Executive Summary
FINRA is reminding member firms of the need for heightened supervision over solicitation and research activities in circumstances where an issuer has communicated an expectation of favorable research as a condition of participating in an offering. A copy of the notice can be found by clicking here. FINRA has stated that “NASD Rule 2711 fosters objectivity in research reports by, among other things, insulating research analysts from pressure to tailor their coverage to the interests of a firms current or prospective investment banking clients. To that end, NASD Rule 2711(e) prohibits firms from directly or indirectly offering favorable research or a specific rating or price target as consideration or inducement for the receipt of business or compensation. “NASD Rule 2711(c)(4) prohibits research analysts from participating in efforts to solicit investment banking business, including participation in “pitches” to prospective investment banking clients and other communications with issuers for the purpose of soliciting investment banking business. FINRA has interpreted that provision to prohibit in pitch materials any information about a firm’s research capacity in a manner that suggests, directly or indirectly, that the firm might provide favorable research coverage.
