BMO POLICY FOR MANAGING CONFLICTS OF INTEREST IN CONNECTION WITH INVESTMENT RESEARCH

Background

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This policy is issued pursuant to, and reflects compliance with, the FSA's Conduct of Business Rules and applies to research disseminated from the United Kingdom. It does not create third party rights or duties that would not already exist if the policy had not been publicly available, and it does not form part of any contract between BMO Capital Markets (or any of its affiliates) (‘BMO’) and any client or prospective client.

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This policy is an adjunct to BMO’s overarching general FSA obligation to act with integrity and fairness, both with its clients and with its counterparties.

Application

This policy applies to investment research that is held out as objective in nature, that is, research that provides an impartial assessment of the value or prospects of its subject matter — or research that would reasonably be seen by those for whom it is intended as providing such an impartial assessment.

How BMO identifies conflicts

BMO, pursuant to its general obligation to act with integrity and fairness, has implemented policies to identify and deal with conflicts that occur from time to time as a result of the publication of research. BMO manages those conflicts of which it is aware, and monitors the effectiveness of its policies and procedures.

The following are some of the ways BMO identifies and manages conflicts between its research product and other parts of BMO:

Internal guidance and training. BMO provides training to relevant employees to raise their awareness and sensitivity, as well as their knowledge of how to deal with conflicts when they arise.

Control room. BMO makes use of a control room to centralize information about its activities and thereby monitor for potential conflicts that may arise in an investment bank.

Editorial guidelines and procedures. BMO provides for review of research material by supervisory analysts prior to its publication.

Internal arrangements. BMO employs a number of internal procedures to regulate the flow of information between and within business areas, including research.

How BMO supervises and manages investment analysts

In general, a person whose function might reasonably be expected to conflict with the interests of people who receive a firm's research should not be responsible for (a) supervising analysts from day to day; (b) deciding questions of which investments receive coverage, the timing of the publication of that coverage or its content; or (c) the analyst's remuneration. In particular, these issues result in the following policies.

Management. BMO policy is that analysts who publish research are directly supervised by, and report directly to, research management. (Note that this policy does not prevent research management, on one hand, and investment banking or sales and trading management, on the other, from reporting to the same person at a more senior level.)

Editors. Editorial control is exclusive to analysts, supervisory analysts and editors.

Coverage decisions. The decision of which investments are to receive research coverage; the timing of such coverage; and the content of such coverage belong solely to research management. (Research management may take account of input from other business areas.)

Research during offerings — timing. The timing of research issued during offerings will be dictated by a variety of factors relating to the transaction, including advice from deal counsel. In addition, BMO may impose a "quiet period" and/or research distribution restrictions prior to the commencement of marketing of the transaction. Such research is not usually permitted in the context of US and Canadian offerings.

Personal account dealing As a general rule, BMO does not permit an analyst to deal in the securities of issuers covered by his or her research, and generally does not allow the analyst to deal in a way opposite to their published recommendation.

How BMO pays investment analysts

Consistent with the need to ensure independence of analysts from other business areas, BMO structures the remuneration of its analysts so that it does not create (or appear to create) incentives that would be inconsistent with their impartiality.

Linkage. Analyst remuneration may not be linked to specific transactions; or to the content or recommendation of a specific research report. Analyst remuneration may, however, be linked to the overall performance of BMO or to an aggregated result which includes other activities, including the results of investment banking transactions

Timing and manner of publication

Advance knowledge. BMO’s policy is that no employees (other than appropriate Research and Compliance employees) may learn of the timing or content of research before it is appropriately distributed.

Simultaneous distribution. BMO makes its research available simultaneously to clients and other parts of BMO (including proprietary traders). It does not impose a waiting period between publication and the time when trading and proprietary desks can act on the research.

Restrictions on distribution. Occasionally, BMO may restrict the distribution of research for legal, contractual or regulatory reasons as, for example, where BMO is involved in an underwriting or another significant transaction or marketing effort where investment banking services are being provided. The nature and type of such restrictions will depend on the type of transaction and upon the individual circumstances of the transaction. In some cases, no restriction on the distribution of research will be imposed.

Disclosure of interests

BMO makes every effort to disclose the interests both of itself and its employees in the subject matter of a research report. Typically, interests regarded as disclosable include the following.

Interests. Material interests of BMO or its affiliates in the securities of companies referred to in research.

Directorships. Directorships and other material relationships of individual officers of BMO or its affiliates.

Trading. Market making undertaken by BMO in the relevant investments.

Mandates. Investment banking mandates (provided this would not entail the disclosure of any confidential commercial information) or relationships and personal interests of an analyst or household member of an analyst.

Personal account dealings. Personal account transactions or holdings by an analyst in the investments covered by their research.

Other Control Procedures

On the condition that such activities do not impinge on an analyst's impartiality, or on the appearance of that objectivity, BMO under certain conditions permits its analysts to engage in activities in addition to the production of research.

Inducements. BMO has a policy relating to the receiving and giving of gifts and inducements which is designed to ensure that employees of BMO may never use their positions within BMO for personal, private or business gain for themselves, their families or friends, BMO itself or other persons.

Dealing ahead. BMO policy does not permit its employees, either on behalf of themselves, clients or BMO, to deal ahead of the publication of research. Note that this does not prevent an analyst from speaking to sales people and traders; or traders from conducting market-making activity.