SEC Announces Approval of SRO Rules Addressing Research Analyst Conflicts of Interest


Washington, D.C., July 29, 2003 -- Securities and Exchange Commission Chairman William H. Donaldson announced today the approval of a series of self-regulatory organization ("SRO") research analyst rules that fulfill the requirements of the Sarbanes-Oxley Act of 2002. The rules approved today build on previous regulatory actions and take a number of significant additional steps towards promoting the independence and objectivity of research.

SEC Chairman William H. Donaldson said, "Working closely with the New York Stock Exchange and the NASD, the rules approved by the SEC today require a critical and necessary separation of research analyst compensation from investment banking. Such conflicts have undermined confidence in our markets, and must stop. Today's effort will provide participants with clear guidelines for restoring confidence in the integrity of research. I applaud the efforts of all involved in reaching this important milestone."

Specifically, the rules approved today separate research analyst compensation from investment banking influence and insulate research analysts from investment banking interests by prohibiting analysts from participating in "pitches" or other communications for the purpose of soliciting investment banking business. They extend quiet periods for all firms involved in offerings and prohibit "booster shot" research reports in and around lock-up expirations. The rules also require enhanced disclosure of compensation arrangements between firms and issuers and client relationships between firms, their affiliates, and issuers.

The rules also require firms to notify their customers in final reports when they are terminating research coverage of covered companies. Analyst independence will be further protected by a rule that prohibits firms from retaliating, or threatening to retaliate, against research analysts who publish research reports or make public appearances that may adversely affect firms' investment banking business. Finally, the rules impose registration, qualification, and continuing education requirements on research analysts.

These rules are the latest among a series of regulatory actions taken during the last year to promote the integrity of research. Most recently, on April 28, 2003, the Commission, the NASD, the NYSE, and the States announced the settlement of enforcement actions against ten of the nation's top securities firms alleging undue influence by investment banking interests on the firms' research. This Global Settlement includes substantial monetary relief and imposes structural reforms that seek to promote analyst independence. Earlier, the Commission approved a series of SRO rule changes addressing analyst conflicts, as well as a Commission rule requiring that analysts certify that their research reports accurately reflect their personal views and disclose whether they received compensation for their specific recommendation.

See Also:  Fact Sheet: Commission Approval of SRO Rule Amendments Addressing Research Analyst Conflicts of Interest; Release No. 34-48252: Order Approving Proposed Rule Changes Relating to Research Analyst Conflicts of Interest
Last modified: 7/30/2003