Skip Maine state header navigation

Agencies | Online Services | Help

Addendum A

 

Undertakings

 

The firm shall comply with the following undertakings:

 

I.       Separation of Research and Investment Banking

 

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 Citigroup Global Markets Inc., formerly known as Salomon Smith Barney Inc. (“Citigroup Global”), Citigroup Global’s successors and assigns (which, for these purposes, shall include a successor or assign to Citigroup Global’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 action by the Securities and Exchange Commission (“SEC”) against Citigroup Global 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 SEC’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).

 

g.  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.12a and I.12b 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.  “Smith Barney is a division of Citigroup Global Markets Inc. (the “Firm”), which 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 the 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 investors in the U.S. if the firm has made the research report available to investors in the U.S. or has arranged for someone else to make it available to investors in the U.S.

 

b.     For purposes of this Section II.3, a “U.S. company” means any company incorporated in the U.S. or whose principal place of business or headquarters is in the U.S.

 

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 set forth in this Addendum, 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, each of 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 Citigroup Global agrees that the SEC Staff may provide interpretive guidance with respect to the terms of the settlement set forth in this Addendum, 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 set forth in this Addendum, 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 Citigroup Global, 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 Citigroup Global if such entity does not furnish to its customers research reports under the firm’s name, prepared by the firm or 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 Citigroup Global 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 Citigroup Global 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 Citigroup Global’s customers in the U.S., in the firm’s research reports, and on the firm’s website.

 


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.

 

a.      whether and to what extent the Independent Research Provider or any of its affiliates or associated persons is engaged in activities (including, but not limited to, activities involving Covered Companies or their securities), or has a business or other relationship with the firm or any of its affiliates or associated persons, that may conflict or create the appearance of conflict with its preparation and publication of the 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:

 

a.  Disclosure to customers as required by Section III.1.c [Obligation to Make Available subpart c] of this Addendum.

 

“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.”

 

b.  General website and periodic customer account statement disclosure as required by Section III.1.g. [Obligation to Make Available subpart g] of this Addendum.

 

“Independent, third-party research on certain companies covered by the firm’s research is available to customers of the 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.