FINRA published Regulatory Notice 12-49 to announce SEC approval of FINRA’s proposal to amend NASD Rule 2711 and NYSE Rule 472 (“Research Analyst Rules”) to make changes mandated by the Jumpstart Our Business Startups Act (“JOBS Act”) with respect to emerging growth companies as defined in Section 3(a)(80) of the Securities Exchange Act of 1934. The proposed amendments are discussed in the October 9, 2012 Financial Services Alert (“FINRA Proposes Amendments to Research Analyst Rules to Conform with Requirements of the JOBS Act”). The amendments have been approved and adopted as proposed. Rule changes mandated by the JOBS Act were made effective as of April 5, 2012, the date of enactment of the Act. Changes to the quiet period requirements not mandated by the JOBS Act were made effective as of October 11, 2012.
SEC Guidance Concerning Research Analysts Participating in Pitch Meetings
As mandated by the JOBS Act, the prohibition on research analyst participation in pitch meetings for investment banking business with prospective investment banking clients was amended to permit research analysts to attend pitch meetings in connection with an initial public offering of an emerging growth company. The rule was further amended to provide, however, that “a research analyst may not engage in otherwise prohibited conduct in such meetings, including efforts to solicit investment banking business.” In the SEC release approving the rule amendments (Release No. 34-68037), the SEC referred to guidance previously provided by its staff in the form of Frequently Asked Questions (“FAQs”) regarding the provisions of the JOBS Act applicable to research analysts and emerging growth companies. The response to Question 4 of the FAQs describes what research analysts may do in a pitch meeting with an emerging growth company, saying that the analysts “could, for example, introduce themselves, outline their research program and the types of factors that the analyst would consider in his or her analysis of a company, and ask follow-up questions to better understand a factual statement made by the emerging growth company’s management.”
In response to Question 4 of the FAQs, the SEC also cautions that the amendment to the research analyst rules relating to attendance at pitch meetings does not affect the prohibitions in the so-called Global Settlement, in 2003 and 2004, of the enforcement actions brought by the SEC, self-regulatory organizations and other regulators against twelve investment banks. Under the Global Settlement, a research analyst is not permitted to participate in a communication with a subject company in the presence of investment banking personnel. Thus, the exception permitting research analysts to attend pitch meetings with emerging growth companies is at present available only to research analysts at firms that are not subject to the Global Settlement and have not voluntarily elected to be governed by the Global Settlement.