June 19, 2003

Via Electronic Mail

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

RE: Research Analyst Conflicts of Interest; Notice of Filing of Amendment
No. 2: File Nos. SR-NASD-2002-154 and SR-NYSE-2002-49

Dear Mr. Katz:

The Investment Counsel Association of America1 welcomes this opportunity to share our views with respect to one aspect of the proposed amendments filed by the National Association of Securities Dealers and the New York Stock Exchange to their rules addressing research analyst conflicts of interest.2

ICAA members collectively manage trillions of dollars in assets for institutional and individual investors. We strongly support measures to promote the integrity and transparency of information that is provided to the public regarding issuers. The ICAA applauds efforts to address documented abuses involving certain sell-side research analysts. We comment only to request that the NYSE and NASD conform their interpretations of "research report" to the guidance provided by the Securities and Exchange Commission in adopting Regulation AC.3

The proposed regulations are intended to address conflicts of interest that arise when a broker-dealer that is also an underwriter or market maker produces its own research. As we stated in our letters to the Commission regarding Regulation AC,4 we strongly submit that the regulations governing research analyst conflicts of interest should not apply to the activities of investment advisers or investment advisory personnel. We therefore applaud the NYSE and NASD for clarifying that the term "research analyst" would not include "investment advisers, including fund portfolio managers, who are not principally responsible for preparing the substance of a research report even if they are registered persons of members."5

We are concerned, however, that the pending proposed definition of a "research report" does not include the requirement that a research report include a "recommendation." The inclusion of a recommendation was a significant limiting factor with respect to investment advisers, who generally do not make investment recommendations to the general public. In response to concerns regarding this definition in the context of Regulation AC, the SEC included in the adopting release a list of communications that would generally not be considered "research reports." Of importance to advisers, the list included "periodic reports or other communications prepared for investment company shareholders or discretionary investment account clients discussing past performance or the basis for previously made discretionary investment decisions."6 This result is appropriate because these types of communications do not present the potential for conflicts of interest that the proposed rules are intended to address. In addition, we submit that it would assist both regulators and regulated entities to ensure consistency in the interpretation of these terms.

Accordingly, we respectfully request that the NASD and NYSE follow the interpretive guidance set forth by the SEC regarding the term "research report." We also support the comments submitted today on this issue by the Investment Company Institute. We welcome the opportunity to discuss this subject in greater detail with the Commission or its staff. Please do not hesitate to contact me if you have any questions regarding these issues.


Karen L. Barr
General Counsel

1 The ICAA is a not-for-profit organization that exclusively represents the interests of federally registered investment adviser firms. Founded in 1937, the ICAA today consists of about 300 SEC-registered adviser firms that collectively manage in excess of $3 trillion in assets for a wide variety of institutional and individual clients. For additional information, please consult our web site: www.icaa.org.
2 Self-Regulatory Organizations: Notice of Filing of Amendment No. 2 to Proposed Rule Changes by the New York Stock Exchange, Inc. Relating to Exchange Rules 344 ("Supervisory Analysts"), 345A ("Continuing Education for Registered Persons"), 351 ("Reporting Requirements") and 472 ("Communications with the Public") and by the National Association of Securities Dealers, Inc. Relating to NASD Rule 2711 ("Research Analysts and Research Reports"), SEC Release No. 34-47912; File Nos. SR-NYSE-2002-49; SR-NASD-2002-154 (May 22, 2003).
3 Securities and Exchange Commission, Final Rule: Regulation Analyst Certification, Release Nos. 33-8193; 34-47384; File No. S7-30-02 (Feb. 20, 2003).
4 Letter from David G. Tittsworth , Executive Director, ICAA, to Harvey L. Pitt, Chairman, Securities and Exchange Commission, dated January 13, 2003; Letter from David G. Tittsworth, Executive Director, ICAA to Jonathan G. Katz, Secretary, Securities and Exchange Commission, dated September 23, 2002.
5 NASD Notice to Members 02-39 (July 2002); NYSE Information Memo No. 02-26 (June 26, 2002).
6 See Note 3, supra.