royal Bank of Canada
  Royal Bank of Canada
  The Royal Bank of Canada or RBC Financial Group is the largest financial institution in Canada, as measured by deposits, revenues, and market capitalization. The bank serves seventeen million clients and has 80,100 employees worldwide. The company corporate headquarters are located in Toronto,...
  
  
• UBS
• Wells Fargo
  Wells Fargo
  Wells Fargo & Company is an American multinational diversified financial services company with operations around the world. Wells Fargo is the fourth largest bank in the U.S. by assets and the largest bank by market capitalization. Wells Fargo is the second largest bank in deposits, home...
  
  

Research reports

Research analysts produce reports and typically issue a recommendation: buy ("overweight

Overweight (stock market)

Overweight is part of a three-tiered rating system, along with "underweight" and "equal weight", used by financial analysts to indicate a particular stock's attractiveness...

"), hold, or sell ("underweight"). These reports can be accessed from a number of sources, and brokerages will often offer the reports free to their customers.

Career path

Entrance into the profession, which is generally very well paid and prestigious, is highly competitive. Those who enter the profession at the junior level, typically have an undergraduate degree from a leading college or university and one to a few years of experience in some other discipline of finance or (lacking such experience) an MBA or other relevant advanced degree. Those who enter the field in a junior capacity, can progress to a senior capacity in a fairly brief period of time (two to four years) if they prove themselves talented; often such advancement is greatly aided by earning a Chartered Financial Analyst

Chartered Financial Analyst

The Chartered Financial Analyst Program is a graduate level self-study program offered by the CFA Institute to investment and financial professionals...

 charter (which requires passage of three examinations). Many securities analysts have directly entered the profession at a more senior level; such persons typically have an MBA or other relevant advanced degree and a number of years of progressively responsible experience either in another finance profession, or in the industry which they will be covering as an analyst.

Employment

Securities analysts are generally employed in one of three capacities: sell-side analyst

Sell-side analyst

A sell-side analyst works for a brokerage firm and evaluates companies for future earnings growth and other investment criteria. They sometimes place recommendations on stocks or other securities, typically phrased as "buy", "sell", or "hold." They are incentivised by offering their recommendations...

s (who work for a broker-dealer

Broker-dealer

A broker-dealer is a term used in United States financial services regulations. It is a natural person, a company or other organization that trades securities for its own account or on behalf of its customers....

 and indirectly for broker-dealer's trading customers), buy-side analyst

Buy-side analyst

Buy-side analysts work for buy side money management firms such as mutual funds, pension funds, trusts, and hedge funds. They are incentivised to identify investment opportunities that will improve the net worth of the portfolio they work for....

s (who work for institutional investors, such as hedge funds, mutual funds, pension

Pension

In general, a pension is an arrangement to provide people with an income when they are no longer earning a regular income from employment. Pensions should not be confused with severance pay; the former is paid in regular installments, while the latter is paid in one lump sum.The terms retirement...

 funds, proprietary trading

Proprietary trading

Proprietary trading occurs when a firm trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments, with the firm's own money as opposed to its customers' money, so as to make a profit for itself...

 operations of bank

Bank

A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

s and brokers, endowments

Financial endowment

A financial endowment is a transfer of money or property donated to an institution. The total value of an institution's investments is often referred to as the institution's endowment and is typically organized as a public charity, private foundation, or trust....

, and insurance

Insurance

In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

 companies), and independent analysts, who work for firms which sell research to sell-side

Sell side

Sell side is a term used in the financial services industry. It is a general term that indicates a firm that sells investment services to asset management firms, typically referred to as the buy side, or corporate entities...

 and/or buy-side

Buy side

Buy-side is a term used in investment banking to refer to advising institutions concerned with buying, rather than selling, assets or securities...

 firms, but who do not themselves engage in securities transactions.

Buy-side analysts generally do their work in private; publishing research reports and issuing public opinions on a security is generally confined to sell-side and independent analysts. However, the amount of formally-published sell-side research is generally thought to be declining, as it becomes more difficult for brokers to gain a clear revenue stream from the investment. The direct connection between securities research and the underwriting of new issues, which enabled research analysts to claim a share of investment banking fees, was severed as a result of government investigations into excesses of some sell-side analysts in the late 1990s; see, for example, Henry Blodget

Henry Blodget

Henry Blodget is an American former equity research analyst, currently banned from the securities industry, who was senior Internet analyst for CIBC Oppenheimer during the dot-com bubble and the head of the global Internet research team at Merrill Lynch...

. In actuality, even before the government probes, direct contact was always an official violation of rules and ethics. Attorneys and compliance personnel, together known as Chinese wall

Chinese wall

In business, a Chinese wall or firewall is an information barrier implemented within a firm to separate and isolate persons who make investment decisions from persons who are privy to undisclosed material information which may influence those decisions...

personnel, were instructed to hinder all "wall crossings" to the best of their ability. However, in the late 1990s this proved to be extremely difficult as well-connected research analysts found ways to go "over the wall."

Qualifications

In the US, as of 2002, investment professionals seeking to become sell-side equity research analysts must pass the Research Analyst examination administered by FINRA. The exam is divided into two parts: the 86 and 87. The Series 86 Research Analyst exam is the Quantitative portion consisting of material from introductory economics, and financial accounting. Successful completion of the CFA

Chartered Financial Analyst

The Chartered Financial Analyst Program is a graduate level self-study program offered by the CFA Institute to investment and financial professionals...

  level I & II exams provides a waiver for the Series 86 exam, but not the Series 87 examination. The Series 87 Research Analyst exam is the Regulatory portion consisting material from the Securities Act of 1933

Securities Act of 1933

Congress enacted the Securities Act of 1933 , in the aftermath of the stock market crash of 1929 and during the ensuing Great Depression...

, Securities Exchange Act of 1934

Securities Exchange Act of 1934

The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...

, NASD and NYSE Rules. The Series 7

Series 7

Series 7 may refer to:*The 7th season of any of many shows or series. See .*The General Securities Representative Exam, commonly referred to as the Series 7 Exam. It is the most comprehensive financial securities exam offered by the FINRA...

 examination/license is a pre-requisite for the Research Analyst exams.

In Hong Kong, investment professionals must pass the Paper 1 administered by the Hong Kong Securities Institute. Passing this exam allows the individual to receive the Type 4 license to be a publishing research analyst in Hong Kong.

Industry Rules

Buy-side and independent research are generally unregulated. Sell-side research is subject to regulation by the securities authorities of the locales where it is performed. The large majority of all sell-side research is performed either in the United Kingdom or the United States. UK sell-side research is regulated by the Financial Services Authority

Financial Services Authority

The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...

. US sell-side research has a more complex regime of regulation. The U.S. Securities and Exchange Commission has prescribed certain relevant rules (among them Regulation AC and Regulation FD) but has generally delegated research regulation to the self-regulatory organization

Self-regulatory organization

A self-regulatory organization is an organization that exercises some degree of regulatory authority over an industry or profession. The regulatory authority could be applied in addition to some form of government regulation, or it could fill the vacuum of an absence of government oversight and...

s. The principal SROs (the National Association of Securities Dealers and the New York Stock Exchange

New York Stock Exchange

The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...

) have issued detailed regulations of equity research, and much more cursory regulation of fixed income research. (With respect to the latter, the NYSE and the NASD have re-delegated the substance of regulation to the broker-dealer trade group Securities Industry and Financial Markets Association

Securities Industry and Financial Markets Association

The Securities Industry and Financial Markets Association is a leading securities industry trade group representing securities firms, banks, and asset management companies in the U.S. and Hong Kong. SIFMA was formed on November 1, 2006, from the merger of The Bond Market Association and the...

 as the merger successor of the Bond Market Association, to whom the role was originally assigned.) The impact upon securities research regulation of the pending merger of the NASD with the regulatory arm of the NYSE is as of yet uncertain.

In the immediate aftermath of the excesses of the 1990s referred to above, Eliot Spitzer

Eliot Spitzer

Eliot Laurence Spitzer is an American lawyer, former Democratic Party politician, and political commentator. He was the co-host of In the Arena, a talk-show and punditry forum broadcast on CNN until CNN cancelled his show in July of 2011...

, Governor of the State of New York, asserted a significant role in policing securities research performed by New York-based analysts; it is unclear whether oversight by the New York State Attorney General will become a long-term meaningful component of securities research. The going-forward conduct provisions of a master settlement agreement between (on the one hand) most of the aforesaid U.S. regulators and (on the other hand) many of the largest U.S. broker-dealers, is an important source of ongoing regulation, with the force of law for the broker-dealers who are party to it, and a strong, if not formally legally binding effect, on broker-dealers not party to it.