§78o–6 — Title 15 Commerce and Trade | U.S. Code

Summary

Requires the Securities and Exchange Commission, or groups it allows, to make rules by not later than 1 year after July 30, 2002 to reduce conflicts of interest when analysts recommend stocks in reports or public talks. The rules must help make research more fair and useful. They must limit investment bankers from approving reports before they are published, have analysts supervised and evaluated by people not doing investment banking, stop investment‑banking staff from retaliating against analysts for negative reports (except for normal discipline for other reasons), set quiet periods around public offerings, and put up information barriers inside firms so analysts are separate from people who might bias them. The SEC or its groups can add other needed steps. The rules must also make analysts and firms disclose known conflicts when speaking publicly or in each research report. Required disclosures include (1) the analyst’s debt or stock holdings in the company, (2) payments the firm or its affiliates got from the company, (3) whether the company was a client in the past 1‑year and what services it got, (4) whether the analyst’s pay depends on the firm’s investment‑banking revenue, and (5) any other material conflicts the SEC finds important. For emerging growth companies, the SEC may not bar certain staff from arranging contacts with investors or stop analysts from joining meetings with company management when other staff are present. “Securities analyst” means anyone at a broker or dealer who mainly prepares a research report or supervises that work. “Research report” means a written or electronic analysis of stocks that gives enough information to base an investment decision.

Title 15, §78o–6

Commerce and Trade — Source: USLM XML via OLRC

(a)The Commission, or upon the authorization and direction of the Commission, a registered securities association or national securities exchange, shall have adopted, not later than 1 year after July 30, 2002, rules reasonably designed to address conflicts of interest that can arise when securities analysts recommend equity securities in research reports and public appearances, in order to improve the objectivity of research and provide investors with more useful and reliable information, including rules designed—

(1)to foster greater public confidence in securities research, and to protect the objectivity and independence of securities analysts, by—

(A)restricting the prepublication clearance or approval of research reports by persons employed by the broker or dealer who are engaged in investment banking activities, or persons not directly responsible for investment research, other than legal or compliance staff;

(B)limiting the supervision and compensatory evaluation of securities analysts to officials employed by the broker or dealer who are not engaged in investment banking activities; and

(C)requiring that a broker or dealer and persons employed by a broker or dealer who are involved with investment banking activities may not, directly or indirectly, retaliate against or threaten to retaliate against any securities analyst employed by that broker or dealer or its affiliates as a result of an adverse, negative, or otherwise unfavorable research report that may adversely affect the present or prospective investment banking relationship of the broker or dealer with the issuer that is the subject of the research report, except that such rules may not limit the authority of a broker or dealer to discipline a securities analyst for causes other than such research report in accordance with the policies and procedures of the firm;

(2)to define periods during which brokers or dealers who have participated, or are to participate, in a public offering of securities as underwriters or dealers should not publish or otherwise distribute research reports relating to such securities or to the issuer of such securities;

(3)to establish structural and institutional safeguards within registered brokers or dealers to assure that securities analysts are separated by appropriate informational partitions within the firm from the review, pressure, or oversight of those whose involvement in investment banking activities might potentially bias their judgment or supervision; and

(4)to address such other issues as the Commission, or such association or exchange, determines appropriate.

(b)The Commission, or upon the authorization and direction of the Commission, a registered securities association or national securities exchange, shall have adopted, not later than 1 year after July 30, 2002, rules reasonably designed to require each securities analyst to disclose in public appearances, and each registered broker or dealer to disclose in each research report, as applicable, conflicts of interest that are known or should have been known by the securities analyst or the broker or dealer, to exist at the time of the appearance or the date of distribution of the report, including—

(1)the extent to which the securities analyst has debt or equity investments in the issuer that is the subject of the appearance or research report;

(2)whether any compensation has been received by the registered broker or dealer, or any affiliate thereof, including the securities analyst, from the issuer that is the subject of the appearance or research report, subject to such exemptions as the Commission may determine appropriate and necessary to prevent disclosure by virtue of this paragraph of material non-public information regarding specific potential future investment banking transactions of such issuer, as is appropriate in the public interest and consistent with the protection of investors;

(3)whether an issuer, the securities of which are recommended in the appearance or research report, currently is, or during the 1-year period preceding the date of the appearance or date of distribution of the report has been, a client of the registered broker or dealer, and if so, stating the types of services provided to the issuer;

(4)whether the securities analyst received compensation with respect to a research report, based upon (among any other factors) the investment banking revenues (either generally or specifically earned from the issuer being analyzed) of the registered broker or dealer; and

(5)such other disclosures of conflicts of interest that are material to investors, research analysts, or the broker or dealer as the Commission, or such association or exchange, determines appropriate.

(c)Notwithstanding subsection (a) or any other provision of law, neither the Commission nor any national securities association registered under section 78o–3 of this title may adopt or maintain any rule or regulation in connection with an initial public offering of the common equity of an emerging growth company—

(1)restricting, based on functional role, which associated persons of a broker, dealer, or member of a national securities association, may arrange for communications between a securities analyst and a potential investor; or

(2)restricting a securities analyst from participating in any communications with the management of an emerging growth company that is also attended by any other associated person of a broker, dealer, or member of a national securities association whose functional role is other than as a securities analyst.

(d)In this section—

(1)the term “securities analyst” means any associated person of a registered broker or dealer that is principally responsible for, and any associated person who reports directly or indirectly to a securities analyst in connection with, the preparation of the substance of a research report, whether or not any such person has the job title of “securities analyst”; and

(2)the term “research report” means a written or electronic communication that includes an analysis of equity securities of individual companies or industries, and that provides information reasonably sufficient upon which to base an investment decision.

Notes & Related Subsidiaries

Editorial Notes

Amendments

2012—Subsecs. (c), (d). Pub. L. 112–106 added subsec. (c) and redesignated former subsec. (c) as (d).

Statutory Notes and Related Subsidiaries

Post Offering Communications Pub. L. 112–106, title I, § 105(d), Apr. 5, 2012, 126 Stat. 311, provided that: “Neither the [Securities and Exchange] Commission nor any national securities association registered under section 15A of the Securities Exchange Act of 1934 [15 U.S.C. 78o–3] may adopt or maintain any rule or regulation prohibiting any broker, dealer, or member of a national securities association from publishing or distributing any research report or making a public appearance, with respect to the securities of an emerging growth company, either— “(1) within any prescribed period of time following the initial public offering date of the emerging growth company; or “(2) within any prescribed period of time prior to the expiration date of any agreement between the broker, dealer, or member of a national securities association and the emerging growth company or its shareholders that restricts or prohibits the sale of securities held by the emerging growth company or its shareholders after the initial public offering date.” Commission Authority Pub. L. 107–204, title V, § 501(c), July 30, 2002, 116 Stat. 793, provided that: “The Commission may promulgate and amend its

Regulations

, or direct a registered securities association or national securities exchange to promulgate and amend its rules, to carry out section 15D of the Securities Exchange Act of 1934 [15 U.S.C. 78o–6], as added by this section, as is necessary for the protection of investors and in the public interest.”

§78o–6 Securities analysts and research reports