IOSCO Publishes New Guidelines For Analyst Conflicts

by Robin Pilgrim, LawAndTax-News.com, London

08 October 2003

The International Organization of Securities Commissions (IOSCO) late last month issued a set of guidelines designed to prevent conflicts of interest caused by so-called 'sell-side' analysts who offer flawed research and recommendations.

Speaking following the publication of the new principles, US Securities and Exchange Commissioner, Roel Campos, who led the task force which developed them, announced that:

"IOSCO members understand that investor confidence is fundamental to strong, healthy financial markets. When investors come to believe that analysts offering supposedly independent research are really little more than marketers for investment banks, this confidence suffers."

He continued: "Through implementation of these Principles in ways tailored to specific markets and legal systems, safeguards can be established against conflicts of interest corrupting sell-side research, thereby protecting both investors and the fairness and efficiency of our securities markets."

Core measures proposed by the IOSCO Technical Committee included:

• Prohibiting analysts from trading securities or related derivatives ahead of publishing
research on the issuer of those securities;
• Prohibiting firms that employ analysts from improperly trading securities or related
derivatives ahead of the analyst publishing research on the issuer of those securities;
• Prohibiting firms that employ analysts from promising issuers favorable research coverage,
specific ratings, or specific target prices in return for a future or continued business
relationship, service or investment;
• Prohibiting analysts from participating in investment banking sales pitches and road shows.
• Prohibiting analysts from reporting to the investment banking function;
• Prohibiting analyst compensation from being directly linked to specific investment banking
transactions;
• Prohibiting the investment banking function from pre-approving analyst reports or
recommendations (except in circumstances subject to oversight by compliance or legal
personnel where investment banking personnel review a research report for factual accuracy
prior to publication).
• Requiring that analysts, or the firms that employ analysts, publicly disclose whether the
issuer or other third party provided any compensation or other benefit in connection with a
research report.

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