"The integrity of the research process is as important as the content of the research reports themselves. The measures approved today represent a major step in the path toward ensuring that integrity," said NYSE Chairman and Chief Executive Dick Grasso.
Mr. Grasso said the NYSE would continue to work closely with the SEC and other authorities as well as the securities industry to roll out the changes in an orderly fashion, monitor their implementation and determine if any additional changes or measures are appropriate. In addition, the NYSE is working with the SEC, NASD and various states on an inquiry into these practices, announced by the SEC on April 24. The results of that inquiry might indicate the need for further regulatory changes.
"As a result of Chairman Harvey Pitt's outstanding leadership, there is now a set of stringent regulations that will get at the heart of the issue," added Mr. Grasso. "We need a system that is transparent and fair for investors and issuers. Going forward, this will be the model as we continue taking a strong self-regulatory approach, so that investors can have confidence that our firms and our markets place the interests of investors above all others."
The new rules were developed in a collaborative effort between the NYSE and NASD Regulation, at the initiative of the SEC.
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; and
- Compensation paid by subject company to firm within the last 12 months or expected within the next three months.
Member Letter of Attestation: Members and senior officers of member organizations must sign annual letters affirming procedures in place for compliance.
