DealLawyers.com Blog

Yesterday, the SEC released the NASD’s proposed new Rule 2290 for comment on disclosures and procedures concerning the issuance of fairness opinions. Comments are due 21 days after publication in the Federal Register.

A quick glance does not indicate that the proposed rule upon which the SEC is soliciting comment is materially different than the rule proposal submitted by the NASD (as amended), though there is some interesting commentary, particularly regarding the NASD’s rationale for insisting that the proposed new required procedures include “a process to evaluate whether the relative compensation to corporate insiders versus other shareholders in a contemplated transaction is a factor in reaching a fairness opinion.”

Interestingly, the SEC is requesting comment on whether to expand the disclosure requirements to cover material relationships with affiliates of members (potentially including commercial banks, asset managers, insurance companies, etc.). This differs from Amendment No. 1 to the proposed rule in which the NASD said it wanted to review comments on whether to expand the disclosure requirements to cover material relationships with affiliates of the transaction participants rather than just the transaction participants themselves. (see bottom of page 3, top of page 4).

This issue goes back to the November 2004 NASD Notice to Members soliciting comment on whether the NASD should propose a new rule regarding fairness opinions, without specifying any specific rule text. The NASD received 20 comment letters, of which 12 favored rules, 7 were opposed and 1 expressed no opinion. The NASD then filed the proposed rule with the SEC on June 24, 2005, and Amendments Nos. 1 and 2 on November 30, 2005 and January 25, 2006, making certain changes following discussions with the SEC Staff. Amendment No. 3 was filed with the SEC on March 1, 2006.