14174 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices 

8 15 U.S.C. 78s(b)(3)(A). 

9 17 CFR 240.19b–4(f). 

10 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 infra note 12. 

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

6Exchange Act Release No. 74339 (Feb. 20, 2015); 

80 FR 10528 (Feb. 26, 2015). The comment period 

closes on March 19, 2015. 

7For a comparison of the changes of the rule text 

between the proposal as originally noticed and the 

proposal as amended by Amendment No. 1, see 

Exhibit 4 to SR–FINRA–2014–047. 

19(b)(3)(A) 8 of the Act and paragraph (f) 

of Rule 19b–4 9 thereunder. 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. 

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– 

DTC–2015–02 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–DTC–2015–02. 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 the 

filing also will be available for 

inspection and copying at the principal 

office of DTC and on DTCC’s Web site 

(http://dtcc.com/legal/sec-rulefilings.aspx). 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–DTC– 

2015–02 and should be submitted on or 

before April 8, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.10

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–06089 Filed 3–17–15; 8:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74488; File No. SR–FINRA– 

2014–047] 

Self-Regulatory Organizations; 

Financial Industry Regulatory 

Authority, Inc.; Notice of Filing of 

Amendment No. 1 to a Proposed Rule 

Change To Adopt FINRA Rule 2241 

(Research Analysts and Research 

Reports) in the Consolidated FINRA 

Rulebook 

March 12, 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’’ or ‘‘Exchange 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 On 

February 19, 2015, FINRA filed 

Amendment No. 1 responding to the 

comments received to the proposal as 

well as to propose amendments in 

response to these comments. On 

February 20, 2015, the Commission 

issued an order instituting proceedings 

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

Act 5 to determine whether to approve 

or disapprove the proposal. The order 

was published for comment in the 

Federal Register on February 26, 2015.6

The proposed rule change, as 

modified by Amendment No. 1, is 

described in Items II and III below, 

which Items have been substantially 

prepared by FINRA.7 The Commission 

is publishing this notice to solicit 

comments from interested persons on 

the proposal as amended by 

Amendment No. 1. 

II. Self-Regulatory Organization’s 

Statement of the Terms of Substance of 

the Proposed Rule Change 

FINRA is proposing Amendment No. 

1 to SR–FINRA–2014–047, a proposed 

rule change to adopt NASD Rule 2711 

(Research Analysts and Research 

Reports) as a FINRA rule, with several 

modifications. The proposed rule 

change also would amend NASD Rule 

1050 (Registration of Research Analysts) 

and Incorporated NYSE Rule 344 to 

create an exception from the research 

analyst qualification requirement. The 

proposed rule change would renumber 

NASD Rule 2711 as FINRA Rule 2241 in 

the consolidated FINRA rulebook. 

The text of the proposed rule change 

is available on FINRA’s Web site at 

http://www.finra.org, at the principal 

office of FINRA and at the 

Commission’s Public Reference Room. 

III. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

In its filing with the Commission, 

FINRA 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 V below. FINRA has prepared 

summaries, set forth in sections A, B, 

and C below, of the most significant 

aspects of such statements. 

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Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices 14175 

8See Securities Exchange Act Release No. 73622 

(November 18, 2014), 79 FR 69939 (November 24, 

2014) (Notice of Filing File No. SR–FINRA–2014– 

047) (‘‘Proposing Release’’). The comment period 

closed on December 15, 2014. 

9The current FINRA rulebook includes, in 

addition to FINRA Rules, (1) NASD Rules and (2) 

rules incorporated from NYSE (‘‘Incorporated NYSE 

Rules’’) (together, the NASD Rules and Incorporated 

NYSE Rules are referred to as the ‘‘Transitional 

Rulebook’’). While the NASD Rules generally apply 

to all FINRA members, the Incorporated NYSE 

Rules apply only to those members of FINRA that 

are also members of the NYSE (‘‘Dual Members’’). 

For more information about the rulebook 

consolidation process, see Information Notice, 

March 12, 2008 (Rulebook Consolidation Process). 

10On the same date, FINRA also filed a 

companion proposal to create FINRA Rule 2242 to 

address conflicts of interest related to the 

publication and distribution of debt research 

reports (‘‘debt research proposal’’). See Securities 

Exchange Act Release No. 73623 (November 18, 

2014), 79 FR 69905 (November 24, 2014) (Notice of 

Filing File No. SR–FINRA–2014–048). 

11See Securities Exchange Act Release No. 73622 

(November 18, 2014), 79 FR 69939 (November 24, 

2014) (Notice of Filing File No. SR–FINRA–2014– 

047). 

12See Letter from Hugh D. Berkson, Executive 

Vice President and President-Elect, Public Investors 

Arbitration Bar Association, to Brent J. Fields, 

Secretary, SEC, dated December 15, 2014 (‘‘PIABA 

Equity’’); Letter from Kevin Zambrowicz, Associate 

General Counsel and Managing Director, and Sean 

Davy, Managing Director, Securities Industry and 

Financial Markets Association, to Brent J. Fields, 

Secretary, SEC, dated December 15, 2014 

(‘‘SIFMA’’); Letter from Stephanie R. Nicolas, 

Wilmer Cutler Pickering Hale and Dorr LLP, to 

Brent J. Fields, Secretary, SEC, dated December 16, 

2014 (‘‘WilmerHale Equity’’); and Letter from 

William Beatty, President, North American 

Securities Administrators Association, Inc., to Brent 

J. Fields, Secretary, SEC, dated December 19, 2014 

(‘‘NASAA Equity’’). 

13See Notice for a description of the original 

proposal. See also Exhibit 4 to SR–FINRA–2014– 

047 for a comparison of changes made in the rule 

text in Amendment No. 1. 

14See proposed FINRA Rule 2241(a)(5). The 

current definition includes, without limitation, 

many common types of investment banking 

services. FINRA is proposing 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. 

15See proposed FINRA Rule 2241(a)(9). 

16See proposed FINRA Rule 2241(a)(11). 

17See proposed FINRA Rule 2241(a)(11)(D). 

18See 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. 

19See proposed FINRA Rule 2241(a)(12). 

20See proposed FINRA Rule 2241(b)(1). 

21See proposed FINRA Rule 2241(b)(2). 

A. Self-Regulatory Organization’s 

Statement of the Purpose of, and 

Statutory Basis for, the Proposed Rule 

Change 

1. Purpose 

Rule Filing History 

On November 14, 2014, FINRA filed 

with the Securities and Exchange 

Commission (‘‘Commission’’) SR– 

FINRA–2014–047,8 a proposed rule 

change to adopt in the consolidated 

FINRA rulebook (‘‘Consolidated FINRA 

Rulebook’’) 9 NASD Rule 2711 (Research 

Analysts and Research Reports) with 

several modifications as FINRA Rule 

2241.10 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. 

The Commission published the 

proposed rule change for public 

comment in the Federal Register on 

November 24, 2014.11 The Commission 

received four comment letters directed 

to the filing.12 Based on comments 

received, FINRA is filing this 

Amendment No. 1 to respond to the 

comments and to propose amendments, 

where appropriate. The amendment also 

includes a few technical, nonsubstantive changes. 

Proposal 

As described in greater detail in the 

Proposing Release, 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, the proposed rule change 

reduces burdens where appropriate. The 

description below is the proposal as 

amended by Amendment No. 1.13

Definitions 

FINRA is proposing to mostly 

maintain the definitions in current 

NASD Rule 2711, with the following 

modifications: 

• 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.14

• 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.15

• 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’’).16

• exclusion from the definition of 

‘‘research report’’ of communications 

that constitute private placement 

memoranda and comparable offeringrelated documents prepared in 

connection with investment banking 

services transactions, other than those 

that purport to be research.17

• move 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.18

• adoption of a definition of ‘‘sales 

and trading personnel’’ to include 

persons in any department or division, 

whether or not identified as such, who 

perform any sales or trading service on 

behalf of a member.19

Identifying and Managing Conflicts of 

Interest 

FINRA is proposing 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.20 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.21 These provisions, 

therefore, 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. 

Prepublication Review 

FINRA is proposing that the required 

policies and procedures must prohibit 

prepublication review, clearance or 

approval of research reports by persons 

engaged in investment banking services 

activities and restrict or prohibit such 

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

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

24See proposed FINRA Rule 2241(b)(2)(C). 

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

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

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

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

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

30See 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 (‘‘EGC’’), as that 

term is defined in Section 3(a)(80) of the Exchange 

Act. 

31See proposed FINRA Rule 2241(b)(2)(L). 

32See NASD Notice to Members 07–04 (January 

2007) and NYSE Information Memo 07–11 (January 

2007). 

33See proposed FINRA Rule 2241.01 and Notice 

to Members 07–04 (January 2007). 

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

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

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.24

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.25

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.26 The policies and procedures 

further must 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 may not 

have representation from a member’s 

investment banking department. The 

committee must 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.27 These provisions are 

consistent with the requirements in 

current Rule 2711(d). 

Information Barriers 

The proposed rule change would 

require that the policies and procedures 

establish information barriers or other 

institutional safeguards reasonably 

designed 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.28

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.29

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.30

With respect to these quiet-period 

provisions, the proposed rule change 

reduces 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 maintains 

exceptions to the quiet periods for 

research reports or public appearances 

concerning the effects of significant 

news or a significant event on the 

subject company and, for secondary 

offerings, research reports or public 

appearances pursuant to SEC Rule 139 

regarding a subject company with 

‘‘actively-traded securities.’’ 

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. 

Solicitation and Marketing 

In addition, the proposed rule change 

requires firms to adopt written policies 

and procedures to restrict or limit 

activities by research analysts that can 

reasonably be expected to compromise 

their objectivity.31 This includes 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 notes 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.32

The proposed rule change also adds 

Supplementary Material .01, which 

codifies the 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.33

Joint Due Diligence and Other 

Interactions With Investment Banking 

The proposed rule establishes 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 

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34See proposed FINRA Rule 2241(b)(2)(M). 

35See proposed FINRA Rule 2241.03. 

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

37See proposed FINRA Rule 2241(b)(2)(N). 

38See proposed FINRA Rule 2241.05. 

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

40See proposed FINRA Rule 2241(b)(2)(J)(i). 

41See proposed FINRA Rule 2241(b)(2)(J)(ii). 

42See proposed FINRA Rule 2241.10. 

43See proposed FINRA Rule 2241(c)(1)(A). 

44See proposed FINRA Rule 2241(c)(1)(B). 

45See proposed FINRA Rule 2241(c)(4). 

46See proposed FINRA Rule 2241(c)(4)(A). 

47See proposed FINRA Rule 2241(c)(4)(B). 

48See proposed FINRA Rule 2241(c)(4)(C). 

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 continues 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.34 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 are prohibited by this 

provision.35 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 also retains 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. 

Promises of Favorable Research and 

Prepublication Review by Subject 

Company 

FINRA is proposing 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.36 The 

proposed rule further requires policies 

and procedures to prohibit 

prepublication review of a research 

report by a subject company for 

purposes other than verification of 

facts.37 Supplementary Material .05 

maintains the current guidance 

applicable to the prepublication 

submission of a research report to a 

subject company. Specifically, sections 

of a draft research report may be 

provided to non-investment 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 non-investment 

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 must retain 

copies of any draft and the final version 

of the report for three years.38

Personal Trading Restrictions 

FINRA is proposing 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.39 Such policies and procedures 

must 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.40 The proposal maintains the 

current prohibitions on research 

analysts receiving pre-IPO shares in the 

sector they cover and trading against 

their most recent recommendations. 

However, members may define financial 

hardship circumstances, if any, in 

which a research analyst would be 

permitted to trade against his or her 

most recent recommendation.41 The 

proposed rule change includes 

Supplementary Material .10, which 

provides 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.42

Content and Disclosure in Research 

Reports 

With a couple of modifications, the 

proposed rule change maintains the 

current disclosure requirements. The 

proposed rule change adds 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.43 FINRA 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.44

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: 45

• 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; 46

• if the research analyst has received 

compensation based upon (among other 

factors) the member’s investment 

banking revenues; 47

• 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; 48

• if, as of the end of the month 

immediately preceding the date of 

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49See proposed FINRA Rule 2241(c)(4)(D). 

50See proposed FINRA Rule 2241(c)(4)(E). 

51See proposed FINRA Rule 2241(c)(4)(G). 

52See proposed FINRA Rule 2241(c)(4)(H). 

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

54See proposed FINRA Rule 2241.08. 

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

56See proposed FINRA Rule 2241(c)(5). 

57See proposed FINRA Rule 2241(c)(7). 

58See proposed FINRA Rule 2241(d). 

59See NASD Rules 2711(h)(1), (h)(2)(B) and (C), 

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

60See proposed FINRA Rule 2241(d)(3). 

61See proposed FINRA Rule 2241(e). 

62See proposed FINRA Rule 2241(f). 

63While 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. 

64See proposed FINRA Rule 2241(g). 

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; 49

• 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; 50

• 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; 51 and 

• if the research analyst received any 

compensation from the subject company 

in the previous 12 months.52

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 goes 

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.’’ 53 The 

proposed rule change defines a person 

with the ‘‘ability to influence the 

content of a research report’’ as an 

associated person who is required to 

review the content of the research report 

or has exercised authority to review or 

change the research report prior to 

publication or distribution. This term 

does not include legal or compliance 

personnel who may review a research 

report for compliance purposes but are 

not authorized to dictate a particular 

recommendation, rating or price 

target.54 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 proposed rule change also 

maintains the requirement to disclose 

when a member or its affiliates 

beneficially own 1% or more of any 

class of common equity securities of the 

subject company.55 The determination 

of beneficial ownership would continue 

to be based upon the standards used to 

compute ownership for the purposes of 

the reporting requirements under 

Section 13(d) of the Exchange Act. 

The proposal modifies the exception 

for disclosure that would reveal material 

non-public information regarding 

specific potential future investment 

banking transactions of the subject 

company to include specific potential 

future investment banking transactions 

of other companies, such as a 

competitor of the subject company.56

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 must include 

a toll-free 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.57

Disclosures in Public Appearances 

The proposal groups in a separate 

provision the disclosures required when 

a research analyst makes a public 

appearance.58 The required disclosures 

remain substantively the same as under 

the current rules 59 including 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. FINRA understands 

that supervisors or legal and compliance 

personnel, who otherwise might be 

captured by the definition of an 

associated person ‘‘with the ability to 

influence,’’ typically do not have the 

opportunity to review and insist on 

changes to public appearances, many of 

which are extemporaneous in nature. 

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.60

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.61

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.62 Such 

notification must be made promptly 63

using the member’s ordinary means to 

disseminate research reports on the 

subject company to its various 

customers. Unless impracticable, the 

notice must 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 must disclose to its 

customers the reason for terminating 

coverage. 

Distribution of Member Research 

Reports 

The proposal requires 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.64 The 

proposal includes further guidance to 

explain that firms may 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 

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65See proposed FINRA Rule 2241.07. 66NASD 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. 

67See proposed FINRA Rule 2241(h)(4). 

68See proposed FINRA Rules 2241(h)(1) and 

(h)(3). 

69See proposed FINRA Rule 2241(h)(2). 

70See proposed FINRA Rule 2241(h)(5) and (6). 

71See proposed FINRA Rule 2241(h)(7). 

72See NASD Rule 2711(k). 

73See NASD Rule 2711(d)(2). 

74See NASD Rule 2711(d) and (k). 

75See proposed FINRA Rules 2241(b)(2)(E) and 

(i). 

76See proposed NASD Rule 1050(b) and 

proposed Incorporated NYSE Rule 344.10. 

discloses its research dissemination 

practices to all customers that receive a 

research product.65

Distribution of Third-Party Research 

Reports 

The proposal would maintain the 

existing third-party disclosure 

requirements,66 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.67

In addition, the proposal continues to 

address qualitative aspects of thirdparty research reports. For example, the 

proposal maintains, 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 requires 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 third-party research report 

extends 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.68 The 

proposal further prohibits a member 

from distributing third-party research if 

it knows or has reason to know that 

such research is not objective or 

reliable.69

The proposal maintains the existing 

exceptions for ‘‘independent third-party 

research reports.’’ Specifically, such 

research does not require principal preapproval or, where the third-party 

research is not ‘‘pushed out,’’ the thirdparty disclosures.70 As to the latter, a 

member will 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 membermaintained 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 also must 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.71

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.72 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.73

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.74 The 

proposed rule change extends the 

exemption for firms with limited 

investment banking activity so that such 

firms would not be subject to the 

compensation committee provision. The 

proposal still prohibits these firms from 

compensating a research analyst based 

upon specific investment banking 

services transactions or contributions to 

a member’s investment banking services 

activities.75

The proposed rule change further 

exempts firms with limited investment 

banking activity from the provisions 

restricting or limiting research coverage 

decisions and budget determination. In 

addition, the proposal exempts 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, including 

sales and trading personnel, who may 

be biased in their judgment or 

supervision. However, those firms still 

are 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 non-research personnel who might 

be biased in their judgment or 

supervision. 

Exemption From Registration 

Requirements for Certain ‘‘Research 

Analysts’’ 

The proposed rule change amends 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).76 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 

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77See 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. 

78See proposed FINRA Rule 2241(j). 

79SIFMA, WilmerHale Equity and PIABA Equity. 

80WilmerHale Equity. For consistency with the 

debt research proposal, FINRA also proposes to 

amend the proposed rule change to use the term 

‘‘sales and trading personnel.’’ 

81WilmerHale Equity. 

82SIFMA. 

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. 

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. 

Obligations of Persons Associated With 

a Member 

Proposed Supplementary Material .09 

would clarify 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 proposal provides that, 

consistent with FINRA Rule 0140, 

persons associated with a member must 

comply with such member’s policies 

and procedures as established pursuant 

to proposed FINRA Rule 2241.77 In 

addition, consistent with Rule 0140, 

Supplementary Material .09 states that it 

shall be a violation of proposed Rule 

2241 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 Rule 2241, including 

applicable Supplementary Material. 

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.78

Response to Comments 

In connection with Amendment No. 

1, FINRA also responded to the 

comments received on the original 

proposal as proposed in the Notice, 

included below. 

General Support 

Three of the four commenters to the 

proposal expressed general support for 

the proposal.79

Definitions and Terms 

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.’’ 80 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. FINRA intends for the 

sales and trading personnel conflict 

management provisions to apply to 

individuals who perform sales and 

trading functions, irrespective of their 

job title or the frequency of engaging in 

the activities. As such, FINRA does not 

intend for the rule to capture as sales 

and trading personnel senior 

management, such as the chief 

executive officer, who do not engage in 

or supervise day-to-day sales and 

trading activities. However, FINRA 

believes the applicable provisions 

should apply to individuals who may 

occasionally perform or directly 

supervise sales and trading activities; 

otherwise, investors could be put at risk 

with respect to the research or 

transactions involved when those 

individuals are functioning in those 

capacities because the conflict 

management procedures and 

proscriptions and required disclosures 

would not apply. Therefore, FINRA has 

proposed to amend the rule to define 

sales and trading personnel to include 

‘‘persons in any department or division, 

whether or not identified as such, who 

perform any sales or trading service on 

behalf of a member.’’ FINRA notes that 

this proposed definition is more 

consistent with the definition of 

‘‘investment banking department’’ in the 

current and proposed rules. 

One commenter 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.81 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. 

The definition of ‘‘research report’’ is 

generally understood not to include 

such offering-related documents 

prepared in connection with investment 

banking services transactions. In the 

course of administering the filing review 

programs under FINRA Rules 2210 

(Communications with the Public), 5110 

(Corporate Financing Rule), 5122 

(Member Private Offerings) and 5123 

(Private Placements of Securities), 

FINRA has not received any inquiries or 

addressed any issues that indicate there 

is confusion regarding the scope of the 

research analyst rules as applied to 

offering-related documents prepared in 

connection with investment banking 

activities. Nonetheless, to provide firms 

with greater clarity as to the status of 

such offering-related documents under 

the proposal, FINRA proposes to amend 

the proposed rule change to exclude 

private placement memoranda and 

similar offering-related documents 

prepared in connection with investment 

banking services transactions other than 

those that purport to be research from 

the definition of ‘‘research report.’’ 

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.82 However, another 

commenter supported the requirement 

to have policies and procedures 

reasonably designed to ensure that 

research reports are based on reliable 

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83NASAA. 

84WilmerHale Equity. 

85SIFMA and WilmerHale Equity. 

86Letter 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). 

87NASAA Equity. 

88WilmerHale Equity. 

89SIFMA and WilmerHale Equity. 

90WilmerHale Equity. 

information.83 As discussed in detail in 

Item 5 of the Proposing Release, FINRA 

believes that the term ‘‘reliable’’ is 

commonly understood and notes that 

the term is used in certain researchrelated provisions in Sarbanes-Oxley 

without definition. FINRA does not 

believe the term connotes accuracy of 

opinions. 

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.’’ 84 The commenter 

asserted that inclusion of 

‘‘independently’’ is confusing since the 

proposal would permit input from nonresearch personnel into coverage 

decisions. FINRA has included 

‘‘independently’’ to make clear that 

research management alone is vested 

with making final coverage decisions. 

Thus, for example, a firm could not 

have a committee that includes a 

majority of research management 

personnel but also other individuals 

make final coverage decisions by a vote. 

As such, FINRA declines to eliminate 

the term as suggested. 

Policies and Procedures 

The rule proposal 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 the 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.85 One of those 

commenters had previously expressed 

support for the proposed policies-based 

approach with minimum 

requirements,86 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 

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.87 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.88

Finally, 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.89 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.90

As discussed in more detail in the 

Proposing Release, FINRA believes the 

framework will maintain the same level 

of investor protection in the current 

rules while providing both some 

flexibility for firms to align their 

compliance systems with their business 

model and philosophy and imposing 

additional obligations to proactively 

identify and manage emerging conflicts. 

Even under a policies and procedures 

approach, the proposals would 

effectively maintain, with some 

modifications, the key proscriptions in 

the current rules—e.g., prohibitions on 

prepublication review, supervision of 

research analysts by investment banking 

and participation in pitches and road 

shows. FINRA disagrees that the 

‘‘preamble’’ to some of those 

prohibitions is unnecessary. As with the 

more general overarching principlesbased requirement to identify and 

manage conflicts of interest, the 

introductory principle that requires 

written policies and procedures to 

restrict or limit activities by research 

analysts that can reasonably be expected 

to compromise their objectivity 

recognizes that FINRA cannot identify 

every conflict related to research at 

every firm and therefore requires 

proactive monitoring and management 

of those conflicts. FINRA does not 

believe this ‘‘preamble’’ language is 

redundant with the broader overarching 

principle because it applies more 

specifically to the activities of research 

analysts and, unlike the broader 

principle, would preclude the use of 

disclosure as a means of conflict 

management for those activities. 

In light of the overarching principle 

that requires firms to establish, maintain 

and enforce written policies and 

procedures reasonably designed to 

identify and effectively manage 

research-related conflicts, the ‘‘at a 

minimum’’ language was meant to 

convey that additional conflicts 

management policies and procedures 

may be needed to address emerging 

conflicts that may arise as the result of 

business changes, such as new research 

products, affiliations or distribution 

methods at a particular firm. As 

discussed in the Proposing Release, 

FINRA intends for firms to proactively 

identify and manage those conflicts 

with appropriately designed policies 

and procedures. FINRA’s inclusion of 

the ‘‘at a minimum’’ language was not 

intended to suggest that firms’ written 

policies and procedures must go beyond 

the specified prohibitions and 

restrictions in the proposal where no 

new conflicts have been identified. 

However, FINRA believes the 

overarching requirement for policies 

and procedures reasonably designed to 

identify and effectively manage 

research-related conflicts suffices to 

achieve the intended regulatory 

objective, and therefore to eliminate any 

confusion, FINRA proposes to amend 

the proposal to delete the ‘‘at a 

minimum’’ language. 

FINRA appreciates the commenters’ 

concerns with respect to language in the 

supplementary material that would 

make a violation of a firm’s policies a 

violation of the underlying rule. The 

supplementary material was intended to 

hold individuals responsible for 

engaging in the conduct that the policies 

and procedures effectively restrict or 

prohibit. FINRA agrees that purpose is 

achieved with the language in the 

supplementary material that states that, 

consistent with FINRA Rule 0140, ‘‘it 

shall be a violation of [the Rule] 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 [the 

Rule] or related Supplementary 

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91SIFMA and WilmerHale Equity. 

92WilmerHale Equity. 

93WilmerHale Equity. 

94WilmerHale Equity. 

95WilmerHale Equity. 

96WilmerHale Equity. 

97NASAA Equity. 98WilmerHale Equity. 

Material.’’ Therefore, FINRA proposes to 

amend the proposed rule change to 

delete the language stating that a 

violation of a firm’s policies and 

procedures shall constitute a violation 

of the rule itself. 

Information Barriers 

The proposed rule would require 

written policies and procedures to 

‘‘establish information barriers or other 

institutional safeguards reasonably 

designed 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 department personnel, 

who might be biased in their judgment 

or supervision.’’ 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.91 One commenter 

further suggested that the terms 

‘‘review’’ and ‘‘oversight’’ are 

redundant.92 FINRA does not agree that 

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

coextensive, as the former may connote 

informal evaluation, while the latter 

may signify more formal supervision or 

authority. And while other provisions of 

the proposed rule change may address 

related conduct—e.g., the provision that 

prohibits investment banking personnel 

from supervision or control of research 

analysts—this provision extends to 

‘‘other persons’’ who may be biased in 

their judgment or supervision. Finally, 

FINRA notes that ‘‘review, pressure or 

oversight’’ mirrors language in 

Sarbanes-Oxley. Accordingly, FINRA 

declines to revise the proposed rule. 

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.93 That was 

clearly FINRA’s intent, and FINRA 

believes that the rules of statutory 

construction would compel that result. 

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.94 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. FINRA believes the terms 

‘‘pressure’’ and ‘‘bias’’ are commonly 

understood, particularly in the context 

of rules intended to promote analyst 

independence and objectivity. To that 

end, FINRA notes that the terms appear 

in certain research-related provisions of 

Sarbanes-Oxley without definition. 

Thus, with respect to the commenter’s 

example, FINRA does not believe a bias 

would be present simply because 

someone insists that a research analyst 

comply with formatting or technology 

specifications that do not otherwise 

implicate the rules. 

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.95 FINRA believes the 

change would be consistent with the 

standard for policies and procedures 

elsewhere in the proposals, and 

therefore proposes to amend the 

provision as requested. 

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.96

(emphasis added) The commenter 

expressed concern about the 

emphasized language. Another 

commenter supported the proposed 

expansion of the current ‘‘catch-all’’ 

disclosure requirement.97

FINRA proposed the change to 

capture material conflicts of interest 

known by persons other than the 

research analyst (e.g., a supervisor or the 

head of research) who are in a position 

to improperly influence a research 

report. FINRA defined ‘‘ability to 

influence the content of a research 

report’’ in supplementary material 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.’’ 

The commenter stated that the proposed 

change could capture individuals 

(especially legal and compliance 

personnel) who might be required to 

disclose confidential information that is 

not covered by the exception in the 

proposals that would not require 

disclosure where it would ‘‘reveal 

material non-public information 

regarding specific potential future 

investment banking transactions of the 

subject company.’’ This is because, 

according to the commenter, legal and 

compliance may be aware of material 

conflicts of interest relating to the 

subject company that involve material 

non-public information regarding 

specific future investment banking 

transactions of a competitor of the 

subject company. The commenter also 

expressed concern the provision would 

slow down dissemination of research to 

canvass all research supervisors and 

management for conflicts. The 

commenter suggested that the change 

was unnecessary given other objectivity 

safeguards in the proposals that would 

guard against improper influence. 

FINRA continues to believe that a 

potential gap exists in the current rules 

where a supervisor or other person with 

the authority to change the content of a 

research report knows of a material 

conflict. However, FINRA intended for 

the provision to capture only those 

individuals who are required to review 

the content of a particular research 

report or have exercised their authority 

to review or change the research report 

prior to publication or distribution. In 

addition, FINRA did not intend to 

capture legal or compliance personnel 

who may review a research report for 

compliance purposes but are not 

authorized to dictate a particular 

recommendation, rating or price target. 

FINRA proposes to amend the 

supplementary material in the proposals 

consistent with this clarification. In 

addition, FINRA proposes to modify the 

exception in proposed Rules 2241(c)(5) 

and (d)(2) (applying to public 

appearances) not to require disclosure 

that would otherwise reveal material 

non-public information regarding 

specific potential future investment 

banking transactions, whether or not the 

transaction involves the subject 

company. 

One commenter 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.98 As long as 

a research report delivered 

electronically contains a hyperlink 

directly to the required disclosures, the 

standard will be satisfied. 

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Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices 14183 

99WilmerHale Equity. 100PIABA Equity. 101WilmerHale Equity. 

102NASAA Equity. 

103SIFMA, WilmerHale Equity. 

104SIFMA, WilmerHale Equity. 

105NASAA Equity. 

Research Products With Differing 

Recommendations 

The proposal requires 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. The 

proposals also include supplementary 

material that explains that firms may 

provide different research products to 

different classes of customers—e.g., long 

term fundamental research to all 

customers and short-term trading 

research to certain institutional 

customers—provided the products are 

not differentiated based on the timing of 

receipt of potentially market moving 

information and the firm discloses, if 

applicable, that one product may 

contain a different recommendation or 

rating from another product. 

One commenter supported the 

provisions as proposed with general 

disclosure,99 while another 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.100 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 commenter 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.101

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. 

Importantly, the supplementary 

material states that products may lead to 

different recommendations or ratings, 

provided that each is consistent with 

the member’s ratings system for each 

respective product. In other words, all 

differing recommendations or ratings 

must be reconcilable such that they are 

not truly at odds with one another. 

Since the proposals would not allow 

inconsistent recommendations that 

could mislead one or more investors, 

FINRA believes general disclosure of 

alternative products with different 

objectives and recommendations is 

appropriate relative to its investor 

protection benefits. 

Quiet Periods 

The proposal would eliminate or 

reduce the quiet periods during which 

a member may not publish or otherwise 

distribute research reports or make a 

public appearance following its 

participation in an offering. Citing 

recent enforcement actions in the 

research area, one commenter did not 

support elimination or reduction of the 

quiet periods.102 As discussed in more 

detail in Item 3 of the Proposing 

Release, FINRA believes that the 

separation, disclosure and certification 

requirements in the current rules and 

Regulation AC have had greater impact 

on the objectivity of research than 

maintaining quiet periods during which 

research may not be distributed and 

research analysts may not make public 

appearances. FINRA noted that there is 

a cost to investors when they are 

deprived of information and analysis 

during quiet periods. FINRA believes 

that the proposed changes to the quiet 

periods would promote information 

flow to investors without jeopardizing 

the objectivity of research. FINRA also 

notes that the enforcement actions cited 

by the commenter that favors retaining 

the existing quiet periods did not 

involve the quiet period provisions of 

the rules, nor in FINRA’s view would 

maintaining the current quiet periods 

have deterred the conduct in those 

cases. 

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 1933.103 FINRA agrees 

that those exceptions should be 

included and therefore proposes to 

amend the proposed rule change 

accordingly. 

Disclosure Requirements 

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.104 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.105

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.’’ FINRA believes that 

amending the equity proposal to the 

treat disclosure of debt holdings 

consistent with the debt proposal would 

promote consistency and efficiency 

while maintaining the same level of 

investor protection. Therefore, FINRA 

proposes to amend the proposed rule 

change accordingly, including 

modifying a similar disclosure 

requirement when making public 

appearances. 

Impact on Global Settlement 

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 

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14184 Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices 

106WilmerHale Equity. 

107 GAO, Securities Research, Additional Actions 

Could Improve Regulatory Oversight of Analyst 

Conflicts of Interest, January 2012. 

108NASAA Equity. 

109SIFMA. 

110WilmerHale Equity. 

111 15 U.S.C. 78o–3(b)(6). 

112 15 U.S.C. 78o–6. 113See Proposing Release, supra note 3. 

(‘‘Global Settlement’’).106 As discussed 

in the 2012 United States Government 

Accountability Office (‘‘GAO’’) Report 

on Securities Research,107 FINRA does 

not believe that the terms of the Global 

Settlement should be modified through 

FINRA rulemaking and instead should 

be determined by the court overseeing 

the enforcement action. Therefore, 

FINRA does not intend for any 

provisions of the equity proposal that 

may be adopted to supersede provisions 

of the Global Settlement. 

Exemptive Authority 

One commenter opposed the 

provision that would give FINRA the 

authority to grant, in exceptional or 

unusual circumstances, an exemption 

from the requirement of the proposed 

rule for good cause shown.108 The 

commenter stated that the provision had 

not been sufficiently justified by, among 

other things, providing examples of 

where an exemption would be justified. 

The purpose of exemptive authority is 

to provide a mechanism of relief in 

unusual factual circumstances that 

cannot be foreseen, where application of 

the rule would frustrate or be 

inconsistent with its intended purposes. 

As such, it is difficult if not impossible 

for FINRA to provide examples of where 

it would be appropriate to use the 

authority. However, as FINRA stated in 

the equity proposal rule filing, the scope 

of the rule’s subject matter and the 

diversity of firm sizes, structures and 

research business and distribution 

models make it more likely that factual 

circumstances may arise that had not 

been contemplated by the rule. In 

addition, the authority is limited not 

only to exceptional circumstances, but 

also to a showing of good cause. 

Implementation Date 

One commenter requested that the 

implementation date be at least 12 

months after SEC approval of the 

proposed rule change.109 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.110 FINRA is 

sensitive to the time firms will require 

to update their policies and procedures 

and systems to comply with the 

proposal and will take those factors into 

consideration when establishing 

implementation dates. 

FINRA believes that the foregoing 

fully responds to the issues raised by 

the commenters. 

FINRA will announce the effective 

date of the proposed rule change in a 

Regulatory Notice to be published no 

later than 60 days following 

Commission approval. The effective 

date will be no later than 180 days 

following publication of the Regulatory 

Notice announcing Commission 

approval. 

2. Statutory Basis 

FINRA believes that the proposed rule 

change is consistent with the provisions 

of Section 15A(b)(6) of the Act,111

which requires, among other things, that 

FINRA rules must 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. FINRA believes the 

proposed rule change protects investors 

and the public interest by maintaining, 

and in some cases expanding, structural 

safeguards to insulate research analysts 

from influences and pressures that 

could compromise the objectivity of 

research reports and public appearances 

on which investors rely to make 

investment decisions. FINRA further 

believes that the proposed rule change 

prevents fraudulent and manipulative 

acts and practices by requiring firms to 

identify and manage, often with 

extensive disclosure, conflicts of 

interest related to the preparation, 

content and distribution of research. At 

the same time, the proposal furthers the 

public interest by increasing 

information flow to investors in select 

circumstances—e.g., before and after the 

expiration of lock up provisions—where 

FINRA believes the integrity of research 

will not be compromised. 

Moreover, the proposed rule change is 

consistent with Section 15D of the 

Act,112 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. The 

proposed rule change requires firms to 

establish, maintain and enforce written 

policies and procedures reasonably 

designed to achieve compliance with 

the provisions of Section 15D, 

including: restricting prepublication 

clearance or approval of research reports 

by investment banking personnel or 

other persons not directly responsible 

for the preparation, content and 

distribution of research reports; 

prohibiting persons engaged in 

investment banking activities from 

supervision or control of research 

analysts, including influence or control 

over research analyst compensation 

evaluation and determination; 

prohibiting retaliation or threat of 

retaliation against research analysts for 

research or public appearances that are 

unfavorable to the member’s business 

interests; establishing quiet periods after 

public offerings during which members 

that have participated in the offering 

may not publish or otherwise distribute 

research; and establishing structural or 

institutional safeguards to protect 

analysts from the review, pressure or 

oversight of investment bankers or other 

non-research personnel that might be 

biased in their judgment or supervision. 

In addition, the proposed rule change 

requires disclosures consistent with 

Section 15D, including the requirement 

to disclose any material conflict of 

interest of the research analyst or 

member that the research analyst knows 

or has reason to know at the time of 

publication or distribution of a research 

report or during a public appearance. 

B. Self-Regulatory Organization’s 

Statement on Burden on Competition 

FINRA does not believe that the 

proposed rule change will result in any 

burden on competition that is not 

necessary or appropriate in furtherance 

of the purposes of the Act. FINRA 

provided a comprehensive statement 

regarding the burden on competition in 

the Proposing Release. FINRA’s 

response to comments and proposed 

revisions as set forth in this Amendment 

No. 1 do not change FINRA’s statement 

in the Proposing Release. 

C. Self-Regulatory Organization’s 

Statement on Comments on the 

Proposed Rule Change Received From 

Members, Participants, or Others 

Written comments on the proposed 

rule change were solicited by the 

Commission in response to the 

publication of SR–FINRA–2014–047.113

The Commission received four comment 

letters, which are summarized above. 

IV. Date of Effectiveness of the 

Proposed Rule Change and Timing for 

Commission Action 

Within 180 days after the date of 

publication of the initial notice in the 

Federal Register (i.e., November 24, 

2014) or within such longer period up 

to an additional 60 days (i) as the 

Commission may designate if it finds 

such longer period to be appropriate 

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Federal Register / Vol. 80, No. 52 / Wednesday, March 18, 2015 / Notices 14185 

114See supra note 6. 

115 17 CFR 200.30–3(a)(12). 

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

2 17 CFR 240.19b–4. 

3Underlying Symbol List A consists of OEX, 

XEO, SPX (including SPXW), SPXpm, SRO, VIX, 

VXST, Volatility Indexes and binary options. 

4See NASDAQ OMX PHLX LLC (‘‘PHLX’’) 

Pricing Schedule, Section II, Multiply Listed 

Options Fees. 

and publishes its reasons for so finding 

or (ii) as to which the self-regulatory 

organization consents, the Commission 

will issue an order approving or 

disapproving such proposed rule 

change, as amended. 

V. 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: 114

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 April 

8, 2015. 

For the Commission, by the Division of 

Trading and Markets, pursuant to delegated 

authority.115

Brent J. Fields, 

Secretary. 

[FR Doc. 2015–06092 Filed 3–17–15; 08:45 am] 

BILLING CODE 8011–01–P 

SECURITIES AND EXCHANGE 

COMMISSION 

[Release No. 34–74491; File No. SR–CBOE– 

2015–025] 

Self-Regulatory Organizations; 

Chicago Board Options Exchange, 

Incorporated; Notice of Filing and 

Immediate Effectiveness of a Proposed 

Rule Change To Amend the Fees 

Schedule 

March 12, 2015. 

Pursuant to Section 19(b)(1) of the 

Securities Exchange Act of 1934 (the 

‘‘Act’’),1 and Rule 19b–4 thereunder,2

notice is hereby given that on March 2, 

2015, Chicago Board Options Exchange, 

Incorporated (the ‘‘Exchange’’ or 

‘‘CBOE’’) filed with the Securities and 

Exchange Commission (the 

‘‘Commission’’) the proposed rule 

change as described in Items I, II, and 

III 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 Substance of 

the Proposed Rule Change 

The Exchange proposes to amend its 

Fees Schedule. The text of the proposed 

rule change is available on the 

Exchange’s Web site (http://

www.cboe.com/AboutCBOE/

CBOELegalRegulatoryHome.aspx), at 

the Exchange’s Office of the Secretary, 

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 

The Exchange proposes to amend its 

Fees Schedule, effective March 2, 2015. 

Currently, the Exchange assesses a $0.60 

per contract fee for electronic 

executions by broker-dealers, nonTrading Permit Holders (‘‘non-TPHs’’) 

Market-Makers, Professionals/Voluntary 

Professionals and Joint Back-Offices 

(‘‘JBOs’’) in non-Penny Pilot equity, 

ETF, ETN and index options (excluding 

Underlying Symbol List A 3) classes. 

The Exchange proposes increasing this 

transaction fee from $0.60 to $0.65 per 

contract. The Exchange notes that this 

increase is in line with the amount 

assessed by another exchange for similar 

transactions.4

The Exchange also seeks to append 

Footnote 16 to ‘‘Clearing Trading Permit 

Holder Proprietary’’ rows in the equity, 

ETF, ETN, Index, Specified Proprietary 

Index Options and Mini-Options rate 

tables. Footnote 16 of the Fees Schedule 

provides that ‘‘Broker-Dealer transaction 

fees apply to broker-dealer orders 

(orders with ‘‘B’’ origin code), nonTrading Permit Holder market-maker 

orders (orders with ‘‘N’’ origin code), 

orders from specialists in the underlying 

security (orders with ‘‘Y’’ origin code) 

and certain orders with ‘‘F’’ origin code 

(orders from OCC members that are not 

CBOE Trading Permit Holders).’’ The 

Exchange believes appending Footnote 

16 to the row in which the ‘‘F’’ origin 

code is listed clarifies that, in some 

instances, orders with the ‘‘F’’ origin 

code designation will be assessed 

Broker-Dealer transaction fees if the 

orders are from the Options Clearing 

Corporation (‘‘OCC’’) members that are 

not CBOE Trading Permit Holders 

(‘‘TPHs’’). The Exchange notes no 

substantive changes are being made by 

this change, rather the Exchange merely 

seeks to add further clarification and 

alleviate potential confusion. 

On January 2, 2015, the Exchange 

established an FBW fee for an updated 

version of FBW (‘‘FBW2’’), which the 

Exchange had anticipated making 

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