[Federal Register Volume 67, Number 113 (Wednesday, June 12, 2002)]
[Notices]
[Pages 40361-40362]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-14779]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-46042; File No. SR-NASD-2002-74]


Self-Regulatory Organizations; Notice of Filing and Immediate 
Effectiveness of Proposed Rule Change by National Association of 
Securities Dealers, Inc. Relating to the Amendment to Correct Research 
Analyst Rule Language

    June 6, 2002.
    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 June 5, 2002, the National Association of Securities Dealers, Inc. 
(``NASD''), through its wholly-owned subsidiary, NASD Regulation, Inc. 
(``NASDR''), filed with the Securities and Exchange Commission (``SEC'' 
or ``Commission'') the proposed rule change as described in Items I, 
II, and III below, which Items have been prepared by NASDR. The 
proposed rule change is effective upon filing pursuant to section 
19(b)(3)(A) \3\ of the Act and paragraph (f)(6) of Rule 19b-4 
thereunder,\4\ in that the proposed rule change (1) does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) does not become operative until more than 30 days from the date 
on which it was filed. The Commission is publishing this notice to 
solicit comments on the proposed rule change from interested persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ 315 U.S.C. 78s(b)(3)(A).
    \4\ 17 CFR 240.19b-4(f)(6).
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    NASDR is amending NASD Rule 2711 to correct certain language that 
was inadvertently included in NASD Rule 2711 when it was submitted for 
Commission approval. Proposed new language is in italics; proposed 
deletions are in brackets.

Rule 2711. Research Analysts and Research Reports

    Paragraphs (a) through (g): No change.

(h) Disclosure Requirements

(1) Ownership and Conflicts of Interest
    A member must disclose in research reports and a research analyst 
must disclose in public appearances:
    (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; and
    (C) any other actual, material conflict of interest of the research 
analyst or member of which the research analyst [or member] knows or 
has reason to know at the time of publication of the research report[,] 
or [of which the research analyst knows or has reason to know] at the 
time of the public appearance.[; and] [(D) any other actual, material 
conflict of interest of the member of which the member knows or has 
reason to know at the time of publication of the research report, or of 
which the research analyst knows or has reason to know at the time of 
the public appearance.]
    Paragraphs (h)(2) through (h)(11) and paragraph (i): No change.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, NASDR included statements 
concerning the purpose of and basis for the proposed rule change and 
discussed any comments it received on the proposed rule change. The 
text of these statements may be examined at the places specified in 
Item IV below. NASDR has prepared summaries, set forth in Sections A, 
B, and C below, of the most significant aspects of such statements.

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

(1) Purpose
    On May 10, 2002, the Commission approved NASD Rule 2711, which is a 
new NASD rule intended to address research analyst conflicts of 
interest (``Rule 2711'').\5\ The provisions of Rule 2711 become 
effective on a staggered basis, beginning on July 9, 2002. Among other 
things, Rule 2711 imposes a number of disclosure requirements on 
members that issue research reports concerning equity securities and on 
research analysts that make public appearances in which they recommend 
or offer an opinion concerning an equity security.
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    \5\ See Securities Exchange Act Release No. 45908 (May 10, 
2002), 67 FR 34968 (May 16, 2002).
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    Rule 2711(h)(1)(A) requires members to disclose in research reports 
and research analysts to disclose in public appearances if the research 
analyst or a member of the analyst's household has a financial interest 
in the securities of the subject company and the nature of the 
financial interest. Rule 2711(h)(1)(B) requires disclosure if the 
member or its

[[Page 40362]]

affiliates own 1% or more of any class of common equity securities of 
the subject company. Rule 2711(h)(1)(C) requires disclosure of 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 the publication of the research report or at the time of the 
public appearance.
    The purpose of this filing is to correct an unintentional error 
that appeared in Amendment No. 2 to the initial proposed rule change 
seeking Commission approval of Rule 2711, which was filed with the 
Commission on May 2, 2002.\6\ Page 6 of Exhibit A to Amendment No. 2 
incorrectly quotes the provisions of Rule 2711(h)(1)(C) and includes a 
paragraph (D) of Rule 2711(h)(1) which was not intended to be part of 
the final rule. Page 6 of Exhibit A to Amendment No. 2 shows the 
versions of paragraphs (h)(1)(C) and (D) as they were originally filed 
with the Commission on February 13, 2002. However, NASDR revised these 
provisions in Amendment No. 1 to the proposed rule change, which NASDR 
filed with the Commission on March 7, 2002.\7\ In Amendment No. 1, 
NASDR changed the wording of paragraph (h)(1)(C) and deleted paragraph 
(h)(1)(D) to conform these provisions to comparable provisions in the 
New York Stock Exchange (``NYSE'') proposed rule change relating to 
research analyst conflicts of interest.\8\ The Commission published the 
correct version of Rule 2711(h)(1) for comment in the Federal Register 
on March 14, 2002.\9\
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    \6\ See Letter from Philip Shaikun, Assistant General Counsel, 
NASDR, to James A. Brigagliano, Assistant Director, Division of 
Market Regulation (``Division''), Commission (May 2, 2002) 
(``Amendment No. 2'').
    \7\ See Letter from Thomas M. Selman, Senior Vice President, 
Investment Companies, Corporate Financing, NASDR, to Katherine A. 
England, Assistant Director, Division, Commission (March 7, 2002) 
(``Amendment No. 1'').
    \8\ See NYSE Rule 472(k)(1)(i)(c).
    \9\ See Securities Exchange Act Release No. 45526 (March 8, 
2002), 67 FR11526, 11528 (March 14, 2002).se 10
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    Unfortunately, Exhibit A to Amendment No. 2 showed the version of 
Rule 2711(h)(1)(C) and (D) as they were originally filed with the 
Commission, rather than the version of Rule 2711(h)(1)(C) as amended by 
Amendment No. 1 and published for comment in the Federal Register. 
NASDR submitted the incorrect language by mistake, and did not intend 
to revert Rule 2711(h)(1)(C) back to its original form or to 
reintroduce old paragraph (h)(1)(D).
    Accordingly, NASDR is making this filing to correct this error so 
that the language of Rule 2711(h)(1) is consistent with the comparable 
NYSE rule language and reflects NASDR's true intent.
(2) Statutory Basis
    NASDR believes that the proposed rule change is consistent with the 
provisions of Section 15A(b)(6) of the Act, which requires, among other 
things, that the Association's rules be designed to prevent fraudulent 
and manipulative acts and practices, to promote just and equitable 
principles of trade, and, in general to protect investors and the 
public interest. NASDR believes that correcting the language of Rule 
2711(h)(1) to reflect the language that was published for comment and 
that NASDR intended to adopt is consistent with the protection of 
investors and the public interest.

B. Self-Regulatory Organization's Statement on Burden on Competition

    NASDR believes that the proposed rule change would not result in 
any burden on competition that is not necessary or appropriate in 
furtherance of the purposes of the Act, as amended.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    Written comments were neither solicited nor received.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The proposed rule change is effective upon filing pursuant to 
section 19(b)(3)(A) \10\ of the Act and paragraph (f)(6) of Rule 19b-4 
\11\ thereunder,\12\ in that the proposed rule change (1) does not 
significantly affect the protection of investors or the public 
interest; (2) does not impose any significant burden on competition; 
and (3) by its terms, does not become operative for 30 days after the 
date of filing.\13\ At any time within 60 days of this filing, the 
Commission may summarily abrogate this proposal if it appears to the 
Commission that such action is necessary or appropriate in the public 
interest, for the protection of investors, or otherwise in furtherance 
of the purposes of the Act.
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    \10\ 15 U.S.C. 78s(b)(3)(A).
    \11\ 17 CFR 240.19b-4(f)(6).
    \12\ As required under Rule 19b-4(f)(6)(iii), the NASDR provided 
the Commission with written notice of its intent to file the 
proposed rule change at least five business days prior to the filing 
date or such shorter time as designated by the Commission.
    \13\ The NASD notes that the proposed rule change does not alter 
the effective dates of Rule 2711 (as amended by this proposed rule 
change) that the Commission approved on May 10, 2002.
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposal is 
consistent with the Act. Persons making written submissions should file 
six copies thereof with the Secretary, Securities and Exchange 
Commission, 450 Fifth Street, NW., Washington, DC 20549-0609. Copies of 
the submission, all subsequent amendments, all written statements with 
respect to the proposed rule change that are filed with the Commission, 
and all written communications relating to the proposed rule change 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for inspection and copying in the Commission's 
Public Reference Room. Copies of such filing will also be available for 
inspection and copying at the principal office of the NASD. All 
submissions should refer to file number SR-NASD-2002-74 and should be 
submitted by July 3, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\14\
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    \14\ 17 CFR 200.30-3(a)(12).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-14779 Filed 6-11-02; 8:45 am]
BILLING CODE 8010-01-P