SEC Rule 138

Overview and Regulatory Purpose

Large investment banks and broker-dealers typically maintain research coverage across the full range of securities issued by the companies they cover — common stock, convertible securities, investment-grade and high-yield debt, and preferred stock — often spanning multiple research desks and analyst teams organised by security type or sector.

When such a firm is engaged to underwrite a registered offering of one specific class of an issuer's securities, a literal and undifferentiated application of the gun-jumping prohibition could require the firm to suspend its research coverage of every other class of the same issuer's securities for the duration of the offering, on the theory that any positive research commentary about the issuer generally — even commentary focused on an entirely different security — might be characterised as conditioning the market for the specific securities being offered.

This undifferentiated approach would impose a substantial and largely unjustified cost on investors who rely on continuous research coverage of widely held securities such as an issuer's common stock, merely because the same firm happens to be underwriting an unrelated debt offering by the same issuer. 

Rule 138 addresses this problem by recognising that research coverage of a genuinely different security class — common stock research published while underwriting a debt offering, or debt research published while underwriting an equity offering — does not raise the same conditioning-of-the-market concerns that research coverage of the actual securities being distributed would raise, and therefore warrants a tailored safe harbour permitting continued research publication notwithstanding the firm's participatory role in the unrelated offering.

Statutory Authority and Rulemaking History

Rule 138 derives its statutory authority from Sections 2(a)(10) and 5(c) of the Securities Act of 1933 — the prospectus definition and the pre-filing offer prohibition from which the rule's exclusion specifically operates — and Section 19(a)'s general rulemaking authority. 

Unlike Rule 137, which operates under the Section 2(a)(11) underwriter definition, Rule 138 addresses the prospectus and offer definitions directly, reflecting the different analytical question the rule resolves: whether a participating broker-dealer's research report itself constitutes a prohibited offer or prospectus, rather than whether the publishing broker-dealer becomes an underwriter.

Rule 138 was adopted in its current comprehensive form as part of the Securities Offering Reform rulemaking of August 3, 2005 — Securities Act Release No. 33-8591, published at 70 FR 44802 — alongside the contemporaneous revisions to Rule 137 and Rule 139.

The rule has been amended on three subsequent occasions: January 4, 2008 — 73 FR 967 — which made technical adjustments; August 3, 2011 — 76 FR 46617 — which addressed conforming changes connected to broader regulatory developments; and June 1, 2020 — 85 FR 33352 — as part of the Commission's Exempt Offering Framework rulemaking. The eCFR confirms June 1, 2020 as the date of Rule 138's most recent substantive amendment, with no further changes through June 2026.

Key Provisions and Operative Requirements

Rule 138(a) establishes the foundational exclusion for registered offerings. Under specified conditions, a broker's or dealer's publication or distribution of research reports about securities of an issuer shall be deemed, for purposes of Sections 2(a)(10) and 5(c) of the Act, not to constitute an offer for sale or offer to sell a security which is the subject of an offering pursuant to a registration statement that the issuer proposes to file, has filed, or that is effective — even if the broker or dealer is participating or will participate in the registered offering of the issuer's securities.

This explicit accommodation for participating broker-dealers is the rule's defining feature, distinguishing it sharply from Rule 137's requirement of complete non-participation.

The qualifying condition that triggers Rule 138's availability is the security class differentiation requirement. 

The research report must relate solely to the issuer's common stock, or debt securities or preferred stock convertible into its common stock, while the offering involves solely the issuer's non-convertible debt securities or non-convertible, non-participating preferred stock — or, in the converse scenario, the research report must relate solely to the issuer's non-convertible debt securities or non-convertible, non-participating preferred stock, while the offering involves the issuer's common stock or convertible securities.

This bidirectional structure ensures that Rule 138's safe harbour functions symmetrically regardless of which security class is being offered and which security class is the subject of the research — a firm underwriting common stock may continue to publish debt research, and a firm underwriting debt may continue to publish common stock research, provided the specific security classes involved satisfy the rule's differentiation requirement.

Rule 138's availability is further conditioned on the issuer satisfying specified reporting history and eligibility requirements, generally requiring that the issuer meet the registrant requirements for use of Form S-3 or Form F-3 — the short-form registration statements available to seasoned reporting companies — including the applicable minimum public float provisions, or that the issuer is offering non-convertible securities other than common equity and meets the alternative eligibility provisions applicable to non-convertible debt and preferred stock offerings under those forms' general instructions.

This eligibility requirement reflects the Commission's calibration of the research report safe harbours to the issuer's overall reporting maturity and market following — issuers with an established public reporting history and meaningful public float present materially lower risk that broker-dealer research coverage will be misused as a promotional vehicle, since such issuers' securities already trade in an efficient market with substantial independent analytical coverage and price discovery occurring through numerous channels beyond any single participating broker-dealer's research.

Rule 138(d) establishes the definition of research report applicable throughout the rule. Research report means a written communication, as defined in Rule 405, that includes information, opinions, or recommendations with respect to securities of an issuer or an analysis of a security or an issuer, whether or not it provides information reasonably sufficient upon which to base an investment decision.

This definition is deliberately broad in scope — it captures not only formal, comprehensive equity or credit research reports but any written communication containing analytical content, opinion, or recommendation about an issuer's securities, regardless of the depth or completeness of the analysis the communication provides.

The cross-reference to Rule 405's definition of written communication connects Rule 138's research report concept to the broader communications framework that governs free writing prospectuses and the gun-jumping rules generally, ensuring definitional consistency across the related provisions of the Securities Act's offering communications architecture.

Scope of Application

Rule 138 applies to brokers and dealers participating, or proposing to participate, in a registered offering of an issuer's securities who wish to continue publishing or distributing research reports about a different class of the same issuer's securities during the registration and offering process. 

The rule's safe harbour spans the complete registration timeline — applicable whether the registration statement is merely proposed, has been filed, or is already effective — consistent with the Commission's broader approach across the gun-jumping safe harbours of preserving uninterrupted availability throughout the entire offering process rather than limiting relief to discrete procedural windows.

The rule's security class differentiation requirement establishes meaningful boundaries on its availability — Rule 138 does not provide relief for research reports addressing the very securities being offered, a scenario instead governed by Rule 139's more specifically tailored framework, nor does it provide relief where the research report addresses a security that is economically linked to the offered securities through convertibility, a linkage that the rule's bidirectional structure specifically excludes from the safe harbour by requiring that convertible securities be grouped with common stock rather than treated as equivalent to non-convertible instruments for purposes of the differentiation analysis.

Relationship to Related Rules and Regulations

Rule 138 operates as the middle provision within the integrated trio of research report safe harbours that the 2005 Securities Offering Reform established. 

Rule 137 addresses the broker-dealer with no participation whatsoever in the offering, operating under the Section 2(a)(11) underwriter definition. Rule 139 addresses the broker-dealer that is researching the very securities it is distributing, subject to conditions calibrated to the issuer's Form S-3 or Form F-3 eligibility or its well-known seasoned issuer status under Rule 405. Rule 138 occupies the analytical territory between these two scenarios — the participating broker-dealer researching a different security class than the one being distributed — and its conditions reflect a calibration intermediate to the complete independence Rule 137 requires and the more permissive same-security research that Rule 139 allows for the most seasoned issuers.

Rule 138's eligibility conditions, which reference the registrant requirements of Form S-3 and Form F-3 and the well-known seasoned issuer definition of Rule 405, connect the rule directly to the broader short-form registration and shelf offering framework governed by Rule 415, ensuring that the research report safe harbour's availability tracks the same issuer maturity and reporting history standards that determine eligibility for the Commission's other enhanced offering accommodations. 

The pending May 2026 Registered Offering Reform proposal — which would substantially expand Form S-3 eligibility by eliminating prior public float and one-year seasoning requirements — would, if adopted, correspondingly expand the population of issuers whose research report coverage qualifies for Rule 138's safe harbour, since the rule's eligibility conditions are directly tethered to Form S-3 and Form F-3 registrant requirements.

Rule 138's research report definition, incorporating Rule 405's written communication concept, connects the rule to the broader free writing prospectus framework of Rules 163, 164, and 433, ensuring that the Commission's treatment of analytical and opinion-based communications about an issuer's securities is conceptually consistent across the related provisions governing research reports specifically and free writing prospectuses generally.

Amendment History and Regulatory Evolution

Rule 138's substantive framework has been progressively refined since its comprehensive 2005 adoption, with the January 2008, August 2011, and June 2020 amendments each making incremental adjustments to the rule's eligibility conditions and technical cross-references without altering the rule's fundamental security class differentiation architecture. The rule's core design — permitting continued research coverage of a different security class notwithstanding a broker-dealer's participation in a registered offering — has remained the stable analytical foundation of the rule across each of these amendments.

The Commission's broader engagement with research analyst independence issues, reflected in the contemporaneous development of FINRA's research analyst conduct rules and the global research analyst settlement reforms of the early 2000s, has shaped the surrounding regulatory environment within which Rule 138 operates without requiring corresponding amendments to the rule's specific gun-jumping-focused conditions, which address a distinct legal question from the conflicts of interest and supervisory concerns that FINRA's research analyst rules separately address.

Enforcement Context and SEC Action Patterns

Rule 138 enforcement typically arises in circumstances where a participating broker-dealer's research report, purportedly addressing a different security class under the rule's safe harbour, in substance addresses or promotes the securities actually being offered — for example, a research report nominally focused on an issuer's investment-grade debt securities that contains substantial discussion of the issuer's equity valuation or growth prospects in a manner that functionally promotes interest in a contemporaneous equity offering rather than genuinely confining itself to the debt securities the report purports to address. 

Where such mischaracterisation is identified, the research report may lose Rule 138's safe harbour protection and be characterised as an unlawful gun-jumping communication or unauthorised free writing prospectus.

The Division of Corporation Finance and FINRA's research analyst oversight functions have addressed Rule 138 compliance questions in the context of broader examinations of broker-dealer research practices during active underwriting engagements, with particular attention to whether research content genuinely respects the security class differentiation that the rule's safe harbour requires.

Examination Relevance and Key Takeaways

Rule 138 is examined at the Series 7 and Series 65 levels as the safe harbour addressing participating broker-dealers' research coverage of securities other than those being distributed. Candidates should understand the rule's bidirectional security class differentiation requirement — common stock or convertible security research permitted during a non-convertible debt or preferred stock offering, and non-convertible debt or preferred stock research permitted during a common stock or convertible security offering — and the issuer eligibility conditions tied to Form S-3 or Form F-3 registrant status or well-known seasoned issuer status under Rule 405.

The distinction between Rule 138's accommodation for participating broker-dealers researching a different security class and Rule 137's requirement of complete non-participation is a consistently examined point of contrast within the integrated research report safe harbour framework.

The key points to retain are these. Rule 138 excludes a participating broker-dealer's research report about a different class of an issuer's securities from the offer and prospectus definitions of Sections 2(a)(10) and 5(c), notwithstanding the broker-dealer's participation in a registered offering of a different security class — common stock or convertible security research during a non-convertible debt or preferred offering, or non-convertible debt or preferred research during a common stock or convertible security offering. 

The safe harbour's availability depends on the issuer meeting Form S-3 or Form F-3 registrant eligibility requirements or qualifying as a well-known seasoned issuer under Rule 405. Research report is broadly defined under Rule 138(d) as any written communication containing information, opinions, or recommendations about an issuer's securities, regardless of whether it provides a complete basis for an investment decision. Rule 138 operates as the middle provision within the integrated trio of research report safe harbours alongside Rule 137 and Rule 139, each calibrated to a different relationship between the publishing broker-dealer and the offered securities. Rule 138 was last amended June 1, 2020 and no further amendments are pending through June 2026.