(Bloomberg News) After the dot-com bust a decade ago, regulators forced Wall Street to adopt rules aimed at keeping stock analysts from over-praising companies doing deals with their banks. President Barack Obama is set to sign a law that would undo at least some of the changes.
One measure in the bill, passed by Congress March 22 to ease securities rules for closely held firms, would restore communication between bank research and underwriting arms. Those links were restricted in 2003 by regulators and by a separate settlement between then-New York Attorney General Eliot Spitzer and 10 firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co.
Spitzer forced the banks to restructure their practices after his office obtained internal e-mails from Merrill Lynch & Co. analysts who privately called dot-com stocks they had recommended "dogs" and "crap."
"It undoes part of the regime set in place through the analyst settlement," said Stephen Crimmins, a former Securities and Exchange Commission enforcement lawyer who is now a partner at K&L Gates LLP in Washington. "It's possible we'll see some of those parties involved in the settlement ask the court to be relieved of their undertakings."
Obama is scheduled to sign the bipartisan agreement tomorrow. When it becomes law, regulators will no longer be able to write or maintain rules that restrict investment bankers from arranging communications between analysts and investors when dealing with firms with less than $1 billion in gross annual revenue.
Ending Blackouts
Analysts also will be able to join investment bankers on meetings with the management of qualified firms, as well as have the freedom to publish research reports on firms immediately after an initial public offering instead of waiting for a blackout period to end.
"It appears that it will eliminate some provisions of the analyst rules with respect to emerging growth companies," said Nancy Condon, a spokeswoman for the Financial Industry Regulatory Authority, which oversees more than 4,000 brokerage firms.
Spokesmen David Wells of Goldman Sachs, Joe Evangelisti of JPMorgan and John Yiannacopoulos of Bank of America Corp., which purchased Merrill Lynch in 2008, declined to comment on what if any changes firms may make under the new law.
2003 Settlement
The new measure doesn't directly address the 2003 global research analyst settlement, which stipulated that most of Wall Street's largest firms could no longer have research arms that shared in the fees from stock offerings and other investment banking deals and instead had to rely on a shrinking pool of revenue generated from equities trading. It also mandated a separation between the two sides.