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Exchanges Issue Guidance on Analyst Conflicts of Interest
Washington, DC, May 14, 2004 - Guidance recently issued by the NASD and NYSE discusses changes to the rules governing research analysts’ conflicts of interest, and clarifies the definitions of “research analysts” and “research reports.”
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.
The Institute supported Regulation AC, which includes a provision stating that the term "research analyst" does not include an investment adviser, such as a mutual fund portfolio manager, who is not principally responsible for preparing research reports. The Institute also commented on the rules proposed by the two exchanges, stating that recommendations made by sellside analysts differ substantially from statements made by mutual fund portfolio managers, and supporting the proposal to exclude mutual fund portfolio managers from the rule's definition of a research analyst.
The joint memorandum recently issued by the exchanges states that the NASD and NYSE are adopting the SEC’s interpretation regarding periodic reports and other communications prepared for investment company shareholders or discretionary investment account clients. In particular, communications that discuss individual securities in the context of a fund’s or account’s past performance or the basis for past discretionary investment decisions are not considered “research reports” under the new definition and the term “research analyst” will not apply to an investment company portfolio manager that prepares these types of communications.
- SEC Approves Changes to Rules Governing Research Analysts, August 2003
- ICI Supports Regulation Addressing Potential Analyst Conflicts of Interest, September 2002
- SEC Proposes Regulation Requiring Analysts to Certify Research Reports, August 2002
- Institute Comments on Research Analyst Disclosure Proposal, April 2002