FINRA Institutes Rule 2241, Replacing NASD Rule 2711 and NYSE Rule 472

On September 25, 2015, FINRA implemented a new rule regarding the relationship between investment banking personnel and research analysts. FINRA rule 2241 replaces NASD Rule 2711 and NYSE Rule 472. NASD Rule 2711 was created to prevent investment bankers from pressuring research analysts at the investment bank to write favorable research reports about securities that the investment bank was distributing or planning to distribute. Continue reading

Exam AlertOn September 25, 2015, FINRA implemented a new rule regarding the relationship between investment banking personnel and research analysts. FINRA rule 2241  replaces NASD Rule 2711 and NYSE Rule 472. NASD Rule 2711 was created to prevent investment bankers from pressuring research analysts at the investment bank to write favorable research reports about securities that the investment bank was distributing or planning to distribute.

The new rule is similar to the rules it replaces with a series of changes that will be implemented to further promote objective and reliable research.

The new rule requires member firms to establish, maintain and enforce written procedures regarding conflicts of interest between research analysts and other people within the firm (e.g., personnel from investment banking, trading and sales). The written policies and procedures should allow analysts to produce objective and reliable research that reflects their true opinions about the securities they are evaluating. The policies and procedures should prevent firms from using research to manipulate or condition the market.

Rule 2241 prevents investment banking personnel from reviewing research reports for factual accuracy before publication. This practice was allowed in the previous rule. Also, firms must specify in their policies and procedures if and when non-research personnel would be allowed to review a research report before publication. If such prepublication review by non-research personnel is permitted then a firm’s written policies and procedures must specify under what circumstances that would be necessary and appropriate. Under the new rule, a FINRA member firm’s written policies and procedures must prohibit pre-publication review of research reports by a subject company (i.e., an issuer) for purposes other than fact-checking.

The new rule says that firms must establish information barriers to ensure that research analysts are insulated from the review, pressure or oversight of other personnel, such as investment banking, sales, and trading. The rule also extends the prohibition on retaliation, preventing employees from retaliating against a research analyst for writing an unfavorable report.

Interestingly, the rule 2241 reduces the quiet periods for IPOs to 10 days for all underwriters and dealers involved in the IPO (it was formerly 40 days for managers and co-managers and 25 days for underwriters and dealers). The quiet period has been reduced to three days for managers or co-managers on follow-on offerings. During a quiet period, firms may not publish or distribute research reports about the issuer, and research analysts may not make public appearances about the issuer.

The new rule continues to prevent investment-banking personnel from supervising research analysts or exerting any influence over analysts’ compensation. In addition, research analysts may not participate in the solicitation of investment banking business. Moreover, research analysts may not communicate with a customer or prospective customer about an investment banking transaction in the presence of the firm’s management or investment banking department personnel. Similarly, investment-banking personnel are forbidden from directing a research analyst either to participate in soliciting investment-banking business or to communicate with a customer or prospective customer about an investment banking transaction.

Note: In 2012, the Jumpstart Our Business Startups (JOBS) Act loosened constraints on research analysts for emerging growth companies (EGCs), defined as businesses with less than $1 billion in revenue. Specifically, the JOBS Act prohibits regulators from imposing a quiet period on EGCs. This means that research analysts from an underwriting firm that participated in an emerging growth company’s IPO may make both public appearances and distribute research reports during the quiet period. If the company is an emerging growth company, a research analyst may attend a pitch meeting, but not participate in soliciting investment-banking business.

Source: Regulatory Notice 15-30

This alert applies to the Series 7, Series 24, Series 79, and Series 82.

Exam Alert: FINRA Revises Proxy-forwarding Fee Rules

Effective January 1, 2014, FINRA has amended FINRA Rule 2251, Forwarding of Proxy and Other Issuer-related Materials. The changes apply to the rates of reimbursement for processing and forwarding proxy and other issuer-related materials. The changes also establish a “success fee” that will go to developing Internet platforms for proxy voting. Continue reading

Effective January 1, 2014, FINRA has amended FINRA Rule 2251, Forwarding of Proxy and Other Issuer-related Materials. The changes apply to the rates of reimbursement for processing and forwarding proxy and other issuer-related materials. The changes also establish a “success fee” that will go to developing Internet platforms for proxy voting. These changes bring the FINRA rule in line with recent changes to the corresponding NYSE rule.

Source: FINRA Regulatory Notice 14-03

This alert applies to the Series 6, Series 7, and Series 24.

Exam Alert: NYSE Amex renamed NYSE MKT

Effective May 14, 2012, NYSE Amex was renamed NYSE MKT. NYSE Amex Options market has retained its name. Continue reading

Effective May 14, 2012, NYSE Amex was renamed NYSE MKT.  NYSE Amex Options market has retained its name.

NYSE MKT (formerly NYSE Amex) is a market for listing and trading small growth companies.

Source: “NYSE Amex LLC to be renamed NYSE MKT LLC” (NYSE news release)

This alert applies to the Series 7, Series 62, Series 24, Series 65, and Series 66.

Exam Alert: National exchanges and FINRA to implement new standards for trading halts

Effective February 4, 2013, the national securities exchanges and FINRA will put into place new standards for halting trading both in single stocks and for the whole market. Halts in individual securities will use a “limit up-limit down” mechanism, meaning that it will prevent the security from trading outside of a specified price range based on the average price of the security over the past 5 minutes. Market halts will trigger on smaller drops in the market, and will last for shorter periods of time. Continue reading

Effective February 4, 2013, the national securities exchanges and FINRA will put into place new standards for halting trading both for single stocks and for the whole market.

 

Halts in individual securities will use a “limit up-limit down” mechanism, meaning that it will prevent the security from trading outside of a specified price range based on the average price of the security over the past 5 minutes.  The range is a given percentage above and below that value, as follows:

-For more liquid securities (such as those in the S&P 500) priced above $3, the price range is 5% above and below the average price of the security over the past 5 minutes.

-For other securities priced above $3, the price range is 10% above and below.

-For securities priced between $0.75 and $3, inclusive, the price range is 20% above and below.

-For securities priced under $0.75, the price range is the lesser of $0.15 or 75% above and below.

These percentages will be doubled during the first 15 minutes of trading and the last 25 minutes of trading.  Whenever a security cannot trade within the specified price range for over 15 seconds, trading in the security will be paused for 5 minutes.

 

Market halts will trigger on smaller drops in the market, and will last for shorter periods of time.  The new market halts will trigger at the following thresholds, with the following effects:

-Level 1 Halt: triggers on a 7% drop, will halt trading for 15 minutes if it occurs before 3:25 PM (there is no effect if it triggers after 3:25 PM).

-Level 2 Halt: triggers on a 13% drop, will halt trading for 15 minutes if it occurs before 3:25 PM (there is no effect if it triggers after 3:25 PM).

-Level 3 Halt: triggers on a 20% drop, will halt trading for the rest of the day (regardless of when it occurs).

In addition, market halts will reference the S&P 500 as the pricing reference for determining market declines and the trigger thresholds will be recalculated daily.  (The current rules reference the Dow Jones Industrial Average and recalculate the thresholds monthly.)

 

Sources:

SEC Approves Proposals to Address Extraordinary Volatility in Individual Stocks and Broader Stock Market (SEC Release 2012-107)

SEC Approves Market-Wide & Single-Stock Circuit Breakers (Securities Technology Monitor)

Further reading (details current rules and gives reasoning for the limit up-limit down mechanism):

Circuit Breakers and Other Market Volatility Procedures (SEC)

 

This alert applies to the Series 55, Series 62, Series 24, and Series 7.

Exam Alert: NYSE changes pegging quote rules

Effective February 3, 2012, the NYSE has modified its rules regarding pegging quotes. A pegging quote is a quote that is set to be available for execution at the national best bid or national best offer. This quote is automatically updated as the national best bid or offer (NBBO) changes, as long as the NBBO is at or within the quote’s limit price. Continue reading

Effective February 3, 2012, the NYSE has modified NYSE Rules 70.26 and 72 regarding pegging quotes.  A pegging quote is a quote that is set to be available for execution at the national best bid or national best offer.  This quote is automatically updated as the national best bid or offer (NBBO) changes, as long as the NBBO is at or within the quote’s limit price.  Essentially, the broker states a range where they will match the national best bid or national best offer, and as long as the NBBO is in that range, the broker “pegs” their quote for the security to that value.

The changes are as follows:

-A pegging quote no longer matches the national best bid (or offer) if it would lock or cross the Exchange best offer (or bid).  Instead, the quote matches the best-priced non-pegging quote that does not lock or cross the Exchange best offer (or bid).

-If the national best bid or offer is outside the price range chosen by the broker for a pegging quote, the quote matches the next available best-priced non-pegging quote within the selected price range.

-Brokers may no longer specify a maximum volume to limit the quotes that a pegging quote will match.

-A non-pegging quote at the Exchange best bid or offer is considered the setting interest, even if a pegging quote matches its price.  The setting interest receives priority in allocation of executions.

Source: NYSE Information Memo 12-3

This alert applies to the Series 7.  The Series 7 addresses NYSE rules, including Rules 70 and 72.

Exam Alert: NYSE Euronext and Deutsche Boerse cancel merger after EU ruling

On February 1, 2012, the European Commission blocked the merger of NYSE Euronext and Deutsche Boerse, two major exchanges, on the grounds that the combined entity would have a near-monopoly on the European derivatives market. On February 2, 2012, NYSE Euronext announced that, in light of the ruling, both companies have agreed to cancel the merger. Continue reading

On February 1, 2012, the European Commission blocked the merger of NYSE Euronext and Deutsche Boerse, two major exchanges, on the grounds that the combined entity would have a near-monopoly on the European derivatives market.  On February 2, 2012, NYSE Euronext announced that, in light of the ruling, both companies have agreed to cancel the merger.

Sources: “EU blocks Deutsche Boerse/NYSE merger, cites near-monopoly”, “NYSE EURONEXT AND DEUTSCHE BOERSE TERMINATE BUSINESS COMBINATION AGREEMENT”

Prior related alert: “Exam Alert: NYSE Euronext and Deutsche Boerse announce merger”

This alert applies to the Series 79, Series 62, Series 24, Series 99, Series 7, Series 65, and Series 66.

Exam Alert: SEC approves tougher listing standards for reverse merger companies

On November 9, 2011, the SEC approved stricter listing requirements for reverse merger companies seeking to be listed on NYSE Amex, NYSE, or NASDAQ. Such a company must trade on another exchange or on the over-the-counter market for one year before listing. The company must also maintain a minimum share price for a specified duration and for 30 of the 60 trading days before the listing application. Certain exemptions apply. Continue reading

On November 9, 2011, the SEC approved stricter listing requirements for reverse merger companies seeking to be listed on NYSE Amex, NYSE, or NASDAQ.  Such a company must trade on another exchange or on the over-the-counter market for one year before listing.  The company must also maintain a minimum share price for a specified duration and for 30 of the 60 trading days before the listing application.  Certain exemptions apply.

Source: SEC Release 2011-235

This alert applies to the Series 79, Series 24, Series 62, and Series 7.

Exam Alert: NYSE Euronext and Deutsche Boerse announce merger

On February 15, 2011, Deutsche Boerse AG and NYSE Euronext announced a merger between the two companies. The combined company will serve as “the world’s Continue reading

On February 15, 2011, Deutsche Boerse AG and NYSE Euronext announced a merger between the two companies.  The combined company will serve as “the world’s largest trading powerhouse,” according to the Securities Technology Monitor.  The name of the combined company has not been announced.  The deal has been structured such that Deutsche Boerse shareholders will own 60% of the company, while NYSE Euronext shareholders will own 40%.

http://www.nyse.com/press/1297768048707.html