September 25, 2012 10:00 pm
Banks seek changes to research settlement
Big Wall Street banks, spurred by recently passed US legislation aimed at promoting small businesses, are seeking to amend the global research settlement reached with US regulators, including former New York attorney-general Eliot Spitzer, almost a decade ago.
The Jumpstart Our Business Startups Act, known as the Jobs Act, allows banks to publish research while raising capital for smaller companies – a dual role that the biggest banks have been forbidden from taking since the 2003 settlement.
The settlement was struck between regulators and Mr Spitzer and 10 of the largest banks in an effort to stamp out the conflicts of interest that helped inflate the dotcom bubble.
It institutionalised and strengthened a number of practices on Wall Street, including the “Chinese walls” that separate research analysts from investment bankers and the longer “quiet periods” that restrict such research analysts from writing about a company while their bank is underwriting its initial public offering.
Under the Jobs Act, however, banks not bound by the settlement are able to publish research while running IPOs for companies with less than $1bn in annual revenues. That has created an uneven IPO playing field, the banks say.
The so-called settlement banks are considering applying to a New York district court judge to have the deal amended, according to lawyers familiar with the plans, to allow them to take advantage of the act.
But any move to amend the terms of the settlement deal is likely to prove controversial. It is also unclear whether the judge overseeing the settlement, William Pauley, or the US Securities and Exchange Commission, which was party to the deal, will approve any significant change.
Amendments have been made to the pact, but the judge has rejected past efforts that cut to the core of separation provisions.
“Either breaking the lines between the protections that were put out around analysts from investment bankers or in any way encouraging analysts to tout deals is simply unwise public policy,” said Harvey Goldschmid, a former SEC commissioner who voted to approve the research settlement. “In so far as there is a competitive disadvantage to the banks, there’s an advantage to their clients that ought to be retained.”
The bigger banks earlier this year sought to restrict their smaller competitors from fully using the relaxed rules given to them by the Jobs Act by putting pressure on an industry group to create a “master agreement” for IPO underwriters.
According to lawyers, the big banks believe that the political and economic environment has since shifted in favour of overhauling the settlement. The Financial Industry Regulatory Authority, another industry body, has already approved a proposed amendment that would allow banks to publish research on IPOs they have underwritten around the expiration of “lock-up periods” for new shareholders.
“You can imagine a situation where Congress says we did the Jobs Act to do ‘XYZ’, and if you’re going to continue to take a position because of something that happened more than 10 years ago – well, that’s worth a hearing,” said one lawyer.
The SEC declined to comment and no application has yet been made to the New York court. The regulator wrote in a response to questions last month that the Jobs Act did not override the terms of the original deal.
“If the settling firms were to seek an amendment or modification of the global settlement in light of the Jobs Act, one or more of the settling firms would have to make an application to the court,” the SEC said on its website. “The commission would have an opportunity to consider any such request and the commission could support or oppose a proposed amendment or modification after considering whether it would be in the public interest.”
Rich Repetto, analyst at Sandler O’Neill, said: “The rules were meant to protect investors from biased research from Wall Street. In today’s economy, the benefits outweigh the risks of allowing the analyst to provide insight and understanding about emerging growth companies.”
.
With additional reporting by Shahien Nasiripour in Washington.
Copyright The Financial Times Limited 2012.
0 comments:
Publicar un comentario