The U.S. Securities and Exchange Commission has approved proposed changes to the rules of the National Association of Securities Dealers and the New York Stock Exchange to address analysts’ conflicts of interest.

These rules include various provisions. One provision governs promises of favourable research. It will prohibit analysts from offering or threatening to withhold a favorable research rating or specific price target to induce investment banking business from companies.

Another provision will prohibit research analysts from being supervised by the investment banking department.

Securities firms will be barred from tying an analyst’s compensation to specific investment banking transactions.

Securities firms will also be required to disclose in a research report if it received any compensation for investment banking services from the company in the past 12 months.

Analysts and members of their households will be banned from investing in a company’s securities prior to its initial public offering if the company is in the business sector that the analyst covers.

Analysts will also be required to disclose if they own shares of recommended companies.

Firms will be required to clearly explain the meaning of all ratings terms they use.


The SEC will request the NASD and NYSE to report within a year of implementing these rules on their operation and effectiveness, and whether they recommend any changes or additions to the rules.

“We commend the National Association of Securities Dealers for addressing the vital issue of analyst conflict of interest beginning last year and then working with the New York Stock Exchange, the Securities and Exchange Commission, Congress and the states to ensure adoption of today`s rule changes,” said Marc Beauchamp, executive director of the North American Securities Administrators Association. “These rule changes will strengthen investor confidence and investor protection.”

NASD chairman and CEO Robert Glauber said, “These tough, comprehensive rules are a big step forward in investor protection. And they will go a long way toward winning back investor confidence — once a given in our industry — that analyst research reports contain useful information, not mere salesmanship.”