"These amendments are designed to restore investor confidence in the integrity of a process that is absolutely critical to the equities markets. We've taken a self-policing approach consistent with strong self-regulation - a private-sector solution to a private-sector problem," said NYSE Chairman and Chief Executive Officer Dick Grasso.
"Necessarily, these measures will add to the costs and administrative burden of our member firms in operating and overseeing the research process. But today's board action sends a clear signal to America's 85 million individual investors: your confidence and participation in our markets are paramount and demand that our industry bear the costs of strengthening self-regulation," Mr. Grasso added.
In addition to addressing conflicts of interest, the amendments require greater clarity and depth in research reports, including information about valuation methods, meanings of ratings, percentage of all recommended securities in various rating categories, and price-performance charts.
The proposed changes have been developed in collaboration with NASD Regulation and the securities industry at the initiative of the Securities and Exchange Commission (SEC) and will be proposed to the SEC for approval.
Summary of Proposed Rules
Research Analysts: Restricts compensation that research analysts can receive from investment-banking activity, their purchasing of subject companies' securities around rating changes and IPOs, and their trading before and after issuance of research reports; and prohibits trading contrary to recommendations.
Member Organizations: Establishes "quiet periods" for publishing research following participation in an IPO or secondary offering as manager or co-manager, and prohibits offering favorable research as an inducement for business.
Member Organizations and Research Analysts: For written communications and public appearances, requires clear and prominent disclosure of:
- Firm ownership of 1 percent or more of any class of equity security of a subject company.
- The financial interest of analysts or their household members in a subject company.
- Conflicts of interest at the time a research report is issued or a public appearance occurs.
- Compensation paid by subject company to firm within the last 12 months or expected within the next three months.
The New York Stock Exchange (NYSE) is the world's leading and most technologically-advanced equities market. The NYSE is by far the world's largest market, and more capital is raised at the NYSE than in any other equities market. The Exchange is home to more than 2,800 companies whose total global market capitalization exceeds $16 trillion. NYSE-listed companies-including more than 460 non-U.S. from 53 countries-range from "blue chip," to many of the world's leading technology companies, and young, high-growth enterprises. A broad spectrum of market participants, including listed companies, individual investors, institutional investors and member firms, create the NYSE agency auction market. Buyers and sellers meet directly in a fair, open and orderly market to realize the best possible price through the interplay of supply and demand. On an average day, more than 1.4 billion shares, whose value exceeds 40 billion, trade on the NYSE.
