The U.S. Securities Industry Association has expressed support for a proposal put forward by two self-regulatory organizations to promote objective, useful research for investors. “Strengthening the public’s trust and confidence is critical to our markets,” says Stuart Kaswell, senior vice president and general counsel of SIA.

“The National Association of Securities Dealers and the New York Stock Exchange did a good job by proposing an extensive set of rule changes that address the key issues. Today, we offer a number of proposals that would improve their initiative for the benefit of investors.”

In a comment letter filed with the Securities and Exchange Commission in response to the proposal, the SIA stressed its support for the new objectives, noting that the draft rules build on best practices for research the association published last year. However, it said, “certain aspects of the proposed rules in their current form pose serious concerns. A number of these are likely to produce information that will be of dubious
value to investors.”

SIA’s letter outlines seven areas in the regulatory proposals that the industry believes need to be improved to ensure that useful disclosure of analysts potential conflicts of interest is provided without tipping analysts or research recipients.

These areas include:
– clarifying the definition of research so that it does not unintentionally inhibit the
flow of information and impair the use of technology to provide timely
information to investors;
– revising the compensation disclosure obligations so that firms must report compensation from any publicly disclosed investment banking transaction within the past 12 months and include a prominent notice stating that the firm may have other business relationships with the company mentioned in the research report;
– synchronizing the time periods for ownership reporting disclosure with those time periods mandating disclosures of ratings distribution and price information;
– dropping the proposal to ban all research for an extended period of time by managers or co-managers following an initial public offering; clarifying the role of legal and compliance staff in intermediating communications between research and investment banking;
– resolving the inconsistencies between the NASD and NYSE rules

“We’re confident that these issues can be resolved with the SEC and the SROs,” says Kaswell. “All of us share the same goal: to ensure that investors receive useful, timely, objective analysis that helps them make informed decisions about investing in a company. The ability of the industry and the regulators to work together to ensure that our investors are protected is the very foundation of public trust and confidence.”