[ by Howard Haykin ]

FINRA proposes to amend NASD Rule 2711, Research Analysts and Research Reports, in order to conform it with the requirements of the Jumpstart Our Business Startups Act ("JOBS Act") and make certain additional changes to quiet period restrictions consistent with the policies underlying the JOBS Act.  Conforming amendments also would be made to Incorporated NYSE Rule 472, Communications With The Public.

FINRA has asked the SEC to expedite its approval of the proposed rule change prior to the 30th day after its publication in the Federal Register because the JOBS Act has been effective since 4/5/12.  Using that date, FINRA also asked the SEC to approve the proposed rule changes retroactive to 4/5/12. 

The specific rules are: NASD Rules 2711(c)(4), (f)(1)(A), (f)(2) and (f)(4) - with respect to 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.

FINRA requests that the proposed changes to NASD Rules 2711(f)(1)(B) and (f)(4) - with respect to the 15-day quiet period after the expiration, termination or waiver of a lock-up agreement - and the corresponding changes to Incorporated NYSE Rule 472, which further the policies underlying the statutory mandates, become effective upon Commission approval.

Purpose of JOBS Act. Among other things, the JOBS Act is intended to help facilitate capital formation for "emerging growth companies" (EGCs) by improving the information flow about EGCs to investors. To that end, Section 105(b) of the JOBS Act amended Section 15D of the Exchange Act to prohibit the SEC or any national securities association from adopting or maintaining any rule or regulation in connection with an IPO of an EGC that:

• restricts, based on functional role, which associated persons of a broker, dealer or member of a national securities association, may arrange for communications between an analyst and a potential investor; or
• restricts a securities analyst from participating in any communication with the management of an EGC that is also attended by any other associated person of a broker, dealer, or member of a national securities association whose functional role is other than as securities analyst.

Section 105(d) further amends the Exchange Act to prohibit the Commission or any national securities association from adopting or maintaining any rule or regulation that prohibits a broker or dealer from publishing or distributing any research report or making a public appearance, with respect to the securities of an EGC either:

• within any prescribed period of time following the IPO date of the EGC; or
• within any prescribed period of time prior to the expiration date of any agreement between the broker, dealer, or member of a national securities association and the EGC or its shareholders that restricts or prohibits the sale of securities held by the EGC or its shareholders after the IPO date.

These provisions became effective upon signature of the President on 4/5/12.  On 8/22/12, SEC Trading and Markets Division provided guidance on these provisions in the form of FAQ's.  FINRA is amending the applicable provisions of NASD Rule 2711 to conform with the SEC guidance with regard to the applicable JOBS Act provisions.

For further details, particularly as relating to 'Arranging and Participating in Communications' and to 'Quiet Periods', go to:  [FINRA Rule Filing 12-45, 9/28/12].