Last week, the Financial Industry Regulatory Authority (FINRA) announced that it is seeking comment on a potential safe harbor for “desk commentary,” in what will likely be viewed by the industry as a welcome development. Desk commentary has generally not been treated as a “research report” under FINRA’s rules because commentary does not “include an analysis of” the relevant security “that provides information reasonably sufficient upon which to base an investment decision.” Typical examples of desk commentary would be an email or message from a trader to institutional investors regarding the trader’s observations about recent market events. However, until now, FINRA had never explicitly recognized a desk commentary exception to the broad definition of a research report. Recently, the common industry understanding had been questioned during FINRA examinations and investigations. FINRA exam staff, for example, have taken the position that desk commentary relating to either debt or equity securities could be considered a research report even if it contained only a very limited discussion about the fundamentals of an issuer or security.
If approved, the safe harbor would shield some desk commentary from the requirements relating to research regarding equity and debt securities imposed by FINRA Rules 2241 and 2242. According to FINRA, the proposed safe harbor would have no effect on the operation of the institutional-debt research exemption in Rule 2242(j).
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