On September 28, 2012, the Financial Industry Regulatory Authority, Inc. (“FINRA”) proposed rule changes to the Securities and Exchange Commission (the “SEC”), for Rule 2711. The proposals are pursuant to the requirements of the Jumpstart Our Business Startups Act (the “JOBS Act”).
NASD Rule 2711(c)(4) and NYSE Rule 472(b)(5) presently prohibit research analysts from participating in communications with companies for the purpose of soliciting investment banking business or pitches aimed at such business.
Section 105(b) of the JOBS Act provides that research analysts may participate in initial public offering (“IPO”)related communications with the management of an emerging growth company (“EGC”) that are also attended by non-analyst personnel of a broker, dealer, or national securities association member, including investment banking personnel.
In it’s Frequently Asked Questions guide, the SEC took the position that research analysts may attend a pitch meeting in connection with an EGC IPO where investment banking personnel attend so long as the research analyst does not participate in soliciting investment banking business or engage in other prohibited conduct. Prohibited conduct includes: (i) changing research in an effort to secure investment banking business; (ii) giving “tacit acquiescence” to statements of EGC management that it expects favorable research coverage in exchange for investment banking business; (iii) providing views inconsistent with their personal views; and (iv) making misleading statements.
Under FINRA’s proposals, research analysts may attend EGC IPO pitch meetings that where investment bankers are present as long as the research analyst does not participate in soliciting investment banking business or engage in other prohibited conduct.
Investment banking firms should continue to recognize that investment banking personnel continue to be prohibited from directly or indirectly directing a research analyst to engage in sales or marketing efforts related to an investment banking services transaction under NASD Rule 2711(c)(6) and NYSE Rule 472(b)(6)(ii).
Quiet Period Restrictions
Section 105(d) of the JOBS Act prohibits the SEC or FINRA from adopting or maintaining any rule that prohibits any FINRA member from publishing or distributing research reports or making a public appearance for a prescribed period of time following an EGC IPO or prior to the expiration of a lock-up agreement entered into in connection with a securities offering of an EGC. The FINRA proposals eliminate NASD and NYSE quiet period restrictions regarding the publication or distribution of research reports or a public appearances by research analysts in connection with IPOs and secondary offerings of EGCs.
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