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Introduction and overview
Recently, the Financial Industry Regulatory Authority ("FINRA") issued Regulatory Notice 11-11 requesting comment on a concept proposal to further regulate fixed-income research reports, including through both substantive regulation and additional disclosure requirements (1). The concept proposal would apply much of the regulation currently in place with respect to equity research to fixed income research that is distributed to retail investors, while exempting research provided solely to institutional investors from many, but not all, of those provisions.
FINRA describes the concept proposal as one that would apply "objective safeguards and disclosure requirements" to fixed-income research with a "tiered" approach that would exempt fixed-income research provided solely to institutional investors from some of the regulation currently required with respect to equity research.
At present, FINRAs principal research rules apply only to "equity securities", and to research analysts that prepare equity securities (2).
FINRA developed the concept proposal in order to harmonize equity and fixed-income research regulation, and to regulate perceived conflicts of interest in fixed-income research. The proposed rule extends regulatory requirements to fixed income research that are similar to those applicable to equity research, while subjecting research distributed solely to institutional investors to a more general "health warning". Under the concept proposal institutional investors would be permitted to choose to receive the full protections accorded to retail investors.
In the release, FINRA has proposed a definition of "debt research report" tracking the current definition in NASD Rule 2711 for equity research, and subject to the same exceptions as in that rule. Under Rule 2711, a research report is defined as "a communication that includes an analysis of securities and that provides information reasonably sufficient on which to base an investment decision". Although the release envisions several provisions in the final rule relating to "debt analysts", no definition of that term is explicitly proposed, and no reference is made to the definition of "research analyst" that appears in NASD …