SEC approves rules for analysts
Reuters News Agency
U.S. financial regulators on Wednesday approved new rules to force stock analysts to reveal more about their ties to companies they research, in an effort to stop them touting shares they don't really believe in.
The U.S. Securities and Exchange Commission unanimously approved the measures with an eye to curbing abuses — like those at Merrill Lynch where Internet analysts publicly touted stocks they had slammed privately as "junk."
"This is an important first step. I hope it works and if it doesn't, we'll have other steps," said SEC commissioner Cynthia Glassman at an SEC public meeting.
The rules, criticized as inadequate by some investor advocates, would limit when and how analysts can issue opinions on stocks, restrict their personal investing activities and force banks to disclose more about their ties to companies they research and those of their analysts.
The stock exchanges will phase in the measures over six months, said New York Stock Exchange spokesman Ed Kwalwasser.
The rules were developed over many months by the New York Stock Exchange, the Nasdaq-regulating National Association of Securities Dealers, the SEC and Republicans in Congress.
The SEC on April 25 launched a formal investigation of analysts and whether they misled investors. The probe could produce further reform proposals, officials said.
"It's a dramatic change and I just think that as we see how they work out, there could be some new changes and interpretations," SEC Commissioner Isaac Hunt told the meeting. "These rules may not go as far as some ... would hope. But this is a solid first step."
Amid a broad crisis of market confidence triggered by the Dec. 2 bankruptcy of former energy trading giant Enron Corp., controversy has grown over the role of stock analysts at the world's top investment banks.
Experienced Wall Streeters have long winked at the dual roles of sell-side analysts. While portrayed as objective market researchers, they also serve the marketing and investment banking interests of their powerful employers.
Such conflicts were tolerated until early 2000, when America slid into its first major bear market since stock ownership exploded among the middle classes in the 1990s.
New York State Attorney General Eliot Spitzer last month starkly exposed the problem. In an investigation he led, Merrill analysts were shown to have privately disparaged shares in Internet firms that they had publicly recommended.
The new rules would take several steps:
• Prohibit pegging analysts' pay to specific investment banking deals and require disclosure if analysts' pay is pegged to investment banking revenues in general;
• Ban offering favourable research for banking business;
• Ban analysts from issuing research reports 40 days after the IPO of a company handled by that analyst's bank; or 10 days after a secondary offering "for an inactively traded company."
• Restrict, but not ban, collaboration on research reports between analysts and investment banking employees;
• Limit pre-publication review of analysts' research reports by the companies written about;
• Require more disclosure of analysts' pay and personal holdings, the bank's holdings and its client relationships;
• Restrict analysts from dealing in initial public offering shares in sectors they cover, except in diversified funds;
• Require "blackout periods" prohibiting analysts from trading in shares of companies they follow for 30 days before and 5 days after issuing a research report about the company.
• Prohibit analysts from trading against their most recent recommendations.
• Require banks to clearly explain their stock rating systems and disclose historic data about ratings assigned.
The commission also unanimously approved a rule — which goes into effect Nov. 4 — ordering foreign companies to electronically file stock registration statements and documents, making it easier for U.S. investors to access them. |
