NASD Pitches Analysts out

June 6, 2002 ( - A new rule adopted by the National Association of Securities Dealers (NASD) would challenge a common practice of securities firms in which analysts appear at meetings where executives hear pitches from firms vying to lead their company's IPO or other stock issues, the Wall Street Journal reports.

The new rule would bar analysts from issuing research reports on a company if an analyst has participated in any meeting with the company prior to the time his firm is designated as an underwriter on a new issue. While NASD announced the rule a few weeks ago, it hasn’t been formally adopted yet.


In Enron’s wake, the NASD and the New York Stock Exchange have set some new limits on analyst’s pay and stock trading to address what many in the financial community perceive as a conflict of interest among analysts and their research. 

Some of the limits include a ban on analysts being paid for specific banking deals and disclosure of banking fees in reports. Another would require firms to show analyst’s track records on calling moves in stocks and limit analyst’s ability to show banking clients the contents of future reports.


The new rules are similar to the steps agreed to by Merrill Lynch to settle the probe of its analysts’ misconduct by New York State Attorney General Elliot Spitzer.

Another new NASD measure mandates that securities firms have committees to review analysts’ compensation without membership or input from investment bankers, or without considering an analyst’s contribution to banking work.

Another rule would require analysts to certify annually that banking fees have not influenced the ratings and price targets they have issued.

However, unlike the Spitzer rules the new NASD rules would apply to all securities firms licensed by the NASD as broker-dealers if the SEC adopted them.