NASD Notice to Members 02-44 - August 2002

NASD Requests Comment on Application of Rule 2711 to Small Firms; Comment Period Expired on August 30, 2002

Executive Summary

On May 10, 2002, the Securities and Exchange Commission (SEC) approved new NASD Rule 2711, Research Analysts and Research Reports. The rule is intended to address potential conflicts of interest in the issuance of research reports by members, improve the objectivity of research, and provide investors with more useful and reliable information when making investment decisions. The SEC also approved on that day similar amendments to New York Stock Exchange (NYSE) Rule 472. The rules will be implemented in phases during the period from July 9, 2002 to November 6, 2002.

 

On July 1, 2002, NASD filed with the SEC a rule change that, among other things, delayed the effectiveness of two provisions of Rule 2711 for small firms. These delaying amendments establish November 6, 2002, as the effective date for Rules 2711(b) and (c) for members that have engaged in a limited number of investment banking transactions over the previous three years. Rules 2711(b) and (c) prohibit a research analyst from being subject to the supervision or control of the member's investment banking department and require compliance personnel to intermediate certain communications between research, investment banking, and the company that is the subject of the research report.

 

This Notice requests comment on whether smaller NASD members should be exempt from certain provisions of Rule 2711. The Notice seeks comment on which provisions of Rule 2711 present the greatest challenges for small firms. To the extent NASD determines that it should provide exemptions for small firms, NASD invites comment on which firms should be eligible for these exemptions.

 

Questions or comments concerning NASD Rule 2711 or this Notice may be directed to the NASD Corporate Financing Department at (240) 386-4623.