SIA Chief: Securities Industry Committed to Restoring Trust

Article excerpt

The securities industry thrives the same way others do -- by satisfying its customers -- but doing so has been a challenge to us in the last two years.

First, the stock markets tumbled and have yet to recover fully. Then the terrorists attacked our country, and Enron imploded. Now come questions about the quality of investment recommendations made by securities analysts and whether this advice is compromised by the business ties between the analysts' employers and the companies covered research reports.

All this is making investors, the customers of my industry, uncomfortable. This is not good for the industry. Worse, it is not good for the economy. The success of investors enables our capital markets to raise the money that helps companies innovate and grow and thereby fuels our national prosperity.

While no one or no policy can single-handedly turn the stock market around, there is a great deal that our industry can do to make sure that it is widely understood that, for us, our client's interests come before anything else. If there is a cloud over the role of securities analysts, that is unacceptable.

This is why we are addressing head-on investors' concerns about securities analysts' recommendations, and why we are committed to continue doing whatever it takes to ensure that public trust in our industry remains very strong.

First, though, it's important to understand the role that analysts play in our economy. They are the ones who kick the tires, look under the hood, and see if the company's business plan makes sense. They also study the competition, the market for the products or services a company produces, and the management team. Ultimately, their success is determined by the accuracy of the information they provide and the performance of their investment recommendations over a period of time.

As the market began to fall in 2000, though, Capitol Hill, the regulators, investors, and the media raised questions about analysts and possible conflicts of interest. That led the industry to adopt "Best Practices for Research" in June 2001.

These require that research be conducted at all times in a manner consistent with the investing client's objectives. Recommendations must be clearly presented in plain English. Conflicts of interest, including analysts' personal trading, must be avoided and should be disclosed whenever relevant. …