NASD Notice to Members 03-44 - August 2003

SEC Approves Amendments to Rules Governing Research Analysts' Conflicts of Interest

Executive Summary

On July 29, 2003, the Securities and Exchange Commission (SEC) approved new NASD Rule 1050 (Registration of Research Analysts) and amendments to Rule 1120 (Continuing Education Requirements) and Rule 2711 (Research Analysts and Research Reports).1 Generally, the new rule and amendments impose registration, qualification, and continuing education requirements on research analysts; further separate analyst compensation from investment banking influence; prohibit analysts from issuing "booster shot" research reports; prohibit analysts from soliciting investment banking business; and require members to publish a final research report when they terminate coverage of a subject company. The amendments also revise Rule 2711 to augment disclosure requirements and make other changes necessary to comply with the research analyst provisions of the Sarbanes-Oxley Act of 2002.

 

The SEC also approved on the same day similar amendments to New York Stock Exchange Rules 344, 345A, 351 and 472. NASD generally will implement the new rule and amendments in phases during the period from July 29, 2003, to January 26, 2004. The implementation schedule is set forth below.

 

This Notice includes as Attachment A the text of the new rule and amendments.

 

Questions concerning this Notice may be directed to Nileema Pargaonker in NASD's Corporate Financing Department, Regulatory Policy and Oversight, at (240) 386-4623, or Philip Shaikun, Associate General Counsel, Regulatory Policy and Oversight, at (202) 728-8451.