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Financial Fraud Law

Wall Street Firms Agree to Stop Cooperating with Analyst Surveys

 A number of prominent Wall Street firms have reached interim agreements with New York Attorney General Eric T. Schneiderman to stop their practice of cooperating with analyst surveys administered by what Schneiderman characterized as “certain elite, technologically sophisticated clients.” That cooperation, in his view, was a practice that “can put the market at large at an unfair disadvantage.”

Schneiderman requested that the firms end their participation in these surveys while he conducts an industrywide investigation into early access to analyst sentiment.  

Last month, Schneiderman announced an agreement with BlackRock, the world’s largest asset manager, to end its practice of systematically surveying Wall Street analysts for their opinions on firms they cover.  At that time, Schneiderman announced that his investigation would continue into those firms that answered surveys.

The interim agreements now reached by Schneiderman are with these 18 firms: Merrill Lynch, UBS Securities LLC, Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Deutsche Bank Securities Inc., Jefferies LLC, Stifel, Nicolaus & Company, Inc., Sanford C. Bernstein & Co., LLC, Keefe, Bruyette & Woods, Inc. (a division of Stifel), Thomas Weisel Partners (a division of Stifel), Macquarie Group, Vertical Research Partners, FBR Capital Markets & Co., and Wolfe Research.

These firms have agreed to discontinue or to continue refraining from the practice of cooperating with such surveys and to continue their cooperation with Schneiderman's investigation into the early release of analyst sentiment.  The firms have agreed to suspend participation in any survey worldwide that relates to companies listed on U.S. exchanges. 

“At my request, these firms have agreed to stop a practice that can offer an advantage to powerful clients at the expense of others,” said Schneiderman. “Our markets will only be fair and healthy if everyone plays by the same rules, which is why we will continue to take action against those who provide unfair advantages to elite traders at the expense of the rest of us. I applaud these firms for their leadership and cooperation.”

In a speech delivered at the Bloomberg Market 50 Summit in September 2013, Schneiderman outlined his concern about the early release of market-moving data to preferred investors in a practice he dubbed “Insider Trading 2.0.”  In the speech, he expressed concern regarding brokerage firm analysts who provide answers to surveys that give traders a sneak peek into forthcoming analyst reports.  

In January, Schneiderman said that his investigation into BlackRock’s survey revealed that a number of questions were worded to capture analysts’ views regarding management, competitive position, earnings, and other aspects of covered companies. Schneiderman determined that the design, timing, and structure of the surveys allowed BlackRock to obtain information from analysts that could be used to front-run future analyst revisions.  

Learn more: ‘Insider Trading 2.0’ Investigation Leads BlackRock to Agree to End Its ‘Analyst Survey Program’.

 Contact the author at smeyerow@optonline.net

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