SEC Rule 137

Overview and Regulatory Purpose

The statutory underwriter definition of Section 2(a)(11) of the Securities Act is notably broad, encompassing any person who has purchased securities from an issuer with a view to distribution, who offers or sells securities for an issuer in connection with a distribution, or who participates or has a direct or indirect participation in any such undertaking.

This breadth, applied literally to the research analysis function, could in principle sweep in independent broker-dealer research analysts who publish coverage of an issuer's securities during the pendency of a registered offering — even where those analysts have no actual role in marketing, selling, or otherwise participating in the offering — on the theory that favourable research coverage published while an offering is pending could be characterised as participating in the distribution by generating investor interest that facilitates the offering's success.

Subjecting independent research analysts to underwriter status and liability merely because they continued their ordinary research coverage of an issuer during a registered offering would create a severe chilling effect on the availability of independent research precisely when investors most need it — when a company is raising capital and investors are evaluating whether to participate in or react to the offering.

Rule 137 addresses this problem by establishing clear and objective conditions under which genuinely independent broker-dealer research — research published by firms with no participation in the offering and no compensation arrangement connected to it — falls outside the underwriter definition entirely, ensuring that the independence of the research analyst function is preserved and that investors continue to have access to analytical coverage of an issuer's securities throughout the registration and offering process.

Statutory Authority and Rulemaking History

Rule 137 derives its statutory authority from Section 2(a)(11) of the Securities Act of 1933 — the underwriter definition from which the rule's exclusion specifically operates — and Section 19(a)'s general rulemaking authority.

The rule's grounding in Section 2(a)(11) specifically, rather than in the offer and prospectus definitions of Sections 2(a)(3) and 2(a)(10) that govern Rule 134 and Rule 135's framework, reflects Rule 137's distinctive analytical focus: the rule does not address whether the research report itself constitutes an offer or prospectus, but rather addresses whether the broker-dealer publishing or distributing the report becomes an underwriter by virtue of that publication or distribution during the pendency of a registered offering.

Rule 137 was substantially revised as part of the comprehensive Securities Offering Reform rulemaking of August 3, 2005 — Securities Act Release No. 33-8591, published at 70 FR 44722 — which simultaneously updated Rules 138 and 139 as part of an integrated modernisation of the research report safe harbour framework.

The 2005 reform's treatment of the research report rules reflected the Commission's broader recognition that the increasingly important role of independent research analysis in efficient capital markets warranted a more thoughtfully calibrated framework than the prior, more restrictive research report rules had provided, particularly in light of the heightened public attention to analyst independence and conflicts of interest that followed the Global Research Analyst Settlement of 2003 and the related reforms to investment bank research practices.

Key Provisions and Operative Requirements

Rule 137's operative text establishes that, under specified conditions, the terms offers, participates, or participation in Section 2(a)(11) of the Act shall not be deemed to apply to the publication or distribution of research reports with respect to the securities of an issuer that is the subject of an offering pursuant to a registration statement that the issuer proposes to file, has filed, or that is effective.

This formulation deliberately covers the complete pre-filing, post-filing, and post-effectiveness timeline of a registered offering — Rule 137's safe harbour is available throughout the entire registration process, not merely during a discrete window, reflecting the Commission's recognition that the value of continuous, uninterrupted independent research coverage does not diminish as an offering progresses through its various procedural stages.

Rule 137(a) establishes the no-participation condition. The broker or dealer that has distributed the report — and any affiliate of that broker or dealer — and, if different, the person that has published the report and any affiliate of that person, must not have participated, must not currently be participating, and must not propose to participate in the distribution of the securities that are or will be the subject of the registered offering.

This three-part temporal formulation — past, present, and prospective non-participation — ensures that the safe harbour is unavailable to a broker-dealer that has any historical, current, or anticipated future role in the specific offering, closing off the possibility that a firm could claim independence for research purposes while simultaneously serving, or planning to serve, in an underwriting or selling capacity for the same transaction.

Rule 137(b) establishes the no-compensation condition. In connection with the publication or distribution of the research report, the broker or dealer (and any affiliate) and, if different, the publishing person (and any affiliate), must not be receiving and must not have received consideration, directly or indirectly, from, and must not be acting under any direct or indirect arrangement or understanding with: the issuer or any selling securityholder of the securities to be offered; any participant in the distribution of the securities; or any other person interested in the securities that are or will be the subject of the registration statement.

This compensation prohibition is the substantive heart of Rule 137's independence requirement, ensuring that the publishing or distributing broker-dealer has no financial relationship — whether direct payment, indirect benefit, or any other form of arrangement or understanding — connected to the specific offering or the parties involved in it.

An important instruction accompanying Rule 137(b) clarifies the boundary of the compensation prohibition in a manner of significant practical importance to the research analyst industry. This instruction confirms that Rule 137(b) does not preclude payment of the regular price being paid by the broker or dealer for independent research, so long as the conditions of Rule 137(b) are otherwise satisfied.

This clarification distinguishes between prohibited offering-connected compensation — payment specifically tied to the offering or made by an offering participant in exchange for favourable coverage — and the ordinary commercial arrangements through which independent research providers are compensated for their general research product in the regular course of business, unrelated to any specific offering.

Without this clarifying instruction, the compensation prohibition might have been read to disqualify any broker-dealer that receives any form of payment for its research from any source, an outcome that would have rendered Rule 137 functionally unavailable to the commercial research industry as it actually operates.

Scope of Application

Rule 137 applies to brokers and dealers — and their affiliates — that publish or distribute research reports about the securities of an issuer conducting a registered Securities Act offering, where those brokers and dealers have no participation in the specific offering and receive no offering-connected compensation. 

The rule's safe harbour is available throughout the entire registration timeline — before any registration statement has been filed, after filing but before effectiveness, and after the registration statement has become effective — reflecting the rule's design to preserve continuous independent research coverage regardless of the offering's procedural stage.

Rule 137's exclusion operates specifically with respect to the Section 2(a)(11) underwriter definition. A broker-dealer that satisfies Rule 137's conditions is not deemed an underwriter by virtue of its research publication or distribution activity, but the rule does not independently address whether the research report itself might constitute a prospectus or offer under Sections 2(a)(10) and 2(a)(3) — those questions are addressed by the parallel but analytically distinct frameworks of Rules 138 and 139, which operate directly under the offer and prospectus definitions rather than under the underwriter definition that Rule 137 specifically addresses.

Relationship to Related Rules and Regulations

Rule 137 is the first of a closely integrated trio of research report safe harbours that together address the full range of broker-dealer research scenarios arising during registered offerings. Rule 138 addresses research reports published by brokers or dealers that are participating in the distribution of an issuer's securities, but whose research addresses securities other than the ones being distributed — for example, an underwriter's research department continuing to publish coverage of the issuer's debt securities while the firm is underwriting a new equity offering. 

Rule 139 addresses research reports published by brokers or dealers that are themselves distributing the securities that are the subject of the research report, subject to conditions calibrated to the issuer's eligibility for short-form registration on Form S-3 or Form F-3, or the issuer's status as a well-known seasoned issuer under Rule 405. Where Rule 137 addresses the broker-dealer with no participation in the offering whatsoever, Rules 138 and 139 address brokers and dealers who do have some participatory role, calibrating the conditions for safe harbour availability to the specific nature of that participation and its relationship to the securities being researched.

Rule 137's grounding in the Section 2(a)(11) underwriter definition distinguishes its analytical framework from the offer and prospectus-based exclusions of Rules 134, 135, 138, and 139, each of which operates under Sections 2(a)(3) and 2(a)(10) and Section 5(c). This structural distinction reflects the different legal questions each rule addresses: Rule 137 asks whether the publishing or distributing broker-dealer becomes an underwriter, while the other communications safe harbours ask whether the communication itself constitutes an offer or prospectus. 

A broker-dealer satisfying Rule 137's conditions has resolved the underwriter status question favourably, but must separately consider whether its research report, as a communication, might independently raise offer or prospectus concerns under the framework that Rules 134, 135, 138, and 139 address — though in practice, a genuinely independent research report satisfying Rule 137's no-participation and no-compensation conditions is unlikely to raise significant concerns under those parallel frameworks.

Rule 137's research report safe harbour also interacts with the regulatory framework governing research analyst independence and conflicts of interest more broadly, including FINRA Rule 2241's research analyst conduct rules, which impose structural separation, disclosure, and supervisory requirements on broker-dealer research functions independent of the Securities Act's gun-jumping concerns that Rule 137 specifically addresses. 

A broker-dealer relying on Rule 137 for Securities Act purposes must independently ensure compliance with FINRA's research analyst conduct framework, which addresses analyst compensation structures, disclosure of conflicts of interest, and supervisory procedures applicable to research report publication regardless of any specific pending registered offering.

Amendment History and Regulatory Evolution

Rule 137's substantive framework was comprehensively revised in the 2005 Securities Offering Reform, which integrated the rule into the broader modernised communications safe harbour structure alongside Rules 134, 135, 138, and 139. 

The 2005 reform's treatment of the research report safe harbours reflected the Commission's recognition, informed by the broader analyst independence reforms that followed the early 2000s research analyst conflicts of interest scandals, that the regulatory framework governing broker-dealer research during registered offerings needed to balance two competing objectives — preserving investors' access to independent research analysis throughout the offering process, while ensuring that research safe harbours could not be exploited to provide promotional cover for compensated or participatory research activity connected to a specific offering.

Rule 137's no-participation and no-compensation conditions, and the clarifying instruction confirming that payment of the regular price for independent research does not violate the compensation prohibition, have remained the rule's stable substantive framework since the 2005 reform, with no further substantive amendments through June 2026.

Enforcement Context and SEC Action Patterns

Rule 137 enforcement typically arises in circumstances where a broker-dealer has claimed the rule's safe harbour while in fact having some undisclosed participatory or compensation relationship connected to the offering — circumstances that, if established, would expose the broker-dealer to underwriter liability under Section 11 of the Securities Act for any material misstatements or omissions in the registration statement, a substantially more severe liability exposure than the broker-dealer would otherwise face as a genuinely independent research provider with no role in the offering.

The Division of Corporation Finance and the Division of Enforcement have addressed Rule 137 compliance questions in the context of broader inquiries into research analyst independence and conflicts of interest, particularly where research coverage timing or content appeared to correlate suspiciously with an issuer's offering activity in a manner suggesting an undisclosed connection between the research function and the offering that the rule's conditions are designed to exclude.

Examination Relevance and Key Takeaways

Rule 137 is examined at the Series 7 and Series 65 levels as the principal safe harbour addressing independent broker-dealer research coverage during registered offerings. 

Candidates should understand the rule's two core conditions — no participation, past, present, or prospective, in the distribution of the registered securities, and no offering-connected compensation, direct or indirect, from the issuer, selling securityholders, distribution participants, or other interested persons — and the important clarifying instruction confirming that ordinary payment for independent research, unconnected to the specific offering, does not violate the compensation condition.

The distinction between Rule 137's underwriter-status focus under Section 2(a)(11) and the offer and prospectus-focused frameworks of Rules 134, 135, 138, and 139 is a useful conceptual distinction for understanding the different legal questions each of the Securities Act's gun-jumping communications safe harbours is designed to address.

The key points to retain are these. Rule 137 excludes a broker-dealer from underwriter status under Section 2(a)(11) of the Securities Act for publishing or distributing research reports about an issuer's securities during the pendency of a registered offering — whether proposed, filed, or effective — provided the broker-dealer has no past, present, or proposed participation in the distribution and receives no offering-connected compensation from the issuer, selling securityholders, distribution participants, or other interested persons.

Regular payment for independent research, unconnected to the specific offering, does not violate the compensation condition. Rule 137 is part of an integrated trio of research report safe harbours alongside Rule 138 and Rule 139, each calibrated to different scenarios involving the relationship between the publishing broker-dealer and the offering.

The rule's framework was comprehensively updated in the 2005 Securities Offering Reform and has remained substantively stable since that rulemaking, with no further substantive amendments through June 2026.