initial and secondary offerings and around the termination, waiver or expiration of lock-up agreements, subject to certain exceptions.
Restrictions on communications affecting research In addition to these rules and regulations that affect the structure and business of research coverage, the Securities Act imposes restrictions on offering related communications that impact the dissemination of research reports. A research report4
may be considered an offer or a non-
conforming prospectus under the Securities Act. Information, opinions, or recommendations by a broker- dealer about securities of an issuer proposing to register securities under the Securities Act may constitute an offer to sell such securities, particularly when the broker-dealer participates in the distribution as an underwriter or member of the selling group.5
The issuance of a research
report in advance of a public offering could also technically constitute gun-jumping (the illegal solicitation of an offer before a registered offering) and, as a result, a section 5 violation. Until relatively recently, the nature and content of communications made around the time of a securities offering were generally very limited because the SEC took an expansive view of the concept of an offer. Under section 2(a)(3) of the Securities Act, an offer is defined broadly and includes every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value.6
statement, all offers in any form were prohibited.7
Before an issuer filed a registration Between
the filing of the registration statement and its effectiveness, the only written offers that were permitted were those filed with the SEC and that conformed to the requirements applicable to a statutory prospectus under section 10 of the Securities Act.8
After the registration statement was
declared effective, written materials still were required to meet the section 10 prospectus requirements. Additional offering-related materials were permitted only if a final prospectus (conforming to the section 10(a) requirements) was delivered before or along with the additional materials.9
or content of the communications. Any violation of these rules was considered gun jumping.10
These limitations did not relate to the accuracy The SEC’s restrictive
position was founded on the belief that “the means of communications were limited and restricting communications (without regard to accuracy) to the statutory prospectus appropriately balanced available communications and investor protection.”11 In 2004, the SEC decided to revamp the securities
offering communications regime. In its release proposing the Securities Offering Reform the SEC stated: The capital markets, in the United States and around
the world, have changed significantly since those limitations were enacted. Today, issuers engage in all types of communications on an ongoing basis, including, importantly, communications mandated or encouraged by our rules under the Exchange Act. Modern communications technology, including the Internet, provides a powerful, versatile, and cost-effective medium to communicate quickly and broadly. [footnote omitted] The changes in the Exchange Act disclosure regime and the tremendous growth in communications technology are resulting in more information being provided to the market on a more non-discriminatory, current and ongoing basis. Thus, while the investor protection concerns remain, the gun-jumping provisions of the Securities Act impose substantial and increasingly unworkable restrictions on communications that would be beneficial to investors and markets and consistent with investor protection.12 As a result, as part of its 2005 Securities Offering
Reform, the SEC redesigned the regulation of communications in order to limit the types of communications that would be deemed offers for purposes of section 5 of the Securities Act or prospectuses for purposes of section 12(a)(2) of the Securities Act. In connection with Securities Offering Reform, the SEC broadened the existing safe harbours under the Securities Act for certain research reports, which are contained in Rules 137, 138, and 139. These safe harbours for certain research reports apply to all types of issuers (as opposed to the JOBS Act’s provisions which apply only to emerging growth companies, or EGCs) who meet the requirements of Rules 137, 138 and 139. The safe harbours expressly exclude research reports from the definition of offers, offers for sale, and offers to sell13
under section 514 . Note
that the safe harbours only apply to research reports distributed in advance of or during a public offering, a Rule 144A offering or a Regulation S offering.15
It is
unlikely, however, that a research report that meets the requirements set forth in the safe harbours would be considered a “general solicitation” in the context of a private placement. Rules 137, 138, and 139 are designed to protect analysts, brokers, and dealers from general solicitation and gun-jumping violations in connection with their regularly disseminated research reports. In the Securities Offering Reform release, the SEC recognised that certain events, including passage of Sarbanes-Oxley, Regulation AC, revisions to the self-regulatory organisation rules governing
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