JOBS Act l Research Analysts and Underwriters
On September 28, 2012, the Financial Industry Regulatory Authority, Inc. (“FINRA”) proposed rule changes to the Securities and Exchange Commission (the “SEC”), for NASD Rule 2711, which regulates the activities of research analysts. The proposals were made pursuant to the requirements of the Jumpstart Our Business Startups Act (the “JOBS Act”).
JOBS Act – Research Analyst Communications
NASD Rule 2711(c)(4) and NYSE Rule 472(b)(5) presently prohibit research analysts from participating in communications with companies for the purpose of soliciting investment banking business or pitches aimed at such business.
Section 105(b) of the JOBS Act provides that research analysts may participate in initial public offering-related communications with management of an Emerging Growth Company, as defined by the Act, if non-analyst personnel of a broker, dealer, or national securities association member, including investment banking personnel, are also in attendance.
In its Frequently Asked Questions guide, the SEC took the position that research analysts may attend pitch meetings for an Emerging Growth Company IPO also attended by investment banking personnel as long as the research analyst does not participate in soliciting investment banking business or engage in certain prohibited conduct. The SEC’s position is that research analysts cannot engage in the following conduct: (i) changing research in an effort to secure investment banking business; (ii) giving “tacit acquiescence” to statements of the Emerging Growth Company’s management suggesting that it expects favorable research coverage in exchange for investment banking business; (iii) providing views inconsistent with their personal opinions; and (iv) making misleading statements.
Under FINRA’s proposals, research analysts may attend Emerging Growth Company IPO pitch meetings attended by investment bankers as long as the research analyst does not participate in soliciting investment banking business or engage in other prohibited conduct.
Investment banking firms should recognize that investment banking personnel are still prohibited from directly or indirectly directing a research analyst to engage in sales or marketing efforts related to an investment banking services transaction under NASD Rule 2711(c)(6) and NYSE Rule 472(b)(6)(ii).
JOBS Act – Quiet Period Restrictions for Research Analysts
Section 105(d) of the JOBS Act prohibits the SEC or FINRA from adopting or maintaining any rule that disallows any FINRA member from publishing or distributing research reports or making a public appearance for a prescribed period of time following an Emerging Growth Company IPO or prior to the expiration of a lock-up agreement entered into in connection with a securities offering of an Emerging Growth Company. The FINRA proposals eliminate NASD and NYSE quiet period restrictions that previously governed such reports and public appearances.
For more information about the JOBS Act please visit our blog at www.securitieslawyer101.com.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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Brenda Hamilton, Securities Attorney
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