More on SEC Research Disclosures


New York – In releases dated February 6, 2008 (Release No. 34-57279 and Release No. 34-57278) The SEC has approved rule changes revolving around the use of foreign analytical content and certain third party content  in research report circulated within the US.  Additionally, the amendments deal with the treatment of foreign analysts and their requirements under US securities regulations.

The former release amends NASD Rule 2711 (NYSE 471). The rule changes reflect the treatment of a “third-party research report” as a report that is produced by a person or entity of than an NASD member. Rule N ASD 1050 (NYSE 344) applies to research reports that are prepared by foreign analysts. Together these rules spell out the obligations of third party and international research contributions and their treatment by FINRA members.

The proposed changes to the NASD 1050 exempt foreign analysts from having to possess a series 86 to supply research content to a parent company. This applies to analysts employed by the member’s foreign affiliates. The research would be subject to review and approval of a senior analyst at the member. In this case the member’s research report disclaimer would need to contain the following : 

  1. the names of the affiliates contributing to the report,
  2. the names of the foreign analysts contributing to the reports,
  3. that the analysts are not registered with FINRA, and
  4. that the analysts may not be associated with the member and therefore may not be subject to NASD 2711. Finally, members are required to maintain records which identify those individuals that are covered under this exemption.

The proposed rules changes to NASD 2711 include the treatment of disclosure requirements as they apply to analysts and research reports. As it stands, the use of third party research by a member obligates the member to ensure that the appropriate disclosures are made in the report and that the report has been reviewed and approved by a senior analyst at the member to ensure that it conforms to NASD 2711 requirements. The amendment lays out conditions under which the member need not make the disclosure, but rely on the third party research provider’s disclaimer.

There are two consequences of these amendments that are relevant. First, it will be necessary to review KPO and dedicated offshore research content providers to see where they lie with regard to NASD 1050 and NASD 2711. Second, it will be important for all third party researchers to review their current disclosures to ensure that they not only protect the research provider, but also adhere to the more rigorous standards of the NASD.

We include the links to the releases below:

Release No. 34-57279

Release No. 34-57278


About Author

Leave A Reply