Merrill Lynch will prohibit its equity analysts from buying shares in companies they cover. The company says the new policy is global and effective immediately.
With this step, Merrill Lynch has become the first major firm to go beyond industry standards that allow analysts to own the securities of the companies they follow.
“This move underscores Merrill Lynch’s commitment to setting the standard for objectivity, independence and quality of research,” said Andrew Melnick, director of Merrill Lynch Global Securities Research & Economics. “It is intended to strengthen investor confidence in the process analysts follow.”
Merrill Lynch will give analysts who own stocks in their sector a brief window of time during which they may choose to:
- Elect to sell all their holdings
- Transfer all securities positions in the stocks they follow to managed accounts over which they have no investment discretion, or
- Maintain all positions but under new disclosure rules and stricter disposition policies.
Merrill Lynch says new policy extends beyond just the analyst: it also includes members of the analysts’ professional team, as well as their spouses and immediate members of their households.
Further, Merrill Lynch also plans to disclose in research reports the existence of any equity position maintained by any analyst who has responsibility for a security discussed in the report; this disclosure will be without regard to the size of such position. The disclosure will appear on the back page of research reports and will say: “One or more analysts responsible for the recommendation on this security maintains a position in this security.” This disclosure is expected to begin appearing on reports by September 1.
This is latest in a series of moves by the firm to ensure the objectivity and independence of its research.
Merrill Lynch has more than 850 analysts in 26 countries, covering over 3,500 companies world-wide.