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FINRA Proposes Rule Changes Amending NASD Rule 2711 to Conform with JOBS Act
Practical Law Legal Update 9-521-6613 (Approx. 4 pages)
FINRA Proposes Rule Changes Amending NASD Rule 2711 to Conform with JOBS Act
by PLC Corporate & Securities
| Published on 02 Oct 2012 • USA (National/Federal) |
FINRA released proposed rule changes to amend NASD Rule 2711 (Research Analysts and Research Reports) to conform with the requirements of the JOBS Act.
On September 28, 2012, FINRA announced a proposed rule change to amend NASD Rule 2711 (Research Analysts and Research Reports) to conform to the requirements of the JOBS Act. In addition, the proposed rule makes certain changes to quiet period restrictions consistent with the policies underlying the JOBS Act. The proposed rule change also makes conforming amendments to Incorporated NYSE Rule 472 (Communications with the Public).
Section 105 of the JOBS Act, which became effective on April 5, 2012, relaxed the rules on research relating to emerging growth companies (EGCs) and amended the Exchange Act to prohibit the SEC or any national securities association from adopting or maintaining any rule or regulation in connection with certain analyst communications during IPOs of EGCs and in relation to the distribution of research reports or making public appearances concerning the securities of an EGC.
FINRA has proposed the following:
- Participating in communications. Amend current NASD Rule 2711(c)(4), which relates to research analyst participation in "pitch" meetings, to allow research analysts to attended these meetings in EGC IPOs subject to certain existing limitations. The proposed amendment conforms the rule to the requirements of the JOBS Act, as interpreted by the guidance issued by the SEC Division of Trading and Markets on August 22, 2012. The proposal would not provide relief from the provisions of the 2003 Global Research Settlement to party firms.
- Arranging communications. No conforming changes to current NASD Rule 2711(c)(6), which prohibits investment bankers from directing research analysts to engage in certain communications, are necessary. As the SEC guidance points out, the existing rule does not conflict with the requirements of Section 105(b) of the JOBS Act allowing investment bankers to arrange communications between research analysts and investors in EGC IPO. Again, Global Settlement party firms would remain subject to its restrictions.
- Quiet periods. Amend NASD Rule 2711 and Incorporated NYSE Rule 472 to eliminate the following quiet periods in connection with IPOs and secondary offerings of EGCs:
- NASD Rule 2711(f)(1)(A) which imposes a 40-day quiet period after an IPO on a member that acts as a manager or co-manager of the IPO;
- NASD Rule 2711(f)(1)(B) which imposes a 10-day quiet period after a secondary offering on a member that acts as a manager or co-manager of the offering;
- NASD Rule 2711(f)(2) which imposes a 25-day quiet period after an IPO on a member that participates as an underwriter or dealer (other than manager or co-manager) of the IPO; and
- NASD Rule 2711(f)(4) regarding the 15-day quiet period applicable to all managers and co-managers of an IPO or secondary offering prior to and after the expiration, waiver or termination of a lock-up agreement or any similar agreement that restricts or prohibits the sale of securities held by the subject company or its shareholders after the completion of the offering.
Previously, an ambiguity in the JOBS Act left an open question as to whether the elimination of the 15-day quiet period in Rule 2711(f)(4) for offerings of EGCs should apply to:
- Lock-up waivers in addition to the lock-up expiration.
- Both the 15-day period before and after a lock-up expiration, waiver or termination.
With this proposal, it appears the SEC and FINRA agree on a broad interpretation of the intent of the JOBS Act, eliminating all Rule 2711 quiet periods for EGC IPOs and secondary offerings and for the periods both before and after all lock-up waivers, expirations and terminations.
FINRA has requested the SEC to approve the proposed rule changes prior to the 30th day after its publication in the Federal Register. FINRA has requested that the proposed changes to NASD Rules 2711(c)(4), (f)(1)(A), (f)(2) and (f)(4) (regarding the 15-day quiet period before the expiration, termination or waiver of a lock-up agreement) and the corresponding changes to Incorporated NYSE Rule 472 be effective retroactively to April 5, 2012.
FINRA has also requested that the proposed changes to NASD Rules 2711(f)(1)(B) and (f)(4) (regarding the 15-day quiet period after the expiration, termination or waiver of a lock-up agreement) and the corresponding changes to Incorporated Rule 472 become effective on SEC approval.