FINRA Provides Guidance on Prohibition Against Offering Favorable Research to Induce Participation in an Offering


The Financial Industry Regulatory Authority (FINRA) has issued Regulatory Notice 11-41 (the Notice) reminding firms of the prohibition against offering favorable research in return for an issuer’s investment banking business. It has come to FINRA’s attention that certain issuers may be attempting to extract implicit promises of favorable research from firms by suggesting (publicly or directly) to potential deal participants that positive research coverage would be a condition to being selected as an underwriter or selling group member.

NASD Rule 2711(e) prohibits firms from directly or indirectly offering favorable research or a specific rating or price target as consideration or inducement for business or compensation. NASD Rule 2711(c)(4) prohibits a firm’s research analysts from participating in any efforts to solicit investment banking business. Additionally, FINRA has interpreted Rule 2711(c)(4) to prohibit the inclusion of any information in pitch materials about a firm’s research capacity in a manner that suggests, directly or indirectly, that the firm might provide favorable research coverage.

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