To: Knighty Tin who wrote (31707 ) 6/8/2005 12:42:26 PM From: RealMuLan Read Replies (1) | Respond to of 116555 [do you buy this?<g>]--Stock research `for hire' offered SMALLER FIRMS PAY FOR ANALYSIS By Deborah Lohse Posted on Wed, Jun. 08, 2005 Mercury News Small companies that were dropped in recent years by Wall Street stock researchers -- their lifeline to investors -- soon will be offered a chance to pay to get some research coverage again. Two new companies started by Nasdaq Stock Market heavyweights will offer stock research that they say will be independent even though the companies will pay for it. Reuters Group and Nasdaq Stock Market announced Tuesday a new $100,000-a-year service, the Independent Research Network, in which companies can pay to be matched up with three researchers from ``strong, credible research brands.'' Although most Silicon Valley companies are dying for more research coverage to attract new investors, the new pay-for-research concept is drawing as much skepticism as interest. Some company executives fear investors won't trust research that's funded by the companies. ``It's hard to believe someone can be objective when the company is paying them to write about them,'' said Deborah Stapleton, an investor relations professional in Palo Alto. But others say the strong credentials of the people behind the new services might make them credible. Created by current or former Nasdaq executives, the two new services both say they will act like matchmakers using top-notch research firms willing to sell their expertise. Neither company has yet disclosed which research firms will be on their list -- which several companies say will be key to acceptance. ``It goes back to the quality of the analysts and the acceptance of the investing public,'' Stapleton said. In addition to the Nasdaq-Reuters Group service announced Tuesday, last month a former vice chairman of Nasdaq, David Weild, launched the National Research Exchange, which will charge companies and research firms an unspecified fee to get matched up on the exchange. The exchange will privately negotiate a price at which the researcher would agree to cover the company, with both sides agreeing to a list of ethical rules. ``We sit in the middle and provide oversight,'' Weild said. These officials argue that the old ways of providing company research aren't working, and say they've come up with rules that will ensure that the research isn't simply a tout sheet for companies. ``All research has always been paid for, it's just a question of how it's been paid for,'' Weild said. Among the rules both firms plan to impose: Analysts will have to vow to be truthful and objective and follow certain industry standards. Companies seeking research will be obliged to commit upfront not to ``fire'' or retaliate against researchers who write accurate negative reports. Traditionally, stock research is done by analysts who are part of larger Wall Street firms that do many things, including stock trading, helping companies issue stock, and selling stock ideas to large or small investors, which is where the research comes in. Large investors like pension managers or mutual fund managers typically pay for the research reports by buying and selling stock through the firm's trading desk, which generates commissions for the firm. But after the tech-stock bubble burst, Wall Street firms found that it was not in their economic interest to provide research on hundreds of small companies, often because those companies didn't trade very much and didn't generate commissions. That has left 35 percent of Nasdaq companies without any research coverage at all, and 50 percent of all publicly traded companies with only one or two analysts, down from a half-dozen or more apiece in the bubble era. ``This sad state of affairs really affects the valuation of our companies, and affects the liquidity in the trading of the stock for investors,'' said Bob Greifeld, Nasdaq's chief executive. Some executives said the concept of paid research is likely to appeal to small companies that haven't been publicly traded very long. ``If you're not a very visible story and you cannot attract quality research analysts initially, then you have to bridge that gap,'' said Don Witmer, chief financial officer of NetLogic Microsystems in Mountain View. ``Maybe this is a way to bridge that gap to get the message out.'' But Witmer and others said they can't get past the glaring conflict of interest of paying for your own research coverage. ``What's the difference between that and advertising?'' said Tom Hart, chief executive of QuickLogic, which currently has only one Wall Street analyst, down from four or five in 2000. Yet for Silicon Valley, Weild said, getting research is a crucial step to persuading venture capitalists to invest in companies that want to go public, as opposed to those that might get bought by a larger company. ``This is about getting back to Silicon Valley, of hitting singles and doubles that were the mainstay of the venture capital business,'' he said.mercurynews.com