SR-NASD-2002-087

To Establish Effective Dates For NASD Rule 2711, Research Analysts and Reports

On June 28, 2002, NASD filed with the SEC a rule change to establish November 6, 2002, as the effective date for certain provisions of NASD Rule 2711. This rule change was effective immediately upon filing. First, the rule change establishes, subject to certain conditions, November 6, 2002, as the effective date for Rules 2711(b) and (c) for members that over the previous three years, on average, have participated in 10 or fewer investment banking transactions as manager or co-manager and generated $5 million or less in gross investment banking revenues from those transactions. Rules 2711(b) and (c), when effective, will prohibit a research analyst from being subject to the supervision or control of any employee of a member’s investment banking department, and will further require legal or compliance personnel to intermediate certain communications between the research department and either the investment banking department or the company that is the subject of a research report or recommendation ("subject company").

 

Second, the rule change establishes November 6, 2002 as the effective date for Rule 2711(h)(2) as applied to the receipt of compensation by a member’s foreign affiliates from a subject company. Rule 2711(h)(2), when effective, will require a member to disclose in research reports all compensation received by it or its affiliates from a subject company for investment banking services in the past 12 months, or expected to be received in the next 3 months.

 

Third, the rule change establishes November 6, 2002, subject to certain conditions, as the effective date for Rule 2711(g)(3) for those research analysts who must divest holdings to comply with their firm’s more restrictive policy that prohibits analyst ownership of securities they cover. Rule 2711(g)(3), when effective, will prohibit a "research analyst account" from purchasing or selling a security or option or derivative of that security, in a manner contrary to the analyst’s most recent published recommendation reflected in the member’s research report.