In Focus: Opponents Hope Sarbanes Will Bend on Analyst Rules

By Heller, Michele | American Banker, May 20, 2002 | Go to article overview

In Focus: Opponents Hope Sarbanes Will Bend on Analyst Rules


Heller, Michele, American Banker


Opponents of cementing the new rules for investment banking analysts into law hope that Senate Banking Committee Chairman Paul Sarbanes will back down Tuesday, when his panel is scheduled to take up Enron Corp.-inspired legislation.

The Maryland Democrat's draft Public Company Accounting Reform and Investor Protection Act of 2002 -- which would tighten investment banking, auditing, and corporate governance rules -- closely tracks a regulation adopted by the Securities and Exchange Commission on May 8 that guards against conflicts of interest for equity analysts at investment banking firms.

The Sarbanes bill goes farther than the SEC rule in a few ways -- such as protecting analysts from retaliation for making unfavorable stock recommendations -- but the biggest concern of the detractors, led by Senate Banking's ranking Republican, Phil Gramm, is that codifying the rule would straitjacket firms.

"Once (regulations) are enacted into statute it's very difficult to make necessary adjustments to keep up with the marketplace," a spokeswoman for the Texas Republican said Thursday.

Sen. Gramm has released an eight-page list of "significant concerns ... raised by a variety of parties," including whether the SEC would have the flexibility to "adopt rules that meet the contemporary conditions of the market" and whether broker-dealers must publicly disclose if they provide confidential merger or advisory services.

The bill's supporters say that opponents should take what Sen. Sarbanes has proposed and run, or they could find themselves facing something stricter down the road.

For example, Democrats and Republicans on the Senate Governmental Affairs Committee have called for making investment banking firms get rid of their research departments.

And last month the House narrowly rejected a bill sponsored by Rep. John LaFalce, D-N.Y., that, among other things, would have banned analysts from owning stock in the companies they cover.

Gary Gensler, a Clinton administration Treasury official and a former partner at Goldman Sachs Group Inc. …

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In Focus: Opponents Hope Sarbanes Will Bend on Analyst Rules
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