The Securities and Exchange Commission has approved rule changes proposed by the Financial Industry Regulatory Authority, Inc. (FINRA) to amend an exemption to NASD Rule 1050 and New York Stock Exchange Rule Interpretation 344/02 for certain research analysts employed by a member’s foreign affiliate who contribute to the preparation of a member’s research report. NASD Rule 1050 and NYSE 344 (Rules) currently require an associated person who functions as a research analyst to register as such with FINRA and pass a qualification examination (the Series 86/87). The proposed rule change would modify an existing exemption from the Series 86 examination, which relieves from the Series 86 examination requirement certain research analysts who are employed by a member’s foreign affiliate and contribute to the preparation of a member’s research report.
Current exemptive relief for foreign analysts requires compliance with other standards in foreign jurisdictions that are similar to the FINRA qualification standards and the conflict of interest rules. The proposed rule change would create a superseding exemption from the research analyst qualification requirements that would cover research analysts residing anywhere outside of the United States. Eligible research analysts that would qualify for this exemption would be subject to certain supervisory, disclosure and recordkeeping requirements.
In addition to having to comply with NASD Rule 2711 and NYSE Rule 472, as described in the following Broker Dealer entry, prior to publishing or otherwise distributing globally-branded research reports prepared by a foreign research analyst, a registered principal or supervisory analyst of the member would be required to review and approve the research prior to its distribution. In addition, a member would be required to prominently disclose on the research report (i) each affiliate contributing to the research report, (ii) the names of the foreign research analysts employed by each contributing affiliate, (iii) that such research analysts are not registered/qualified as research analysts with FINRA, and (iv) that such research analysts may not be associated persons of the member and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with asubject company, public appearances and trading securities held by a research analyst account. Finally, members would be required to establish and maintain records that identify those individuals who have availed themselves of the exemption, the basis for such exemption, and evidence of compliance with the conditions of the exemption.