What is a Broker-Dealer? - Davis Polk & Wardwell

§ 1A:7.2 BROKER-DEALER REGULATION
on its own initiative generally would not be regarded as unsolicited if
the client had been the subject of marketing efforts by a foreign brokerdealer
or its affiliates. In practice, this exemption is relatively limited
in its utility.
[B][3] Research
The distribution of securities research in the United States may be a
form of solicitation and is therefore an activity that should generally be
done by or in conjunction with a Registered Broker-Dealer, unless an
exemption applies. Rule 15a-6(a)(2) provides an exemption for foreign
broker-dealers who furnish research reports 379 directly to major U.S.
institutional investors 380 and effect transactions in the securities
discussed in the research reports with or for those major U.S. institutional
investors, subject to certain conditions. The conditions include:
(i) the research reports do not recommend the use of the foreign
broker-dealer to effect trades in any security; 381
379. Rule 15a-6(a)(2) does not distinguish between research reports provided
in written or electronic form. See Rule 15a-6 Adopting Release, supra
note 28, at n.106.
380. Rule 15a-6(b)(4) defines “major U.S. institutional investor” as “a person
that is (i) [a] U.S. institutional investor that has, or has under management,
total assets in excess of $100 million; provided, however, that for
purposes of determining the total assets of an investment company under
this rule, the investment company may include the assets of any family of
investment companies of which it is a part; or (ii) [a]n investment adviser
registered with the Commission under Section 203 of the Investment
Advisers Act of 1940 that has total assets under management in excess of
$100 million.” Rule 15a-6(b)(4). Rule 15a-6(b)(7) defines “U.S. institutional
investor” as “a person that is (i) [a]n investment company registered
with the Commission under Section 8 of the Investment Company Act of
1940; or (ii) [a] bank, savings and loan association, insurance company,
business development company, small business investment company, or
employee benefit plan defined in Rule 501(a)(1) of Regulation D under the
Securities Act of 1933; a private business development company defined in
Rule 501(a)(2); an organization described in Section 501(c)(3) of the
Internal Revenue Code, as defined in Rule 501(a)(3); or a trust defined
in Rule 501(a)(7).” Rule 15a-6(b)(7). As noted in infra note 385, the
definition of “major U.S. institutional investor” was effectively extended
in a subsequent no-action letter to include any entity, including any
investment adviser (whether or not registered under the Investment
Advisers Act), that owns or controls (or, in the case of an investment
adviser, has under management) in excess of $100 million in aggregate
financial assets.
381. Rule 15a-6(a)(2)(i). The SEC would not consider disclosure in the research
report that the foreign broker-dealer is a market maker in a security
discussed in the report to violate this requirement. See Rule 15a-6
Adopting Release, supra note 28, at 100–101.
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