TITLE V - ANALYST CONFLICTS OF INTEREST
SEC. 501. TREATMENT OF SECURITIES ANALYSTS BY REGISTERED SECURITIES ASSOCIATIONS
AND NATIONAL SECURITIES EXCHANGES.
(a) RULES REGARDING SECURITIES ANALYSTS. - The Securities Exchange Act of 1934
(15 U.S.C. 78a et seq.) is amended by inserting after section 15C the following
new section:
"SEC. 15D. SECURITIES ANALYSTS AND RESEARCH REPORTS.
"(a) ANALYST PROTECTIONS. - 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 the date
of enactment of this section, 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) DISCLOSURE. - 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 the date of enactment
of this section, 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) DEFINITIONS. - 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.".
(b) ENFORCEMENT. - Section 21B(a) of the Securities Exchange
Act of 1934 (15 U.S.C. 78u–2(a)) is amended by inserting "15D,"
before "15B".
(c) COMMISSION AUTHORITY. - 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, as added by this section,
as is necessary for the protection of investors and in the public interest.
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