SIFMA recently responded to FINRA’s request for comments on updates to its research and corporate financing rules and guidance to help further facilitate capital formation. SIFMA’s response included recommended updates to FINRA Rule 2241, which covers research analysts and research reports. The FINRA research rules were adopted in the wake of the 2003 Global Research Settlement, as amended in 2010.

When the Global Settlement was reached in 2003 between key regulators and major financial firms, the expectation was that it would eventually be replaced by formal industry-wide rules. This expectation was built into the settlement itself, allowing for its terms to be superseded by subsequent Securities and Exchange Commission (SEC) or self-regulatory organization (SRO) rules.

FINRA 2241 is a culmination of those efforts. Notably, the rule, which was approved in 2015, offers a consolidated, comprehensive rule expanding upon the provisions set forth in FINRA’s prior research rule, Rule 2711, and applies to all firms, including the settling firms. With the adoption of FINRA Rule 2241, the remaining terms of the Global Settlement are no longer or justifiable from an investor protection or market integrity perspective.

SIFMA fully supports FINRA’s ongoing efforts to review and modernize its rules, especially those, like research, which impact the capital raising process. Streamlining these regulations holds the potential to reduce unnecessary costs and administrative burdens, ultimately fostering a more efficient marketplace—without sacrificing the critical investor and issuer protections that underpin market integrity.

Research plays a vital role in the capital-raising ecosystem. Investors rely on objective, reliable information to make informed decisions, and high-quality research ensures transparency and trust in the process. As the financial markets evolve, so too must the regulatory framework that governs them.

SIFMA’s recommendations include:

1. While we support disclosing conflicts of interest, firms already follow rules that ensure research independence through strict policies and information barriers. Requiring firms to spend time and resources identifying and disclosing supposed conflicts—especially ones analysts don’t even know about—doesn’t meaningfully contribute to FINRA’s goal of investor protection. We therefore recommend that certain perspective disclosure requirements in the rule be replaced with a “standard” disclosure informing research recipients that members may have business relationships with the covered issuer and that the members may make a market or beneficially own the securities of the covered issuer, and where necessary, supplement such standard disclosure with additional disclosure describing specific circumstances that member firms determine result in a material conflict of interest using a principles-based approach.
2. FINRA Rules 2241(c)(4)(B) and 2242(c)(4)(B) require firms to disclose if a research analyst’s pay is tied to investment banking or principal trading revenue. But other existing rules already effectively prevent analyst compensation from being based on those activities. Specifically, Rules 2241(b)(2)(E) and 2242(b)(2)(F) prohibit such compensation. Since firms already have strong policies in place to comply with these rules, we believe the additional disclosure requirements are unnecessary and should be removed.
3. FINRA should replace the strict formatting requirements for research reports under Rules 2241(c)(3), 2241(c)(6), and 2242(c)(6) with a less prescriptive “clear and prominent” standard. While the information these rules require is helpful for investors, the current rules are too rigid—for example, requiring a line graph of daily closing prices—which can make reports harder to design and less intuitive. Firms should be allowed to present this data in formats that are clearer and more user-friendly, such as through electronic links. Additionally, requiring certain disclosures to appear on the front page of printed reports is not consistent with how research is consumed, especially since most research is now accessed electronically on firm-operated electronic platforms. Ensuring front-page placement when printing from digital platforms is often challenging. Updating the rules to focus on clarity and prominence would reflect how research is consumed today and reduce unnecessary burdens on firms.

We commend FINRA for its efforts to update it research rules to help further facilitate capital formation in a manner consistent with investor protection. Revisiting and clarifying these rules are crucial steps toward realizing this goal. SIFMA has offered a number of recommendations in its comment letter to help FINRA achieve this goal.

Author

Joe Corcoran is Managing Director and Associate General Counsel in SIFMA’s Capital Markets Group. 

Related Resources

• SIFMA Letter

  FINRA Regulatory Notice 25-06: Modernizing FINRA Rules, Guidance and Processes to Facilitate Capital Formation