SEC Approves Revised Research Rules (Fed. Reg.)

Following an extended comment period, the SEC approved FINRA Rule 2241 governing equity research, and FINRA Rule 2242 governing debt research.

New FINRA Rule 2241 incorporates NASD Rule 2711 ("Research Analysts and Research Reports") into the FINRA Rulebook with significant modifications, and amends NASD Rule 1050 ("Registration of Research Analysts") to create an exception from the research analyst qualification requirement. While FINRA's new equity research rules builds on the existing framework of NASD Rule 2711, the new Rule contains an over-arching requirement to adopt policies and procedures to address conflicts of interest with respect to research, subject to certain specific requirements. The new rule also makes important amendments to existing requirements governing equity research.

New FINRA Rule 2242 addresses conflicts of interest relating to the publication and distribution of debt research reports. The debt research rule is based on the equity research rule, but contains important modifications reflecting differences between the equity and debt markets. The rule adopts a tiered approach in order to provide retail debt research recipients with "extensive protections" that are similar to those provided to the recipients of equity research under current and proposed FINRA rules, but with modifications to reflect differences in the trading of debt securities.

In light of changes to the existing equity research rules, and the adoption of a comprehensive framework governing debt research, firms will need to review their existing procedures both in light of the specific amendments to existing requirements, and to address the over-arching requirement to address conflicts of interest.

See: 80 FR 43482 (Adopting FINRA Rule 2241) ("Research Analysts and Research Reports"); 80 FR 43528 (Adopting FINRA Rule 2422) ("Debt Research Analysts and Debt Research Reports"). Related news: SEC Institutes Proceedings on FINRA Proposal to Adopt Rule Regarding Research Analysts and Reports (Fed. Reg.) (February 26, 2015); FINRA Proposes to Amend Debt Research Rules (November 14, 2014).