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.
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.
“To date, the discussion of these issues has often overlooked the detailed, substantial and robust regulations that continue to apply to research,” Joel Trotter, a partner at Latham & Watkins LLP and a member of the IPO Task Force, a group of lawyers, academics, bankers and venture capitalists that presented a report to the Treasury Department last year on how to boost the IPO market.