The Securities and Exchange Commission approved NASD Rule 2290 to enhance disclosures and procedures in connection with the issuance of fairness opinions by members in situations where the issuing member has reason to know the opinion will be provided or described to the company’s public shareholders. Any member acting as a financial advisor to a party that is the subject of a fairness opinion would be required to disclose in the fairness opinion whether it will receive compensation contingent on the successful completion of the transaction, for rendering the fairness opinion and/or for serving as an advisor. Members would also be required to disclose any material relationships existing during the two-year period preceding the issuance of the fairness opinion in which any compensation was received as a result of the relationship between the member and any party to the pending transaction.
Under the rule, members would be required to disclose whether any information supplied by a party to the transaction that formed a substantial basis for the fairness opinion had been independently verified, and identify such information. Other disclosures would include whether the fairness opinion was approved by a fairness committee, and whether the fairness opinion expresses an opinion on the compensation to be received by the company’s officers, directors or employees relative to compensation to public shareholders. Members would also need to institute written procedures setting out the types of underlying transactions for which the member would use a fairness committee, the process for selecting personnel to be on the committee, the necessary qualifications for persons serving on the committee, and the process to promote a “balanced review” by the fairness committee. Finally, the rule would require members to utilize a process to determine whether the valuation analyses used in the fairness opinion are appropriate.