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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 Morgan Stanley & Co.
Incorporated (“Morgan Stanley”), Morgan Stanley’s successors and assigns
(which, for these purposes, shall include a successor or assign to Morgan
Stanley’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 Morgan Stanley 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).
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.
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. “Morgan
Stanley does and seeks to do business with companies covered in their 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 Morgan Stanley 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, 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 Morgan Stanley agrees that the SEC Staff may provide interpretive
guidance with respect to the terms of the settlement, 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, 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 Morgan
Stanley, 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.
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 Morgan Stanley 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 Morgan Stanley 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 Morgan Stanley 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 Morgan Stanley’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 Morgan Stanley 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.
Morgan Stanley