15 U.S.C. § 78o–6 — Securities analysts and research reports

submitted 92 years ago by Pub. L. 107-204 to r/title-15-COMMERCE-AND-TRADE · 961 words · no verdicts yet

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This law requires the SEC or industry regulators to adopt rules protecting stock research analysts from investment-banking pressure. Analysts and firms must disclose conflicts of interest, like stock ownership or banking fees, in reports and public appearances. For new public companies, regulators can't limit certain analyst communications with investors or company managers.

(a) Analyst protections Within one year after July 30, 2002, the SEC — or, if the SEC allows it, a registered securities association or national securities exchange — had to adopt rules addressing conflicts of interest that come up when stock analysts write research reports or make public appearances. The goal is more objective research and more useful, reliable information for investors. The rules must: Build public trust in research and protect analysts' independence by: keeping investment-banking staff (and other non-research staff, except legal or compliance) from pre-approving research reports; letting only non-investment-banking officials supervise and evaluate analysts' pay; and banning a firm's investment-banking staff from retaliating, or threatening to retaliate, against an analyst for an unfavorable report that might hurt an investment-banking deal — though a firm can still discipline an analyst for other, unrelated reasons under its normal policies. Set "blackout" periods during which underwriters or dealers in a public stock offering shouldn't publish research about that offering or its issuer. Build structural walls inside firms — "informational partitions" — that separate analysts from the pressure or oversight of people whose investment-banking role might bias their judgment. Address any other issues the SEC, association, or exchange thinks are appropriate. (b) Disclosure On the same one-year deadline, the rules must also require analysts (in public appearances) and firms (in research reports) to disclose known or reasonably-knowable conflicts of interest, including: How much debt or stock the analyst personally holds in the company being discussed. Whether the firm, or any affiliate — including the analyst — got paid by that company, subject to SEC exemptions that stop this disclosure from revealing secret plans for a future investment-banking deal, as long as investors are still properly protected. Whether the company has been the firm's client in the past year, and what kind of services the firm provided. Whether the analyst's pay was tied to the firm's investment-banking revenue — either generally, or specifically from that company. Any other conflict-of-interest disclosure the SEC, association, or exchange thinks matters to investors, analysts, or the firm. (c) Limitation Despite subsection (a) or any other law, neither the SEC nor a registered national securities association may make a rule for an emerging growth company's initial public stock offering that either: restricts, based on someone's job role, who at a firm may arrange communications between an analyst and a potential investor; or stops an analyst from joining a conversation with the company's management just because another employee with a different role is also there. (d) Definitions A "securities analyst" is anyone at a registered broker or dealer mainly responsible for preparing a research report's substance — or anyone who reports, directly or indirectly, to such a person — no matter what their job title actually is. A "research report" is any written or electronic communication that analyzes individual companies' or industries' stocks and gives enough information to base an investment decision on.

the actual law source: uscode.house.gov ↗public domain

(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 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) 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 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.

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) 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.

Source credit: (June 6, 1934, ch. 404, title I, § 15D, as added Pub. L. 107–204, title V, § 501(a), July 30, 2002, 116 Stat. 791; amended Pub. L. 112–106, title I, § 105(b), Apr. 5, 2012, 126 Stat. 311.)

history & why it existsrecord from the source credit

1934Enacted · Pub. L. 107-204 · 116 Stat. 791
2012Amended · Pub. L. 112-106 · 126 Stat. 311

A history note hasn’t been published yet. The record shows enactment by Pub. L. 107-204 on 1934-06-06.

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