Merrill To Bar Analysts From Buying Stock In Companies They Cover

ByBridgeNews Merrill Lynch & Co. Inc. announced July 10 that it would become the first Wall Street firm to prohibit analysts from buying shares in companies that they cover. The move comes as the media, federal regulators, and Congress have all continued to scrutinize the practices of Wall Street's sell-side analyst community since the recent market tumble. Merrill Lynch also said it would provide analysts who currently hold positions in companies they cover with three options, including allowing analysts to liquidate their holdings, forcing analysts to transfer all shares into an account over which they would have no investment discretion, or maintaining the current position but under new stricter disclosure rules. The firm also said that under the new guidelines analysts only would be permitted to sell a holding when both Merrill's intermediate- and long-term ratings on the company are neutral or lower. Merrill's prior policy was that analysts could sell holdings on a stock when it had an intermediate-term rating of neutral or lower. Merrill says the new policy also will extend to all members of analysts' research teams. Merrill's announcement is the latest in a series of actions aimed at diffusing criticism that securities firms have not been providing sufficient oversight of their research analysts. The announcement of new analysts' stock ownership guidelines by Merrill Lynch comes after the firm notified its employees on June 15 of a series of new research guidelines. Those new guidelines included a full disclosure of the firm's investment banking relationships with the companies. Nevertheless, despite the public efforts by Wall Street firms to rein in their research departments, the drumbeat of criticism has continued for several quarters. While the financial press has been covering this story for several months, regulators and Congress have begun to publicly scrutinize the industry. Just last week, the broker-dealer regulator, the NASD Regulation, issued a proposal seeking to increase required disclosures by analysts. Also last week, John LaFalce (D,N.Y.), the most senior Democrat on the powerful House Financial Services Committee -- which oversees the securities industry -- called for securities regulators to consider banning analysts from having any financial interest in the companies they cover. Rep. Richard Baker (R,La.), chairman of the House Financial Services Subcommittee on Capital Markets, recently convened a hearing on the matter and followed up by announcing his plan to set up a board of regulators and securities industry experts to review the industry's practices.