SD-02.5 — Security Selection & Recommendation

Business Domain: BD-02 Securities Research & Selection (Front office) · Applies: PUB

Purpose

Converts research into the buy / sell / hold decision and the recommended list a portfolio draws on. Where SD-02.2 to SD-02.4 produce the research view on a security, this Service Domain turns that view into an actionable recommendation — rated for conviction, given a price target, and placed on or removed from the lists that govern what the firm holds. It is where research becomes a decision; it ends at the recommendation, and BD-05 Portfolio Management sizes it into a position.

Service Operations

Make the buy / sell / hold decision — compare expected return against required return and act on the sign of the expected alpha.
Assign a conviction rating — score the strength of the call, the input position sizing draws on.
Set the price target — the analyst’s projected value over the recommendation horizon, typically twelve to eighteen months.
Produce the recommendation rationale — the recorded, reasonable-and-adequate basis for the call.
Operate the research / stock-selection committee — the forum that reviews and ratifies recommendations.
Maintain the recommended, approved and focus lists — add, upgrade, downgrade and remove names as recommendations change.

Inputs and outputs

Inputs: the research views and valuations from SD-02.2, SD-02.3 and SD-02.4; the live thesis from SD-02.6; committee review.
Outputs: rated buy / sell / hold recommendations with price targets, and the maintained recommended / approved / focus lists — consumed by BD-05 Portfolio Management (which constructs positions from them) and monitored by SD-02.6.

Entities

Consumes: Instrument / Asset (E-02), Listed Equity (PB-01), Debt Instrument (PB-02); the SD-02.2 research views and valuations; the SD-02.3 research views and valuations; the SD-02.4 research views and valuations; the SD-02.6 live thesis; E-38 Internal Credit Rating (from SD-02.3 — the standing rating that informs the buy / sell / hold decision on a debt issuer or instrument).
Owns: none — the recommendation and the recommended list are analytical artefacts. Whether a Security Recommendation warrants a first-class entity is open.

Standards

The CFA Institute Standard V — the requirement for a reasonable and adequate basis, supported by appropriate research, for any recommendation. The buy / sell / hold rating taxonomy is an industry convention (overweight / neutral / underweight and its variants).

Open extensions

A Security Recommendation entity, and whether the recommended / approved / focus lists are a managed reference structure.
The boundary with SD-10.2 Investment Restriction Coding & Rule Library — the recommended list expresses conviction; the coded restrictions express what a mandate permits.