[Federal Register Volume 63, Number 123 (Friday, June 26, 1998)]
[Notices]
[Pages 34950-34951]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-17080]
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SECURITIES AND EXCHANGE COMMISSION
[Release No. 34-40105; File No. SR-NASD-98-28]
Self-Regulatory Organizations; National Association of Securities
Dealers, Inc.; Order Approving Proposed Rule Change Relating to
Approval of Research Reports
June 22, 1998.
I. Introduction
On April 27, 1998, NASD Regulation, Inc. (``NASD Regulation'')
filed with the Securities and Exchange Commission (``Commission''),
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934
(``Act''),\1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to
amend Rule 2210, ``Communications with the Public,'' of the Conduct
Rules of the National Association of Securities Dealers, Inc. (``NASD''
or ``Association''). The proposed rule change will permit the approval
of research reports by a supervisory analyst acceptable to the New York
Stock Exchange (``NYSE'') under NYSE Rule 344, ``Supervisory
Analysts,'' \3\ to satisfy the requirement under NASD Rule 2210 that
research reports be approved by a registered principal.
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\1\ 15 U.S.C. 78s(b)(1).
\2\ 17 CFR 240.19b-4.
\3\ NYSE Rule 344 states that supervisory analysts must be
acceptable to, and approved by, the NYSE. NYSE Rule 344,
Supplementary Material .10 sets forth examination and other
requirements for supervisory analysts.
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The proposed rule change was published for comment in the Federal
Register on May 19, 1998.\4\ No comments were received on the proposal.
This order approves the proposal.
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\4\ See Securities Exchange Act Release No. 39985 (May 12,
1998), 63 FR 27608.
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II. Description of the Proposal
Currently, NASD Rule 2210(b)(1) 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. Under NASD Rule 2210(a)(2), ``sales literature'' includes
research reports. A joint NASD/NYSE member asked the NASD whether the
approval of research reports by a supervisory analyst approved by the
NYSE under NYSE Rule 344 could satisfy the requirement under NASD Rule
2210 that a registered principal approve research reports prior to use
or filing with NASD Regulation.
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 Analyst 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 NYSE rules on
research standards and related matters.\5\ The NASD Regulation staff
reviewed the NYSE content outline for the NYSE's Supervisory Analysts
Examination and found that the particular categories of securities
addressed in the ``securities analysis'' section of the content outline
are fixed income securities and equity securities. The NASD Regulation
staff concluded that the coverage of the NYSE communication rules in
NYSE's Supervisory Analysts Examination is comparable to the
communication materials covered in the NASD principal examination.\6\
Accordingly, NASD Regulation believes that, with respect to the level
of training and experience necessary for review of research reports on
debt and equity securities, 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 on debt and equity securities and that the material in the
NYSE's Supervisory Analysts Examination and the NASD's principal
examination is comparable, the NASD Regulation staff concluded that the
investor protection goals that the NASD's principal review requirement
are designed to serve could be satisfied by the NYSE's requirements in
this area.
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\5\ See NYSE Rule 344, Supplementary Material .10.
\6\ The NASD principal examination referred to here is the
Series 24 Qualification Examination for Principals.
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Accordingly, the proposed rule change amends NASD Rule 2210(b)(1)
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 reports as that term is defined in NYSE Rule 472,
``Communications with the Public,'' \7\ 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.
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\7\ 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.''
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III. Discussion
After careful review, the Commission finds that the proposed rule
change is consistent with the provisions of Section 15A(b)(6) \8\ of
the Act, which require that the rules of the Association be designed to
promote just and equitable principles of trade and to protect investors
and the public interest. The proposal amends NASD Rule 2210(b)(1) 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 reports, as defined in NYSE Rule 472, by the
signature or initial of a supervisory analyst approved pursuant to NYSE
Rule 344. NASD Regulation staff states that it has reviewed the content
outline for the NYSE Supervisory Analysts Examination and concluded
that the coverage of the NYSE communication rules in the Supervisory
Analysts Examination is comparable to the communication materials
covered in the NASD principal examination. Additionally, the NASD
Regulation staff has represented that any change to NYSE Rule 344 or
the NYSE Supervisory Analysts Examination would be cause for the NASD
to review NASD Rule 2210 to ensure that NASD and NYSE requirements for
approval of research reports remain comparable.\9\ Given that
[[Page 34951]]
the proposed rule change permits the approval of research reports by a
supervisory analyst approved pursuant to NYSE Rule 344 in limited
circumstances and according to standards comparable to current NASD
requirements, the Commission believes that the proposed rule change
preserves the investor protection goals of the NASD principal review
requirement rules and eliminates duplicative regulatory requirements.
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\8\ 15 U.S.C. 78o-e.
\9\ This representation was made by Robert J. Smith of the
Office of General Counsel, NASD Regulation, to Heidi Pilpel, Special
Counsel, Division of Market Regulation, on May 12, 1998.
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IV. Conclusion
It is therefore ordered, pursuant to Section 19(b)(2) of the Act
\10\ that the proposed rule change (SR-NASD-98-28) is approved.
\10\ 15 U.S.C. 78s(b)(2).
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For the Commission, by the Division of Market Regulation,
pursuant to delegated authority.\11\
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\11\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-17080 Filed 6-25-98; 8:45 am]
BILLING CODE 8010-01-M
