
[Federal Register Volume 77, Number 238 (Tuesday, December 11, 2012)]
[Notices]
[Pages 73705-73708]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-29853]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-68354; File No. SR-NYSEMKT-2012-73]


Self-Regulatory Organizations; NYSE MKT LLC; Notice of Filing and 
Immediate Effectiveness of Proposed Rule Change Amending Rule 472--
Equities, Which Addresses Communications With the Public, Adopting New 
Rule Text To Conform to the Changes Adopted by the Financial Industry 
Regulatory Authority, Inc. for Research Analysts and Research Reports 
as Required by the Jumpstart Our Business Startups Act

December 4, 2012.
    Pursuant to Section 19(b)(1) \1\ of the Securities Exchange Act of 
1934 (the ``Act'') \2\ and Rule 19b-4 thereunder,\3\ notice is hereby 
given that on November 27, 2012, NYSE MKT LLC (the ``Exchange'' or 
``NYSE MKT'') filed with the Securities and Exchange Commission (the 
``Commission'' or ``SEC'') the proposed rule change as described in 
Items I and II below, which Items have been substantially prepared by 
the self-regulatory organization. The Commission is publishing this 
notice to solicit comments on the proposed rule change from interested 
persons.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 15 U.S.C. 78a.
    \3\ 17 CFR 240.19b-4.
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I. Self-Regulatory Organization's Statement of the Terms of Substance 
of the Proposed Rule Change

    The Exchange proposes to amend Rule 472--Equities, which addresses 
communications with the public, to adopt new rule text to conform to 
the changes adopted by the Financial Industry Regulatory Authority, 
Inc. (``FINRA'') for research analysts and research reports as required 
by the Jumpstart Our Business Startups Act (the ``JOBS Act'').\4\ The 
text of the proposed rule change is available on the Exchange's Web 
site at www.nyse.com, at the principal office of the Exchange, and at 
the Commission's Public Reference Room.
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    \4\ Public Law 112-106, 126 Stat. 306.
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II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    In its filing with the Commission, the self-regulatory organization 
included statements concerning the purpose of, and basis for, the 
proposed rule change and discussed any comments it received on the 
proposed rule change. The text of those statements may be examined at 
the places specified in Item IV below. The Exchange has prepared 
summaries, set forth in sections A, B, and C below, of the most 
significant parts of such statements.

A. Self-Regulatory Organization's Statement of the Purpose of, and the 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    The Exchange proposes to amend Rule 472--Equities, which addresses 
communications with the public, to adopt new rule text to conform to 
the changes adopted by FINRA for research analysts and research reports 
as required by the JOBS Act.\5\
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    \5\ See Securities Exchange Act Release No. 68037 (October 11, 
2012), 77 FR 63908 (October 17, 2012) (SR-FINRA-2012-045). See also 
FINRA Regulatory Notice 12-49.

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[[Page 73706]]

Background
    On July 30, 2007, FINRA's predecessor, the National Association of 
Securities Dealers, Inc. (``NASD''), and NYSE Regulation, Inc. 
(``NYSER'') consolidated their member firm regulation operations into a 
combined organization, FINRA. Pursuant to Rule 17d-2 under the 
Securities Exchange Act of 1934, as amended (the ``Act''), New York 
Stock Exchange LLC (``NYSE''), NYSER and FINRA entered into an 
agreement (the ``Agreement'') to reduce regulatory duplication for 
their members by allocating to FINRA certain regulatory 
responsibilities for certain NYSE rules and rule interpretations 
(``FINRA Incorporated NYSE Rules''). NYSE MKT became a party to the 
Agreement effective December 15, 2008.\6\
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    \6\ See Securities Exchange Act Release Nos. 56148 (July 26, 
2007), 72 FR 42146 (August 1, 2007) (order approving the Agreement); 
56147 (July 26, 2007), 72 FR 42166 (August 1, 2007) (SR-NASD-2007-
054) (order approving the incorporation of certain NYSE Rules as 
``Common Rules''); and 60409 (July 30, 2009), 74 FR 39353 (August 6, 
2009) (order approving the amended and restated Agreement, adding 
NYSE MKT LLC as a party). Paragraph 2(b) of the Agreement sets forth 
procedures regarding proposed changes by FINRA, NYSE or NYSE MKT to 
the substance of any of the Common Rules.
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    As part of its effort to reduce regulatory duplication and relieve 
firms that are members of FINRA, NYSE and NYSE MKT of conflicting or 
unnecessary regulatory burdens, FINRA is now engaged in the process of 
reviewing and amending the NASD and FINRA Incorporated NYSE Rules in 
order to create a consolidated FINRA rulebook.\7\
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    \7\ FINRA's rulebook currently has three sets of rules: (1) NASD 
Rules, (2) FINRA Incorporated NYSE Rules, and (3) consolidated FINRA 
Rules. The FINRA Incorporated NYSE Rules apply only to those members 
of FINRA that are also members of the NYSE (``Dual Members''), while 
the consolidated FINRA Rules apply to all FINRA members. For more 
information about the FINRA rulebook consolidation process, see 
FINRA Information Notice, March 12, 2008.
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Proposed Rule Change
    The Exchange proposes to amend Rule 472--Equities to adopt new rule 
text to conform to the changes adopted by FINRA for research analysts 
and research reports in NASD Rule 2711 and FINRA Incorporated NYSE Rule 
472. FINRA amended these rules primarily to conform to the requirements 
of the JOBS Act. The proposed changes to Rule 472--Equities are 
identical to the changes FINRA made to FINRA Incorporated NYSE Rule 
472.\8\
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    \8\ NYSE Rule 472 is identical to Rule 472--Equities.
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    The JOBS Act was signed into law on April 5, 2012. 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 Act to prohibit the 
Commission or any national securities association from adopting or 
maintaining any rule or regulation in connection with an initial public 
offering (``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 
a securities analyst.
    Section 105(d) further prohibits 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 
of the United States on April 5, 2012. On August 22, 2012, the SEC's 
Division of Trading and Markets provided guidance on these provisions 
in the form of Frequently Asked Questions (``FAQs'').\9\ The Exchange 
is amending Rule 472--Equities to conform with FINRA's amendments to 
the applicable provisions of NASD Rule 2711 and FINRA Incorporated NYSE 
Rule 472 to conform to the JOBS Act and the SEC staff's guidance with 
regard to the applicable JOBS Act provisions. The SEC staff guidance 
interprets the JOBS Act provisions as applicable to FINRA Incorporated 
NYSE Rule 472 to the same extent as NASD Rule 2711. As such, FINRA made 
corresponding amendments to Incorporated NYSE Rule 472. The proposed 
rule change corresponds identically to FINRA's amendments to FINRA 
Incorporated NYSE Rule 472.\10\
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    \9\ These FAQs are available at http://www.sec.gov/divisions/marketreg/tmjobsact-researchanalystsfaq.htm.
    \10\ See supra note 5.
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Arranging and Participating in Communications
    Rule 472(b)(5)--Equities prohibits a research analyst from 
participating ``in efforts to solicit investment banking business,'' 
including any ``pitches'' for investment banking business or other 
communications with companies for the purpose of soliciting investment 
banking business. The FAQs interpret the JOBS Act to now allow, in 
connection with an IPO of an EGC, research analysts to attend meetings 
with issuer management that are also attended by investment banking 
personnel, including pitch meetings, but not ``engage in otherwise 
prohibited conduct in such meetings,'' including ``efforts to solicit 
investment banking business.'' The FAQs further explain that a research 
analyst that attends a pitch meeting ``could, for example, introduce 
themselves, outline their research program and the types of factors 
that the analyst would consider in his or her analysis of a company, 
and ask follow-up questions to better understand a factual statement 
made by the [EGC's] management.'' Accordingly, the proposed rule change 
creates an exception to Rule 472(b)(5)--Equities to reflect this 
guidance regarding the application of the JOBS Act.
    The FAQs state that under Section 105(b) of the JOBS Act, an 
associated person of a broker-dealer, including investment banking 
personnel, may arrange communications between research analysts and 
investors in connection with an IPO of an EGC. As an example, the FAQs 
state that an investment banker could forward a list of clients to a 
research analyst that the analyst could, ``at his or her own discretion 
and with appropriate controls, contact.'' The FAQs acknowledge that no 
self-regulatory organization, including the Exchange, has a rule 
directly prohibiting this activity and further states that such 
activity, without more, would not constitute conduct by investment 
banking personnel to directly or indirectly direct a research analyst 
to engage in sales or marketing efforts related to an investment 
banking services transaction, in violation of Rule 472(b)(6)(ii)--
Equities.\11\ Accordingly,

[[Page 73707]]

this JOBS Act provision requires no conforming rule change.
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    \11\ See supra note 9. In 2003 and 2004, the Commission, self-
regulatory organizations, and other regulators instituted settled 
enforcement actions against 12 broker-dealers to address conflicts 
of interest between the firms' research and investment banking 
functions (``Global Settlement''). As the guidance point out, firms 
subject to the Global Settlement should also be mindful of the 
requirements of that court order as they remain in place.
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Quiet Periods
    Section 105(d) of the JOBS Act expressly permits publication of 
research and public appearances with respect to the securities of an 
EGC any time after the IPO of an EGC or prior to the expiration of any 
lock-up agreement. While the JOBS Act refers only to the ``expiration'' 
of a lock-up agreement, the FAQs note the Commission staff's belief 
that Congress intended for the JOBS Act provisions to apply equally to 
the period before a ``waiver'' or ``termination'' of a lock-up 
agreement. Thus, in accordance with SEC staff guidance on this JOBS Act 
provision, the proposed rule change amends Rule 472--Equities to 
eliminate the following quiet periods with respect to an IPO of an EGC:
     Rule 472(f)(1)--Equities, which imposes a 40-day quiet 
period after an IPO on a member organization that acts as a manager or 
co-manager of such IPO;
     Rule 472(f)(3)--Equities, which imposes a 25-day quiet 
period after an IPO on a member organization that participates as an 
underwriter or dealer (other than manager or co-manager) of such an 
IPO; and
     Rule 472(f)(4)--Equities with respect to the 15-day quiet 
period applicable to IPO managers and co-managers prior to the 
expiration, waiver, or termination of a lock-up agreement or any other 
agreement that such member organization has entered into with a subject 
company or its shareholders that restricts or prohibits the sale of 
securities held by the subject company or its shareholders after the 
completion of an IPO.
    The FAQs note that the JOBS Act makes no reference to quiet periods 
after a secondary offering or during a period of time after expiration, 
termination or waiver of a lock-up agreement. Accordingly, the FAQs 
note that Rule 472(f)(2)--Equities, which imposes a 10-day quiet period 
on managers and co-managers following a secondary offering and the 
remaining portion of Rule 472(f)(4)--Equities relating to quiet periods 
after the expiration, termination or waiver of a lock-up agreement, 
remain fully in effect. Nonetheless, the FAQs express the SEC staff's 
belief that the policies underlying the JOBS Act are equally applicable 
to quiet periods during these other times. The Exchange agrees that 
elimination of those quiet periods would advance the policy objectives 
of the JOBS Act and therefore has proposed to amend Rule 472(f)--
Equities accordingly.
    The Exchange also proposes to make a non-substantive change to 
correct the existing text of current Rule 472(f)(6)--Equities, which 
would become Rule 472(f)(7)--Equities as a result of the proposed 
changes described above.
2. Statutory Basis
    The Exchange believes that the proposed change is consistent with 
Section 6(b) of the Act,\12\ in general, and furthers the objectives of 
Section 6(b)(5) of the Act,\13\ in particular, because it is designed 
to prevent fraudulent and manipulative acts and practices, to promote 
just and equitable principles of trade, to foster cooperation and 
coordination with persons engaged in regulating, clearing, settling, 
processing information with respect to, and facilitating transactions 
in securities, to remove impediments to, and perfect the mechanisms of, 
a free and open market and a national market system.
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    \12\ 15 U.S.C. 78f(b).
    \13\ 15 U.S.C. 78f(b)(5).
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    The proposed changes to Rules 472(b)(5), (f)(1), (f)(3) and 
(f)(4)--Equities (with respect to the 15-day quiet period before the 
expiration, termination or waiver of a lock-up agreement) conform those 
rules to statutory mandates. The proposed additional changes to Rules 
472(f)(2) and (f)(4)--Equities further the policies underlying the 
statutory mandates by improving information flow to investors with 
respect to EGCs without sacrificing the reliability of research 
reports, as the other objectivity safeguards in Rule 472--Equities and 
SEC Regulation AC \14\ are effective and will continue to apply. In 
addition, the Exchange believes that the proposed rule changes will 
remove impediments to and perfect the mechanisms of a free and open 
market and a national market system not only because it will conform 
Exchange rules to statutory mandates, but also because it will 
harmonize Exchange rules with identical FINRA rules.
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    \14\ 17 CFR 242.500-05.
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purposes of the Act.

C. Self-Regulatory Organization's Statement on Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    No written comments were solicited or received with respect to the 
proposed rule change.

III. Date of Effectiveness of the Proposed Rule Change and Timing for 
Commission Action

    The Exchange has filed the proposed rule change pursuant to Section 
19(b)(3)(A)(iii) of the Act \15\ and Rule 19b-4(f)(6) thereunder.\16\ 
Because the proposed rule change does not: (i) Significantly affect the 
protection of investors or the public interest; (ii) impose any 
significant burden on competition; and (iii) become operative prior to 
30 days from the date on which it was filed, or such shorter time as 
the Commission may designate, if consistent with the protection of 
investors and the public interest, the proposed rule change has become 
effective pursuant to Section 19(b)(3)(A) of the Act and Rule 19b-
4(f)(6)(iii) thereunder.\17\
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    \15\ 15 U.S.C. 78s(b)(3)(A)(iii).
    \16\ 17 CFR 240.19b-4(f)(6).
    \17\ In addition, Rule 19b-4(f)(6) requires a self-regulatory 
organization to give the Commission written notice of its intent to 
file the proposed rule change at least five business days prior to 
the date of the filing of the proposed rule change, or such shorter 
time as designated by the Commission. The Exchange has satisfied 
this requirement.
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    A proposed rule change filed under Rule 19b-4(f)(6) \18\ normally 
does not become operative prior to 30 days after the date of the 
filing. However, pursuant to Rule 19b-4(f)(6)(iii),\19\ the Commission 
may designate a shorter time if such action is consistent with the 
protection of investors and the public interest. The Exchange has asked 
the Commission to waive the 30-day operative delay so that the proposal 
may become operative immediately upon filing. The Commission hereby 
grants the request.\20\ Waiving the 30-day operative delay will allow 
the Exchange to conform its rules to statutory mandates and harmonize 
Exchange rules with identical FINRA rules. The Commission believes it 
is consistent with the protection of investors and the public interest 
to waive the 30-day operative delay and, therefore, designates the 
proposal as operative upon filing.
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    \18\ 17 CFR 240.19b-4(f)(6).
    \19\ 17 CFR 240.19b-4(f)(6)(iii).
    \20\ For purposes only of waiving the 30-day operative delay, 
the Commission has considered the proposed rule change's impact on 
efficiency, competition, and capital formation. 15 U.S.C. 78c(f).
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    At any time within 60 days of the filing of such proposed rule 
change, the

[[Page 73708]]

Commission summarily may temporarily suspend such rule change if it 
appears to the Commission that such action is necessary or appropriate 
in the public interest, for the protection of investors, or otherwise 
in furtherance of the purposes of the Act.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change is consistent with the Act. Comments may be submitted by any of 
the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to rule-comments@sec.gov. Please include 
File Number SR-NYSEMKT-2012-73 on the subject line.

Paper Comments

     Send paper comments in triplicate to Elizabeth M. Murphy, 
Secretary, Securities and Exchange Commission, 100 F Street NE., 
Washington, DC 20549-1090.

All submissions should refer to File Number SR-NYSEMKT-2012-73. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Section, 100 F Street 
NE., Washington, DC 20549-1090. Copies of the filing will also be 
available for inspection and copying at the NYSE's principal office and 
on its Internet Web site at www.nyse.com. All comments received will be 
posted without change; the Commission does not edit personal 
identifying information from submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-NYSEMKT-2012-73 and should be submitted 
on or before January 2, 2013.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\21\
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    \21\ 17 CFR 200.30-3(a)(12).
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Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-29853 Filed 12-10-12; 8:45 am]
BILLING CODE 8011-01-P


