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Regulators, Securities Firms to Discuss Analysts’ Banking Role

From Bloomberg News

State and federal regulators will meet Thursday with lawyers for 10 of the largest securities firms to propose rules intended to ensure investors get unbiased stock research from Wall Street analysts, people familiar with the meeting said.

Regulators are expected to advocate that Citigroup Inc., Goldman Sachs Group Inc. and the other eight firms help create independent research organizations to root out conflicts of interest. Another proposal would set limits on the contact between analysts and investment bankers, the people said.

The meeting at the Securities and Exchange Commission in Washington is the first involving all the parties and is aimed at settling year-old probes into Wall Street practices. The investigations have undermined investor confidence by shedding light on the relationship between Wall Street research departments and the investment bankers who raise capital by selling new shares.

“The meeting is very important,” said Ira Sorkin, a securities lawyer and former head of the SEC’s New York office. “There is a consensus among regulators that this can’t continue. You’re driving investors out of the markets.”

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Lawyers for the securities firms have told regulators, including New York Atty. Gen. Eliot Spitzer, that banning all contact between bankers and analysts would damage their business, already hurt by a market decline that has wiped out $9 trillion in value from U.S. stocks since the March 2000 peak.

Company executives have argued that analysts help bankers identify promising companies for initial public offerings, and reject IPOs that would make poor investments for clients.

“I can’t imagine those 10 firms being unanimous after one meeting,” said Alan McFarland, partner at McFarland Dewey & Co., a boutique investment bank.

In May, Merrill Lynch & Co. agreed to pay $100 million to settle a probe by Spitzer. Since then, representatives from Wall Street firms, the SEC and industry self-regulatory organizations have discussed fines and reforms to reduce the potential for conflicts by changing the relationship between research and banking.

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