10528 Federal Register / Vol. 80, No. 38 / Thursday, February 26, 2015 / Notices 

12 15 U.S.C. 78s(b)(3)(A). 

13 17 CFR 240.19b–4(f)(6)(iii). As required under 

Rule 19b–4(f)(6)(iii), the Exchange provided the 

Commission with written notice of its intent to file 

the proposed rule change, along with a brief 

description and the text of the proposed rule 

change, at least five business days prior to the date 

of filing of the proposed rule change, or such 

shorter time as designated by the Commission. 

14For purposes only of waiving the 30-day 

operative delay, the Commission has also 

considered the proposed rule’s impact on 

efficiency, competition, and capital formation. See 

15 U.S.C. 78c(f). 15 17 CFR 200.30–3(a)(12). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Exchange Act Release No. 73622 (Nov. 18, 

2014); 79 FR 69939 (Nov. 24, 2014) (‘‘Notice’’). On 

January 6, 2015, FINRA consented to extending the 

time period for the Commission to either approve 

or disapprove the proposed rule change, or to 

institute proceedings to determine whether to 

approve or disapprove the proposed rule change, to 

February 20, 2015. 

4See Letter from Kevin Zambrowicz, Associate 

General Counsel & Managing Director and Sean 

Davy, Managing Director, SIFMA, dated Dec. 15, 

2014 (‘‘SIFMA’’), Letter from Hugh D. Berkson, 

President-Elect, Public Investors Arbitration Bar 

Association, dated Dec. 15, 2014 (‘‘PIABA Equity’’), 

Letter from Stephanie R. Nicholas, WilmerHale, 

dated Dec. 16, 2014 (‘‘WilmerHale Equity’’), and 

Letter from William Beatty, President and 

Washington (State) Securities Administrator, North 

American Securities Administrators Association, 

Inc., dated Dec. 19, 2014 (‘‘NASAA Equity’’). 

5 15 U.S.C. 78s(b)(2)(B). 

III. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Because the proposed rule change 

does not (i) significantly affect the 

protection of investors or the public 

interest; (ii) impose any significant 

burden on competition; and (iii) become 

operative for 30 days from the date on 

which it was filed, or such shorter time 

as the Commission may designate if 

consistent with the protection of 

investors and the public interest, the 

proposed rule change has become 

effective pursuant to Section 19(b)(3)(A) 

of the Act 12 and Rule 19b–4(f)(6)(iii) 

thereunder.13

The Exchange has asked the 

Commission to waive the 30-day 

operative delay so that the proposal may 

become operative immediately upon 

filing. The Commission believes that 

waiving the 30-day operative delay is 

consistent with the protection of 

investors and the public interest, as it 

will allow the obvious error pilot 

program to continue uninterrupted 

while the industry gains further 

experience operating under the Plan, 

and avoid any investor confusion that 

could result from a temporary 

interruption in the pilot program. For 

this reason, the Commission designates 

the proposed rule change to be operative 

upon filing.14

At any time within 60 days of the 

filing of the proposed rule change, the 

Commission summarily may 

temporarily suspend such rule change 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. If the 

Commission takes such action, the 

Commission shall institute proceedings 

to determine whether the proposed rule 

should be approved or disapproved. 

IV. Solicitation of Comments 

Interested persons are invited to 

submit written data, views, and 

arguments concerning the foregoing, 

including whether the proposed rule 

change is consistent with the Act. 

Comments may be submitted by any of 

the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

BX–2015–012 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Secretary, Securities and Exchange 

Commission, 100 F Street NE., 

Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–BX–2015–012. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). 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 Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549 on official 

business days between the hours of 

10:00 a.m. and 3:00 p.m. Copies of such 

filing also will be available for 

inspection and copying at the principal 

office of the Exchange. All comments 

received will be posted without change; 

the Commission does not edit personal 

identifying information from 

submissions. You should submit only 

information that you wish to make 

available publicly. All submissions 

should refer to File Number SR–BX– 

2015–012, and should be submitted on 

or before March 19, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.15

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2015–03957 Filed 2–25–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74339; File No. SR–FINRA– 

2014–047] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Order Instituting 

Proceedings To Determine Whether To 

Approve or Disapprove a Proposed 

Rule Change To Adopt FINRA Rule 

2241 (Research Analysts and Research 

Reports) in the Consolidated FINRA 

Rulebook 

February 20, 2015. 

I. Introduction 

On November 14, 2014, Financial 

Industry Regulatory Authority, Inc. 

(‘‘FINRA’’) filed with the Securities and 

Exchange Commission (‘‘SEC’’ or 

‘‘Commission’’), pursuant to Section 

19(b)(1) of the Securities Exchange Act 

of 1934 (‘‘Act’’) 1 and Rule 19b–4 

thereunder,2 a proposed rule to adopt 

NASD Rule 2711 (Research Analysts 

and Research Reports) as a FINRA rule, 

with several modifications, amend 

NASD Rule 1050 (Registration of 

Research Analysts) and Incorporated 

NYSE Rule 344 to create an exception 

from the research analyst qualification 

requirement, and renumber NASD Rule 

2711 as FINRA Rule 2241 in the 

consolidated FINRA rulebook. The 

proposal was published for comment in 

the Federal Register on November 24, 

2014.3 The Commission received four 

comments on the proposal.4 This order 

institutes proceedings under Section 

19(b)(2)(B) of the Act 5 to determine 

whether to approve or disapprove the 

proposed rule change. 

II. Description of the Proposed Rule 

Change 

As described more fully in the Notice, 

FINRA proposed to adopt in the 


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6SIFMA, PIABA Equity, and WilmerHale Equity. 

7NASAA Equity. 

8See proposed FINRA Rule 2241(a)(5). The 

current definition includes, without limitation, 

many common types of investment banking 

services. FINRA proposed to add the language ‘‘or 

otherwise acting in furtherance of’’ either a public 

or private offering to further emphasize that the 

term ‘‘investment banking services’’ is meant to be 

construed broadly. 

9See proposed FINRA Rule 2241(a)(9). 

10See proposed FINRA Rule 2241(a)(11). 

11See proposed FINRA Rules 2241(a)(3) and (14). 

FINRA believes it creates a more streamlined and 

user friendly rule to combine defined terms in a 

single definitional section. 

12WilmerHale Equity. 

13WilmerHale Equity. 

14See proposed FINRA Rule 2241(b)(1). 

15See proposed FINRA Rule 2241(b)(2). 

16SIFMA and WilmerHale Equity. 

17Letter from Amal Aly, Managing Director and 

Associate General Counsel, SIFMA, to Marcia E. 

Asquith, Corporate Secretary, FINRA, dated 

November 14, 2008 regarding Regulatory Notice 08– 

55 (Research Analysts and Research Reports). 

Consolidated FINRA Rulebook NASD 

Rule 2711 (Research Analysts and 

Research Reports) with several 

modifications as FINRA Rule 2241. The 

proposed rule change also would amend 

NASD Rule 1050 (Registration of 

Research Analysts) and Incorporated 

NYSE Rule 344 (Research Analysts and 

Supervisory Analysts) to create an 

exception from the research analyst 

qualification requirements. 

FINRA believes that the proposed rule 

change would retain the core provisions 

of the current rules, broaden the 

obligations on members to identify and 

manage research-related conflicts of 

interest, restructure the rules to provide 

some flexibility in compliance without 

diminishing investor protection, extend 

protections where gaps have been 

identified, and provide clarity to the 

applicability of existing rules. Where 

consistent with protection of users of 

research, FINRA believes that the 

proposed rule change reduces burdens 

where appropriate. 

As stated above, the Commission 

received four comments on the 

proposal. Of these, three expressed 

general support for the proposal,6 but 

one objected to the general formulation 

of the proposal as a principles-based 

rule.7

A. Definitions 

FINRA proposed to generally 

maintain the definitions in current 

NASD Rule 2711, with a few 

modifications. These modifications 

included (1) minor changes to the 

definition of ‘‘investment banking 

services’’ to clarify that such services 

include all acts in furtherance of a 

public or private offering on behalf of an 

issuer; 8 (2) clarification in the 

definition of ‘‘research analyst account’’ 

that the definition does not apply to a 

registered investment company over 

which a research analyst or member of 

the research analyst’s household has 

discretion or control, provided that the 

research analyst or member of the 

research analyst’s household has no 

financial interest in the investment 

company, other than a performance or 

management fee,9 (3) exclusion from the 

definition of ‘‘research report’’ of 

communications concerning open-end 

registered investment companies that 

are not listed or traded on an exchange 

(mutual funds); 10 and (4) moving into 

the definitional section the definitions 

of ‘‘third-party research report’’ and 

‘‘independent third-party research 

report’’ that are now in a separate 

provision of the rule.11

One commenter requested that the 

proposal define the term ‘‘sales and 

trading personnel’’ as ‘‘persons who are 

primarily responsible for performing 

sales and trading activities, or exercising 

direct supervisory authority over such 

persons.’’ 12 The commenter’s proposed 

definition is intended to clarify that the 

proposed restrictions on sales and 

trading personnel activities should not 

extend to: (1) Senior management who 

do not directly supervise those activities 

but have a reporting line from such 

personnel (e.g., the head of equity 

capital markets); or (2) persons who 

occasionally function in a sales and 

trading capacity. 

This commenter also asked FINRA to 

include an exclusion from the definition 

of ‘‘research report’’ for private 

placement memoranda and similar 

offering-related documents prepared in 

connection with investment banking 

services transactions.13 The commenter 

noted that such offering-related 

documents typically are prepared by 

investment banking personnel or nonresearch personnel on behalf of 

investment banking personnel. The 

commenter asserted that absent an 

express exception, the proposals could 

turn investment banking personnel into 

research analysts and make the rule 

unworkable. The commenter noted that 

NASD Rule 2711(a) excludes 

communications that constitute 

statutory prospectuses that are filed as 

part of a registration statement and 

contended that the basis for that 

exception should apply equally to 

private placement memoranda and 

similar offering-related documents. 

B. Identifying and Managing Conflicts of 

Interest 

FINRA proposed to create a new 

section entitled ‘‘Identifying and 

Managing Conflicts of Interest.’’ This 

section contains an overarching 

provision that requires members to 

establish, maintain and enforce written 

policies and procedures reasonably 

designed to identify and effectively 

manage conflicts of interest related to 

the preparation, content and 

distribution of research reports and 

public appearances by research analysts 

and the interaction between research 

analysts and persons outside of the 

research department, including 

investment banking and sales and 

trading personnel, the subject 

companies and customers.14 The 

written policies and procedures must be 

reasonably designed to promote 

objective and reliable research that 

reflects the truly held opinions of 

research analysts and to prevent the use 

of research or research analysts to 

manipulate or condition the market or 

favor the interests of the member or a 

current or prospective customer or class 

of customers.15 These provisions, 

FINRA asserted, set out the fundamental 

obligation for a member to establish and 

maintain a system to identify and 

mitigate conflicts to foster integrity and 

fairness in its research products and 

services. The proposed rule change then 

set forth minimum requirements for 

those written policies and procedures. 

According to FINRA, this approach 

would allow for some flexibility to 

manage identified conflicts, with some 

specified prohibitions and restrictions 

where disclosure does not adequately 

mitigate them. FINRA asserted that most 

of the minimum requirements have been 

experience tested and found effective. 

The rule proposal thus would adopt a 

policies and procedures approach to 

identification and management of 

research-related conflicts of interest and 

require those policies and procedures to 

prohibit or restrict particular conduct. 

Commenters expressed several concerns 

with this approach. 

Two commenters asserted that the 

mix of a principles-based approach with 

prescriptive requirements was confusing 

in places and posed operational 

challenges. In particular, the 

commenters recommended eliminating 

the minimum standards for the policies 

and procedures.16 One of those 

commenters had previously expressed 

support for the proposed policies-based 

approach with minimum 

requirements,17 but asserted that the 

proposed rule text requiring procedures 

to ‘‘at a minimum, be reasonably 

designed to prohibit’’ specified conduct 

is either superfluous or confusing. 

Another commenter opposed a shift to 

a policies and procedures scheme 

‘‘without also maintaining the 


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18NASAA Equity. 

19WilmerHale Equity. 

20SIFMA. 

21NASAA Equity. 

22See proposed FINRA Rule 2241(b)(2)(A). 

23See proposed FINRA Rule 2241(b)(2)(B). 

24WilmerHale Equity. 

25See proposed FINRA Rule 2241(b)(2)(C). 

26See proposed FINRA Rule 2241(b)(2)(D). 

27See proposed FINRA Rule 2241(b)(2)(E). 

28See proposed FINRA Rule 2241(b)(2)(F). 

29See proposed FINRA Rule 2241(b)(2)(G). 

30SIFMA and WilmerHale Equity. 

31WilmerHale Equity. 

32WilmerHale Equity. 

33WilmerHale Equity. 

34WilmerHale Equity. 

35See proposed FINRA Rule 2241(b)(2)(H). 

proscriptive nature of the current rules.’’ 

The commenter therefore favored 

retaining the proscriptive approach in 

the current rules and also requiring that 

firms maintain policies and procedures 

designed to ensure compliance.18 One 

commenter questioned the necessity of 

the ‘‘preamble’’ requiring policies and 

procedures that ‘‘restrict or limit 

activities by research analysts that can 

reasonably be expected to compromise 

their objectivity’’ that precedes specific 

prohibited activities related to 

investment banking transactions.19

One commenter asked FINRA to 

refrain from using the concept of 

‘‘reliable’’ research in the proposals as it 

may inappropriately connote accuracy 

in the context of a research analyst’s 

opinions.20 However, another 

commenter supported the requirement 

to have policies and procedures 

reasonably designed to ensure that 

research reports are based on reliable 

information.21

1. Prepublication Review 

As proposed, the first of these 

minimum requirements would require 

that the policies and procedures 

prohibit prepublication review, 

clearance or approval of research reports 

by persons engaged in investment 

banking services activities and restrict 

or prohibit such review, clearance or 

approval by other persons not directly 

responsible for the preparation, content 

and distribution of research reports, 

other than legal and compliance 

personnel.22 No specific comments were 

received on this provision. 

2. Coverage Decisions 

The proposed rule change would 

require that the policies and procedures 

restrict or limit input by the investment 

banking department into research 

coverage decisions to ensure that 

research management independently 

makes all final decisions regarding the 

research coverage plan.23

One commenter asked FINRA to 

eliminate as redundant the term 

‘‘independently’’ from the provisions 

permitting non-research personnel to 

have input into research coverage, so 

long as research management 

‘‘independently makes all final 

decisions regarding the research 

coverage plan.’’ 24 The commenter 

asserted that inclusion of 

‘‘independently’’ is confusing since the 

proposal would permit input from nonresearch personnel into coverage 

decisions. 

3. Supervision and Control of Research 

Analysts 

The proposed rule change would 

require that the policies and procedures 

prohibit persons engaged in investment 

banking activities from supervision or 

control of research analysts, including 

influence or control over research 

analyst compensation evaluation and 

determination.25 No specific comments 

were received on this provision. 

4. Research Budget Determinations 

The proposed rule change would 

require that the policies and procedures 

limit determination of the research 

department budget to senior 

management, excluding senior 

management engaged in investment 

banking services activities.26 No specific 

comments were received on this 

provision. 

5. Compensation 

The proposed rule change would 

require that the policies and procedures 

prohibit compensation based upon 

specific investment banking services 

transactions or contributions to a 

member’s investment banking services 

activities.27 The policies and procedures 

further would require a committee that 

reports to the member’s board of 

directors—or if none exists, a senior 

executive officer—to review and 

approve at least annually the 

compensation of any research analyst 

who is primarily responsible for 

preparation of the substance of a 

research report. The committee would 

not be permitted to have representation 

from a member’s investment banking 

department. The committee would be 

required to consider, among other 

things, the productivity of the research 

analyst and the quality of his or her 

research and must document the basis 

for each research analyst’s 

compensation.28 FINRA stated that 

these provisions are consistent with the 

requirements in current Rule 2711(d). 

No specific comments were received on 

this provision. 

6. Information Barriers 

The proposed rule change would 

require that the policies and procedures 

establish information barriers or other 

institutional safeguards to ensure that 

research analysts are insulated from the 

review, pressure or oversight by persons 

engaged in investment banking services 

activities or other persons, including 

sales and trading personnel, who might 

be biased in their judgment or 

supervision.29

Some commenters suggested that 

‘‘review’’ was unnecessary in this 

provision because the review of research 

analysts was addressed sufficiently in 

other parts of the proposed rule.30 One 

commenter further suggested that the 

terms ‘‘review’’ and ‘‘oversight’’ are 

redundant.31 One commenter asked 

FINRA to clarify that the information 

barriers or other institutional safeguards 

required by the proposed rule are not 

intended to prohibit or limit activities 

that would otherwise be permitted 

under other provisions of the rule.32 The 

commenter also asserted that the terms 

‘‘bias’’ and ‘‘pressure’’ are broad and 

ambiguous on their face and requested 

that FINRA clarify that for purposes of 

the information barriers requirement 

that they are intended to address 

persons who may try to improperly 

influence research.33 As an example, the 

commenter asked whether a bias would 

be present if an analyst was pressured 

to change the format of a research report 

to comply with the research 

department’s standard procedures or the 

firm’s technology specifications. One 

commenter asked FINRA to modify the 

information barriers or other 

institutional safeguards requirement to 

conform the provision to FINRA’s 

‘‘reasonably designed’’ standard for 

policies and procedures that members 

must adopt.34

7. Retaliation 

The proposed rule change would 

require that the policies and procedures 

prohibit direct or indirect retaliation or 

threat of retaliation against research 

analysts employed by the member or its 

affiliates by persons engaged in 

investment banking services activities or 

other employees as the 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 business interests.35 No 

specific comments were received on this 

provision. 


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36See proposed FINRA Rule 2241(b)(2)(I). 

Consistent with the Jumpstart Our Business 

Startups Act (‘‘JOBS Act’’), those quiet periods do 

not apply following the IPO or secondary offering 

of an Emerging Growth Company, as that term is 

defined in Section 3(a)(80) of the Act. 

37NASAA Equity. 

38SIFMA, WilmerHale Equity. 

39See proposed FINRA Rule 2241(b)(2)(L). 

40See NASD Notice to Members 07–04 (January 

2007) and NYSE Information Memo 07–11 (January 

2007). 

41See proposed FINRA Rule 2241.01 and Notice 

to Members 07–04 (January 2007). 

42See proposed FINRA Rule 2241(b)(2)(M). 

43See proposed FINRA Rule 2241.03. 

44See proposed FINRA Rule 2241(b)(2)(K). 

45See proposed FINRA Rule 2241(b)(2)(N). 

46See proposed FINRA Rule 2241.05. 

8. Quiet Periods 

The proposed rule change would 

require that the policies and procedures 

define quiet periods of a minimum of 10 

days after an initial public offering 

(‘‘IPO’’), and a minimum of three days 

after a secondary offering, during which 

the member must not publish or 

otherwise distribute research reports, 

and research analysts must not make 

public appearances, relating to the 

issuer if the member has participated as 

an underwriter or dealer in the IPO or, 

with respect to the quiet periods after a 

secondary offering, acted as a manager 

or co-manager of that offering.36

With respect to these quiet-period 

provisions, the proposed rule change 

would reduce the current 40-day quiet 

period for IPOs to a minimum of 10 

days after the completion of the offering 

for any member that participated as an 

underwriter or dealer, and reduces the 

10-day secondary offering quiet period 

to a minimum of three days after the 

completion of the offering for any 

member that has acted as a manager or 

co-manager in the secondary offering. 

The proposed rule change also 

eliminates the current quiet periods 15 

days before and after the expiration, 

waiver or termination of a lock-up 

agreement. 

Citing recent enforcement actions in 

the research area, one commenter did 

not support elimination or reduction of 

the quiet periods.37 Other commenters 

requested that FINRA retain the 

exceptions in NASD Rule 2711(f) that 

permits: (i) The publication and 

distribution of research or a public 

appearance concerning the effects of 

significant news or a significant event 

on the subject company during the quiet 

period; and (ii) the publication of 

distribution of research pursuant to Rule 

139 under the Securities Act of 1933.38

9. Solicitation and Marketing 

In addition, the proposed rule change 

would require firms to adopt written 

policies and procedures to restrict or 

limit activities by research analysts that 

can reasonably be expected to 

compromise their objectivity.39 This 

would include the existing prohibitions 

on participation in pitches and other 

solicitations of investment banking 

services transactions and road shows 

and other marketing on behalf of issuers 

related to such transactions. FINRA 

noted that consistent with existing 

guidance analysts may listen to or view 

a live webcast of a transaction-related 

road show or other widely attended 

presentation by investment banking to 

investors or the sales force from a 

remote location, or another room if they 

are in the same location.40

The proposed rule change also would 

add Supplementary Material .01, which 

would codify FINRA’s existing 

interpretation that the solicitation 

provision prohibits members from 

including in pitch materials any 

information about a member’s research 

capacity in a manner that suggests, 

directly or indirectly, that the member 

might provide favorable research 

coverage.41

No specific comments were received 

on this provision. 

10. Joint Due Diligence and Other 

Interactions With Investment Banking 

The proposed rule would establish a 

new proscription with respect to joint 

due diligence activities—i.e., due 

diligence by the research analyst in the 

presence of investment banking 

department personnel—during a 

specified time period. Specifically, 

proposed Supplementary Material .02 

states that FINRA interprets the 

overarching principle requiring 

members to, among other things, 

establish, maintain and enforce written 

policies and procedures that address the 

interaction between research analysts 

and those outside of the research 

department, including investment 

banking and sales and trading 

personnel, subject companies and 

customers, to prohibit the performance 

of joint due diligence prior to the 

selection of underwriters for the 

investment banking services transaction. 

The proposed rule would continue to 

prohibit investment banking department 

personnel from directly or indirectly 

directing a research analyst to engage in 

sales or marketing efforts related to an 

investment banking services transaction, 

and directing a research analyst to 

engage in any communication with a 

current or prospective customer about 

an investment banking services 

transaction.42 Supplementary Material 

.03 clarifies that three-way meetings 

between research analysts and a current 

or prospective customer in the presence 

of investment banking department 

personnel or company management 

about an investment banking services 

transaction would be prohibited by this 

provision.43 FINRA believes that the 

presence of investment bankers or issuer 

management could compromise a 

research analyst’s candor when talking 

to a current or prospective customer 

about a deal. Supplementary Material 

.03 would also retain the current 

requirement that any written or oral 

communication by a research analyst 

with a current or prospective customer 

or internal personnel related to an 

investment banking services transaction 

must be fair, balanced and not 

misleading, taking into consideration 

the overall context in which the 

communication is made. 

No specific comments were received 

on this provision. 

11. Promises of Favorable Research and 

Prepublication Review by Subject 

Company 

FINRA proposed to maintain the 

current prohibition against promises of 

favorable research, a particular research 

recommendation, rating or specific 

content as inducement for receipt of 

business or compensation.44 The 

proposed rule would further require 

policies and procedures to prohibit 

prepublication review of a research 

report by a subject company for 

purposes other than verification of 

facts.45 Supplementary Material .05 

would maintain the current guidance 

applicable to the prepublication 

submission of a research report to a 

subject company. Specifically, sections 

of a draft research report would be 

permitted to be provided to noninvestment banking personnel or the 

subject company for factual review, 

provided that: (1) The draft sections do 

not contain the research summary, 

research rating or price target; (2) a 

complete draft of the report is provided 

to legal or compliance personnel before 

sections are submitted to noninvestment banking personnel or the 

subject company; and (3) any 

subsequent proposed changes to the 

rating or price target are accompanied 

by a written justification to legal or 

compliance and receive written 

authorization for the change. The 

member also would be required to retain 

copies of any draft and the final version 

of the report for three years.46 No 

specific comments were received on this 

provision. 


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47See proposed FINRA Rule 2241(b)(2)(J). 

48See proposed FINRA Rule 2241(b)(2)(J)(i). 

49See proposed FINRA Rule 2241(b)(2)(J)(ii). 

50See proposed FINRA Rule 2241.10. 

51See proposed FINRA Rule 2241(c)(1)(A). 

52See proposed FINRA Rule 2241(c)(1)(B). 

53See proposed FINRA Rule 2241(c)(4). 

54See proposed FINRA Rule 2241(c)(4)(A). 

55See proposed FINRA Rule 2241(c)(4)(B). 

56See proposed FINRA Rule 2241(c)(4)(C). 

57See proposed FINRA Rule 2241(c)(4)(D). 

58See proposed FINRA Rule 2241(c)(4)(E). 

59See proposed FINRA Rule 2241(c)(4)(F). FINRA 

stated that the requirement to disclose beneficial 

ownership of 1% or more of any class of common 

equity securities of the subject company is the same 

as NASD Rule 2711(h)(1)(B). 

60See proposed FINRA Rule 2241(c)(4)(G). 

61See proposed FINRA Rule 2241(c)(4)(H). 

62See proposed FINRA Rule 2241(c)(4)(I). 

63See proposed FINRA Rule 2241.08. 

12. Personal Trading Restrictions 

FINRA proposed to require that firms 

establish written policies and 

procedures that restrict or limit research 

analyst account trading in securities, 

any derivatives of such securities and 

funds whose performance is materially 

dependent upon the performance of 

securities covered by the research 

analyst.47 Such policies and procedures 

would be required to ensure that 

research analyst accounts, supervisors 

of research analysts and associated 

persons with the ability to influence the 

content of research reports do not 

benefit in their trading from knowledge 

of the content or timing of a research 

report before the intended recipients of 

such research have had a reasonable 

opportunity to act on the information in 

the research report.48 The proposal 

would maintain the current prohibitions 

on research analysts receiving pre-IPO 

shares in the sector they cover and 

trading against their most recent 

recommendations. However, members 

would be permitted to define financial 

hardship circumstances, if any, in 

which a research analyst would be 

permitted to trade against his or her 

most recent recommendation.49 The 

proposed rule change includes 

Supplementary Material .10, which 

would provide that FINRA would not 

consider a research analyst account to 

have traded in a manner inconsistent 

with a research analyst’s 

recommendation where a member has 

instituted a policy that prohibits any 

research analyst from holding securities, 

or options on or derivatives of such 

securities, of the companies in the 

research analyst’s coverage universe, 

provided that the member establishes a 

reasonable plan to liquidate such 

holdings consistent with the principles 

in paragraph (b)(2)(J)(i) and such plan is 

approved by the member’s legal or 

compliance department.50 No specific 

comments were received on this 

provision. 

C. Content and Disclosure in Research 

Reports 

With a couple of modifications, the 

proposed rule change would maintain 

the current disclosure requirements. 

The proposed rule change would add a 

requirement that a member must 

establish, maintain and enforce written 

policies and procedures reasonably 

designed to ensure that purported facts 

in its research reports are based on 

reliable information.51 FINRA stated 

that it has included this provision 

because it believes members should 

have policies and procedures to foster 

verification of facts and trustworthy 

research on which investors may rely. 

The policies and procedures also must 

be reasonably designed to ensure that 

any recommendation, rating or price 

target has a reasonable basis and is 

accompanied by a clear explanation of 

any valuation method used and a fair 

presentation of the risks that may 

impede achievement of the 

recommendation, rating or price 

target.52

In addition, the proposed rule change 

would require a member to disclose in 

any research report at the time of 

publication or distribution of the 

report: 53

• If the research analyst or a member 

of the research analyst’s household has 

a financial interest in the debt or equity 

securities of the subject company 

(including, without limitation, whether 

it consists of any option, right, warrant, 

future, long or short position), and the 

nature of such interest; 54

• If the research analyst has received 

compensation based upon (among other 

factors) the member’s investment 

banking revenues; 55

• If the member or any of its affiliates: 

(i) Managed or co-managed a public 

offering of securities for the subject 

company in the past 12 months; (ii) 

received compensation for investment 

banking services from the subject 

company in the past 12 months; or (iii) 

expects to receive or intends to seek 

compensation for investment banking 

services from the subject company in 

the next three months; 56

• If, as of the end of the month 

immediately preceding the date of 

publication or distribution of a research 

report (or the end of the second most 

recent month if the publication or 

distribution date is less than 30 calendar 

days after the end of the most recent 

month), the member or its affiliates have 

received from the subject company any 

compensation for products or services 

other than investment banking services 

in the previous 12 months; 57

• If the subject company is, or over 

the 12-month period preceding the date 

of publication or distribution of the 

research report has been, a client of the 

member, and if so, the types of services 

provided to the issuer. Such services, if 

applicable, must be identified as either 

investment banking services, noninvestment banking services, noninvestment banking securities-related 

services or non-securities services; 58

• If the member or its affiliates 

maintain a significant financial interest 

in the debt or equity securities of the 

subject company including, at a 

minimum, if the member or its affiliates 

beneficially own 1% or more of any 

class of common equity securities of the 

subject company; 59

• If the member was making a market 

in the securities of the subject company 

at the time of publication or distribution 

of the research report; 60 and 

• If the research analyst received any 

compensation from the subject company 

in the previous 12 months.61

The proposed rule change would also 

expand upon the current ‘‘catch-all’’ 

disclosure, which mandates disclosure 

of any other material conflict of interest 

of the research analyst or member that 

the research analyst knows or has 

reason to know of at the time of the 

publication or distribution of a research 

report. The proposed rule change would 

go beyond the existing provision by 

requiring disclosure of material conflicts 

known not only by the research analyst, 

but also by any ‘‘associated person of 

the member with the ability to influence 

the content of a research report.’’ 62 The 

proposed rule change defines a person 

with the ‘‘ability to influence the 

content of a research report’’ as an 

associated person who, in the ordinary 

course of that person’s duties, has the 

authority to review the research report 

and change that research report prior to 

publication or distribution.63 FINRA 

stated that the ‘‘reason to know’’ 

standard in this provision would not 

impose a duty of inquiry on the research 

analyst or others who can influence the 

content of a research report. Rather, it 

would cover disclosure of those 

conflicts that should reasonably be 

discovered by those persons in the 

ordinary course of discharging their 

functions. 

The proposal would retain the general 

exception for disclosure that would 

reveal material non-public information 

regarding specific potential future 

investment banking transactions of the 


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64See proposed FINRA Rule 2241(c)(5). 

65See proposed FINRA Rule 2241(c)(7). 

66WilmerHale Equity. 

67NASAA Equity. 

68SIFMA, WilmerHale Equity. 

69NASAA Equity. 

70WilmerHale Equity. 

71See proposed FINRA Rule 2241(d). 

72See NASD Rules 2711(h)(1), (h)(2)(B) and (C), 

(h)(3), and (h)(9). 

73See proposed FINRA Rule 2241(d)(3). 

74See proposed FINRA Rule 2241(e). 

75See proposed FINRA Rule 2241(f). 

76While current Rule 2711(f)(6) does not contain 

the word ‘‘promptly,’’ FINRA has interpreted the 

provision to require prompt notification of 

termination of coverage of a subject company. 

77See proposed FINRA Rule 2241(g). 

78See proposed FINRA Rule 2241.07. 

79WilmerHale Equity. 

subject company.64 The proposal also 

continues to permit a member that 

distributes a research report covering six 

or more companies (compendium 

report) to direct the reader in a clear 

manner as to where the applicable 

disclosures can be found. An electronic 

compendium research report may 

hyperlink to the disclosures. A paper 

compendium report may include a tollfree number or a postal address where 

the reader may request the disclosures. 

In addition, paper compendium reports 

may include a web address where the 

disclosures can be found.65

One commenter opposed as overbroad 

the proposed expansion of the current 

‘‘catch-all’’ disclosure requirement to 

include ‘‘any other material conflict of 

interest of the research analyst or 

member that a research analyst or an 

associated person of the member with 

the ability to influence the content of a 

research report knows or has reason to 

know’’ at the time of publication or 

distribution of research report.66

(emphasis added) The commenter 

expressed concern about the 

emphasized language. Another 

commenter supported the proposed 

expansion of the current ‘‘catch-all’’ 

disclosure requirement.67

Two commenters opposed the 

requirement in the equity proposal that 

members disclose, in an equity research 

report, if they or their affiliates maintain 

a significant financial interest in the 

debt of the research company.68 The 

commenters noted that the debt research 

analyst proposal does not contain a 

dedicated requirement to disclose 

significant debt holdings; rather, it relies 

on the ‘‘catch-all’’ provision, which 

would require disclosure of a firm’s debt 

holdings of a subject company only 

where it rises to an actual material 

conflict of interest. The commenters 

asserted that the reasoning in the debt 

proposal—e.g., that firms do not have 

systems to track ownership of debt 

securities and that the number and 

complexity of bonds and the fact that a 

firm may be both long and short 

different bonds of the same issuer makes 

real-time disclosure of credit exposure 

difficult—applies equally to equity 

research. Another commenter supported 

the requirement in the equity proposal 

that members disclose, in an equity 

research report, if they or their affiliates 

maintain a significant financial interest 

in the debt of the research company.69

One commenter also stated that while 

FINRA correctly noted that the United 

Kingdom’s Financial Conduct Authority 

rules require disclosure of debt holdings 

in equity research reports, that 

requirement is more akin to the ‘‘catchall’’ provision because the disclosure is 

limited to circumstances where the 

holdings ‘‘may reasonably be expected 

to impair the objectivity of research 

recommendations’’ or ‘‘are significant in 

relation to the research 

recommendations.’’ 

One commenter also requested 

confirmation that members may rely on 

hyperlinked disclosures for research 

reports that are delivered electronically, 

even if these reports are subsequently 

printed out by customers.70

D. Disclosures in Public Appearances 

The proposal groups in a separate 

provision the disclosures required when 

a research analyst makes a public 

appearance.71 The required disclosures 

would remain substantively the same as 

under the current rules,72 with one 

exception: consistent with the 

modification referenced above with 

respect to disclosure in research reports, 

a research analyst is similarly required 

to disclose in a public appearance if a 

member or its affiliates maintain a 

‘‘significant financial interest in the debt 

or equity of the subject company,’’ 

including, at a minimum, if the member 

or its affiliates beneficially own 1% or 

more of any class of common equity 

securities of the subject company, as 

computed in accordance with Section 

13(d) of the Exchange Act. Unlike in 

research reports, the ‘‘catch all’’ 

disclosure requirement in public 

appearances applies only to a conflict of 

interest of the research analyst or 

member that the research analyst knows 

or has reason to know at the time of the 

public appearance. The proposal also 

retains the current requirement in 

NASD Rule 2711(h)(12) to maintain 

records of public appearances sufficient 

to demonstrate compliance by research 

analysts with the applicable disclosure 

requirements.73 No specific comments 

were received on this provision not 

already discussed in connection with 

the disclosures that would be required 

in research reports. 

E. Disclosure Required by Other 

Provisions 

With respect to both research reports 

and public appearances, members and 

research analysts would continue to be 

required to comply with applicable 

disclosure provisions of FINRA Rule 

2210 and the federal securities laws.74

No specific comments were received on 

this provision. 

F. Termination of Coverage 

The proposed rule change retains 

with non-substantive modifications the 

provision in the current rules that 

requires a member to notify its 

customers if it intends to terminate 

coverage of a subject company.75 Such 

notification would need to be made 

promptly 76 using the member’s 

ordinary means to disseminate research 

reports on the subject company to its 

various customers. Unless 

impracticable, the notice would be 

required to be accompanied by a final 

research report, comparable in scope 

and detail to prior research reports, and 

include a final recommendation or 

rating. If impracticable to provide a final 

research report, recommendation or 

rating, a firm would be required to 

disclose to its customers the reason for 

terminating coverage. No specific 

comments were received on this 

provision. 

G. Distribution of Member Research 

Reports 

The proposal would require firms to 

establish, maintain and enforce written 

policies and procedures reasonably 

designed to ensure that a research report 

is not distributed selectively to internal 

trading personnel or a particular 

customer or class of customers in 

advance of other customers that the firm 

has previously determined are entitled 

to receive the research report.77 The 

proposal includes further guidance to 

explain that firms would be permitted to 

provide different research products and 

services to different classes of 

customers, provided the products are 

not differentiated based on the timing of 

receipt of potentially market moving 

information and the firm discloses its 

research dissemination practices to all 

customers that receive a research 

product.78

One commenter supported the 

provisions regarding different research 

products and services as proposed with 

general disclosure,79 while another 


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80PIABA Equity. 

81WilmerHale Equity. 

82NASD Rule 2711(h)(13)(A) currently requires 

the distributing member firm to disclose the 

following, if applicable: (1) If the member owns 1% 

or more of any class of equity securities of the 

subject company; (2) if the member or any affiliate 

has managed or co-managed a public offering of 

securities of the subject company or received 

compensation for investment banking services from 

the subject company in the past 12 months, or 

expects to receive or intends to seek compensation 

for such services in the next three months; (3) if the 

member makes a market in the subject company’s 

securities; and (4) 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 the research report is distributed 

or made available. 

83See proposed FINRA Rule 2241(h)(4). 

84See proposed FINRA Rules 2241(h)(1) and 

(h)(3). 

85See proposed FINRA Rule 2241(h)(2). 

86See proposed FINRA Rule 2241(h)(5) and (6). 

87See proposed FINRA Rule 2241(h)(7). 

88See NASD Rule 2711(k). 

89See NASD Rule 2711(d)(2). 

90See NASD Rule 2711(d) and (k). 

91See proposed FINRA Rules 2241(b)(2)(E) and 

(i). 

contended that FINRA should require 

members to disclose when their 

research products and services do, in 

fact, contain a recommendation contrary 

to the research product or service 

received by other customers.80 The 

commenter favoring general disclosure 

asserted that disclosure of specific 

instances of contrary recommendations 

would impose significant burdens 

unjustified by the investor protection 

benefits. The commenter stated that a 

specific disclosure requirement would 

require close tracking and analysis of 

every research product or service to 

determine if a contrary recommendation 

exists. The commenters further stated 

that the difficulty of complying with 

such a requirement would be 

exacerbated in large firms by the 

number of research reports published 

and research analysts employed and the 

differing audiences for research 

products and services.81 They asserted 

that some firms may publish tens of 

thousands of research reports each year 

and employ hundreds of analysts across 

various disciplines and that a given 

research analyst or supervisor could not 

reasonably be expected to know of all 

other research products and services 

that may contain differing views. 

H. Distribution of Third-Party Research 

Reports 

The proposal would maintain the 

existing third-party disclosure 

requirements,82 incorporating the 

change to the ‘‘catch-all’’ provision to 

include material conflicts of interest 

that an associated person of the member 

with the ability to influence the content 

of a research report knows or has reason 

to know at the time of the distribution 

of the third-party research report. In 

addition, the proposed rule change 

would require members to disclose any 

other material conflict of interest that 

can reasonably be expected to have 

influenced the member’s choice of a 

third-party research provider or the 

subject company of a third-party 

research report.83

FINRA stated that the proposal would 

continue to address qualitative aspects 

of third-party research reports. For 

example, the proposal would maintain, 

but in the form of policies and 

procedures, the existing requirement 

that a registered principal or 

supervisory analyst review and approve 

third-party research reports distributed 

by a member. To that end, the proposed 

rule change would require a member to 

establish, maintain and enforce written 

policies and procedures reasonably 

designed to ensure that any third-party 

research it distributes contains no 

untrue statement of material fact and is 

otherwise not false or misleading. For 

the purpose of this requirement, a 

member’s obligation to review a thirdparty research report would extend to 

any untrue statement of material fact or 

any false or misleading information that 

should be known from reading the 

research report or is known based on 

information otherwise possessed by the 

member.84 The proposal further would 

prohibit a member from distributing 

third-party research if it knows or has 

reason to know that such research is not 

objective or reliable.85

The proposal would maintain the 

existing exceptions for ‘‘independent 

third-party research reports.’’ 

Specifically, such research would not 

require principal pre-approval or, where 

the third-party research is not ‘‘pushed 

out,’’ the third-party disclosures.86 As to 

the latter, a member would not be 

considered to have distributed 

independent third-party research where 

the research is made available by the 

member: (a) Upon request; (b) through a 

member-maintained Web site; or (c) to 

a customer in connection with a 

solicited order in which the registered 

representative has informed the 

customer, during the solicitation, of the 

availability of independent research on 

the solicited equity security and the 

customer requests such independent 

research. 

Finally, under the proposed rule 

change, members would be required to 

ensure that a third-party research report 

is clearly labeled as such and that there 

is no confusion on the part of the 

recipient as to the person or entity that 

prepared the research report.87

No specific comments were received 

on this provision. 

I. Exemption for Firms With Limited 

Investment Banking Activity 

The current rule exempts firms with 

limited investment banking activity— 

those that over the previous three years, 

on average per year, have managed or 

co-managed 10 or fewer investment 

banking transactions and generated $5 

million or less in gross revenues from 

those transactions—from the provisions 

that prohibit a research analyst from 

being subject to the supervision or 

control of an investment banking 

department employee because the 

potential conflicts with investment 

banking are minimal.88 However, those 

firms remain subject to the provision 

that requires the compensation of a 

research analyst to be reviewed and 

approved annually by a committee that 

reports to a member’s board of directors, 

or a senior executive officer if the 

member has no board of directors.89

That provision further prohibits 

representation on the committee by 

investment banking department 

personnel and requires the committee to 

consider the following factors when 

reviewing a research analyst’s 

compensation: (1) The research analyst’s 

individual performance, including the 

research analyst’s productivity and the 

quality of research; (2) the correlation 

between the research analyst’s 

recommendations and the performance 

of the recommended securities; and (3) 

the overall ratings received from clients, 

the sales force and peers independent of 

investment banking, and other 

independent ratings services.90 The 

proposed rule change would extend the 

exemption for firms with limited 

investment banking activity so that such 

firms would not be subject to the 

compensation committee provision. The 

proposal would still prohibit these firms 

from compensating a research analyst 

based upon specific investment banking 

services transactions or contributions to 

a member’s investment banking services 

activities.91

The proposed rule change would 

further exempt firms with limited 

investment banking activity from the 

provisions restricting or limiting 

research coverage decisions and budget 

determination. In addition, the proposal 

would exempt eligible firms from the 

requirement to establish information 

barriers or other institutional safeguards 

to insulate research analysts from the 

review or oversight by investment 

banking personnel or other persons, 


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92See proposed NASD Rule 1050(b) and 

proposed Incorporated NYSE Rule 344.10. 

93See proposed FINRA Rule 2241.09. FINRA 

Rule 0140(a), among other things, provides that 

persons associated with a member shall have the 

same duties and obligations as a member under the 

Rules. 

94SIFMA and WilmerHale Equity. 

95WilmerHale Equity. 

96See proposed FINRA Rule 2241(j). 

97NASAA Equity. 

98WilmerHale Equity. 

99SIFMA. 

100WilmerHale Equity. 

101 15 U.S.C. 78s(b)(2). Section 19(b)(2)(B) of the 

Act provides that proceedings to determine whether 

to disapprove a proposed rule change must be 

concluded within 180 days of the date of 

publication of notice of the filing of the proposed 

rule change. The time for conclusion of the 

proceedings may be extended for up to an 

additional 60 days if the Commission finds good 

cause for such extension and publishes its reasons 

for so finding or if the self-regulatory organization 

consents to the extension. 

102 15 U.S.C. 78s(b)(2). 

103 15 U.S.C. 78o–3(b)(6). 

including sales and trading personnel, 

who may be biased in their judgment or 

supervision. However, those firms 

would still be required to establish 

information barriers or other 

institutional safeguards reasonably 

designed to ensure that research 

analysts are insulated from pressure by 

investment banking and other nonresearch personnel who might be biased 

in their judgment or supervision. 

No specific comments were received 

on this provision. 

J. Exemption From Registration 

Requirements for Certain ‘‘Research 

Analysts’’ 

The proposed rule change would 

amend the definition of ‘‘research 

analyst’’ for the purposes of the 

registration and qualification 

requirements to limit the scope to 

persons who produce ‘‘research reports’’ 

and whose primary job function is to 

provide investment research (e.g., 

registered representatives or traders 

generally would not be included).92

FINRA stated that the revised definition 

is not intended to carve out anyone for 

whom the preparation of research is a 

significant component of their job. 

Rather, it is intended to provide relief 

for those who produce research reports 

on an occasional basis. The existing 

research rules, in accordance with the 

mandates of the Sarbanes-Oxley Act of 

2002 (‘‘Sarbanes-Oxley’’), are 

constructed such that the author of a 

communication that meets the 

definition of a ‘‘research report’’ is a 

‘‘research analyst,’’ irrespective of his or 

her title or primary job. 

No specific comments were received 

on this provision. 

K. Attestation Requirement 

The proposed rule change would 

delete the requirement to attest annually 

that the firm has in place written 

supervisory policies and procedures 

reasonably designed to achieve 

compliance with the applicable 

provisions of the rules, including the 

compensation committee review 

provision. No specific comments were 

received on this provision. 

L. Obligations of Persons Associated 

With a Member 

Supplementary Material .09 clarifies 

the obligations of each associated 

person under those provisions of the 

proposed rule change that require a 

member to restrict or prohibit certain 

conduct by establishing, maintaining 

and enforcing particular written policies 

and procedures. Specifically, the rule 

provides that, consistent with FINRA 

Rule 0140, persons associated with a 

member would be required to comply 

with such member’s policies and 

procedures as established pursuant to 

proposed FINRA Rule 2241.93 Failure of 

an associated person to comply with 

such policies and procedures would 

constitute a violation of the rule itself. 

In addition, consistent with Rule 0140, 

the rule states that it would be a rule 

violation for an associated person to 

engage in the restricted or prohibited 

conduct to be addressed through the 

establishment, maintenance and 

enforcement of policies and procedures 

required by provisions of Rule 2241, 

including applicable Supplementary 

Material, that embed in the policies and 

procedures specific obligations on 

individuals. 

Some commenters suggested FINRA 

eliminate language in the 

supplementary material that provides 

that the failure of an associated person 

to comply with the firm’s policies and 

procedures constitutes a violation of the 

proposed rule itself.94 These 

commenters argued that because 

members may establish policies and 

procedures that go beyond the 

requirements set forth in the rule, the 

provision may have the unintended 

consequence of discouraging firms from 

creating standards in their policies and 

procedures that extend beyond the rule. 

One of those commenters suggested that 

the remaining language in the 

supplementary material adequately 

holds individuals responsible for 

engaging in restricted or prohibited 

conduct covered by the proposals.95

M. General Exemptive Authority 

The proposed rule change would 

provide FINRA, pursuant to the Rule 

9600 Series, with authority to 

conditionally or unconditionally grant, 

in exceptional and unusual 

circumstances, an exemption from any 

requirement of the proposed rule for 

good cause shown, after taking into 

account all relevant factors and 

provided that such exemption is 

consistent with the purposes of the rule, 

the protection of investors, and the 

public interest.96

One commenter opposed this 

provision.97 The commenter stated that 

the provision had not been sufficiently 

justified by, among other things, 

providing examples of where an 

exemption would be justified. 

N. Other General Comments 

One commenter asked FINRA to 

confirm in any Regulatory Notice 

announcing adoption of the proposed 

rule change that provisions relating to 

research coverage and budget decisions 

and joint due diligence are intended to 

supersede the corresponding terms of 

the Global Research Analyst Settlement 

(‘‘Global Settlement’’).98

Also, one commenter requested that 

the implementation date be at least 12 

months after Commission approval of 

the proposed rule change.99 Another 

commenter similarly requested that 

FINRA provide a ‘‘grace period’’ of one 

year or the maximum time permissible, 

if that is less than one year, between the 

adoption of the proposed rule and the 

implementation date.100

III. Proceedings To Determine Whether 

To Approve or Disapprove SR–FINRA– 

2014–047 

The Commission is instituting 

proceedings pursuant to Section 

19(b)(2)(B) of the Act to determine 

whether the proposals should be 

approved or disapproved.101 Institution 

of such proceedings is appropriate at 

this time in view of the legal and policy 

issues raised by the proposal. Institution 

of proceedings does not indicate that the 

Commission has reached any 

conclusions with respect to any of the 

issues involved. Rather, as described 

below, the Commission seeks and 

encourages interested persons to 

comment on the proposed rule change. 

Pursuant to Section 19(b)(2)(B) of the 

Act,102 the Commission is providing 

notice of the grounds for disapproval 

under consideration. The Commission is 

instituting proceedings to allow for 

additional analysis of the proposed rule 

change’s consistency with Section 

15A(b)(9) of the Act,103 which requires 

that FINRA’s rules be designed to, 

among other things, promote just and 


rmajette on DSK2VPTVN1PROD with NOTICES
10536 Federal Register / Vol. 80, No. 38 / Thursday, February 26, 2015 / Notices 

104 15 U.S.C. 78o–6. 

105Section 19(b)(2) of the Act, as amended by the 

Securities Act Amendments of 1975, Pub. L. 94–29 

(June 4, 1975), grants the Commission flexibility to 

determine what type of proceeding—either oral or 

notice and opportunity for written comments—is 

appropriate for consideration of a particular 

proposal by a self-regulatory organization. See 

Securities Act Amendments of 1975, Senate Comm. 

on Banking, Housing & Urban Affairs, S. Rep. No. 

75, 94th Cong., 1st Sess. 30 (1975). 106 17 CFR 200.30–3(a)(57). 

1 15 U.S.C. 78s(b)(1). 

2 17 CFR 240.19b–4. 

3Securities Exchange Act Release Nos. 69141 

(March 15, 2013), 78 FR 17262 (March 20, 2013); 

and 69344 (April 8, 2013), 78 FR 22001 (April 12, 

2013) (SR–Phlx–2013–29). 

4Securities Exchange Act Release No. 69344 

(April 8, 2013), 78 FR 22001 (April 12, 2013) (SR– 

Phlx–2013–29). 

equitable principles of trade, remove 

impediments to and perfect the 

mechanism of a free and open market 

and a national market system, and, in 

general, to protect investors and the 

public interest, and Section 15D of the 

Act,104 which requires rules reasonably 

designed to address conflicts of interest 

that can arise when research analysts 

recommend equity securities in research 

reports and public appearances. 

IV. Procedure: Request for Written 

Comments 

The Commission requests that 

interested persons provide written 

submissions of their views, data, and 

arguments with respect to the concerns 

identified above, as well as any others 

they may have with the proposed rule 

change. In particular, the Commission 

invites the written views of interested 

persons concerning whether the 

proposed rule change is inconsistent 

with Sections 15A(b)(9) and 15D, or any 

other provision of the Act, or the rules 

and regulation thereunder. Although 

there do not appear to be any issues 

relevant to approval or disapproval 

which would be facilitated by an oral 

presentation of views, data, and 

arguments, the Commission will 

consider, pursuant to Rule 19b-4, any 

request for an opportunity to make an 

oral presentation.105

Interested persons are invited to 

submit written data, views, and 

arguments regarding whether the 

proposed rule changes should be 

approved or disapproved by March 19, 

2015. Any person who wishes to file a 

rebuttal to any other person’s 

submission must file that rebuttal by 

April 2, 2015. 

Comments may be submitted by any 

of the following methods: 

Electronic Comments 

• Use the Commission’s Internet 

comment form (http://www.sec.gov/

rules/sro.shtml); or 

• Send an email to rule-comments@

sec.gov. Please include File Number SR– 

FINRA–2014–047 on the subject line. 

Paper Comments 

• Send paper comments in triplicate 

to Brent J. Fields, Secretary, Securities 

and Exchange Commission, 100 F Street 

NE., Washington, DC 20549–1090. 

All submissions should refer to File 

Number SR–FINRA–2014–047. This file 

number should be included on the 

subject line if email is used. To help the 

Commission process and review your 

comments more efficiently, please use 

only one method. The Commission will 

post all comments on the Commission’s 

Internet Web site (http://www.sec.gov/

rules/sro.shtml). 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 Web site viewing and 

printing in the Commission’s Public 

Reference Room, 100 F Street NE., 

Washington, DC 20549, on official 

business days between the hours of 10 

a.m. and 3 p.m. Copies of such filing 

also will be available for inspection and 

copying at the principal office of 

FINRA. All comments received will be 

posted without change; the Commission 

does not edit personal identifying 

information from submissions. You 

should submit only information that 

you wish to make available publicly. All 

submissions should refer to File 

Number SR–FINRA–2014–047 and 

should be submitted on or before March 

19, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.106

Jill M. Peterson, 

Assistant Secretary. 

[FR Doc. 2015–03962 Filed 2–25–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74337; File No. SR–Phlx– 

2015–19] 

Self-Regulatory Organizations; 

NASDAQ OMX PHLX LLC; Notice of 

Filing and Immediate Effectiveness of 

Proposed Rule Change to Extend the 

Pilot Program Regarding Exchange 

Rule 1047(f)(v) 

February 20, 2015. 

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 February 

19, 2015, NASDAQ OMX PHLX LLC 

(‘‘Phlx’’ or ‘‘Exchange’’) filed with the 

Securities and Exchange Commission 

(‘‘SEC’’ or ‘‘Commission’’) the proposed 

rule change as described in Items I and 

II below, which Items have been 

prepared by the Exchange. The 

Commission is publishing this notice to 

solicit comments on the proposed rule 

change from interested persons. 

I. Self-Regulatory Organization’s 

Statement of the Terms of the Substance 

of the Proposed Rule Change 

The Exchange proposes to extend the 

pilot program regarding Exchange Rule 

1047(f)(v), which provides for how the 

Exchange treats obvious and 

catastrophic options errors in response 

to the Plan to Address Extraordinary 

Market Volatility Pursuant to Rule 608 

of Regulation NMS under the Act (the 

‘‘Limit Up-Limit Down Plan’’ or the 

‘‘Plan’’).3 The Exchange proposes to 

extend the pilot period until October 23, 

2015. 

The text of the proposed rule change 

is available on the Exchange’s Web site 

at http://nasdaqomxphlx.cchwallstreet. 

com/, at the principal office of the 

Exchange, and at the Commission’s 

Public Reference Room. 

II. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, the 

Exchange 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. The 

Exchange 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 

In April 2013,4 the Commission 

approved a proposal, on a one year pilot 

basis, to adopt Exchange Rule 1047(f)(v) 


rmajette on DSK2VPTVN1PROD with NOTICES