U.S. regulators have formally unveiled their agreement with Wall Street firms regarding analyst conflicts, IPO allocations and other issues. The massive settlement will cost the brokerage firms US $1.51 billion, including US$975 million in fines.

Under the agreement, the firms will pay, in addition to the fines, US$450 million over five years to pay for independent research for investors and US$85 million for a nationwide investor-education program.

The “global settlement” concludes a joint investigation begun in April by regulators into the undue influence of investment banking interests on securities research at brokerage firms. The settlement will bring about balanced reform in the industry and bolster confidence in the integrity of equity research.

The joint settlement was released today by Securities and Exchange Commission chairman Harvey Pitt, New York Attorney General Eliot Spitzer, North American Securities Administrators Association president Christine Bruenn, NASD chairman and CEO Robert Glauber, New York Stock Exchange chairman Dick Grasso, and state securities regulators.

Hardest hit is Salomon Smith Barney, at US$400 million in penalties. Followed by Merrill Lynch and CSFB, which were each charged US$200 million. The other firms include: Goldman Sachs, UBS Warburg, Bear Stearns, JP Morgan, Lehman Bros., and Morgan Stanley.

The agreement will force brokerage companies to make structural changes in the way they handle research — preventing, for instance, analysts from attending investment-banking pitches with bankers.

In addition, the settlement could help to root out the practice of “spinning,” in which corporate executives who give underwriting business to firms receive shares of hot IPOs from these outfits. Under the current terms of the settlement, executives in the position of handing out underwriting assignments will no longer be able to get initial public offerings.

Firms also will be required to provide independent research to investors by contracting with no fewer than three independent research firms. A monitor will be appointed with final authority to procure independent research from independent analysts.

Also, the Wall Street firms will have to disclose rating and price target forecasts within 90 days to allow for evaluation and comparison of performance by analysts.

“This agreement will permanently change the way Wall Street operates,” Spitzer said.