Authors: J. Winer, Samuel; N. Kroll, Amy

Source: Journal of Investment Compliance, Volume 4, Number 1, 2003 , pp. 13-17(5)

Publisher: Emerald Group Publishing Limited

Abstract:

On December 20, 2002, the Securities and Exchange Commission (â–œSECâ–?), the National Association of Securities Dealers (â–œNASDâ–?), the New York Stock Exchange (â–œNYSEâ–?), the New York Attorney General, and the North American Securities Administrators Association (â–œNASAAâ–?) announced their Global Settlement resolving investigations at 10 large integrated securities firms into business practices involving equity research analysts. The 10 firms agreed to pay over $1.4 billion in fines and to overhaul the way in which they prepare, review, and issue equity research. These firms also agreed to change significantly the way that equity research analysts interact with other business groups, in particular investment banking. These efforts are intended to eliminate practices that were alleged to have undermined the integrity and independence of equity research produced at those firms. Most securities firms that were not parties to the settlement, and that both issue equity research and provide investment banking services, are likely to establish supervisory procedures designed to honor the spirit of the Global Settlement. Regulators, however, have not yet provided clarity as to what they will require of firms not party to the Global Settlement. Furthermore, the NYSE and NASD have proposed amendments to their existing rules addressing research-analyst independence that will, if adopted, expand the universe of firms that need to address potential conflicts of interest of the research function to include all firms that issue research, not only those that both issue research and provide investment banking services. The proposed amendments also will expand the definition of research, which could further extend the reach of the NYSE and NASD rules. This article will attempt to provide general guidance in two of the areas addressed in the Global Settlement and in the NYSE and NASD rules and proposed amendments to those rules: (1) the separation of the equity research department from other firm functions, and (2) the compensation of equity research analysts. Please note, however, that in this time of regulatory change, even this summary guidance quickly could become obsolete once the regulators finalize their rulemaking efforts in this area.

Keywords: Financial institutions; Investment funds; Investments; Investments; investors

Document Type: Research article

Publication date: 2003-01-01

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