ICI Comments on NASD and NYSE Proposals Relating to Research Analyst Conflicts of Interest

Washington, DC, March 9, 2007 - ICI supports the continuing efforts to address research analyst conflicts of interest, but recommends changes to recent regulatory proposals concerning the proposed exclusions from the definition of "research report."

Background
In January 2007, the Securities and Exchange Commission published for comment proposed amendments to National Association of Securities Dealers and New York Stock Exchange rules addressing research analyst conflicts of interest. Beginning in 2002, the NYSE and NASD implemented a series of rule changes to improve objectivity and transparency in equity research and provide investors with more reliable and useful information to make investment decisions.

In March 2002, NASD and NYSE proposed rule changes intended to address research analysts' conflicts of interest by minimizing the influence that an investment banking department has over its research department and would restrict analysts' personal trading of securities. In August 2002 the SEC proposed Regulation Analyst Certification (Regulation AC) which required that any research report disseminated by broker-dealers include certifications by research analysts that the views expressed in the research report accurately reflect the analysts' personal views. Regulation AC was adopted in August 2003.

ICI Position
The Institute's comment letter supports NASD's and the NYSE's continuing efforts to address research analyst conflicts of interest. With regard to the latest proposal, ICI supports the proposed exclusion from the definition of "research report" for sales material about certain registered open-end investment companies. The letter recommends, however, that sales material about all registered investment companies be excluded from the definition. ICI believes that uniform treatment of all investment companies under the rules is warranted to avoid confusion and uncertainty on the rules' application. It also states that distinguishing between different types of registered investment companies for purposes of the rules could place these investment companies at a competitive disadvantage to other investment companies that are not subject to the rules' requirements.

ICI believes that the concerns that led to the enactment of the research analyst rules did not relate to any type of registered investment company but, instead, directly evolved from the conflicts raised by securities offered by corporate issuers and the interaction between investment bankers and research analysts in this area. The letter states that open-end funds that are not listed or traded on an exchange and other registered investment companies are subject to the same or similar NASD and SEC rules, regulations and review with respect to their advertising and sales literature. Thus, ICI concludes, given the reasoning behind the conflict of interest rules and experience with the application of the rules to date, NASD and the NYSE should exclude all registered investment company sales material and similar communications from the definition of "research report."

Related Links

This site includes a section devoted market and investment adviser issues.