The New York Stock Exchange LLC, in Information Memorandum 07-11, and the National Association of Securities Dealers, Inc., in Notice to Members 07-04, announced revisions to Rules 472 and 2711, respectively. Based upon such revisions, the following six items are excluded from the definition of research reports: (i) discussions of broad based indices (e.g., S&P 500); (ii) comments on economic, political or market conditions; (iii) analysis of demand and supply for a sector, index or industry; (iv) statistical summaries of multi-companies’ financial data; (v) recommendations to increase or decrease holdings in particular industries or sectors; and (vi) notice of price target changes. Research reports within the meaning of the rules has been redefined to exclude: (i) communications to less than 15 persons; (ii) periodic reports to holders of discretionary accounts or mutual fund shares; (iii) internal communications not given to customers; and (iv) statutory prospectuses.
Public appearances now include appearances before 15 or more persons (but not if these persons represent fewer than 15 clients) or an appearance where members of the press are present. Password protected webcasts, conference calls or similar events with 15 or more existing customers are not deemed to be public appearances, if such customers have previously received the most current research report and the appearing analyst corrects and updates disclosures that have become inaccurate or misleading.
Third party research reports of another member firm, a non-member affiliate or independent third party that a firm distributes or makes available must disclose the distributing firm’s ownership of the subject securities, investment banking relationship with the subject company, market making activities in the subject security and any other actual material conflicts of interest. A firm supervisor or supervisory analyst must review and approve third party research to confirm (i) the accuracy of disclosures regarding the distributing firm, and (ii) that the content does not contain untrue statements of material fact or is otherwise false or misleading based upon a reading of the report or based on information otherwise possessed by the member firm. Third party research distributed under a soft dollar arrangement is not subject to the above listed disclosure requirements.
Pitch books for investment banking cannot disclose analyst ratings intheir industry, but may identify the analysts who will cover the company. Also, analysts may attend road shows or firm-wide sales presentations if (i) they are not in the same room, (ii) they can only listen, and (iii) they are not identified as being present.