ASX gets tough on analyst research

The Australian Stock Exchange has released new “minimum standard” guidelines for stockbrokers offering customers research.

The ASX guidelines will require disclosure by analysts, their families and associates of the nature of their interests. Analysts and banks must also confirm that no inducement has been accepted in relation to the entity being researched. If the researched entity contributed to the research an explanation must be given about the extent of this help.

The release of the ASX's draft minimum standard guidelines coincided with the announcement of an ASIC investigation which will look at the independence of analyst research; this will be completed by the end of this year.

The ASX is acting following the collapse of Enron and Worldcom in the US, where big investment banks' research has been tainted by their desire to gain the business of large listed companies. While this has not had a great impact locally, analysts here are coming under increased scrutiny. The ASX says Australia has a “strategic imperative” to maintain investor confidence in the integrity of its financial markets. It has given brokers offering analyst research three months from the final date of the draft to provide copies of their procedures.

The stockbroking industry has rejected the proposed guidelines as “unworkable” and too costly. While the head of research at one major US-based investment bank agreed that more stringent regulations are needed for the local broking industry, some investment banks and medium-sized retail brokers have criticised the ASX's draft guidelines. They are opposed, in particular, to the proposal that everyone in an analyst's company be banned from trading in a stock five days before and after a research report has been released.

Retail brokers and investment banks have six weeks to comment on the draft before the ASX finalises the guidelines.

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