On Wednesday, the SEC's Division of Trading and Markets (the "Staff") issued FAQs containing the Staff's guidance on certain provisions of the JOBS Act as they affect investmentbanking firms and their obligations with respect to analyst communications and research reports. A link to the FAQs is below.
Among the matters addressed in the FAQs are the following:
- The provisions of the JOBS Act do not amend or modify the Global Research Settlement (the "Settlement"). Any firm subject to the Settlement would have to petition the court for a modification of the Settlement in order to take advantage of the JOBS Act provisions.
- The "test the waters" provisions of the JOBS Act allow underwriters to seek nonbinding indications of interest but not to ask for a purchase commitment from customers.
- The Staff believes that, consistent with current SEC and SRO rules, analysts may attend meetings with management of an emerging-growth company and investment banking personnel, but analysts continue to be subject to other existing restrictions, such as prohibitions on soliciting investment banking business, changing a recommendation in exchange for investment banking business, exchanging favorable recommendations for investment banking business and publishing research with which the analyst personally disagrees. Investment banking personnel may not direct an analyst to engage in sales and marketing efforts relating to a proposed offering. Firms are cautioned to ensure that they institute and enforce appropriate controls to ensure that analysts are not engaging in prohibited conduct, including solicitations, at meetings that are also attended by investment banking personnel.
- Prior to engagement, at meetings with management and investment banking personnel, analysts at firms not subject to the Settlement can introduce themselves, outline their research program and the types of factors that the analyst would consider in his or her analysis, and ask follow-up questions to better understand factual statements made by company management. After engagement, the analysts can participate in presentations by management of an emerging-growth company to sales forces (but only to avoid the need to make separate presentations to the analysts), discuss industry trends, provide information obtained from investing customers and communicate their views.
- Investment bankers can forward a list of clients to an analyst for the analyst to contact. Similarly an analyst may provide a list of potential clients he or she intends to contact for investment banking personnel "to facilitate scheduling." Bankers can also arrange, but may not participate in, calls analysts have with clients.
- The JOBS Act does not address communications where investors are present together with company management, analysts and investment banking personnel. Accordingly, analysts remain prohibited from participating in road shows or otherwise engaging in communications with customers about a transaction while in the presence of investment bankers or company management.
- The Staff believes that, consistent with the intent of the JOBS Act, research reports should be allowed to be published with respect to an emerging-growth company during all quiet periods — whether before or after the expiration, termination or waiver of a lockup period or whether the lockup relates to an IPO or a secondary offering of the company's securities. The Staff indicates that FINRA is considering filing with the SEC a proposal to eliminate all quiet periods currently imposed by the applicable NASD and NYSE rules, which would eliminate any quiet periods not specifically covered by the JOBS Act.
The Staff's release indicates that they may provide further updates to these FAQs.