“The way Wall Street provides research on stocks to small investors will soon undergo a drastic makeover,” writes Charles Gasparino in today’s Wall Street Journal.

“The New York state attorney general and federal securities regulators Thursday agreed on a broad plan that would create a panel to oversee independent stock research that brokerage firms would be required to provide to individual investors in addition to their own analyst recommendations.”

“The plan also would require securities firms to create additional internal fire walls between their stock-research and investment-banking departments to avoid conflicts that arise when bankers try to influence research in order to win lucrative banking business. The proposal would apply only to research offered to individuals; securities firms could continue to use their own analysts to provide research to institutional investors.”

“The panel would represent a significant change in the way Wall Street works, though it would fall short of the total separation of research and investment banking that some critics had called for. And for Wall Street firms, it would avoid their worst-case scenario, which could have required them to split off their research departments.”

“Representatives of about a dozen major securities firms were given until Wednesday to approve the proposal, presented Thursday during a meeting led by the New York attorney general, Eliot Spitzer, and the Securities and Exchange Commission’s enforcement chief, Stephen Cutler, at SEC headquarters in Washington. It isn’t clear what would happen if the firms don’t agree to the plan.”

“The plan, if approved, would mark the first major step toward reaching an industrywide settlement of the wide-ranging investigations into allegations that brokerage firms misled small investors with overly optimistic research on investment-banking clients during the stock-market bubble of the 1990s. Some analysts routinely published rosy research to help win investment-banking business and boost their annual bonuses, which often totaled more than $1 million.”