Tough new analyst disclosure and conflict of interest guidelines take effect in the United States today.
Developed and implemented by the National Association of Securities Dealers and the New York Stock Exchange, the new regulations impose compliance obligations to ensure that all research reports reflect an analyst’s views and that any opinion or recommendation is not influenced by conflicts of interest.
The resulting improvements in disclosures will tell investors of any business ties that the firm or the analyst have or plan to have with the company that is the subject of a research report.
Key components of the new regulations include:
- prohibitions on investment-banking control over research analysts;
- restrictions on the contacts that analysts may have with a company they cover;
- prohibitions on links between an analyst’s compensation and a specific investment-banking deal;
- restrictions on analysts’ trading; and
- requirements that reports contain information that helps investors track the correlation between an analyst’s rating and the stock’s price movements.
The effective dates for some of the regulatory provisions are phased in through early November. Firms have until September 9 to disclose information about their ratings distributions and provide a chart that combines stock ratings with the stock’s performance. By November 6, firms must disclose whether they own one percent or more of the company that is the subject of the research report.
The Investment Dealers Association has approved similar rules for Canada. They currently sit before the Canadian Securities Administrators waiting approval.
“The new regulations will result in more useful and reliable information for investors by improving the quality and objectivity of research reports produced by securities firms,” said Marc Lackritz, president of the U.S. Securities Industry Association in a news release.