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Addendum A
Undertakings
The firm shall comply with the following undertakings:
1.
Reporting
Lines. Research and Investment Banking will be
separate units with entirely separate reporting lines within the firm – i.e.,
Research will not report directly or indirectly to or through Investment
Banking. For these purposes, the head of
Research may report to or through a person or persons to whom the head of
Investment Banking also reports, provided that such person or persons have no
direct responsibility for Investment Banking or investment banking activities.
a. As used throughout this Addendum, the term
“firm” means the Respondent, Respondent’s successors and assigns (which, for
these purposes, shall include a successor or assign to Respondent’s investment
banking and research operations), and their affiliates, other than “exempt
investment adviser affiliates.”
b. As used throughout this Addendum, the term
“exempt investment adviser affiliate” means an investment adviser affiliate
(including for these purposes, a separately identifiable department or division
that is principally engaged in the provision of investment advice to managed
accounts as governed by the Investment Advisers Act of 1940 or investment companies
under the Investment Company Act of 1940) having no officers (or persons
performing similar functions) or employees in common with the firm (which, for
purposes of this Section I.1.b, shall not include the investment adviser
affiliate) who can influence the activities of the firm’s Research personnel or
the content of the firm’s research reports; provided that the firm (i)
maintains and enforces written policies and procedures reasonably designed to
prevent the firm, any controlling persons, officers (or persons performing
similar functions), or employees of the firm from influencing or seeking to
influence the activities of Research personnel of, or the content of research
reports prepared by the investment adviser affiliate; (ii) obtains an annual independent
assessment of the operation of such policies and procedures; and (iii) does not
furnish to its customers research reports prepared by the investment adviser
affiliate or otherwise use such investment adviser affiliate to do indirectly
what the firm may not do directly under this Addendum.
c. As used throughout this Addendum, the term
“Investment Banking” means all firm personnel engaged principally in investment
banking activities, including the solicitation of issuers and structuring of
public offering and other investment banking transactions. It also includes all firm personnel who are
directly or indirectly supervised by such persons and all personnel who
directly or indirectly supervise such persons, up to and including Investment
Banking management.
d. As used throughout this Addendum, the term
“Research” means all firm personnel engaged principally in the preparation
and/or publication of research reports, including firm personnel who are
directly or indirectly supervised by such persons and those who directly or
indirectly supervise such persons, up to and including Research management.
e. As used throughout this Addendum, the term
“research report” means any written (including electronic) communication that
is furnished by the firm to investors in the U.S. and that includes an analysis
of the common stock, any security convertible into common stock, or any
derivative thereof, including American Depositary Receipts (collectively,
“Securities”), of an issuer or issuers and provides information reasonably
sufficient upon which to base an investment decision; provided, however, that a
“research report” shall not include:
i.
the
following communications, if they do not include (except as specified below) an
analysis, recommendation or rating (e.g., buy/sell/hold, under perform/market
perform/outperform, underweight/market weight/overweight, etc.) of individual
securities or issuers:
1.
reports
discussing broad-based indices, such as the Russell 2000 or S&P 500 index;
2.
reports
commenting on economic, political or market (including trading) conditions;
3.
technical
or quantitative analysis concerning the demand and supply for a sector, index
or industry based on trading volume and price;
4.
reports
that recommend increasing or decreasing holdings in particular industries or
sectors or types of securities; and
5.
statistical
summaries of multiple companies’ financial data and broad-based summaries or
listings of recommendations or ratings contained in previously-issued research
reports, provided that such summaries or listings do not include any analysis
of individual companies; and
ii.
the
following communications, even if they include information reasonably
sufficient upon which to base an investment decision or a recommendation or
rating of individual securities or companies:
1.
an
analysis prepared for a current or prospective investing customer or group of
current or prospective investing customers by a registered salesperson or
trader who is (or group of registered salespersons or traders who are) not
principally engaged in the preparation or publication of research reports; and
2. periodic reports, solicitations or other
communications prepared for current or prospective investment company shareholders (or similar
beneficial owners of trusts and limited partnerships) or discretionary
investment account clients, provided that such communications discuss past
performance or the basis for previously made discretionary investment
decisions.
2. Legal/Compliance. Research will have its own dedicated legal
and
compliance
staff, who may be a part of the firm’s overall compliance/legal infrastructure.
3. Budget. For the firm’s first fiscal year following
the entry of the Final Judgment in the SEC’s action against Respondent in a
related proceeding (“Final Judgment”)
and thereafter, Research budget and allocation of Research expenses will be
determined by the firm’s senior management (e.g., CEO/Chairman/management
committee, other than Investment Banking personnel) without input from
Investment Banking and without regard to specific revenues or results derived
from Investment Banking, though revenues and results of the firm as a whole may
be considered in determining Research budget and allocation of Research
expenses. On an annual basis thereafter,
the Audit Committee of the firm’s holding/parent company (or comparable
independent persons/group without management responsibilities) will review the
budgeting and expense allocation process with respect to Research to ensure
compliance with this requirement.
4. Physical Separation. Research and Investment Banking will be
physically separated. Such physical
separation will be reasonably designed to prevent the intentional and
unintentional flow of information between Research and Investment Banking.
5.
Compensation.
Compensation of professional Research personnel will be determined
exclusively by Research management and the firm’s senior management (but not
including Investment Banking personnel) using the following principles:
a. Investment Banking will have no input into
compensation decisions.
b. Compensation may not be based directly or
indirectly on Investment Banking revenues or results; provided, however, that
compensation may relate to the revenues or results of the firm as a whole.
c. A significant portion of the compensation of
anyone principally engaged in the preparation of research reports (as defined
in this Addendum) that he or she is required to certify pursuant to the U.S.
Securities and Exchange’s Regulation Analyst Certification (“Regulation AC”)
(such person hereinafter a “lead analyst”) must be based on quantifiable
measures of the quality and accuracy
of the lead analyst’s research and analysis, including his or her ratings and
price targets, if any. In assessing
quality, the firm may rely on, among other things, evaluations by the firm’s
investing customers, evaluations by the firm’s sales personnel and rankings in
independent surveys. In assessing
accuracy, the firm may use the actual performance of a company or its equity
securities to rank its own lead analysts’ ratings and price targets, if any,
and forecasts, if any, against those of other firms, as well as against
benchmarks such as market or sector indices.
d. Other factors that may be taken into
consideration in determining lead analyst compensation include: (i) market capitalization of, and the
potential interest of the firm’s investing clients in research with respect to,
the industry covered by the analyst; (ii) Research management’s assessment of
the analyst’s overall performance of job duties, abilities and leadership;
(iii) the analyst’s seniority and experience; (iv) the analyst’s productivity;
and (v) the market for the hiring and retention of analysts.
e. The criteria to be used for compensation
decisions will be determined by Research management and the firm’s senior
management (not including Investment Banking) and set forth in writing in
advance.
f. Research management will document the basis
for each compensation decision made with respect to (i) anyone who, in the last
12 months, has been required to certify a research report (as defined in this
Addendum) pursuant to Regulation AC; and (ii) anyone who is a member of
Research management (except in the case of senior-most Research management, in
which case the basis for each compensation decision will be documented by the
firm’s senior management).
On an annual
basis, the Compensation Committee of the firm’s holding/parent company (or
comparable independent persons/group without management responsibilities) will
review the compensation process for Research personnel. Such review will be reasonably designed to
ensure that compensation decisions have been made in a manner that is
consistent with these requirements.
6. Evaluations. Evaluations of Research personnel will not be
done by, nor will there be input from, Investment Banking personnel.
7. Coverage. Investment Banking will have no input into
company-specific coverage decisions
(i.e., whether or not to initiate or terminate coverage of a particular company
in research reports furnished by the firm), and investment banking revenues or
potential revenues will not be taken into account in making company-specific
coverage decisions; provided, however, that this requirement does not apply to
category-by-category coverage decisions (e.g., a given industry sector, all
issuers underwritten by the firm, companies meeting a certain market cap
threshold).
8. Termination of Coverage. When
a decision is made to terminate coverage of a particular company in the firm’s
research reports (whether as a result of a company-specific or
category-by-category decision), the firm will make available a final research
report on the company using the means of dissemination equivalent to those it
ordinarily uses; provided, however, that no final report is required for any company
as to which the firm’s prior coverage has been limited to purely quantitative
analysis. Such report will be comparable
to prior reports, unless it is impracticable for the firm to produce a
comparable report (e.g., if the analyst covering the company and/or sector has
left the firm). In any event, the final
research report must disclose: the
firm’s termination of coverage; and the rationale for the decision to terminate
coverage.
9.
Prohibition on
Soliciting Investment Banking Business. Research is prohibited from participating in
efforts to solicit investment banking business.
Accordingly, Research may not, among other things, participate in any
“pitches” for investment banking business to prospective investment banking
clients, or have other communications with companies for the purpose of
soliciting investment banking business.
10. Firewalls Between Research and Investment Banking. So as to
reduce further the potential for conflicts of interest or the appearance of
conflicts of interest, the firm must create and enforce firewalls between
Research and Investment Banking reasonably designed to prohibit all
communications between the two except as expressly described below:
a. Investment Banking personnel may seek,
through Research management (or an appropriate designee with comparable
management or control responsibilities (“Designee”)) or in the presence of
internal legal or compliance staff, the views of Research personnel about the
merits of a proposed transaction, a potential candidate for a transaction, or
market or industry trends, conditions or developments. Research personnel may respond to such
inquiries on these subjects through Research management or its Designee or in
the presence of internal legal or compliance staff. In addition, Research personnel, through
Research management or its Designee or in the presence of internal legal or
compliance staff, may initiate communications with Investment Banking personnel
relating to market or industry trends, conditions or developments, provided
that such communications are consistent in nature with the types of
communications that an analyst might have with investing customers. Any communications between Research and
Investment Banking personnel must not be made for the purpose of having
Research personnel identify specific potential investment banking transactions.
b. In response to a request by a commitment or
similar committee or subgroup thereof, Research personnel may communicate their
views about a proposed transaction or potential candidate for a transaction to
the committee or subgroup thereof in connection with the review of such
transaction or candidate by the committee.
Investment Banking personnel working on the proposed transaction may
participate with the Research personnel in these discussions with such
committee or subgroup. However, the
Research personnel also must have an opportunity to express their views to the
committee or subgroup outside the presence of such Investment Banking
personnel.
c. Research personnel may assist the firm in confirming
the adequacy of disclosure in offering or other disclosure documents for a
transaction based on the analysts’ communications with the company and other
vetting conducted outside the presence of Investment Banking personnel, but to
the extent communicated to Investment Banking personnel, such communication
shall only be made in the presence of underwriters’ or other counsel on the
transaction or internal legal or compliance staff.
d. After the firm receives an investment banking
mandate, or in connection with a block bid or similar transaction, Research
personnel may (i) communicate their views on the structuring and pricing of the
transaction to personnel in the firm’s equity capital markets group, which
group’s principal job responsibility is the pricing and structuring of
transactions (including by participating with the firm’s equity capital markets
group in the preparation of internal-use memoranda and other efforts to educate
the sales force), and (ii) provide to such personnel other information obtained
from investing customers relevant to the pricing and structuring of the
transaction.
e. Research personnel may attend or participate
in a widely-attended conference attended by Investment Banking personnel or in
which Investment Banking personnel participate, provided that the Research
personnel do not participate in activities otherwise prohibited herein.
f. Research and Investment Banking personnel may
attend or participate in widely-attended firm or regional meetings at which
matters of general firm interest are discussed.
Research management and Investment Banking management may attend
meetings or sit on firm management, risk or similar committees at which general
business and plans (including those of Investment Banking and Research) and
other matters of general firm interest are discussed. Research and Investment Banking personnel may
communicate with each other with respect to legal or compliance issues,
provided that internal legal or compliance staff is present.
g. Communications between Research and
Investment Banking personnel that are not related to investment banking or
research activities may take place without restriction.
11. Additional Restrictions on Activities By Research and
Investment Banking Personnel.
a.
Research
personnel are prohibited from participating in company or Investment
Banking-sponsored road shows related to a public offering or other investment
banking transaction.
b.
Investment
Banking personnel are prohibited from directing Research personnel to engage in
marketing or selling efforts to investors with respect to an investment banking
transaction.
12.
Oversight. An
oversight/monitoring committee or committees, which will be comprised of
representatives of Research management and may include others (but not
personnel from Investment Banking), will be created to:
a. review (beforehand, where practicable) all
changes in ratings, if any, and material changes in price targets, if any,
contained in the firm’s research reports;
b. conduct periodic reviews of research reports
to determine whether changes in ratings or price targets, if any, should be
considered; and
c. monitor the overall quality and accuracy of
the firm’s research reports;
provided,
however, that Sections I.12.a and I.12.b of this Addendum shall not be required
with respect to research reports limited to purely quantitative analysis.
II. Disclosure/Transparency and Other Issues
1.
Disclosures. In addition
to other disclosures required by rule, the firm must disclose prominently on
the first page of any research report and any summary or listing of
recommendations or ratings contained in previously-issued research reports, in
type no smaller than the type used for the text of the report or summary or
listing, that:
a.
“[Firm] does and
seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a
conflict of interest that could affect the objectivity of this report.”
b.
With respect to
Covered Companies as to which the firm is required to make available Independent
Research (as set forth in Section III below):
“Customers of [firm] can receive independent, third-party research on
the company covered in this report, at no cost to them, where such research is
available. Customers can access this
independent research at [website address/hyperlink] or can call [toll-free
number] to request a copy of this research.”
c.
“Investors should
consider this report as only a single factor in making their investment
decision.”
2.
Transparency
of Analysts’ Performance. The firm will make publicly available (via
its website, in a downloadable format), no later than 90 days after the
conclusion of each quarter (beginning with the first full calendar quarter that
commences at least 120 days following the entry of the Final Judgment), the
following information, if such information is included in any research report
(other than any research report limited to purely quantitative analysis)
prepared and furnished by the firm during the prior quarter: subject company, name(s) of analyst(s)
responsible for certification of the report pursuant to Regulation AC, date of
report, rating, price target, period within which the price target is to be
achieved, earnings per share forecast(s), period(s) for which such forecast(s)
are applicable (e.g., 3Q03, FY04, etc.), and definition/explanation of ratings
used by the firm.
3.
Applicability. Except as
specified in the second and third sentences of this Section II.3, the
restrictions and requirements set forth in Sections I [Separation of Research
and Investment Banking] and Section II [Disclosure/Transparency and Other
Issues] of this Addendum will only apply in respect of a research report that
is both (i) prepared by the firm, and (ii) that relates to either (A) a U.S.
company, or (B) a non-U.S. company for which a U.S. market is the principal
equity trading market; provided, however, that such restrictions and
requirements do not apply to Research activities relating to a non-U.S. company
until the second calendar quarter following the calendar quarter in which the
U.S. market became the principal equity trading market for such company. Notwithstanding the foregoing, Section I.7
[Coverage] of this Addendum will also apply to any research report (other than
the Independent Research made available by the firm pursuant to Section III
[Independent, Third-Party Research]of this Addendum) that has been furnished by the firm to investors in
the U.S., but not prepared by the firm, but only to the extent that the report
relates to either (A) a U.S. company, or (B) a non-U.S. company for which a
U.S. market is the principal equity trading market. Also notwithstanding the foregoing, Section
II.1 [Disclosures] of this Addendum will also apply to any research report
(other than the Independent Research made available by the firm pursuant to
Section III of this Addendum) that has been furnished
by the firm to investors in the U.S., but not prepared by the firm, including a
report that relates to a non-U.S. company for which a U.S. market is not the
principal equity trading market, but only to the extent that the report has
been furnished under the firm’s name, has been prepared for the exclusive or
sole use of the firm or its customers, or has been customized in any material
respect for the firm or its customers.
a.
For purposes of
this Section II.3, the firm will be deemed to have furnished a research report
to
b.
For purposes of
this Section II.3, a “
c.
For purposes of
this Section II.3, the calendar quarter in which a non-U.S. company’s
“principal equity trading market” becomes the U.S. market is a quarter when
more than 50% of worldwide trading in the company’s common stock and
equivalents (such as ordinary shares or common stock or ordinary shares
represented by American Depositary Receipts) takes place in the U.S. Trading volume shall be measured by publicly
reported share volume.
4. General.
a.
The firm may not
knowingly do indirectly that which it cannot do directly under this Addendum.
b.
The firm will
adopt and implement policies and procedures reasonably designed to ensure that
its associated persons (including but not limited to the firm’s Investment
Banking personnel) cannot and do not seek to influence the contents of a
research report or the activities of Research personnel for purposes of
obtaining or retaining investment banking business. The firm will adopt and implement procedures
instructing firm personnel to report immediately to a member of the firm’s
legal or compliance staff any attempt to influence the contents of a research
report or the activities of Research personnel for such a purpose.
5.
Timing. Unless
otherwise specified, the restrictions and requirements of this Addendum will be
effective within 120 days of the entry of the Final Judgment, except that Sections
I.5 [Compensation], I.6 [Evaluations], I.7[Coverage], I.8[Termination of
Coverage], I.9 [Prohibition on Soliciting Investment Banking Business], I.11
[Additional Restrictions on Activities by Research and Investment Banking
Personnel], and II.4(a) [General subpart a)] and II.7 [Superseding Rules and
Amendments] of this Addendum will be effective within 60 days of the entry of
the Final Judgment, and Sections II.1.b [Disclosures (subpart b)] and III
[Independent, Third-Party Research]of this Addendum will be effective within
270 days of the entry of the Final Judgment.
6.
Review of
implementation.
a. The firm will retain, at its own expense, an
Independent Monitor acceptable to the Staff of the SEC, the NYSE, the NASD, the
President of NASAA, and the New York Attorney General’s Office to conduct a
review to provide reasonable assurance of the implementation and effectiveness
of the firm’s policies and procedures designed to achieve compliance with the
terms of this Addendum. This review will
begin 18 months after the date of the entry of the Final Judgment. The Independent Monitor will produce a
written report of its review, its findings as to the implementation and
effectiveness of the firm’s policies and procedures, and its recommendations of
other policies or procedures (or amendments to existing policies or procedures)
as are necessary and appropriate to achieve compliance with the requirements
and prohibitions of this Addendum. The
report will be produced to the firm and the Staff of the SEC, the NYSE and the
NASD within 30 days from the completion of the review, but no later than 24
months from the date of entry of the Final Judgment. (The SEC Staff shall make the report
available to the President of NASAA and the New York Attorney General’s Office upon
request.) The Independent Monitor shall
have the option to seek an extension of time by making a written request to the
Staff of the SEC.
b. The firm will have a reasonable opportunity to comment
on the Independent Monitor’s review and proposed report prior to its
submission, including a reasonable opportunity to comment on any and all
recommendations, and to seek confidential treatment of such information and
recommendations set forth therein to the extent that the report concerns
proprietary commercial and financial information of the firm. This report will be subject to the
protections from disclosure set forth in the rules of the SEC, including the
protections from disclosure set forth in 5 U.S.C. § 552(b) (8) and 17 C.F.R. §
200.80(b) (8), and will not constitute a record, report, statement or data
compilation of a public office or agency under Rule 803(8) of the Federal Rules
of Evidence.
c. The firm will adopt all recommendations contained in
the written report of the Independent Monitor; provided, however, that as to
any recommendation that the firm believes is unduly burdensome or impractical,
the firm may demonstrate why the recommended policy or procedure is, under the
circumstances, unreasonable, impractical and/or not designed to yield benefits
commensurate with its cost, or the firm may suggest an alternative policy or
procedure designed to achieve the same objective, and submit such explanation
and/or alternative policy or procedure in writing to the Independent Monitor
and to the Staff of the SEC. The firm
and the Independent Monitor shall then attempt in good faith to reach agreement
as to any policy or procedure as to which there is any dispute and the
Independent Monitor shall reasonably evaluate any alternative policy or
procedure proposed by the firm. If an
agreement on any issue is not reached, the firm will abide by the
determinations of the Staff of the SEC (which shall be made after allowing the
firm and the Independent Monitor to present arguments in support of their
positions), and adopt those recommendations the Staff of the SEC deems
appropriate.
d. The firm will cooperate fully with the Independent
Monitor in this review, including making such non-privileged information and
documents available, as the Independent Monitor may reasonably request, and by
permitting and requiring the firm’s employees and agents to supply such
non-privileged information and documents as the Independent Monitor may
reasonably request.
e. To ensure the independence of the Independent Monitor,
the firm (i) shall not have the authority to terminate the Independent Monitor
without the prior written approval of the SEC staff; and (ii) shall compensate
the Independent Monitor, and persons engaged to assist the Independent Monitor,
for services rendered pursuant to this Order at their reasonable and customary
rates.
f. For the period of engagement and for a period of three
years from completion of the engagement, the Independent Monitor shall not
enter into any employment, consultant, attorney-client, auditing or other professional
relationship with the firm, or any of its present or former affiliates,
directors, officers, employees, or agents acting in their capacity as
such. Any entity with which the
Independent Monitor is affiliated or of which he/she is a member, and any
person engaged to assist the Independent Monitor in performance of his/her
duties under this Order shall not, without prior written consent of the Staff
of the SEC, enter into any employment, consultant, attorney-client, auditing or
other professional relationship with the firm, or any of its present or former
affiliates, directors, officers, employees, or agents acting in their capacity
as such for the period of the engagement and for a period of three years after
the engagement.
g. Five years after the date of the entry of the Final
Judgment, the firm shall certify to the Staff of the SEC, the NYSE, the NASD,
the President of NASAA, and the New York Attorney General’s Office, that the
firm has complied in all material respects with the requirements and prohibitions
set forth in this Addendum or, in the event of material non-compliance, will
describe such material non-compliance.
7.
Superseding
Rules and Amendments. In the event that the SEC adopts a rule or
approves an SRO rule or interpretation with the stated intent to supersede any
of the provisions of this settlement, the SEC or SRO rule or interpretation
will govern with respect to that provision of the settlement and such provision
will be superseded. In addition, the
SEC, NYSE, the NASD, the New York Attorney General’s Office and any State that
incorporates this Addendum into its settlement of related proceedings against
the Respondent agrees that the SEC Staff may provide interpretive guidance with
respect to the terms of the settlement, as requested by the firm and that,
subject to Court approval, the SEC and the firm may agree to amend or modify
any term of the settlement, in each case, without any further action or
involvement by any other regulator in any related proceeding. With respect to any term in Section I or II
of this Addendum that has not been superseded (as set forth above) within five
years of the entry of the Final Judgment, it is the expectation of Respondent,
the SEC, NYSE, NASD, New York Attorney General’s Office and the States that the
SEC would agree to an amendment or modification of such term, subject to Court
approval, unless the SEC believes such amendment or modification would not be
in the public interest.
8.
Other
Obligations and Requirements. Except as otherwise specified, the
requirements and prohibitions of this Addendum shall not relieve the firm of
any other applicable legal obligation or requirement.
III. Independent, Third-Party Research
1.
Obligation to
Make Available. Each year, for the period ending five years
after the effective date of this Section III (as set forth in Section II.5
[Timing] of this Addendum), the firm will be required to contract with no fewer
than three independent providers of research (“Independent Research Providers”)
at a time in order to procure and make available Independent Research (as
defined below) to the firm’s customers in the U.S. as set forth below. There is, however, no requirement that there
be at least three Independent Research Providers for the Common Stock of each
Covered Company (as those terms are defined below):
a. For common stock and equivalents (such as ordinary
shares or common stock or ordinary shares represented by American Depositary
Receipts) listed on a U.S. national securities exchange or quoted in Nasdaq
(such securities hereinafter, collectively, “Common Stock”) and covered in the
firm’s research reports (other than those limited to purely quantitative
analysis) (an issuer of such covered Common Stock hereinafter called a “Covered
Company”), the firm, through an Independent Consultant (as discussed below)
will use its reasonable efforts to procure, and shall make available to its
customers in the U.S., Independent Research on such Covered Company’s Common
Stock. (If the Independent Research
Providers drop coverage or do not timely pick up coverage of the Common Stock
of a Covered Company, the firm will not be in violation of any of the
requirements in this Section III, and may continue to disseminate its own
research reports on the Common Stock of the Covered Company without making
available any Independent Research on the Common Stock of the Covered Company,
if the firm takes reasonable steps to request that the Independent Consultant
procure such coverage promptly.)
i.
For purposes of
this Section III, the firm’s research reports include research reports that
have not been prepared by the firm, but only to the extent that such reports
have been furnished under the firm’s name, have been prepared for the exclusive
or sole use of the firm or its customers, or have been customized in any
material respect for the firm or its customers.
ii.
A non-U.S.
company for which a U.S. market is not the principal equity trading market
shall only be considered a Covered Company if in the calendar quarter ended
March 31, 2003, or in any subsequent calendar quarter during the period that
the firm’s obligations to procure and make available Independent Research under
this Section III are effective, the publicly reported, average daily dollar
volume of U.S. trading in such company’s Common Stock (measured by multiplying
the publicly reported, average daily share volume of U.S. trading during the
quarter by the closing price per share of the Common Stock on the last day of
the quarter), exceeded $2.5 million, and (b) the outstanding total public float
of the Common Stock as of the last day of such calendar quarter exceeded $150
million. Further, the firm’s obligation to procure and make available
Independent Research with respect to such company shall become effective at the
later of: (a) 90 days after the end of
the calendar quarter in which the company met the foregoing trading and public
float tests; or (b) the effective date of this Section III.
b. For purposes of this Section III, Independent Research
means (i) a research report prepared by an unaffiliated person or entity, or
(ii) a statistical or other survey or analysis of research reports (including
ratings and price targets) issued by a broad range of persons and entities,
including persons and entities having no association with investment banking
activities, which survey or analysis has been prepared by an unaffiliated
person or entity.
c. The firm will adopt policies and procedures reasonably
designed to ensure that, in connection with any solicited order for a customer
in the U.S. relating to the Common Stock of a Covered Company, and if
Independent Research on the Covered Company’s Common Stock is available, the
registered representative will have informed the customer, during the
solicitation, that the customer can receive Independent Research on the Covered
Company’s Common Stock at no cost to the customer (the “Notice
Requirement”).
d. Notwithstanding the foregoing, the Notice Requirement
will not apply to (i) the solicitation of an institutional customer (an entity
other than a natural person having at least $10 million invested in securities
in the aggregate in its portfolio and/or under management) unless such
customer, after due notice and opportunity, has advised the firm that it wishes
to have the Notice Requirement apply to it (any customer who has not so advised
the firm is hereinafter referred to as a “Non-Participating Institutional
Customer”); (ii) orders as to which discretion was exercised, pursuant to a
written discretionary account agreement or written grant of trading authorization;
or (iii) a solicitation by an entity affiliated with the Respondent if such
entity does not furnish to its customers research reports under the firm’s
name, prepared by the firm for the exclusive or sole use of the firm or its
customers, or research reports that have been customized in any material
respect for the firm or its customers.
e. Each trade confirmation sent by the Respondent to a
customer with respect to an order as to which the Notice Requirement applies
will set forth (or will be accompanied by a separate statement, which shall be
considered part of the confirmation, that will set forth), as of the time the
trade confirmation is generated, the ratings, if any, contained in the firm’s
own research reports and in Independent Research procured for the firm with
respect to the Common Stock of the Covered Company that is the subject of the
order.
f. Each periodic account statement sent by the Respondent
to a customer in the U.S. that reflects a position in the Common Stock of a
Covered Company will set forth (or will be accompanied by a separate statement,
which shall be considered part of the periodic account statement, that will set
forth), as of the end of the period covered by the statement, the ratings, if
any, contained in the firm’s own research reports and in the Independent
Research made available by the firm on the Common Stock of each such Covered
Company; provided, however, that this requirement will not apply to
Non-Participating Institutional Customers or discretionary accounts.
g. Notice of the availability of Independent Research on
Covered Companies’ Common Stock will also be included prominently in the
periodic account statements of the Respondent’s customers in the
h. The firm will make the Independent Research available
to its customers in the U.S. using, for each customer, the means of
dissemination equivalent to those it uses to provide the customer with the
firm’s own research reports, unless the firm and customer agree on another
means of dissemination; provided, however, that nothing herein shall require or
authorize the firm to comply with the Notice Requirement or make available or
disseminate Independent Research at a time when doing so would violate Section
5 of the Securities Act of 1933 or the other provisions of the federal
securities laws or the rules and regulations thereunder. If and to the extent the firm is able to make
available or disseminate its own research reports on the Common Stock of a
Covered Company pursuant to Rule 137, Rule 138(a) or Rule 139(a) under the
Securities Act of 1933 and in reliance on Regulation M under the Securities
Exchange Act of 1934, then the firm is also authorized and required to make
available or disseminate Independent Research on the Common Stock of such
Covered Company (even if the Independent Research does not meet the
requirements of such Rule).
Notwithstanding this Section III.1.h, if the firm determines, because of
legal, compliance or similar concerns,
not to furnish or make available its own research reports on the Common Stock
of a Covered Company for a limited period of time, it shall not be required to
make available the Independent Research on such Covered Company for such period
of time.
i.
If,
during the period that the firm’s obligations to procure and make available
Independent Research under this Section III are effective, the firm terminates
coverage of the Common Stock of a Covered Company, the firm, through its
Independent Consultant, will make reasonable efforts to continue to procure and
make available Independent Research on the Common Stock of such company for a
period of at least 18 months after termination of coverage (subject to
expiration of the firm’s obligations under this Section III).
j.
The firm will not
be responsible or liable for (i) the procurement decisions of the Independent
Consultant (as discussed in Section III.2 [Appointment of Independent
Consultant to Oversee the Procurement of Independent Research] of this
Addendum) with respect to the Independent Research, (ii) the Independent
Research or its content, (iii) customer transactions, to the extent based on
the Independent Research, or (iv) claims arising from or in connection with the
inclusion of Independent Research ratings in the firm’s confirmations and
periodic account statements, to the extent such claims are based on those
ratings. The firm will not be required
to supervise the production of the Independent Research procured by the Independent
Consultant and will have no responsibility to comment on the content of the
Independent Research. The firm may
advise its customers of the foregoing in its discretion.
k. The Independent Consultant will not be liable for (i)
its procurement decisions, (ii) the Independent Research or its content, (iii)
customer transactions, to the extent based on the Independent Research, or (iv)
claims arising from or in connection with the inclusion of Independent Research
ratings in the firm’s confirmations and periodic account statements, to the
extent such claims are based on those ratings, unless the Independent
Consultant has carried out such duties in bad faith or with willful
misconduct. The firm will indemnify the
Independent Consultant for any liability arising from the Independent
Consultant’s good-faith performance of its duties as such.
2. Appointment of Independent Consultant to Oversee the
Procurement of Independent Research. Within 30 days of the entry of the Final
Judgment, an Independent Consultant acceptable to the SEC Staff, the NYSE, the
NASD, the President of NASAA, the New York Attorney General and the firm shall
be named to oversee the procurement of Independent Research from Independent
Research Providers. The Independent
Consultant will have the final authority (following consultation with the firm
and in accordance with the criteria set forth in Section III.3 [Selection of
Independent Research Providers] of this Addendum) to procure the Independent
Research. The Independent Consultant will not have had any significant
financial relationship with the firm during the prior three years and may not
have any financial relationship with the firm for three years following his or
her work as the Independent Consultant.
The Independent Consultant’s fee arrangement will be subject to the approval
of the Staff of the SEC, the NYSE, the NASD, the President of NASAA, and the
New York Attorney General’s Office. In
the event that an Independent Consultant must be replaced, the replacement
shall be acceptable to the Staff of the SEC, the NYSE, the NASD, the President
of NASAA, the New York Attorney General’s Office and the firm, and shall be
subject to these same conditions.
3. Selection of Independent Research Providers. The
Independent Consultant will seek to procure research reports on the Common Stock
of all Covered Companies from Independent Research Providers. Independent Research Providers may not
perform investment banking business of any kind and may not provide brokerage
services in direct and significant competition with the firm. In addition, the Independent Consultant will
use the following criteria in selecting and contracting with Independent
Research Providers to provide Independent Research.
b.
the desirability
of multiple coverage of certain Covered Companies (e.g., by size of company,
industry sector, companies underwritten by the firm, etc.);
c.
the extent to
which the Independent Research Provider has a client base and revenue stream
broad enough to ensure its independence from the firm;
d.
the utility of
the Independent Research Provider’s Independent Research to the firm’s
customers, including the inclusion of ratings and price targets in such
research and the extent to which the firm’s customers actually use the
research; and with respect to surveys or analyses described above in Section
III.1.b(ii), the extent to which the Independent Research provides customers
with a means of comparing the firm’s research reports to those published by
other persons and entities, including persons and entities having no
association with investment banking activities;
e.
the quality and
accuracy of the Independent Research
Provider’s past research, including during the term of the Independent
Consultant’s tenure;
f. the experience, expertise, reputation and
qualifications (including, as appropriate, registrations) of the Independent
Research Provider and its personnel; and
g.
the cost of the
Independent Research, especially in light of the five-year period set forth in
Section III.1 above for the firm to make Independent Research available to its
investing customers.
4. Disclosure Language. Language substantially to the
effect set forth below may be used by the firm and its registered
representatives to inform the firm’s customers of the availability of
Independent Research:
“There
is also independent, third-party research available on this company, which you
can get at no cost [from our website/hyperlink] or by calling [toll-free
number], or which I can arrange to send to you if you would like.”
“Independent,
third-party research on certain companies covered by the firm’s research is
available to customers of [firm] at no cost.
Customers can access this research at [our website/hyperlink] or can
call [toll-free number] to request that a copy of this research be sent to
them.”
5. Annual Reporting. The Independent Consultant
will report annually to the Staff of the SEC, the NYSE, the NASD, the President
of NASAA, and the New York Attorney General’s Office on its selection of
Independent Research Providers, the Independent Research it has procured, the
cost of the Independent Research it has procured to date, and the Independent
Consultant’s fees and expenses to date.
UBS