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- ICI Comment Letters
SEC Approves Changes to Rules Governing Research Analysts
Washington, DC, August 1, 2003 - The SEC has approved changes to the rules governing research analysts’ compensation and trading activities proposed by the NASD and the New York Stock Exchange.
In February 2003, the SEC approved a “regulation analyst certification,” which requires that broker-dealers (and certain associated persons) include in research reports a statement by the research analyst certifying that the views expressed in the research report accurately reflect his or her personal views; and a statement by the research analyst certifying either that no part of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report; or that part or all of his or her compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in the research report.
The rule changes provide for further restriction on research analysts’ compensation and trading activities and impose additional disclosure requirements for research reports. The rule amendments also further restrict the relationship between research and investment banking departments and the companies that are the subject of research reports, and impose registration, qualification, and continuing education requirements on research analysts.
The rule changes also amend the definition of “research report” by deleting the criterion of providing a “recommendation” from the criteria that determines what constitutes a research report. This amendment broadens the scope of the term for purposes of the rules’ requirements. The NASD and the NYSE have indicated agreement that certain categories of communications, such as those discussed in the release adopting Regulation AC, would not fall within the amended definition of “research report.” Among other things, the NASD and the NYSE determined that an analysis prepared for a specific person or a limited group of fewer than 15 persons, as well as periodic reports or other communications prepared for investment company shareholders or discretionary investment account clients discussing past performance or the basis for previously made discretionary investment decisions, would not fall within the definition of “research report.” In addition, the SEC notes that whether a particular communication falls within the definition of “research report” continues to depend on specific facts and circumstances.
The Institute had expressed concern with the proposals’ amended definition of “research report,” in particular, that the proposed definition would be over-inclusive, encompassing many types of communications that traditionally have not been classified as research reports, including those by individuals who are not typically considered research analysts.
- 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