Firms Reach Agreement with NY AG to Stop Analyst Surveys (with Lofchie Comment)

New York Attorney General Eric Schneiderman announced interim agreements with 18 financial firms to stop the practice of cooperating with analyst surveys. Mr. Schneiderman requested that the firms end their participation in these surveys while his office investigates the early release of analyst sentiment. Mr. Schneiderman stated that the surveys "put the market at an unfair disadvantage."

In January, the Attorney General's office reached an agreement with BlackRock to end its practice of surveying Wall Street analysts for opinions on firms they cover. Mr. Schneiderman stated that he considered the practice "Insider Trading 2.0," since it gives traders a sneak peek into forthcoming analyst reports.

Lofchie Comment: The regulation of broker-dealer research is a topic that deserves a good bit more attention. Regulators seem to believe that research should be treated as a public good, and that broker-dealers are not entitled to profit from its production and sale to customers willing to pay for it. But if broker-dealers cannot profit from the production of research, they are not going to produce it, which is a very serious loss to the capital markets and detracts from efficient investment. (See also, Client and Friends Memo, Nov. 5, 2008 Section B. on pages 2-3.)It is time for regulators to stop sanctioning broker-dealers and other information providers that produce research and try to figure out a way to profit from it, and instead describe a clear and permissible path that firms may follow to profit from the information that they produce. (Regulators, please take this as a challenge.)

See: Press Release.See also: Investment Advisor Agrees to End Survey of Investment Banks' Research Analysts (with Lofchie Comment) (January 13, 2014).