The days of US securities professionals making TV and radio appearances to recommend stocks may be numbered. On December 7 2000, the National Association of Securities Dealers (NASD), the self-regulatory organization for US broker-dealers, and the New York Stock Exchange (NYSE), announced that they are in the process of formulating new rules. These will require securities analysts who make stock recommendations on TV or radio to disclose any interests the analyst or the analyst's firm may have in the company whose stock is recommended. SEC chairman Arthur Levitt has urged the NASD and NYSE to consider these measures as a means of improving investors' confidence in investment professionals, by making investors aware of any personal interest analysts may have in the stocks they tout. According to Levitt, the SEC staff intend to work closely with the NASD and NYSE in formulating the new rules, which are expected to be announced early in the new year.
At present, a securities analyst who produces a written research report on a company's stock must disclose any personal financial interest that he or she has in the company; any recent or existing investment banking relationships between the analyst's firm and the company; whether the firm owns more than 5% of the company's outstanding securities; whether the firm has any executives on the company's board of directors; and whether it is a market maker in the company's stock.
Under the new rules, an analyst's personal investment, any investment by the analyst's firm, and any investment banking or other advisory relationship between the firm and the company would be required to be disclosed. The SEC rules would cover regulated investment advisers who make recommendations, while the NASD and NYSE rules would apply to brokerage firms which are NASD and stock exchange members, and their associated individuals. The rules are likely to cover any stock recommendations that securities professionals make in print media such as newspapers, magazines, and chat rooms, as well as at public appearances.
While the proposal is well-motivated, the TV and radio networks are likely to resist regulators' efforts to dictate programming content. Five minutes of boilerplate disclosure at the beginning or end of every analyst interview would make for dull viewing. In addition, brokerage firms may be reluctant to allow their securities analysts to give interviews, unless they receive assurances that the interviewer will provide the analyst with adequate air time to comply with the new disclosure obligations.
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