NASD Reconsiders Media Disclosure Rule

By: Lisa Singhania, AP Business Writer

(AP) A little-publicized proposal that would, in effect, penalize newspapers that fail to disclose quoted analysts’ conflicts of interest faces an uncertain future amid concerns it would impede the flow of information to the public.

The New York Stock Exchange (NYSE) and National Association of Securities Dealers (NASD) have asked federal regulators for permission to extend to print a rule that essentially prohibited analysts from talking to broadcasters who failed to air conflict of interest information analysts are required to disclose.

The Securities and Exchange Commission (SEC) requires analysts to disclose information about ownership and business relationships when they discuss a certain stock on the air. The NASD and NYSE told their members that if a broadcast organization edited out those disclosures, the analyst would be expected to “decline subsequent appearances” until the situation is remedied.

Although the broadcast rule stirred little controversy, the print equivalent is generating enough opposition that the NASD is having second thoughts.

NASD said Friday it now plans to file an amendment to the SEC that would remove the formal requirement that analysts blacklist news organizations that offer insufficient disclosure.

“Regulators shouldn’t be in the business of telling people they regulate who in the media they should and shouldn’t be talking to,” said NASD spokesman Howard Schloss, who expects the amendment to be filed by the end of the year. “We want analysts whenever they make stock recommendations to disclose any interest or ownership of securities. It is then up to the media outlet to decide whether to use it.”

But the NYSE says that the full disclosure of an analyst’s conflicts is too important to investor protection not to regulate. The latest change was proposed simply out of fairness, he said.

“We had been called by several TV outlets and asked how come we’re giving a free pass to newspapers and shouldn’t they have to make the same disclosures,” said Edward A. Kwalwasser, group executive vice president at the NYSE.

News organizations say they have been responsible about disclosing analyst conflicts, particularly following the raft of analyst scandals this year, and no formal rules are needed to deal with those that don’t.

CNBC, the financial news network, this summer began airing a five-point checklist that discloses whether analysts or their firms own a stock or have any business relationship with the company. But the network said disclosure was already part of its reporting long before the new requirements were put into place.

“We are absolutely for full disclosure, it’s a service to our audience,” said David Friend, executive producer and interim head of business. “We would do this even if it wasn’t required.”

Disclosure is “frequently newsworthy and important, and is included in many of our articles in which analysts are quoted,” said Dow Jones & Co., publisher of The Wall Street Journal, in a statement.

“We think it would be a terrible mistake for either the SEC or the [NYSE] to seek directly or indirectly to mandate what information any member of the press includes in its articles,” Dow Jones said.

What the SEC ultimately decides, however, may not matter since many research and brokerage firms already are coming up with their own policies.

A.G. Edwards requires research analysts to route all calls through its corporate communications department to ensure appropriate disclosures are made.

And Prudential Securities’ analysts were told Thursday they are no longer permitted to speak to reporters.

“It’s a valuable product and we’re going to make it proprietary,” said Robert De Fillippo, a spokesman for brokerage arm of Prudential Financial. “The issue is giving it to the public or reserving it for the people who pay for it.”

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