NASD And NYSE Publish Joint Report On Conflict Of Interest Rules

by Glen Shapiro, for LawAndTax-News.com, New York

09 January 2006

A joint report released late last year by the National Association of Securities Dealers (NASD) and the New York Stock Exchange (NYSE) has welcomed progress in the securities industry on addressing conflicts of interest, but has called for further changes to be put in place.

Recommendations made in the report include:

• Displaying a "prominent" warning on the cover of research reports to alert investors to potential conflicts (rather than including such information in the body of the report);
• Amending personal trading rules to make it easier for analysts with no inside information or potential conflicts of interest to make investments; and
• Ending the practice of allowing investment bankers to review research for factual accuracy prior to publication.

Concluding the report, the NASD and NYSE announced that:

"The SRO (Self-Regulatory Organizations) staffs believe that the SRO Rules have been effective in helping to restore integrity to research by minimizing the influences of investment banking and promoting transparency of other potential conflicts of interest. Evidence also suggests that investors are benefiting from more balanced and accurate research to aid their investment decisions."

"The SRO staffs believe that certain changes to the SRO Rules would further improve their effectiveness by striking an even better balance between ensuring objective and reliable research on the one hand and permitting the flow of information to investors and minimizing costs and burdens to members on the other."

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