Self-Regulatory Organizations; New York Stock Exchange LLC and the National Association of Securities Dealers, Inc.; Notice of Filing of Proposed Rule Changes To Amend NYSE Rules 472 and 344, and NASD Rules 1050 and 2711 Relating to Research Analyst Conflicts of Interest, 2058-2078 [E7-548]

Agencies

• SECURITIES AND EXCHANGE COMMISSION

[Federal Register Volume 72, Number 10 (Wednesday, January 17, 2007)]
[Notices]
[Pages 2058-2078]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-548]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-55072; File Nos. SR-NYSE-2006-78; SR-NASD-2006-113]


Self-Regulatory Organizations; New York Stock Exchange LLC and 
the National Association of Securities Dealers, Inc.; Notice of Filing 
of Proposed Rule Changes To Amend NYSE Rules 472 and 344, and NASD 
Rules 1050 and 2711 Relating to Research Analyst Conflicts of Interest

January 9, 2007.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ notice is hereby given that 
on September 27, 2006, the New York Stock Exchange LLC (``NYSE'' or the 
``Exchange'') filed with the Securities and Exchange Commission 
(``SEC'' or ``Commission'') the proposed rule change. On December 20, 
2006, NYSE filed Amendment No. 1 to its proposed rule change.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ NYSE Amendment No. 1 makes minor revisions to the original 
filing.
---------------------------------------------------------------------------

    On September 27, 2006, the National Association of Securities 
Dealers, Inc. (``NASD'') filed with the Commission the proposed rule 
change. On November 17, 2006, NASD filed Amendment No. 1 to its 
proposed rule change.\4\
---------------------------------------------------------------------------

    \4\ NASD Amendment No. 1 makes minor revisions to the original 
filing.
---------------------------------------------------------------------------

    The proposed rule changes are described in Items I, II, and III 
below, which Items have substantially been prepared by the NYSE and 
NASD (the ``SROs''). The Commission is publishing this notice to 
solicit comments on the proposed rule changes, as amended, from 
interested persons.

I. Self-Regulatory Organizations' Statements of the Terms of Substance 
of the Proposed Rule Changes

    The Exchange proposes to amend certain provisions of NYSE Rules 472 
and 344. These amendments eliminate the exception for pre-publication 
factual verification review of research reports by non-research 
personnel; change the quiet periods surrounding securities offerings 
and the release of lock-up agreements; allow member organizations to 
develop policies and procedures if they choose to prohibit research 
analysts from holding securities for companies they cover; alter the 
format for certain disclosures in research reports; and extend the 
anti-retaliation prohibitions to all employees of a member 
organization, not just investment banking.

[[Page 2059]]

    NASD is proposing to amend NASD Rules 1050 and 2711 to implement 
certain recommendations contained in the December 2005 Joint Report by 
NASD and the NYSE on the Operation and Effectiveness of the Research 
Analyst Conflict of Interest Rules.\5\ NASD believes that the proposed 
rule changes are intended to improve the effectiveness of the research 
analyst conflict of interest rules and registration requirements by 
making certain changes to the existing provisions regarding, among 
other things: Disclosure of conflicts; quiet periods; restrictions on 
review of research reports by non-research personnel; and restrictions 
on personal trading by research analysts.
---------------------------------------------------------------------------

    \5\ https://www.nasd.com/web/groups/rules_
regs/documents/rules_regs/nasdw_015803.pdf
_____________________________________-

 Below is the text of the proposed rule changes.\6\ Proposed new 
language is italicized; proposed deletions are in [brackets].
---------------------------------------------------------------------------

    \6\ The rule text reflects the changes contained in SR-NYSE-
2006-77 and SR-NASD-2006-112, which were filed for immediate 
effectiveness on September 27, 2006.
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A. NYSE's Proposed Rule Text

Rule 472. Communications With the Public Approval of Communications and 
Research Reports
    (a)(1) through (2) No Change.
Investment Banking, Research Department and Subject Company 
Relationships and Communications
    (b)(1) Research analysts may not be subject to the supervision, or 
control, of any employee of the member organization's investment 
banking department and personnel engaged in investment banking 
activities may not have any influence or control over the compensatory 
evaluation of a research analyst.
    (2) Research reports may not be subject to review or approval prior 
to publication by Investment Banking personnel or any other employee of 
the member organization who is not directly responsible for investment 
research (``non-research personnel'') other than Legal or Compliance 
personnel.
    [(3) Non-research personnel may review research reports prior to 
publication only to verify the factual accuracy of information in the 
research report or to identify any potential conflicts of interest that 
may exist, provided that:
    (i) Any written communication concerning the content of research 
reports between non-research personnel and Research personnel must be 
made either through Legal or Compliance personnel or in a transmission 
copied to Legal or Compliance personnel; and
    (ii) any oral communication concerning the content of research 
reports between non-research personnel and Research personnel must be 
documented and made either with Legal or Compliance personnel acting as 
intermediary or in a conversation conducted in the presence of Legal or 
Compliance personnel.]
    (b)(4) through (6) renumbered as (b)(3) through (5).
Written Procedures
    (c) No change.
Retention of Communications
    (d) No change.
Restrictions on Trading Securities by Associated Persons
    (e)(1) No research analyst or household member may purchase or 
receive an issuer's securities prior to its initial public offering 
(e.g., so-called pre-IPO shares), if the issuer is principally engaged 
in the same types of business as companies (or in the same industry 
classification) which the research analyst usually covers in research 
reports.
    (2) No research analyst or household member may trade in any 
subject company's securities or derivatives of such securities that the 
research analyst follows for a period of thirty (30) calendar days 
prior to and five (5) calendar days after the member organization's 
publication of research reports concerning such security or a change in 
rating or price target of a subject company's securities.
    (3) No research analyst or household member may effect trades in a 
manner inconsistent with the research analyst's most current 
recommendations (i.e., sell securities while maintaining a ``buy'' or 
``hold'' recommendation, buy securities while maintaining a ``sell'' 
recommendation, or effecting a ``short sale'' in a security while 
maintaining a ``buy'' or ``hold'' recommendation on such security).
    (4) No change.
    (5) The prohibitions in paragraphs (e)(1) through (e)(3) do not 
apply when the following conditions are satisfied:
    (A) The research analyst is employed by a member organization that 
has adopted an internal policy that prohibits research analysts from 
owning any securities issued by the subject company for which the 
research analyst provides coverage and requires analysts to completely 
divest themselves of their existing holdings in such securities;
    (B) The research analyst abides by a reasonable plan of liquidation 
under which all securities issued by subject companies that the analyst 
follows are to be sold within 120 days of the effective date of the 
member organization's policy;
    (C) The research analyst files such liquidation plan with the 
member organization's legal or compliance department within fifteen 
(15) days of the effective date of the member organization's policy;
    (D) The research analyst receives written approval of the 
liquidation plan from the member organization's legal or compliance 
department prior to the sale of any securities under the plan; and
    (E) The member organization must maintain written records 
sufficient to document compliance with each liquidation plan approved 
by its legal or compliance department for three years following the 
date on which the liquidation plan is approved.
    (e)(5) through (6) renumbered as (e)(6) through (7).
Restrictions on Member Organization's Issuance of Research Reports and 
Participation in Public Appearances
    (f)(1) A member organization may not publish or otherwise 
distribute research reports regarding an issuer and a research analyst 
may not recommend or offer an opinion on an issuer's securities in a 
public appearance, for which the member organization acted as manager 
[or], co-manager, underwriter or dealer [of] for an initial public 
offering within [forty (40)] twenty-five (25) calendar days following 
the offering date.
    [(2) A member organization may not publish or otherwise distribute 
research reports regarding an issuer and a research analyst may not 
recommend or offer an opinion on an issuer's securities in a public 
appearance, for which the member organization acted as manager or co-
manager of a secondary offering within ten (10) calendar days following 
the offering date. This prohibition shall not apply to public 
appearances or research reports published or otherwise distributed 
under Securities Act Rule 139 regarding issuers whose securities are 
actively traded, as defined in Securities Exchange Act Rule 101(c)(1) 
of Regulation M.
    (3) No member organization that has agreed to participate or is 
participating as an underwriter or dealer (other than as manager or co-
manager) of an issuer's initial public offering may publish or 
otherwise distribute a research report regarding that issuer and a 
research analyst may not recommend or offer an opinion on that issuer's 
securities in a public appearance for twenty-five (25) calendar days 
following the offering date.]
    [(4)] (2) No member organization which has acted as a manager or 
co-

[[Page 2060]]

manager of a securities offering may publish or otherwise distribute a 
research report and a research analyst may not recommend or offer an 
opinion on an issuer's securities in a public appearance within 
[fifteen (15)] five (5) days prior to or after the expiration, waiver 
or termination of a lock-up agreement or any other agreement that the 
member organization has entered into with a subject company and its 
shareholders that restricts or prohibits the sale of the subject 
company's or its shareholders' securities after the completion of a 
securities offering. This prohibition shall not apply to public 
appearances or research reports published or otherwise distributed 
under Securities Act Rule 139 regarding issuers whose securities are 
actively traded, as defined in Securities Exchange Act Rule 101(c)(1) 
of Regulation M.
    [(5)] (3) A member organization may permit exceptions to the 
prohibitions in paragraphs (f)(1)[,] and (2)[, and (4)] (consistent 
with other securities laws and rules) for research reports that are 
published or otherwise distributed or recommendations or opinions on an 
issuer's securities made in a public appearance due to significant news 
or events, e.g. an announcement of earnings, provided that such 
research reports are pre-approved in writing by the member 
organization's Legal or Compliance personnel.
    [(6)] (4) If a member organization intends to terminate its 
research coverage of a subject company, notice of this termination must 
be made. The member organization must make available a final research 
report on the subject company using the means of dissemination 
equivalent to those it ordinarily uses to provide the customer with its 
research reports on the subject company. The report must be comparable 
in scope and detail to prior research reports and must include a final 
recommendation or rating, unless it is impracticable for the member 
organization to produce a comparable report (e.g., if the research 
analyst covering the subject company or sector has left the employ of 
the member organization, or where the member organization terminates 
coverage on the industry or sector). In instances where it is 
impracticable for the member organization to provide a final 
recommendation or rating, the member organization must provide the 
rationale for the decision to terminate coverage.
Prohibition of Offering Favorable Research for Business
    (g)(1) No change.
    (2) No member organization and no employee of a member organization 
[who is involved with the member organization's investment banking 
activities] may, directly or indirectly, retaliate against or threaten 
to retaliate against any research analyst employed by the member 
organization or its affiliates as a result of an adverse, negative, or 
otherwise unfavorable research report written or public appearance made 
by the research analyst that may adversely affect the member 
organization's present or prospective investment banking relationship 
with the subject company of a research report. This prohibition shall 
not limit a member organization's authority to discipline or terminate 
a research analyst, in accordance with the member organization's 
policies and procedures, for any cause other than the writing of such 
an unfavorable research report or the making of such unfavorable public 
appearance.
Restrictions on Compensation to Research Analysts
    (h) No change.
General Standards for All Communications
    (i) No change.
Specific Standards for Communications
    (j) No change.
Disclosure
    (k)(1) Disclosures Required in Research Reports.
Disclosure of Member Organization's, and Research Analyst's Ownership 
of Securities, Receipt of Compensation, and Subject Company 
Relationships
    [The front page cover of a research report either must include the 
disclosures required under this Rule or must refer the reader to the 
page(s) on which each such disclosure is found.] Any member 
organization that has a conflict of interest or whose research analyst 
has a conflict of interest concerning the subject company of a research 
report must disclose that conflict of interest either (i) on its Web 
site and prominently state the following on the front page of the 
research report: ``[Name of firm and/or the research analyst preparing 
this report] has a conflict of interest that may affect the ability of 
the firm or the analyst to provide objective analysis about the 
company. For more information about this conflict of interest, please 
see [Reference to the firm's Web site]'' or (ii) the front page cover 
of a research report either must include the disclosures required under 
this Rule or must refer the reader to the page(s) on which each such 
disclosure is found. Disclosures, and references to disclosures, must 
be clear, comprehensive, and prominent. For purposes of paragraph 
(k)(1), ``conflict of interest'' shall include any of the following:
    (i) A member organization must disclose in research reports: a. If 
the member organization or its affiliates:
    1. Has managed or co-managed a public offering of securities for 
the subject company in the past twelve (12) months;
    2. Has received compensation for investment banking services from 
the subject company in the past twelve (12) months; or
    3. Expects to receive or intends to seek compensation for 
investment banking services from the subject company in the next three 
(3) months.
    b. If the member organization is making a market in the subject 
company's securities at the time the research report is issued;
    c. If, as of the last day of the month immediately preceding the 
date the publication (or the end of the second most recent month if the 
publication is less than ten (10) calendar days after the end of the 
most recent month), the member organization or its affiliates 
beneficially own 1% or more of any class of common equity securities of 
the subject company. The member organization must make the required 
beneficial ownership computation no later than ten (10) calendar days 
after the end of the prior month. Computation of beneficial ownership 
of securities must be based upon the same standards used to compute 
ownership for purposes of the reporting requirements under Section 
13(d) of the Securities Exchange Act of 1934;
    d. If, as of the last day of the month immediately preceding the 
date of publication of the research report (or the end of the second 
most recent month if the publication date is less than thirty (30) 
calendar days after the end of the most recent month):
    1. The subject company currently is a client of the member 
organization or was a client of the member organization during the 
twelve (12)-month period preceding the date of distribution of the 
research report (In such instances, the member organization also must 
disclose the types of services provided to the subject company. For 
purposes of this paragraph, the types of services provided to the 
subject company may be described as investment banking services, non-
investment banking-securities related services, and non-securities 
services.);

[[Page 2061]]

    2. The member organization received any compensation for products 
or services other than for investment banking services from the subject 
company in the past twelve (12) months.
    e. If a research report contains a price target, the valuation 
methods used, and any price objectives must have a reasonable basis and 
include a discussion of risks;
    f. If a research report contains a rating, the meanings of all 
ratings used by the organization in its ratings system (For example, a 
member organization might disclose that a ``strong buy'' rating means 
that the rated security's price is expected to appreciate at least 10% 
faster than other securities in its sector over the next twelve (12)-
month period. Definitions of ratings terms also must be consistent with 
their plain meaning. Therefore, for example, a ``hold'' rating should 
not mean or imply that an investor should sell a security.);
    g. If a research report contains a rating, the percentage of all 
securities that the member organization recommends an investor ``buy,'' 
``hold,'' or ``sell.'' Within each of the three (3) categories, a 
member organization must also disclose the percentage of subject 
companies that are investment banking services clients of the member 
organization within the previous twelve (12) months (see Rule 472.70 
for further information);
    h. If a research report contains either a rating or a price target, 
and the member organization has assigned a rating or price target to 
the subject company for at least one (1) year, the research report must 
include a chart that depicts the price of the subject company's stock 
over time and indicates points at which a member organization assigned 
or changed a rating or price target. This provision would apply only to 
securities that have been assigned a rating or price target for at 
least one (1) year, and need not extend more than three (3) years prior 
to the date of the research report. The information in the price chart 
must be current as of the end of the most recent calendar quarter (or 
the second most recent calendar quarter if the publication date is less 
than fifteen (15) calendar days after the most recent calendar 
quarter).
    (ii) A member organization must include the following disclosures 
in research reports:
    a. If a research analyst received any compensation:
    1. From the subject company in the past twelve (12) months;
    2. That is based upon (among other factors) the member 
organization's overall investment banking revenues.
    b. If, to the extent the research analyst or an employee of the 
member organization with the ability to influence the substance of a 
research report, knows:
    1. The subject company currently is a client of the member 
organization or was a client of the member organization during the 
twelve (12)-month period preceding the date of distribution of the 
research report. In such instances, such member organization also must 
disclose the types of services provided to the subject company (For 
purposes of paragraph (k)(1) of this Rule, the types of services 
provided to the subject company may be described as investment banking 
services, non-investment banking-securities related services, and non-
securities services.). (For purpose of paragraph (k)(1) of this Rule, 
an employee of a member organization with the ability to influence the 
substance of the research report is an employee who, in the ordinary 
course of that person's duties, has the authority to review the 
particular research report and to change that research report prior to 
publication.);
    2. That the member organization or any affiliate thereof, received 
any compensation for products or services other than investment banking 
services from the subject company in the past twelve (12) months.
    (iii) A research analyst and a member organization must disclose in 
research reports:
    a. If, to the extent the research analyst or member organization 
has reason to know, an affiliate of the member organization received 
any compensation for products or services other than investment banking 
services from the subject company in the past twelve (12) months;
    1. This requirement will be deemed satisfied if such compensation 
is disclosed in research reports within thirty (30) days after 
completion of the most recent calendar quarter, provided that the 
member organization has taken steps reasonably designed to identify 
such compensation during that calendar quarter.
    2. The member organization and the research analyst will be 
presumed not to have reason to know whether an affiliate received 
compensation for other than investment banking services from the 
subject company in the past twelve (12) months if the member 
organization maintains and enforces policies and procedures reasonably 
designed to prevent all research analysts and employees of the member 
organization with the ability to influence the substance of research 
reports from, directly or indirectly, receiving information from the 
affiliate concerning such compensation.
    3. Paragraph 472(k)(1)(iii)a. shall not apply to any subject 
company as to which the member organization initiated coverage since 
the beginning of the current calendar quarter.
    b. If the research analyst or a household member has a financial 
interest in the securities of the subject company, and the nature of 
the financial interest, including, without limitation, whether it 
consists of any option, right, warrant, futures contract, long or short 
position;
    c. If the research analyst or a household member is an officer, 
director, or advisory board member of the subject company;
    d. Any other actual, material conflict of interest of the research 
analyst, or member organization, of which the research analyst knows, 
or has reason to know, at the time the research report is published or 
otherwise distributed.
    When a member organization publishes or otherwise distributes a 
research report covering six (6) or more subject companies (a 
``compendium report'') for purposes of the disclosures required in 
paragraph (k)(1) of this Rule, the compendium report may direct the 
reader in a clear and prominent manner as to where the reader may 
obtain applicable current disclosures. Electronic compendium reports 
may include a hyperlink to the required disclosures. Paper-based 
compendium reports must provide either a toll-free number to call or a 
postal address to write for the required disclosures and may also 
include a web address of the member organization where the disclosures 
can be found.
(k)(2) Disclosures Required in Public Appearances
Disclosure of Member Organization's, and Research Analyst's Ownership 
of Securities, Receipt of Compensation, and Subject Company 
Relationships
    (i) A research analyst must disclose the following conflicts of 
interest in public appearances:
    a. If, as of the last day of the month before the appearance (or 
the end of the second most recent month if the appearance is less than 
ten (10) calendar days after the end of the most recent month), the 
member organization or its affiliates beneficially own 1% or more of 
any class of common equity securities of the subject company. The 
member organization must make the required beneficial ownership 
computation no later than ten (10) calendar days after the end of the 
prior month.

[[Page 2062]]

Computation of beneficial ownership of securities must be based upon 
the same standards used to compute ownership for purposes of the 
reporting requirements under Section 13(d) of the Securities Exchange 
Act of 1934;
    b. If the research analyst or a household member has a financial 
interest in the securities of the subject company, and the nature of 
the financial interest, including, without limitation, whether it 
consists of any option, right, warrant, futures contract, long or short 
position;
    c. If, to the extent the research analyst knows or has reason to 
know:
    1. The subject company currently is a client of the member 
organization or was a client of the member organization during the 
twelve (12)-month period preceding the date of the public appearance by 
the research analyst. In such instances, the research analyst also must 
disclose the types of services provided to the subject company (For 
purposes of this paragraph, the types of services provided to the 
subject company may be described as investment banking services, non-
investment banking-securities related services, and non-securities 
services.);
    2. The member organization or any affiliate thereof, received any 
compensation from the subject company in the past twelve (12) months.
    d. Any other actual, material conflict of interest of the research 
analyst, or member organization, of which the research analyst knows, 
or has reason to know, at the time the public appearance is made;
    e. If the research analyst or a household member is an officer, 
director, or advisory board member of the subject company;
    f. If the research analyst received any compensation from the 
subject company in the past twelve (12) months.
(k)(3) Exceptions to the Required Disclosures
    (i) A member organization or a research analyst will not be 
required to make a disclosure required by Rule 472(k)(l)(i)a.2. and 3., 
(k)(1)(i)d.1., (k)(1)(ii)b.1., and (k)(2)(i)c. to the extent such 
disclosure would reveal material non-public information regarding 
specific potential future investment banking services transactions of 
the subject company.
(k)(4) Third-Party Research Reports
    (i) Subject to paragraph (k)(4)(ii), if a member organization 
distributes or makes available research reports produced by another 
member organization, a non-member organization affiliate of a member 
organization, such as a foreign or domestic broker-dealer or investment 
adviser, or an independent third party, the member organization must 
accompany the research report with the applicable disclosures, as they 
pertain to the member organization, that are required by paragraphs 
(k)(1)(i)c, (k)(1)(i)a, (k)(1)(i)b and (k)(1)(iii)d of this Rule.
    a. A supervisory analyst qualified under NYSE Rule 344 must 
approve, pursuant to Rule 472(a)(2), by signature or initial any third-
party research distributed by a member organization; and
    b. A supervisory analyst or qualified person designated pursuant to 
Rule 342(b)(1) (e.g., a person who has taken and passed the Series 9/
10, or another examination acceptable to the Exchange which 
demonstrates competency relevant to assigned responsibilities, 
including the Series 24 if taken and passed after July 1, 2001) must 
review third-party research distributed by a member organization to 
determine that the disclosures required by Rule 472(k)(1)(i)c, 
(k)(1)(i)a, (k)(1)(i)b and (k)(1)(iii)d are complete and accurate, and 
that the content of the research report is consistent with all 
applicable standards regarding communications with the public.
    (ii) The requirements in paragraph (k)(4)(i) shall not apply to 
research reports prepared by an independent third party that the member 
organization makes available to its customers either upon request or 
through a member organization-maintained Web site.
Other Communications Activities
    (l) No change.
Small Firm Exception
    (m) The provisions of Rule 472(b)(1)[,] and (2) [and (3)] do not 
apply to member organizations that over the three previous years, on 
average per year, have participated in ten (10) or fewer investment 
banking services transactions as manager or co-manager and generated $5 
million or less in gross investment banking services revenues from 
those transactions. For purposes of this paragraph, the term 
``investment banking services transactions'' shall include both debt 
and equity underwritings but not municipal securities underwritings. 
Member organizations that qualify for this exemption must maintain 
records for three (3) years of any communications that, but for this 
exemption, would be subject to paragraphs (b)(1)[,] and (2)[, and (3)] 
of this Rule.

* * * Supplementary Material:

.10 Definitions
    (1) No change.
    (2) Research Report--``Research report'' is generally defined as a 
written or electronic communication which includes an analysis of 
equity securities of individual companies or industries (other than an 
open-end registered investment company that is not listed or traded on 
an exchange or a public direct participant program), and provides 
information reasonably sufficient upon which to base an investment 
decision. This term does not include:
    (a) The following communications, provided that they do not include 
an analysis, narrative discussion, recommendation or rating of 
individual securities or issuers:
    (1) Reports discussing broad-based indices, e.g. the Russell 2000 
or S&P 500 index;
    (2) Reports commenting on economic, political or market conditions;
    (3) Technical analysis concerning the demand and supply for a 
sector, index or industry based on trading volume and price;
    (4) Statistical summaries of multiple companies' financial data 
(including listings of current ratings);
    (5) Reports that recommend increasing or decreasing holdings in 
particular industries or sectors; or
    (6) Notices of ratings or price target changes, provided that the 
member organization simultaneously directs the readers of the notice as 
to where to obtain the most recent research report on the subject 
company that includes the current applicable disclosures required by 
this rule and that such research report does not contain materially 
misleading disclosures, including disclosures that are outdated or no 
longer applicable;
    (b) The following communications, even if they include information 
reasonably sufficient upon which to base an investment decision or a 
recommendation or rating of individual securities or companies:
    (1) Any communication distributed to fewer than 15 persons;
    (2) Periodic reports, solicitations or other communications 
prepared for investment company shareholders or discretionary 
investment account clients that discuss individual securities in the 
context of a fund's or account's past performance or the basis for 
previously made discretionary investment decisions; or
    (3) Internal communications that are not given to customers; and

[[Page 2063]]

    (c) Communications that constitute statutory prospectuses that are 
filed as part of the registration statement.
    For purposes of approval by a supervisory analyst pursuant to Rule 
472(a)(2), the term research report includes, but is not limited to, a 
report which recommends equity securities, derivatives of such 
securities, including options, debt and other types of fixed income 
securities, single stock futures products, and other investment 
vehicles subject to market risk.
    .10 (3) through (5) No change.
    .20 through .30 No change.
    .40 For purposes of this Rule, the term ``research analyst'' 
includes an allied member, associated person or employee of a member 
organization primarily responsible for, and any person who reports 
directly or indirectly to such research analyst in connection with, the 
preparation of the substance of a research report whether or not any 
such person has the job title of ``research analyst''.
    For purposes of this Rule, the term ``household member'' means any 
individual whose principal residence is the same as the research 
analyst's principal residence. This term does not include an unrelated 
person who shares the same residence as a research analyst, provided 
that the research analyst and unrelated person are financially 
independent of one another. Paragraphs (e)(1), (2), (3), (4)(i), (ii), 
(iii), (iv) and (v), (k)(1)(iii)b., c., and (k)(2)(i)b. and e. apply to 
any account in which a research analyst has a financial interest, or 
over which the research analyst exercises discretion or control[, other 
than an investment company registered under the Investment Company Act 
of 1940]. The trading restrictions applicable to research analysts and 
household members (i.e., paragraphs (e)(1), (2), (3), (4)(i), (ii), 
(iii), (iv) and (v))[;] shall not include an investment company 
registered under the Investment Company Act of 1940 over which the 
research analyst or a household member has discretion or control, 
provided that the research analyst or household member has no financial 
interest in such investment company, other than a performance or 
management fee, and do not apply to a ``blind trust'' account that is 
controlled by a person other than the research analyst or research 
analyst's household member where neither the research analyst nor 
household member knows of the account's investments or investment 
transactions.
    .50 through .140 No change.
Rule 344. Research Analysts and Supervisory Analysts
    Research analysts and supervisory analysts must be registered with, 
qualified by, and approved by the Exchange.

* * * Supplementary Material:

    .10 [For purposes of this Rule, the term ``research analyst'' 
includes a member, allied member, associated person or employee who is 
primarily responsible for the preparation of the substance of a 
research report and/or whose name appears on such report. Such research 
analysts must pass a qualification examination acceptable to the 
Exchange.] For the purposes of this Rule, ``research analyst'' shall 
mean an associated person whose primary job function is to provide 
investment research and who is primarily responsible for the 
preparation of the substance of a research report or whose name appears 
on the report.
    .11 For purposes of this Rule, the term ``supervisory analyst'' 
includes [a member,] an allied member or employee who is responsible 
for preparing or approving research reports under Rule 472(a)(2). In 
order to show evidence of acceptability to the Exchange as a 
supervisory analyst, [a member,] an allied member, or employee may do 
one of the following:
    (1) Present evidence of appropriate experience and pass an Exchange 
Supervisory Analyst Examination (Series 16).
    (2) Present evidence of appropriate experience and successful 
completion of a specified level of the Chartered Financial Analysts 
Examination prescribed by the Exchange and pass only that portion of 
the Exchange Supervisory Analyst Examination (Series 16) dealing with 
Exchange rules on research standards and related matters.
    The Exchange publishes a Study Outline for the Research Analyst 
Examination and the Supervisory Analyst Examination (Series 16).
    .12 No change.

B. NASD's Proposed Rule Text

1050. Registration of Research Analysts
    (a) No change.
    (b) For the purposes of this Rule 1050, ``research analyst'' shall 
mean an associated person whose primary job function is to provide 
investment research and who is primarily responsible for the 
preparation of the substance of a research report or whose name appears 
on a research report.
    (c) through (f) No change.
* * * * *
2711. Research Analysts and Research Reports
(a) Definitions
    For purposes of this rule, the following terms shall be defined as 
provided.
    (1) through (6) No Change.
    (7) ``Research analyst account'' means any account in which a 
research analyst or member of the research analyst's household has a 
financial interest[,] or over which such analyst has discretion or 
control[, other than an investment company registered under the 
Investment Company Act of 1940]. The term ``research analyst account'' 
shall not include an investment company registered under the Investment 
Company Act of 1940 over which the research analyst or a member of the 
research analyst's household has discretion or control, provided that 
the research analyst or household member has no financial interest in 
such investment company, other than a performance or management fee. 
This term also shall [does] not include a ``blind trust'' account that 
is controlled by a person other than the research analyst or member of 
the research analyst's household where neither the research analyst nor 
a member of the research analyst's household knows of the account's 
investments or investment transactions.
    (8) No Change.
    (9) ``Research Report'' means any written (including electronic) 
communication that includes an analysis of equity securities of 
individual companies or industries[,] (other than an open-end 
registered investment company that is not listed or traded on an 
exchange or a public direct participation program) and that provides 
information reasonably sufficient upon which to base an investment 
decision. This term does not include:
    (A) through (C) No Change.
    (10) No Change.
(b) Restrictions on Relationship With Research Department
    (1) No Change.
    (2) [Except as provided in paragraph (b)(3), n]No employee of the 
investment banking department or any other employee of the member who 
is not directly responsible for investment research (``non-research 
personnel''), other than legal or compliance personnel, may review or 
approve a research report of the member before its publication.
    [(3) Non-research personnel may review a research report before its 
publication as necessary only to verify

[[Page 2064]]

the factual accuracy of information in the research report or identify 
any potential conflict of interest, provided that:]
    [(A) Any written communication between non-research personnel and 
research department personnel concerning the content of a research 
report must be made either through authorized legal or compliance 
personnel of the member or in a transmission copied to such personnel; 
and]
    [(B) Any oral communication between non-research personnel and 
research department personnel concerning the content of a research 
report must be documented and made either through authorized legal or 
compliance personnel acting as intermediary or in a conversation 
conducted in the presence of such personnel.]
(c) Restrictions on Communications With the Subject Company
    (1) through (4) No Change.
    (5) A research analyst is prohibited from directly or indirectly:
    (A) No Change.
    (B) Engaging in any communication with a current or prospective 
customer or internal sales personnel in the presence of investment 
banking department personnel or company management about an investment 
banking services transaction.
    (6) through (7) No Change.
    (d) through (e) No Change.
(f) Restrictions on Publishing Research Reports and Public Appearances; 
Termination of Coverage
    [(1) No member may publish or otherwise distribute a research 
report and no research analyst may make a public appearance regarding a 
subject company for which the member acted as manager or co-manager 
of:]
    [(A) An initial public offering, for 40 calendar days following the 
date of the offering; or]
    [(B) A secondary offering, for 10 calendar days following the date 
of the offering; provided that:]
    [(i) Paragraphs (f)(1)(A) and (f)(1)(B) will not prevent a member 
from publishing or otherwise distributing a research report, or prevent 
a research analyst from making a public appearance, concerning the 
effects of significant news or a significant event on the subject 
company within such 40- and 10-day periods, and provided further that 
legal or compliance personnel authorize publication of that research 
report before it is issued or authorize the public appearance before it 
is made; and]
    [(ii) paragraph (f)(1)(B) will not prevent a member from publishing 
or otherwise distributing a research report pursuant to SEC Rule 139 
regarding a subject company with ``actively-traded securities,'' as 
defined in Regulation M, 17 CFR 242.101(c)(1), and will not prevent a 
research analyst from making a public appearance concerning such a 
company.]
    ([2]1) No member that has agreed to participate or is participating 
as an underwriter or dealer [(other than as manager or co-manager)] of 
an issuer's initial public offering may publish or otherwise distribute 
a research report or make a public appearance regarding that issuer for 
25 calendar days after the date of the offering. This paragraph will 
not prevent a member from publishing or otherwise distributing a 
research report, or prevent a research analyst from making a public 
appearance, concerning the effects of significant news or a significant 
event on the subject company within such 25-day period, provided 
further that legal or compliance personnel authorize publication of 
that research report before it is issued or authorize the public 
appearance before it is made.
    ([3]2) For purpose[s] of paragraph (f)(1)[and (f)(2)], the term 
``date of the offering'' refers to the later of the effective date of 
the registration statement or the first date on which the security was 
bona fide offered to the public.
    [(4) No member that has acted as a manager or co-manager of a 
securities offering may publish or otherwise distribute a research 
report or make a public appearance concerning a subject company 15 days 
prior to and after the expiration, waiver or termination of a lock-up 
agreement or any other agreement that the member has entered into with 
a subject company or its shareholders that restricts or prohibits the 
sale of securities held by the subject company or its shareholders 
after the completion of a securities offering. This paragraph will not 
prevent a member from publishing or otherwise distributing a research 
report concerning the effects of significant news or a significant 
event on the subject company within such period, provided legal or 
compliance personnel authorize publication of that research report 
before it is issued. In addition, this paragraph shall not apply to the 
publication or distribution of a research report pursuant to SEC Rule 
139 regarding a subject company with ``actively traded securities,'' as 
defined in Regulation M, 17 CFR 242.101(c)(1), or to a public 
appearance concerning such a subject company.]
    (3) Any member that has acted as a manager or co-manager of a 
securities offering and publishes or otherwise distributes a research 
report concerning a subject company during a period 15 days prior to 
and after the expiration, waiver or termination of a lock-up agreement 
or any other agreement that the member has entered into with a subject 
company or its shareholders that restricts or prohibits the sale of 
securities held by the subject company or its shareholders after the 
completion of a securities offering shall provide with the research 
report a certification, in such form as prescribed by NASD, stating 
that the member has a bona fide reason for issuing the research report.
    ([5]4) If a member intends to terminate its research coverage of a 
subject company, notice of this termination must be made. The member 
must make available a final research report on the subject company 
using the means of dissemination equivalent to those it ordinarily uses 
to provide the customer with its research reports on the subject 
company. The report must be comparable in scope and detail to prior 
research reports and must include a final recommendation or rating, 
unless it is impracticable for the member to produce a comparable 
report (e.g., if the research analyst covering the subject company or 
sector has left the member or if the member terminates coverage of the 
industry or sector). If it is impracticable to produce a final 
recommendation or rating, the final research report must disclose the 
member's rationale for the decision to terminate coverage.
(g) Restrictions on Personal Trading by Research Analysts
    (1) through (4) No Change.
    (5) The prohibitions in paragraphs (g)(1) through (g)(3) do not 
apply to a purchase or sale of the securities of[:]
    [(A) Any registered diversified investment company as defined under 
Section (5)(b)(1) of the Investment Company Act of 1940; or ]
    [(B)] Any [other] investment fund over which neither the research 
analyst nor a member of the research analyst's household has any 
investment discretion or control, provided that the research analyst 
and household member are not made aware of the fund's holdings or 
transactions other than through periodic shareholder reports and sales 
material based on such reports[:] and
    [(i)] The research analyst accounts collectively own interests 
representing no more than 1% of the assets of the fund[;].
    [(ii) The fund invests no more than 20% of its assets in securities 
of issuers principally engaged in the same types of

[[Page 2065]]

business as companies that the research analyst follows; and]
    [(iii) If the investment fund distributes securities in kind to the 
research analyst or household member before the issuer's initial public 
offering, the research analyst or household member must either divest 
those securities immediately or the research analyst must refrain from 
participating in the preparation of research reports concerning that 
issuer.]
    (6) The prohibitions in paragraphs (g)(1) through (g)(3) do not 
apply when the following conditions are satisfied:
    (A) The research analyst is employed by a member that has adopted 
an internal policy that prohibits research analysts from owning any 
securities issued by subject companies for which the research analyst 
provides coverage and requires those analysts to completely divest 
themselves of their existing holdings in such securities;
    (B) The research analyst abides by a reasonable plan of liquidation 
under which all securities issued by companies that the analyst follows 
are to be sold within 120 days of the effective date of the member's 
policy;
    (C) The research analyst files such liquidation plan with the 
member's legal or compliance department within 15 days of the effective 
date of the member's policy;
    (D) The research analyst receives written approval of the 
liquidation plan from the member's legal or compliance department prior 
to the sale of any securities under the plan; and
    (E) The member must maintain written records sufficient to document 
compliance with each liquidation plan approved by its legal or 
compliance department for three years following the date on which the 
liquidation plan is approved.
    ([6]7) Legal or compliance personnel of the member shall pre-
approve all transactions of persons who oversee research analysts to 
the extent such transactions involve equity securities of subject 
companies covered by the research analysts that they oversee. This pre-
approval requirement shall apply to all persons, such as the director 
of research, supervisory analyst, or member of a committee, who have 
direct influence or control with respect to the preparation of the 
substance of research reports or establishing or changing a rating or 
price target of a subject company's equity securities.
(h) Disclosure Requirements
    (1) [Ownership and Material]Definition of ``Conflict of Interest''
    [A member must disclose in research reports and a research analyst 
must disclose in public appearances]For the purposes of paragraph 
(h)(2), ``conflict of interest'' shall include any of the following:
    (A) If the research analyst or a member of the research analyst's 
household has a financial interest in the securities of the subject 
company, and the nature of the financial interest (including, without 
limitation, whether it consists of any option, right, warrant, future, 
long or short position);
    (B) If, as of the end of the month immediately preceding the date 
of publication of the research report or the public appearance (or the 
end of the second most recent month if the publication date is less 
than 10 calendar days after the end of the most recent month), the 
member or its affiliates beneficially own 1% or more of any class of 
common equity securities of the subject company. Computation of 
beneficial ownership of securities must be based upon the same 
standards used to compute ownership for purposes of the reporting 
requirements under Section 13(d) of the Securities Exchange Act of 
1934;
    [(C) Any other actual, material conflict of interest of the 
research analyst or member of which the research analyst knows or has 
reason to know at the time of publication of the research report or at 
the time of the public appearance.]
[(2) Receipt of Compensation]
    [(A) A member must disclose in research reports:]
    ([i]C) If the research analyst received compensation:
    [a.](i) Based upon (among other factors) the member's investment 
banking revenues; or
    [b.](ii) From the subject company in the past 12 months.
    ([ii]D) If the member or any affiliate of the member:
    [a.](i) Managed or co-managed a public offering of securities for 
the subject company in the past 12 months;
    [b.](ii) Received compensation for investment banking services from 
the subject company in the past 12 months; or
    [c.](iii) Expects to receive or intends to seek compensation for 
investment banking services from the subject company in the next 3 
months.
    ([iii]E) If ([1]i) as of the end of the month immediately preceding 
the date of publication of the research report (or the end of the 
second most recent month if the publication date is less than 30 
calendar days after the end of the most recent month) or ([2]ii) to the 
extent the research analyst or an employee of the member with the 
ability to influence the substance of the research knows:
    a. The member received any compensation for products or services 
other than investment banking services from the subject company in the 
past 12 months; or
    b. The subject company currently is, or during the 12-month period 
preceding the date of distribution of the research report was, a client 
of the member. In such cases, the member also must disclose the types 
of services provided to the subject company. For purposes of this Rule 
2711(h)(1), the types of services provided to the subject company shall 
be described as investment banking services, non-investment banking 
securities-related services, and non-securities services.
    ([iv]F) If, to the extent the research analyst or an employee of 
the member with the ability to influence the substance of the research 
report knows an affiliate of the member received any compensation for 
products or services other than investment banking services from the 
subject company in the past 12 months.
    ([v]G) If, to the extent the research analyst or member has reason 
to know, an affiliate of the member received any compensation for 
products or services other than investment banking services from the 
subject company in the past 12 months.
    [a.](i) [This]The requirement to disclose this conflict of interest 
will be deemed satisfied if such compensation is disclosed in research 
reports or on a member's Web site within 30 days after completion of 
the last calendar quarter, provided that the member has taken steps 
reasonably designed to identify any such compensation during that 
calendar quarter. [This]The disclosure requirement shall not apply to 
any subject company as to which the member initiated coverage since the 
beginning of the current calendar quarter.
    [b.](ii) The research analyst and the member will be presumed not 
to have reason to know whether an affiliate received any compensation 
for products or services other than investment banking services from 
the subject company in the past 12 months if the member maintains and 
enforces policies and procedures reasonably designed to prevent the 
research analysts and employees of the member with the ability to 
influence the substance of research reports from, directly or 
indirectly, receiving information from the affiliate concerning whether 
the affiliate received such compensation.

[[Page 2066]]

    (H) If the research analyst or member of a research analyst's 
household serves as an officer, director or advisory board member of 
the subject company.
    (I) If the member was making a market in the subject company's 
securities at the time that the research report was published; and
    (J) Any other actual, material conflict of interest of the research 
analyst or member of which the research analyst knows or has reason to 
know at the time of publication of the research report or at the time 
of the public appearance.
    ([vi]K) For the purposes of this Rule 2711(h)([2]1), an employee of 
the member with the ability to influence the substance of the research 
report is an employee who, in the ordinary course of that person's 
duties, has the authority to review the particular research report and 
to change that research report prior to publication.

(2) Disclosure of Conflicts of Interest

    (A) Any member that has a conflict of interest or whose research 
analyst has a conflict of interest concerning the subject company of a 
research report must disclose that conflict of interest either:
    (i) On its Web site and prominently state the following on the 
front page of the research report:
    ``[Name of firm and/or the research analyst preparing this report] 
has a conflict of interest that may affect the ability of the firm or 
the analyst to provide objective analysis about the company. For more 
information about this conflict of interest, please see [Reference to 
the firm's Web site]'' or
    (ii) In the research report in accordance with paragraph (h)(8).
    (B) A research analyst must disclose in public appearances:
    (i) The conflicts of interest described in paragraphs (h)(1)(A), 
(B) and (J);
    (ii) If, to the extent the research analyst knows or has reason to 
know, the member or any affiliate received any compensation from the 
subject company in the past 12 months;
    (iii) If the research analyst received any compensation from the 
subject company in the past 12 months; or
    ([iii]iv) If, to the extent the research analyst knows or has 
reason to know, the subject company currently is, or during the 12-
month period preceding the date of distribution of the research report, 
was, a client of the member. In such cases, the research analyst also 
must disclose the types of services provided to the subject company, if 
known by the research analyst;[.]or
    (v) If the research analyst or a member of the research analyst's 
household serves as an officer, director or advisory board member of 
the subject company.
    (C) A member or research analyst will not be required to make a 
disclosure required by paragraphs (h)(1)(D)(ii) and 
(iii)[(h)(2)(A)(ii)(b) and (c)], (h)(1)(E)(b)[(2)(A)(iii)(b),] or 
(h)(2)(B)(ii) and (iv[iii]) to the extent such disclosure would reveal 
material non-public information regarding specific potential future 
investment banking transactions of the subject company.
[(3) Position as Officer or Director]
    [A member must disclose in research reports and a research analyst 
must disclose in public appearances if the research analyst or a member 
of the research analyst's household serves as an officer, director or 
advisory board member of the subject company.]
([4]3) Meaning of Ratings
    If a research report contains a rating, the member must define in 
the research report the meaning of each rating used by the member in 
its rating system. The definition of each rating must be consistent 
with its plain meaning.
([5]4) Distribution of Ratings
    (A) Through (B) No Change.
    (C) The information that is disclosed under paragraphs (h)([5]4)(A) 
and (h)([5]4)(B) must be current as of the end of the most recent 
calendar quarter (or the second most recent calendar quarter if the 
publication date is less than 15 calendar days after the most recent 
calendar quarter) and must reflect the distribution of the most recent 
ratings issued by the member for all subject companies, unless the most 
recent rating was issued more than 12 months ago.
    (D) The requirements of paragraph (h)([5]4) shall not apply to any 
research report that does not contain a rating.
([6]5) Price Chart
    If a research report contains either a rating or a price target, 
and the member has assigned a rating or price target to the subject 
company's securities for at least one year, the research report must 
include a line graph of the security's daily closing prices for the 
period that the member has assigned any rating or price target or for a 
three-year period, whichever is shorter.
    The line graph must:
    (A) through (C) No Change.
([7]6) Price Targets
    If a research report contains a price target, the member must 
disclose in the research report the valuation methods used to determine 
the price target. Price targets must have a reasonable basis and must 
be accompanied by a disclosure concerning the risks that may impede 
achievement of the price target.
[(8) Market Making
    A member must disclose in research reports if it was making a 
market in the subject company's securities at the time that the 
research report was published.]
([9]7) Disclosure Required by Other Provisions
    In addition to the disclosure required by this rule, members and 
research analysts must provide disclosure in research reports and 
public appearances that is required by applicable law or regulation, 
including NASD Rule 2210 and the antifraud provisions of the federal 
securities laws.
([10]8) Prominence of Disclosure
    The disclosures required by this paragraph (h), other than those 
made pursuant to paragraph (h)(2)(A)(i), must be presented on the front 
page of research reports or the front page must refer to the page on 
which disclosures are found. Disclosures and references to disclosures 
must be clear, comprehensive and prominent.
([11]9) Disclosures in Research Reports Covering Six or More Companies
    When a member distributes a research report covering six or more 
subject companies (a ``compendium report''), for purposes of the 
disclosures required in paragraph (h), other than those required by 
paragraph (h)(2), the compendium report may direct the reader in a 
clear manner as to where they may obtain applicable current 
disclosures. Electronic compendium reports may include a hyperlink to 
the required disclosures. Paper-based compendium reports must provide 
either a toll-free number to call or a postal address to write for the 
required disclosures and may also include a web address of the member 
where the disclosures can be found.
(1[2]0) Records of Public Appearances
    Members must maintain records of public appearances by research 
analysts sufficient to demonstrate compliance by those research 
analysts with the applicable disclosure requirements under paragraph 
(h) of this Rule. Such records must be maintained for three years from 
the date of the public appearance.
(1[3]1) Third-Party Research Reports
    (A) Subject to paragraph (h)(1[3]1)(B), if a member distributes or 
makes available any research report that is produced by another member, 
a non-

[[Page 2067]]

member affiliate of the member or an independent third party, the 
member must accompany the research report with the current applicable 
disclosures, as they pertain to the member, that are required by 
paragraphs (h)(1)(B), [(h)(1)(C), (h)(2)(A)(ii) and (h)(8)] (h)(1)(D), 
(h)(1)(I) and (h)(1)(J) of this Rule.
    (B) The requirements of paragraph (h)(1[3]1)(A) shall not apply to 
research reports prepared by an independent third party that the member 
makes available to its customers either upon request or through a 
member-maintained Web site.
    (C) No Change.
(i) Supervisory Procedures
    Each member subject to this rule must adopt and implement written 
supervisory procedures reasonably designed to ensure that the member 
and its employees comply with the provisions of this rule (including 
the attestation requirements of Rule 2711(d)(2)), and a senior officer 
of such a member must [attest] annually [to]file with the NASD Member 
Regulation Department by April 1 of each year an attestation that it 
has adopted and implemented those procedures.
(j) Prohibition of Retaliation Against Research Analysts
    No member and no [employee of a member who is involved with the 
member's investment banking activities]non-research personnel as 
defined in paragraph (b)(2) may, directly or indirectly, retaliate 
against or threaten to retaliate against any research analyst employed 
by the member or its affiliates as a result of an adverse, negative, or 
otherwise unfavorable research report or public appearance written or 
made by the research analyst that may adversely affect the member's 
present or prospective investment banking relationship with the subject 
company of a research report. This prohibition shall not limit a 
member's authority to discipline or terminate a research analyst, in 
accordance with the member's policies and procedures, for any cause 
other than the writing of such an unfavorable research report or the 
making of such an unfavorable public appearance.
(k) No Change
* * * * *

II. Self-Regulatory Organizations' Statements of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

    In their filings with the Commission, the Exchange and NASD 
included statements concerning the purpose of and basis for the 
proposed rule changes and discussed any comments they received on the 
proposed rule changes. The text of these statements may be examined at 
the places specified in Item IV below. The Exchange and NASD have 
prepared summaries, set forth in sections A, B, and C below, of the 
most significant aspects of such statements.

A. Self-Regulatory Organization's Statements of the Purpose of, and 
Statutory Basis for, the Proposed Rule Changes

1. NYSE's Purpose

Background

    Beginning in 2002, the Exchange and the National Association of 
Securities Dealers, Inc. implemented a series of rule changes (``SRO 
Rules'') to improve objectivity and transparency in equity research and 
provide investors with more reliable and useful information to make 
investment decisions. The NYSE believes that the rules were intended to 
restore public confidence in the validity of research and the veracity 
of research analysts, who are expected to function as unbiased 
intermediaries between issuers and the investors who buy and sell their 
securities. According to the NYSE, the trustworthiness of research had 
eroded due to the pervasive influences of investment banking and other 
conflicts that had manifest themselves during the market boom of the 
late 1990s.
    Generally, the SRO Rules require clear, comprehensive and prominent 
disclosure of conflicts of interest in research reports and public 
appearances by research analysts. The rules further prohibit certain 
conduct--investment banking personnel involvement in the content of 
research and determination of analyst compensation, for example--when 
the conflicts are considered too pronounced to be cured by disclosure.
    The SROs enacted the research analyst conflict rules in two primary 
tranches and, more recently, adopted additional amendments prohibiting 
analysts from participating in road shows. In addition, the SROs 
supplemented their rulemaking with two joint memoranda that provided 
interpretive guidance to their members on a number of issues.\7\ The 
NASD and NYSE rules and interp