[15061]
August 22, 2002
TO: SEC RULES COMMITTEE No. 67-02
COMPLIANCE ADVISORY COMMITTEE No. 63-02
INVESTMENT ADVISERS COMMITTEE No. 16-02
CLOSED-END INVESTMENT COMPANY COMMITTEE No. 33-02
RE: PROPOSED SEC REGULATION RELATING TO ANALYST CERTIFICATION
The Securities and Exchange Commission has published for comment proposed
Regulation Analyst Certification (“Regulation AC”) to address concerns regarding research
analyst independence and objectivity.1 Proposed Regulation AC is part of a continuing process
by the SEC to address conflicts of interest affecting research issued by securities firms and is
intended to complement other rules governing conflicts of interest, including rules recently
adopted by the NYSE and the NASD.2 The most significant aspects of the proposal are
summarized below.
Comments on proposed Regulation AC are due to the SEC no later than September
23, 2002. If you have any suggestions that you would like the Institute to include in its
comment letter, please contact the undersigned by phone at 202-371-5408, by fax at 202-326-
5839, or by e-mail at aburstein@ici.org no later than September 5.
Proposed Regulation AC would require, among other things, that any “research report”
disseminated by broker-dealers include certifications by “research analysts” that the views
expressed in the research report accurately reflect the analysts’ personal views, and whether the
analysts received compensation or other payments in connection with their specific
recommendations or views. Research analysts also would be required to provide certifications
and disclosures in connection with public appearances.
The proposed regulation defines “research report” as “a written communication that
includes an analysis of securities of an issuer or issuers, provides information reasonably
sufficient upon which to base an investment decision and includes a recommendation.”
1 Securities Act Release No. 8119 (August 2, 2002) (“Release”). The proposed regulation can be found on the SEC’s
web site at http://www.sec.gov/rules/proposed/33-8119.htm
2 See Memorandum to SEC Rules Members No. 35-02, Compliance Advisory Committee No. 40-02, Closed-End
Investment Company Members No. 20-02 and Investment Adviser Members No. 22-02, dated May 13, 2002.
2
“Research analyst” is defined as “any natural person who is principally responsible for the
analysis of any security or issuer included in a research report.”
The Release does not explicitly discuss the applicability of proposed Regulation AC to
portfolio managers. However, in its general request for comment, the SEC requests comment
whether the proposed definitions of “research report” and “research analyst” should be broader
or narrower than proposed and states in a footnote to this request for comment that “... we note
the term research analyst would not include an investment adviser, such as a mutual fund
portfolio manager, who is not principally responsible for preparing research reports, even if the
investment adviser is a registered person of a member.” The footnote further cites the recent
Joint Memorandum issued by the NYSE and the NASD which interpreted their respective rules
in this manner.3
The Release also notes that the application of proposed Regulation AC broadly covers
brokers or dealers and any person associated with a broker or dealer because the SEC believes
that these entities are subject to the greatest conflicts. The SEC requests comment, however, on
whether there are certain classes of persons associated with a broker-dealer that should not be
subject to the rule, and whether the rule should explicitly exclude investment advisers.
Ari Burstein
Associate Counsel
3 See Memorandum to SEC Rules Members No. 47-02, Compliance Advisory Committee No. 47-02, Closed-End
Investment Company Members No. 23-02 and Investment Adviser Members No. 26-02, dated July 3, 2002.