[Federal Register Volume 63, Number 96 (Tuesday, May 19, 1998)]
[Notices]
[Pages 27608-27609]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-13183]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-39985; File No. SR-NASD-98-28]
Self-Regulatory Organizations; Notice of Filing of Proposed Rule
Change by the National Association of Securities Dealers, Inc. Relating
to Approval of Research Reports
May 12, 1998.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''), \1\ notice is hereby given that on April 27, 1998, the NASD
Regulation, Inc. (``NASD Regulation'') filed with the Securities and
Exchange Commission (``Commission'') the proposed rule change as
described in Items I, II, and III below, which Items have been prepared
by NASD Regulation. The Commission is publishing this notice to solicit
comments on the proposed rule change from interested persons.
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\1\ 15 U.S.C. 78s(b)(1).
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I. Self-Regulatory Organization's Statement of the Terms of
Substance of the Proposed Rule Change
NASD Regulation is proposing to amend Rule 2210, ``Communications
with the Public,'' of the Conduct Rules of the National Association of
Securities Dealers, Inc. (``NASD'' or ``Association''), to permit the
approval of research reports by a supervisory analyst acceptable to the
New York Stock Exchange (``NYSE;'') under NYSE Rule 344, ``Supervisory
Analysts,'' \2\ to satisfy NASD requirements that research reports be
approved by a registered principal. Below is the text of the proposed
rule change. Proposed new language is in italics.
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\2\ NYSE Rule 344 states that ``Supervisory Analysts * * * shall
be acceptable to, and approved by, the Exchange.'' NYSE Rule 344,
Supplementary Material .10 sets forth qualifications to be
considered by the Exchange.
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2200. Communications with Customers and the Public
2210. Communications with the Public
* * * * *
(b) Approval and Recordkeeping.
(1) Each item of advertising and sales literature shall be approved
by signature or initial, prior to use or filing with the Association,
by a registered principal of the member. This requirement may be met,
only with respect to corporate debt and equity securities that are the
subject of research reports as that term is defined in Rule 472 of the
New York Stock Exchange, by the signature or initial of a supervisory
analyst approved pursuant to Rule 344 of the New York Stock Exchange.
* * * * *
II. Self-Regulatory Organizations' Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
In its filing with the Commission, NASD Regulation included
statements concerning the purpose of and basis for the proposed rule
change and discussed any comments it received on the proposed rule
change. The text of these statements may be examined at the places
specified in Item IV below. NASD Regulation has prepared summaries, set
forth in Sections A, B, and C below, of the most significant aspects of
such statements.
A. Self-Regulatory Organization's Statement of the Purpose of, and
Statutory Basis for, the Proposed Rule Change
1. Purpose
a. Background. Subparagraph (b)(1) to NASD Rule 2210 regarding
Communications with the Public requires each item of advertising and
sales literature to be approved by signature or initial of a registered
principal of an NASD member prior to use or filing with NASD
Regulation. The definition of ``sales literature'' in subparagraph
(a)(2) to NASD Rule 2210 includes research reports.
Paragraph (b) to NYSE Rule 472, ``Communications with the Public,''
requires that research reports be prepared or approved by a supervisory
analyst acceptable to the NYSE under NYSE Rule 334. NYSE Rule 472,
Supplementary Material .10 defines ``research reports'' as ``* * * an
analysis of individual companies, industries, market conditions,
securities or other investment vehicles which provide information
reasonably sufficient upon which to base an investment decision.'' In
order to become a supervisory analyst under NYSE Rule 344, an applicant
may present evidence of appropriate experience and either (i) pass an
NYSE Supervisory Analysts Examination, or (ii) successfully complete a
specified level of the Chartered Financial Analysts Examination
prescribed by the NYSE and pass only that portion of the NYSE
Supervisory Analysts Examination dealing with Exchange rules on
research standards and related matters.\3\
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\3\ See NYSE Rule 344, Supplementary Material .10.
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A joint NASD/NYSE member raised the issue of whether the approval
of research reports by a supervisory analyst approved by the NYSE under
NYSE Rule 344 could satisfy the NASD requirement that each item of
advertising and sales literature be approved by signature or initial of
a registered principal prior to use or filing with NASD Regulation.
b. Discussion. The NYSE designation of ``supervisory analyst'' does
not constitute a registration category for NASD principals. The NASD
Regulation staff reviewed the content outline for the supervisory
analyst examination. The particular categories of securities addressed
in the ``securities analysis'' section of the outline are fixed income
securities and equity securities. The NASD Regulation staff concluded
that the coverage in the supervisory analysts examination of the NYSE
communication rules is comparable to the communication materials
covered in the NASD principal examination. Thus, NASD Regulation
believes that with respect to the level of training and experience
necessary for the review of research reports on debt and equity, the
level of supervisory analyst registration is comparable to the level of
NASD principal registration.
Given that the scope of approval authority is limited to research
reports and that the material in the NYSE supervisory analyst
examination and the NASD principal examination is comparable in this
area, the NASD Regulation staff concluded that the investor protection
goals intended by the NASD's current principal review requirement rule
could be satisfied by NYSE requirements in this area.
The proposed rule change amends subparagraph (b)(1) to NASD Rule
2210 to state that the requirement that advertising and sales
literature be approved by a registered principal of an NASD member firm
may be met, with respect to corporate debt and equity securities that
are the subject of research
[[Page 27609]]
reports as that term is defined in NYSE Rule 472, by the signature or
initial of a supervisory analyst approved pursuant to NYSE Rule 344.
Any other material requiring supervisory approval would continue to
require approval by an NASD registered principal.
2. Statutory Basis
NASD believes that the proposed rule change is consistent with the
provisions of Section 15A(b)(6) \4\ of the Act, which require that the
rules of the Association be designed to promote just and equitable
principles of trade, and, in general, to protect investors and the
public interest, in that the proposed rule change, by permitting
approval of research reports by a supervisory analyst to satisfy NASD
principal approval requirements of such reports according to standards
comparable to the NASD requirements, preserves the investor protection
goals of the NASD rules and eliminates duplicative regulatory
requirements.
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\4\ 15 U.S.C. 78o-3.
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B. Self-Regulatory Organization's Statement on Burden on Competition
NASD Regulation does not believe that the proposed rule change will
result in any burden on competition that is not necessary or
appropriate in furtherance of the purposes of the Act, as amended.
C. Self-Regulatory Organization's Statement on Comments on the Proposed
Rule Change Received From Members, Participants, or Others
NASD Regulation has neither solicited nor received comments on the
proposed rule change.
III. Date of Effectiveness of the Proposed Rule Change and Timing
for Commission Action
Within 35 days of the date of publication of this notice in the
Federal Register or within such longer period (i) as the Commission may
designate, up to 90 days of such date if it finds such longer period to
be appropriate and publishes its reasons for so finding, or (ii) as to
which the self-regulatory organization consents, the Commission will:
A. By order approve such proposed rule change, or
B. Institute proceedings to determine whether the proposed rule
change should be disapproved.
IV. Solicitation of Comments
Interested persons are invited to submit written data, views, and
arguments concerning the foregoing, including whether the proposed rule
change is consistent with the Act. Persons making written submissions
should file a copies thereof with the Secretary, Securities and
Exchange Commission, 450 Fifth Street, N.W., Washington, D.C. 20549.
Copies of the submission, all subsequent amendments, all written
statements with respect to the proposed rule change that are filed with
the Commission, and all written communications relating to the proposed
rule change between the Commission and any persons, other than those
that may be withheld from the public in accordance with the provisions
of 5 U.S.C. 552, will be available for inspection and copying in the
Commission's Public Reference Room. Copies of the filing will also be
available for inspection and copying at the principal office of the
NASD. All submissions should refer to File No. SR-NASD-98-28 and should
be submitted by June 9, 1998.
For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\5\
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\5\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-13183 Filed 5-18-98; 8:45 am]
BILLING CODE 8010-01-M
