17 Brokerage Firms Agree to End Analysis Previews

Seventeen brokerage firms, including Citigroup, Goldman Sachs, JPMorgan Chase and Merrill Lynch, have agreed to stop participating in money management surveys aimed at tapping into research analysts’ changing views on companies before those opinions are publicly issued.

The firms’ decisions to end their participation in money managers’ questionnaires were disclosed on Tuesday by , the New York attorney general. The 13 other firms that signed on to the deal were Barclays Capital; Deutsche Bank; Morgan Stanley; UBS; Credit Suisse; Sanford C. Bernstein; Stifel, Nicolaus & Company; Keefe, Bruyette & Woods; Thomas Weisel Partners; the Macquarie Group; FBR Capital Markets; Wolfe Research; and Vertical Research Partners.

All of the firms also agreed to continue cooperating with the attorney general’s investigation into analysts’ surveys, which is continuing. In January, the attorney general sent subpoenas to the firms seeking details of their participation in the surveys.

Photo Eric T. Schneiderman, the New York attorney general, has struck a deal with 17 brokerage firms. Credit Joshua Bright for The New York Times

Mr. Schneiderman’s deal with the firms comes after last month’s announcement that BlackRock, the world’s largest asset management company, would end its practice of surveying Wall Street analysts to glean clues about their shifting stances on companies.

The attorney general has been critical of companies that allow some clients to receive market-sensitive information ahead of others, a practice he calls “Insider Trading 2.0.” Mr. Schneiderman’s investigation into the BlackRock surveys determined that they were designed to obtain information that could be used to trade ahead of changes in analysts’ recommendations.  

Analysts’ changing assessments on the companies they follow can be market-moving events. As a result, traders receiving such information ahead of other investors can generate outsize profits.

Mr. Schneiderman praised the firms’ actions in a statement late Tuesday.  “All of these firms have shown leadership in agreeing to stop a practice that can offer an advantage to powerful clients at the expense of others,” he said. “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.”

Regulators require brokerage fi! rms to monitor and curb the information flow from research departments to prevent the potential for trading ahead of analyst reports. The BlackRock surveys were the subject of an article in The New York Times in July 2012.

Internal documents obtained by The Times and cited in the article showed that BlackRock’s questionnaires would ask analysts whether a company’s near-term profits were more likely to surprise “on the upside or downside,” and how likely it was that a company would be “taken over in the next six months.” Analysts responding to this question were asked to exclude transactions that had already been announced.

The attorne general’s investigation into BlackRock indicated that brokerage firms allowed analysts to participate in the surveys in part because money managers are big clients and generate considerable trading commissions. BlackRock, with $4.3 trillion under management, is one of the largest trading customers on Wall Street.

The attorney general’s investigation also concluded that BlackRock rewarded analysts for participating in the surveys by assigning them higher ratings in industry rankings. These rankings are closely watched on Wall Street and can burnish analysts’ career prospects and fatten their paychecks.