“The New York Stock Exchange backed away from a plan yesterday to stop Wall Street analysts from talking to newspapers, television networks or other media outlets that do not disclose the analysts’ potential conflicts of interest in their reports,” writes Alex Berenson in today’s New York Times.

“The exchange also said yesterday that it had nominated William J. McDonough, the president of the Federal Reserve Bank of New York, who has announced plans to retire in July, to be a public representative on its board.”

“Richard A. Grasso, the chairman of the exchange, is moving to quell a pair of controversies at a time when the Big Board’s position as the world’s dominant stock exchange appears more secure than it has been in years. While the Nasdaq stock market has fallen 72 percent since the technology stock bubble burst in 2000, the Big Board has lost less than one-third its value.”

“The exchange dropped plans to bar Wall Street analysts from talking to journalists who do not disclose that the analysts, or their firms, have potential conflicts of interest concerning the stocks the analysts rate. When the exchange’s proposal was disclosed last fall, newspapers complained that the Big Board had no right to try to regulate whether its members could talk to them and said the proposal might violate the First Amendment.”

“Edward A. Kwalwasser, the Big Board’s group executive vice president for regulation, said at a news conference yesterday that analysts would be required to tell journalists about potential conflicts of interest between their firms and the companies they rate. The conflicts could include bids for investment banking business, other securities-industry-related business or even services provided by corporate affiliates of the investment bank, he said. For example, an analyst for Smith Barney, which is owned by Citigroup, would have to disclose that he had a potential conflict if a mortgage on the headquarters of a company he rated was provided by another Citigroup subsidiary.”

“But analysts will not be penalized if the journalists who are interviewing them do not disclose those conflicts in their reports, Mr. Kwalwasser and Mr. Grasso said.”

” ‘What the media does with it, that’s entirely up to them,’ Mr. Grasso said.