The Securities and Exchange Commission has approved rule changes proposed by the Financial Industry Regulatory Authority, Inc. (FINRA) concerning NASD Rule 2711, “Research Analysts and Research Reports” and NYSE Rule 472, “Communications with the Public.” These rules concern a member’s disclosure and supervisory review obligations when the member distributes or makes available third-party research reports. A member that distributes a third-party research report must accompany the report with certain disclosures as they pertain to the member. Furthermore, the above rules require principals and supervisory analysts to review the research reports in order to ensure that the disclosure requirements have been met and that no untrue or misleading statements are contained in the report.
The approved proposal defines a “third-party research report” as a research report that is produced by a person or entity other than the member. Moreover, the proposal created an additional subcategory of “independent third-party research” wherein the person or entity responsible for the report (i) has no affiliation or business relationship with the distributing member or the member’s affiliates that is reasonably likely to inform the content of itsresearch reports and (ii) makes independent content determinations without input from the distributing member. Such independent third-party research reports will not be subject to the content review requirements discussed above if the report is made available either (i) upon request, (ii) through a member-maintained web site, or (iii) where the report is made available by a member in connection with a solicited order where the soliciting representative informs the customer of the availability of the independent research on the solicited equity security and the customer requests such research.
The approved proposal will also allow a member to satisfy the disclosure requirements by directing customers to web sites containing the necessary third-party disclosures. Disclosure requirements also can be satisfied where the member establishes written supervisory policies and procedures reasonably designed to ensure the completeness and accuracy of all applicable disclosures.