Equity Research Desk
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Equity Research Desk LLC (hereafter, ERDesk) has adopted the following policies and procedures to provide guidance to its employees regarding laws addressing the possession and use of material, nonpublic information (MNPI). All employees (including part-time contractors or consultants), officers, and directors of the ERDesk must familiarize themselves with this document. Any questions regarding these issues should be directed to ERDeskĀ“s officers who seek external legal counseling when necessary.

1. Guidelines & Procedures

ERDesk employees perform primary research on the companies which the firm covers. Generally, the primary sources of information include, but are not limited to, the company website, company management, industry participants, regulators as well as information providers such as, Bloomberg, Thomson and trade publications.

Erdesk doesn't pay or provide gifts to information sources other than information vendors such as Bloomberg, Thomson, and trade publications. Erdesk has never paid or provided management with any gifts, benefits or anything else of value in exchange for information. Management shares information with ERDesk as part of their duty to communicate with investors.

ERDesk openly states in its discussion and written communication with public company management to restrain from sharing any MNPI.

ERDesk talks to regulators at public events as part of its research process. ERDesk, also states in discussions with regulators to restrain from sharing any MNPI.

ERDesk always inform its sources that the information they share will be used for investment purposes and that they should restrain from sharing any MNPI.

If any ERDesk employee believes that he or she has acquired material nonpublic information, the employee must notify an ERDesk officer immediately.

The ERDesk employee who has been exposed to MNPI is restricted from publishing any research report on companies impacted by such MNPI, until such information has been publicly disseminated.

ERDesk documents incident srelated potential MNPI, and the steps taken to prevent the dissemination of such information.

ERDesk never uses "expert networks" as part of its research effort.

ERDesk's research relies exclusively on publicly available information.

2. Employees Education

ERDesk conveys to its employees how critical is to prevent the dissemination of MNPI as its clients can be substantially harmed. The reception of MNPI could cause them to discard prior investment plans and a significant amount of time and research already invested in an idea.

ERDesk, in an effort to educate its employees, provides them with a copy of these policies and practices. An officer reviews these policies and practices, including the following definitions, with each new employee.

What Constitutes Insider Trading?

"Inside information" is defined as material nonpublic information about an issuer or security. Such information typically originates from an "insider" of the issuer, such as an officer, director, or controlling shareholder. However, insider trading prohibitions also extend to trading while in possession of certain "market information." "Market information" is material nonpublic information which affects the market for an issuer's securities but which comes from sources outside the issuer. A typical example of market information is knowledge of an impending tender offer.

Information is deemed "material" if there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions. For example:

  1. Issuer generated revenue and sales trend figures
  2. Financial announcements including periodic results and forecasts
  3. Changes in previously disclosed financial information
  4. Mergers, acquisitions or takeovers
  5. Proposed issuances of new securities
  6. Significant changes in operations
  7. Significant increases or declines in backlog orders or the award or loss of a significant contract
  8. Significant new products to be introduced or significant discoveries of oil and gas, minerals or the like
  9. Major litigation (civil or criminal)
  10. Significant changes in management
  11. The purchase of sale of substantial assets
  12. Significant regulatory actions

Information is considered "nonpublic" if it has not been released through appropriate public media in such a way as to achieve a broad dissemination to the investing public generally, without favoring any special person or group.

The selective disclosure of material nonpublic information by corporate insiders may lead to violations by an outsider under for example the following conditions:

  • The insider intentionally breached a duty of confidentiality owed to the issuer's shareholders
  • The insider received some personal benefit from this breach, either by way of pecuniary gain or a reputational benefit that could translate into future earnings
  • The outsider knew or should have known that the insider breached a duty by disclosing the information
  • The outsider acts with scienter -- i.e., a mental state showing intent to deceive, manipulate or defraud.

An outsider might also run afoul of the prohibition against insider trading under a "misappropriation" theory. This theory applies to those who trade on information they have taken in breach of some fiduciary duty, even though that may not be a duty to the issuer's shareholders.

An example of this would be a newspaper reporter who misappropriates information he has received in the course of his job writing articles for his employer, and then trades before that information becomes public. Another example would be an employee of an investment adviser who trades while in possession of material, nonpublic information he learns in the course of his advisory duties.

Penalties for Insider Trading

Penalties for trading on or communicating material nonpublic information are severe, both for individuals involved in such unlawful conduct and their employers. A person can be subject to some or all of the penalties below even if he or she does not personally benefit from the violation. Penalties include:

  • Civil injunctions.
  • Disgorgement of profits and fines.
  • Jail sentences.