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Sarbanes Oxley
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SEC. 501.
TREATMENT OF SECURITIES ANALYSTS BY REGISTERED
SECURITIES
ASSOCIATIONS AND NATIONAL SECURITIES
EXCHANGES.
(a) RULES REGARDING
SECURITIES ANALYSTS.—The Securities
Exchange Act
of 1934 (15 U.S.C. 78a et seq.) is amended by
inserting
after section 15C the following new section:
‘‘SEC. 15D.
SECURITIES ANALYSTS AND RESEARCH REPORTS.
‘‘(a) ANALYST
PROTECTIONS.—The Commission, or
upon the
authorization
and direction of the Commission, a registered
securities
association
or national securities exchange, shall have
adopted,
not later
than 1 year after the date of enactment of
this section,
rules
reasonably designed to address conflicts of
interest that can
arise when
securities analysts recommend equity
securities in
research
reports and public appearances, in order to
improve the
objectivity
of research and provide investors with more
useful and
reliable
information, including rules designed—
‘‘(1) to
foster greater public confidence in securities
research, and
to protect the objectivity and independence of
securities
analysts, by—
‘‘(A)
restricting the prepublication clearance or
approval of
research reports by persons employed by the
broker or
dealer who are engaged in investment banking
activities,
or persons not directly responsible for
investment
research,
other than legal or compliance staff;
‘‘(B)
limiting the supervision and compensatory
evaluation
of securities
analysts to officials employed by the
broker or
dealer who are not engaged in investment
banking
activities; and
‘‘(C)
requiring that a broker or dealer and persons
employed by a
broker or dealer who are involved with
investment
banking activities may not, directly or
indirectly,
retaliate against or threaten to retaliate
against
any
securities analyst employed by that broker or
dealer
or its
affiliates as a result of an adverse,
negative, or
otherwise
unfavorable research report that may adversely
affect the
present or prospective investment banking
relationship
of the broker
or dealer with the issuer that is
the subject
of the research report, except that such rules
may not limit
the authority of a broker or dealer to
discipline
a securities
analyst for causes other than such
research
report in accordance with the policies and
procedures
of the firm;
‘‘(2) to
define periods during which brokers or dealers
who
have
participated, or are to participate, in a
public offering
of securities
as underwriters or dealers should not publish
or otherwise
distribute research reports relating to such
securities
or to the
issuer of such securities;
‘‘(3) to
establish structural and institutional
safeguards
within
registered brokers or dealers to assure that
securities
analysts are
separated by appropriate informational
partitions
within the
firm from the review, pressure, or oversight
of
those whose
involvement in investment banking activities
might
potentially bias their judgment or
supervision; and
‘‘(4) to
address such other issues as the Commission,
or
such
association or exchange, determines
appropriate.
‘‘(b) DISCLOSURE.—The
Commission, or upon the authorization
and direction
of the Commission, a registered securities
association
or national
securities exchange, shall have adopted, not
later than
1 year after
the date of enactment of this section, rules
reasonably
designed to
require each securities analyst to disclose in
public
appearances,
and each registered broker or dealer to
disclose in
each research
report, as applicable, conflicts of interest
that are
known or
should have been known by the securities
analyst or
the broker or
dealer, to exist at the time of the appearance
or
the date of
distribution of the report, including—
‘‘(1) the
extent to which the securities analyst has
debt
or equity
investments in the issuer that is the subject
of the
appearance or
research report;
‘‘(2) whether
any compensation has been received by the
registered
broker or dealer, or any affiliate thereof,
including
the
securities analyst, from the issuer that is
the subject of
the
appearance or research report, subject to such
exemptions
as the
Commission may determine appropriate and
necessary
to prevent
disclosure by virtue of this paragraph of
material
non-public
information regarding specific potential
future
investment
banking transactions of such issuer, as is
appropriate
in the public
interest and consistent with the protection
of investors;
‘‘(3) whether
an issuer, the securities of which are
recommended
in the
appearance or research report, currently is,
or during the
1-year period preceding the date of the
appearance
or date of
distribution of the report has been, a client
of the
registered
broker or dealer, and if so, stating the types
of
services
provided to the issuer;
‘‘(4) whether
the securities analyst received compensation
with respect
to a research report, based upon (among any
other
factors) the investment banking revenues
(either generally
or
specifically earned from the issuer being
analyzed)
of the
registered broker or dealer; and
‘‘(5) such
other disclosures of conflicts of interest
that are
material to
investors, research analysts, or the broker or
dealer
as the
Commission, or such association or exchange,
determines
appropriate.
‘‘(c) DEFINITIONS.—In
this section—
‘‘(1) the
term ‘securities analyst’ means any associated
person
of a
registered broker or dealer that is
principally responsible
for, and any
associated person who reports directly or
indirectly to
a securities analyst in connection with, the
preparation
of the substance of a research report, whether
or not any
such person has the job title of ‘securities
analyst’;
and
‘‘(2) the
term ‘research report’ means a written or
electronic
communication
that includes an analysis of equity securities
of individual
companies or industries, and that provides
information
reasonably sufficient upon which to base an
investment
decision.’’.
(b) ENFORCEMENT.—Section
21B(a) of the Securities Exchange
Act of 1934
(15 U.S.C. 78u–2(a)) is amended by inserting
‘‘15D,’’
before
‘‘15B’’.
(c) COMMISSION
AUTHORITY.—The Commission may
promulgate
and amend its
regulations, or direct a registered securities
association
or national
securities exchange to promulgate and amend
its
rules, to
carry out section 15D of the Securities
Exchange Act
of 1934, as
added by this section, as is necessary for the
protection
of investors
and in the public interest.
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