UBS Investment Bank has expanded its equity research ratings system. Analysts will now have the option of assigning a short term “buy” or “sell” rating to capture expected near-term movements in the share price, without changing the 12-month recommendation.

Optional short-term ratings will be associated with a catalyst or event expected to drive the stock price materially higher or lower within a three month period, the firm explained.

Examples of when a short term rating may be appropriate include: a specific liquidity event (e.g. stock issuance) is expected to create near term downward pressure on the stock; a product announcement (e.g. trial data, launch) is expected to create near term positive sentiment on the stock; and, a temporary manufacturing problem is expected to lead to profit warnings in the next quarter.

The short-term rating has a defined three-month maximum horizon but no price target. It will not be used to communicate a change to the fundamental investment case and is considered separate and distinct from the 12-month view.

In addition, UBS has made the following modifications to its rating terminology: “Reduce” will change to “Sell”; and, the “predictability” (1 or 2) assigned to the 12-month rating will be discontinued. The 12-month rating will continue to be driven by the expected absolute stock return relative to the local market.

“The addition of short term ratings provides further transparency to our analysts’ thinking on future stock movements,” said Mark Steinert, global head of equity research. “These enhancements reflect our clients’ evolving needs and should impart greater value to their investment process.”