U.S. Regulators Clear Tougher Rules On Analysts

By Agence France-Presse U.S. regulators unanimously approved May 8 tighter rules to stamp out potential conflicts of interest among Wall Street research analysts. The Securities and Exchange Commission approved the regulations, proposed in response to rising public skepticism about integrity of stock research, in a 3-to-0 vote. Put forward by the New York Stock Exchange and the National Association of Securities Dealers, they are to become effective by the end of the year, the commission said. Congress warned Wall Street to improve its self-regulation in the wake of hearings that examined analysts' stock ratings during the bull market of the late 1990s. Specifically, the new rules prohibit analysts from offering or threatening to withhold a favorable research rating, or a specific price target, to induce investment banking business from companies. Banks that sponsor an initial public offering of securities are to be barred from issuing research reports on the stock being issued for 40 days after the float. Investment bankers also are barred from supervising analysts' research reports and from discussing such reports prior to publication. Analysts also would not gain compensation from specific investment banking deals. Analysts also have to disclose their stock ownership and the percentage of their "buy," "hold" and "sell" recommendations as well as disclosing any investment banking relationships their bank may have. In a related action, U.S. regulators opened a formal inquiry on April 25 into conflicts of interest among Wall Street research analysts. The inquiry is to decide whether the rules should be tightened even further. The probe followed an embarrassing investigation by New York State Attorney General Eliot Spitzer into Wall Street titan Merrill Lynch. Spitzer unearthed e-mails showing Merrill Lynch analysts denigrating stocks they were recommending to clients. The revelations resulted in a court order forcing the Wall Street powerhouse to disclose more information to investors. The case stoked concerns among already skeptical investors that analysts may be pressured into recommending companies that are potential investment banking clients. Several Wall Street banks are facing lawsuits from disgruntled investors who claim analysts advised them to put their investments in companies whose IPOs they were sponsoring or in firms that the banks were also seeking investment banking business from, and that this led them to issue favorable research on the companies. Copyright Agence France-Presse, 2002

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