New York, NY – Which sectors are emerging from the prolonged recession? Join the Investorside Research Association on Tuesday, April 3^rd, 2012 for its Eighth Annual Independent Research Conference: Independents Day 2012 held at Bloomberg headquarters in New York City for a detailed analysis of the consumer, financial, technology and healthcare sectors. The agenda for this full day event is included below:

Keynote speaker: John Mauldin, President, Millennium Wave Advisors

Panels and presentation contributors: Argus Research Group, Battle Road Research, Bloomberg Industries, CFRA Research, Chesapeake Enterprise , CreditSights Inc., Edmunds.com, Foster Rosenblatt, Gerson Lehrman Group, IDC, inThought, John Burns Real Estate Consulting, Potomac Research Group, Public Strategies Washington, Riedel Research Group, The Retail Tracker, and Verbatim Advisory Group LLC.

Presented by the Investorside Research Association

DATE:      Tuesday, April 3rd, 2012

8:30 AM – 9:00 AM   Registration and Breakfast

9:00 AM – 12:00 PM  Presentations and Panels

12:00 PM – 1:40 PM    Lunch and Panel

1:45 PM – 4:15 PM     Presentations and Panels

4:15 PM – 6:00 PM    Cocktail Reception

Bloomberg
731 Lexington Avenue
New York, NY 10022

RSVP: Registration Or email: tbevents@bloomberg.net

Detailed Agenda

MPR 7E – Main Room except for Case Studies which will be in Breakout Rooms

8:30 – 9:00  Registration and Breakfast

9:00-9:10     Welcoming Remarks – Alvin Kressler, Bloomberg Tradebook

9:10-9:15      Opening Remarks Investorside Chairman – David Good, CFO, CreditSights, Inc.

9:15-10:00   Consumer Panel

Moderator: David Dwyer, Bloomberg Industries

Panelists: Jeremy Anwyl, CEO, Edmunds.com; Mark Friedman, Co-Founder, The Retail Tracker; Carl Reichardt Jr , Managing Director of Research, John Burns Real Estate Consulting

10:00-10:45 Healthcare Panel

Moderator: Andrew Berens, MD, Bloomberg Industries

Panelists: Ben Weintraub, Director of Research and Senior Principal, inThought, Wolters Kluwer Pharma, Professor Thomas Foster, Partner, Foster Rosenblatt

11:00- 11:45 Case Studies - Breakout Rooms

Verbatim: Instant Gratification – The Race For Gamblers, Dealhunters, and Fanatics

The GLG Research Method: Illuminating Insights and Opportunities in China for Our Clients.

12:00-1:40 Lunch and Macro Panel

Moderator: Joe Brusuelas, Bloomberg Brief

Panelists: Christian Menegatti, Managing Director and Head of Global Economic Research, Roubini Global Economics, Chip Dickson, Director of Research and Strategist, Discern

1:45-2:45 Washington Panel

Moderator: Gregory Valliere, Chief Political Strategist, Potomac Research Group

Panelists: Steven Eichenauer, Partner, Public Strategies Washington; Scott Reed, Chairman, Chesapeake Enterprises

2:45-3:30 Technology Panel

Moderator: Anand Srinivasan, Bloomberg Industries

Panelists: Ben Rose, Founder, Battle Road Research, David Riedel, Founder, Riedel Research Group; Mark Fauscette, Group Vice President, IDC

3:30-4:15 Guest Speaker – John Mauldin, President of Millennium Wave Advisors, is a NY Times best-selling Author, Contributor to Financial Times and Daily Reckoning and has been a frequent guest on CNBC and Bloomberg TV. His weekly e-newsletter, Thoughts from the Frontline, is the most widely distributed financial newsletter.

4:15PM Closing remarks and Reception

An independent macroeconomic research firm, Economic Cycle Research Institute (ECRI), is stubbornly sticking to its contrarian recession forecast despite an improving consensus among most economic forecasters.  Given its track record, ECRI’s call is not to be dismissed lightly.

ECRI specializes in creating composite indexes of economic data.  It was co-founded by Geoffrey Moore, who developed the Index of Leading Economic Indicators and gave it to the U.S. government in the 1960’s.  From 1949 to 1978, Moore was the sole arbiter of U.S. business cycle start and end dates on behalf of the National Bureau of Economic Research.  ECRI has continued Moore’s work, using leading, coincident and lagging indicators to identify economic turning points.

In September 2011, ECRI predicted that the U.S. economy would go into new recession beginning in the middle of 2012.  ECRI’s leading indicators had started to fall, presaging future economic weakness.  Also, ECRI believes the U.S. economy is suffering from a longstanding pattern of slowing growth: “At least since the 1970s, the pace of U.S. growth – especially in GDP and jobs – has been stair-stepping down in successive economic expansions.”

ECRI was not fazed in predicting a recovery of less than 3 years, citing historical precedent for short expansions.  According to ECRI, nearly 90% of U.S. expansions from 1799 to 1929 lasted three years or less, as did two of the three expansions between 1970 and 1981.

Earlier this month, ECRI confirmed its recession forecast.  The firm’s coincident indicators (bottom line on chart) had joined its leading indicators (top line on chart) in predicting an economic decline.  ECRI’s measures of economic activity are diverging from the official government measures:  “In contrast to the 3% GDP growth widely reported for the latest quarter [Q4 2011], year-over-year growth in GDP, after peaking at 3½% in Q3/2010, has basically flatlined around 1½% for the last three quarters.”

ECRI believes that year over year measures are more reliable than quarterly measures of growth.  The firm mistrusts current seasonal adjustments which have been scrambled by the large declines in Q4 2008 and Q1 2009.  According to ECRI, these precipitous declines were interpreted as seasonal factors, and subsequent seasonal adjustments are over-inflating Q4 and Q1 numbers and penalizing Q2 and Q3 numbers too much.

This skepticism helps to explain why ECRI remains bearish while the economic consensus has turned bullish.  Ultimately it comes down to ECRI indicators: “…can unprecedented, concerted global monetary policy action repeal the business cycle? The objective coincident and leading indexes that we have always monitored are still telling us that it cannot.”

And just to brighten everyone’s day, ECRI adds this cheery note: “Here’s what ECRI’s recession call really says: if you think this is a bad economy, you haven’t seen anything yet.”

New York, NY – Last week, the US Senate passed the House version of the Stop Trading on Congressional Knowledge (STOCK) Act in a 96-3 vote, thereby sending the final bill to the President to sign.  This bill bans members of Congress and other Federal employees from personally profiting from nonpublic information obtained from the person’s position or gained in the performance of official responsibilities.  However, Senators Reid and Lieberman went out of their way to clarify that the STOCK Act should not restrict government transparency.

Lowdown on the STOCK Act

The final version of the STOCK Act accomplishes a few basic things.  This includes:

First, the bill explicitly states that employees of the legislative and federal branches of government have a duty to the United States and its citizens, and to the institution of Congress itself, to keep confidential any material information they come into possession of in the course of performing their duties.  In addition, the bill prohibits government employees from financially profiting from material nonpublic information they obtained as a result of their jobs.

The STOCK Act also expressly forbids public officials, including members of Congress, from using their government office to obtain preferential access to IPOs.

To help provide transparency regarding Congress’ investment activity, the STOCK Act requires that members of Congress and senior members of the executive branch disclose any trading activity exceeding $1,000 within 30 days after placing a trade.  These disclosures will need to be made electronically, in standardized form, and will be open to the public for review.

The final version of the STOCK Act did not include a controversial requirement that all firms that provide political intelligence services be required to register in a manner similar to lobbyists.  Instead, the bill that the President will sign requires that the GAO prepare a report for Congress on the role of political intelligence firms, addressing the effects of political intelligence on the financial markets, related legal and ethical considerations, and the pros and cons of requiring political intelligence firms to register.

Clarity on Transparency and MNPI

An important clarification on the impact of the STOCK Act came from a colloquy between Senator’s Reid and Lieberman.  Both Senators agreed that the STOCK Act is not intended to limit government transparency or hinder the dissemination of information to the public regarding Congressional activities and deliberations.

As part of this discussion, Senator Reid explained that an employee of Congress who, in the course of conducting their duties, has a private conversation with a constituent, does not automatically violate the duty of trust imposed by the STOCK Act.  Senator Reid later tried to reassure legislative employees that based on discussions between his office and the SEC, that to be found guilty of insider trading, the SEC would need to prove that a Member of Congress or their staff acted with corrupt intent, knowingly, recklessly, or in bad faith.  In other words, a government employee could not inadvertently provide material nonpublic information that was deemed to be tipping in an insider trading case.

Senator Lieberman also explained that the STOCK Act does not automatically transform information about Congressional deliberations or actions that previously was not material according to SEC definitions, into material information.  In other words, government employees who provide information regarding Congressional deliberations or actions that don’t have an impact on securities prices won’t be seen to have provided inside information.

“Our goal in drafting the duty provisions of the STOCK act was to ensure that insider trading restrictions apply to government officials no differently than they do to the rest of the public, but at the same time, avoid unintended consequences that could curtail interaction between Congress and the public,” stated Lieberman.

This also means that investors who receive non material information from political insiders won’t be charged with insider trading just because they received this information from employees who have a duty of confidentiality to the government.  However, this does mean that investors will be required to perform the same kind of analysis on information received from political insiders that they currently perform on potential MNPI from public companies.  They need to determine if this information is both nonpublic and material.

The complete text of this colloquy is included below.

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Mr. REID. There are many important issues facing our country today and solutions will require bipartisan cooperation. The STOCK Act has enjoyed overwhelmingly bipartisan support because it addresses a key issue, namely government accountability to the American people.

Members of Congress and those we employ must be held accountable to the same standards and laws as the citizens we represent. We owe a duty of trust and loyalty to the American people to conduct our private lives with the highest integrity and to never abuse our office to gain unfair or unethical financial advantages. I am pleased that we have voted overwhelmingly to pass a bill that closes any loopholes, real or perceived, in this regard.

I would note specifically that the STOCK Act requires that Members of Congress and their staffs abstain from profiting on any nonpublic information derived from a person’s position or gained in the performance of official responsibilities. The bill also makes absolutely clear that Members and staff are not exempt from the insider trading prohibitions arising under the securities laws, including section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.

However, and I think my distinguished colleague from Connecticut will agree, the STOCK Act should not be interpreted as limiting government transparency in any way.  Discourse with the public, whether privately or publically, is vital to maintaining a healthy democratic society.

Mr. LIEBERMAN. I thank the Senator from Nevada. I am happy about the reforms that Congress has adopted, and I agree that the STOCK Act is not intended to limit government transparency or hinder dissemination of information to interested parties regarding Congressional activities and deliberations.

In the interest of clarity for the record, I would like to state that the STOCK Act does not turn information regarding Congressional activities and deliberations that was previously not material, into material information with respect to securities laws. I would also note that a Member or employee of Congress who, in the course of performing their duties, has a nonpublic conversation with a citizen or constituent does not automatically violate the duty imposed by Section 4(b)(2) the STOCK Act.

Mr. REID. I thank the Member from Connecticut for his comments. With regard to the Chairman’s last remark, I would like to point out that my office has fielded concerns from multiple sources that the duty language may be interpreted by the SEC as creating liability for public officials and their staff when communicating privately with constituents. There is concern that a threat of this would have a significant chilling effect on government transparency. I understand however that in conversations with my Leadership staff the SEC has explicitly clarified that it does not view the STOCK Act as creating new limitations on the disclosure of Congressional information in conversations with constituents. I also understand that Leadership staff has been assured by the SEC that any case brought under the insider trading prohibitions would still require the SEC to prove that a Member of Congress or their staff acted with scienter, which means acting corruptly, knowingly, recklessly or in bad faith.

Mr. LIEBERMAN. The Democratic Leader is correct. As the Director of Enforcement at the SEC, Robert Khuzami, stated in his testimony before the House Financial Services Committee: “You have to be acting with corrupt intent, knowledge, or recklessness. If you act in good faith, you’re not going to be guilty.” Leadership staff had detailed conversations with the SEC while drafting the duty provisions and raised these concerns specifically. Our goal in drafting the duty provisions of the STOCK act was to ensure that

insider trading restrictions apply to government officials no differently than they do to the rest of the public, but at the same time, avoid unintended consequences that could curtail interaction between Congress and the public.

Mr. REID. Furthermore, it is my understanding that Section 11 of this bill is not intended to override the authority of the President to exempt from public availability the financial disclosure reports of individuals engaged in intelligence activities, which is contained in section 105(a)(1) of the Ethics in Government Act. As to the executive branch, section 105(a)(1) applies to all of the public availability requirements of this bill.

Mr. Lieberman. That is correct. It is not the intent of the STOCK Act to override the President’s authority for necessary exemptions for intelligence activities.

Here is a summary of recent equity research hiring announcements.

Credit Suisse Announces 2 Asia Hires

Viktor Shvets joins Credit Suisse as a Managing Director and Head of Thematic Equity Research, Asia Pacific, based in Hong Kong, writing and co-ordinating research content that highlights the key investment themes and structural growth opportunities across Asia Pacific.  In Singapore, Timothy Ross joins Credit Suisse as a Managing Director and Head of Asia Pacific Transport Research, Asia Pacific. Both hires were previously with Samsung Securities.

The Australian Securities Exchange (ASX) is introducing a new program to subsidize research into small companies, with the hopes of providing high quality, independent research of ASX-listed companies with market capitalization under $1 billion, according to a report by The Australian.

Although junior listed companies have traditionally been under-researched, they represent 92 per cent of all companies listed on the ASX. The year-long trial comes with a $1 million budget, with plans for a longer-term, $10 million a year program.

Singapore has a similar program in place, organized by the Securities Investors Association of Singapore.  The London Stock Exchange announced a similar scheme in partnership with IIIR in 2008, and NASDAQ OMX signed a deal with Morningstar to provide issuer-sponsored research in 2010.

Research is sold not bought, and a review of research distributors shows fewer sellers selling fewer researchers.  Prior to the financial crisis, investment banks and agency brokers built distribution platforms for independent research.  Since the crisis, many of these efforts have been dialed back, and in some cases eliminated.  Nevertheless, agency brokers which have long histories in distributing independent research are still in the game and there are a few firms expanding their distribution efforts.

Goldman Sachs made waves in 2007 when it launched its Hudson Street platform, which made minority investments in third party research firms in addition to distributing their research.  At its high water mark, Goldman’s Hudson Street had distribution arrangements with eleven providers.   Its website currently cites two firms: TrimTabs and Pacific Epoch (formerly JL McGregor).

BankofAmerica Merrill Lynch’s Open Minds platform is still active, with partnerships to distribute HPDI’s drilling info, NPD, Cypress Group and Litigation Notes.  When launched in 2007, Open Minds distributed seven firms and added two subsequently.

UBS also distributed third party research, having relationships with five providers at one point, but appears to have closed the effort.  Morgan Stanley was offering primary research through its AlphaWise service, but decided to take the effort in-house, providing the service to its own equity analysts.

Westminster Research Associates, ConvergEx Group’s commission management platform, announced last June that it was expanding its execution network to 150 broker dealers, up from 90 broker dealers two years prior.  In part, this reflects ConvergEx’s efforts to pay more broker dealers, including the proprietary research of large investment banks, through its commission management platform.  The Jaywalk brand is no longer prominent among the subsidiaries of ConvergEx Group, but the firm still distributes third party research.

Instinet, another pioneer of third party research distribution, currently has exclusive distribution agreements with four providers:  Customer Growth Partners, GreenCrest Capital, Trusted Sources, and Decision Economics.

Capital Institutional Services (CAPIS), another longstanding distributor of third party research, currently distributes nine providers including Catamount Strategic Advisors, EnerCom, Value Investment Principals, Vivid Research, Political Alpha, Trend Macrolytics, Market Trend Investors, Rate Financials and Morningstar.

IRC Securities, which offers research firms distribution as well as other services such as dedicated trade execution and compliance oversight, has distribution arrangements with a half a dozen research firms.  GRC Jackson Securities offers similar services.  Pulse Trading is in the process of merging with State Street Corporation, and expects to continue to distribute independent research after the merger is completed.

Soleil Securities, another early distributor of research, merged in 2011 with Ticonderoga Securities, which shut down earlier this year.   WJB Capital, which also distributed independent research, also closed earlier this year.

On a more upbeat note, Bloomberg Tradebook has been expanding its research distribution platform.  It currently lists distribution arrangements with fifteen providers on its website: Capital Markets Research, HMCG, IDC Tech Investor, IPO Financial, John Burns Real Estate Investor, Lombard Street, Riedel Research, Roubini, The Analyst, Thompson Research Group, Turning Point Analytics, Two Rivers Analytics, Sales Pulse Research, Veritas Investment Research, and inThought.  Unlike many other distributors, Bloomberg Tradebook is expanding its distribution efforts.

The challenge is that in a declining commission environment asset managers are more circumspect about adding new providers.  Nevertheless, distributors who are still actively distributing independent research are benefiting from the reduced competition.  High quality independent research is still in demand among hedge funds and other investment managers.

For research firms considering distribution partners, we provided some thoughts on what to look for in a distributor, along with other options such as sales agents.

New York, NY – To win an insider trading case, the prosecution needs to prove that the person who passed along the material non-public information breached a “duty of trust and confidence” to maintain the confidentiality of that information.  This topic has recently received increased attention due to a new insider trading case regarding tips obtained from a friendship formed at Alcoholics Anonymous.  In addition, the proposed STOCK Act attempts to clarify that members of congress have such a duty when it comes to information they obtain as a part of their jobs in Washington.

The Duty of Trust Established

In 1997 the U.S. Supreme Court established the misappropriation theory of insider trading in United States v. O’Hagan, 521 U.S. 642, 655 (1997). O’Hagan was a partner in a law firm representing Grand Metropolitan, while it was considering a tender offer for Pillsbury Co. O’Hagan used this inside information by buying call options on Pillsbury stock, resulting in profits of over $4 million. O’Hagan claimed that neither he nor his firm owed a fiduciary duty to Pillsbury, so that he did not commit fraud by purchasing Pillsbury options.  The Supreme Court rejected O’Hagan’s arguments and upheld his conviction.

The court ruled that under the misappropriation theory of insider trading, an individual commits securities fraud and violates Section 10(b) and Rule 10b-5 if he misappropriates or steals confidential information used to trade securities in breach of a duty owed to the source of the information to keep the information confidential and not to use it for his personal benefit.  This is the “duty of trust and confidence.”

Over the years, additional court cases have clarified the duty of trust and confidence.  A few of these circumstances include:

1. Whenever a person agrees to maintain information in confidence;
2. Whenever the person communicating the material non-public information and the person who receives the information have a history, pattern, or practice of sharing confidences, such that the recipient of the information knows, or reasonably should know, that the person communicating the material non-public information expects that the recipient will maintain its confidentiality; or
3. Whenever a person receives or obtains material non-public information from his or her spouse, parent, child, or sibling; except when the person receiving or obtaining the information can demonstrate that no duty of trust or confidence existed with respect to the information, by establishing that he or she neither knew nor reasonably should have known that the person who was the source of the information expected that the person would keep the information confidential, because of the parties’ history, pattern, or practice of sharing and maintaining confidences, and because there was no agreement or understanding to maintain the confidentiality of the information.

Alcoholics Anonymous Case

Last week, the SEC recently brought civil charges against Timothy J. McGee, a former investment adviser at Ameriprise Financial Services, who allegedly obtained insider information from an unnamed executive at Philadelphia Consolidated Holding Corp. (PHLY).  The PHLY executive allegedly confided in McGee about its impending sale to Tokio Marine Holdings while both were members of Alcoholics Anonymous (AA).  Mr. McGee is accused of trading on the information and realizing profits of almost $300,000.  In addition, McGee purportedly tipped others, who allegedly made a total of $1.2 mln in profit by buying stock and options.  Four others were named in this case.

The SEC complaint asserts that the confidentiality inherent in the operation of AA is sufficient to establish a “duty of trust and confidence”.  According to the complaint, “individuals who participate in AA and share information at meetings or in private discussion with other AA members are asked to abide by a policy of anonymity, which is the “Twelfth Tradition” of AA.” The SEC further emphasized the confidentiality of information shared at AA meetings.  According to the compliant, McGee assured his source that he would keep the information they shared confidential.

This case is surprising because the SEC is charging that a “duty of trust and confidence” can be established based on the confidentiality practiced by a private organization like AA rather than the more typical legal relationships seen in insider trading cases, like those between an employee and employer or the fiduciary duty of a lawyer or investment adviser.

Click here for more information in this case.

The 2012 STOCK Act

In early February, 2012 the U.S. House of Representatives passed the “Stop Trading on Congressional Knowledge Act of 2012” (the STOCK Act) by a vote of 417 to 2.  A similar bill, which bans insider trading by members of Congress and the administration, was passed previously by the Senate.  The Senate must now determine how to address the differences in the two versions of the bill.

Many journalists have focused on the fact that the recent House bill which was passed does not include a requirement that firms which provide “Political Intelligence” services be required to register in the same way that lobbyists must register under the Lobby Disclosure Act (LDA).  However, we think that clearly establishing a “duty of trust and confidence” will be helpful to the SEC if they ever want to prosecute a member of Congress on insider trading.

The following is a direct quote from the House version of the STOCK Act which clarifies this issue.

“For purposes of the insider trading prohibitions arising under the securities laws, including section 10(b) and Rule 10b–5 thereunder, each Member of Congress or employee of Congress owes a duty arising from a relationship of trust and confidence to the Congress, the United States Government, and the citizens of the United States with respect to material, nonpublic information derived from such person’s position as a Member of Congress or employee of Congress or gained from the performance of such person’s official responsibilities.”

Click here for the complete text of the House version of the STOCK Act.

Last month, at a breakfast hosted by the Christian Science Monitor, Securities and Exchange Commission (SEC) Chairwoman Mary Schapiro expressed her support for this aspect of the STOCK Act.  “I think the STOCK Act can be helpful to us in this regard, the clarity that there is in fact a duty that members of Congress owe to the Congress, to the government, to the American people is very useful,” she said. “Because we need to show violation of the duty when we bring an insider trading case.”

It is important to understand that this “duty of trust and confidence” doesn’t only impact employees of the legislative or executive branch of government who are covered under the STOCK Act.  It also increases the risk for asset managers and other investors who engage lobbyists, law firms, and other providers of political intelligence services to gather information from political insiders about developments in Washington DC.

In the past, many U.S. institutional investors felt they could legally invest on material non-public information obtained from members of Congress, their staffers, or other government policy-makers because they did not breach a duty owed to the source of the information to keep the information confidential and not to use it for their personal benefit.  The explicit duty in the proposed STOCK Act will change all this.

Summary

The new SEC case against Timothy McGee could have a significant impact on the “duty of trust and confidence” if the Commission is successful in broadening this duty to the misappropriation of information derived from personal relationships versus contractual or fiduciary relationships.

Clarifying that members of Congress and their staff have a “duty of trust and confidence” in the STOCK Act could have an even more profound impact.  We don’t believe that U.S. investors will be prohibited from gathering and using information about Washington political, regulatory, and policy developments in their investment process.  However, we do think investors will need to conduct the same type of analysis when it obtains information from political insiders that it currently adopts with potential MNPI from corporate insiders.  We suspect this will also mean that asset managers will want to ensure that political intelligence firms and other policy research providers have implemented similar types of compliance controls that they have come to expect from best of breed expert networks, channel checks providers, and traditional fundamental equity research firms.

The Securities and Exchange Board of India (Sebi) is considering extending regulations to cover independent research analysts according to a report by MSN India.

Indian research analysts attached with brokerage firms, fund houses, investment banks and other market intermediaries are currently governed by Sebi regulations, but there are no comprehensive rules that could also cover third-party or independent analysts. In a board meeting late last year, Sebi had discussed the need to have a comprehensive set of regulations for research analysts.

The scrutiny was apparently triggered by short ideas research.  Sebi is concerned that ‘bear cartels’ have used the negative issues raised in short ideas reports to beat down share prices.  Reports from one particular overseas research firm (unnamed) has raised concerns about a few Indian groups in the recent months.

Some commentators have suggested that the ‘overseas firm’ causing regulatory anxiety is Toronto-based Veritas Investment Research.  Veritas provides earnings quality, forensic accounting and fundamental valuation analysis on a limited number of firms, including Indian companies.  Veritas put out a report on Reliance Industries and Reliance Commuications in July 2011,  Kingfisher Airlines in September 2011, and DLF earlier this month.

A Sebi official said the regulator supports good research, however, research on its own cannot generate sufficient revenue to sustain its existence, therefore, it has to rely on other parts of the organization. This could lead to conflicts of interest.

Among the measures being discussed by Sebi, analysts could be asked to make disclosures regarding incentive structure, shareholding pattern, market dealings, and various direct and indirect business interests.  Current Sebi regulation already requires ‘Chinese Walls’ to avoid any conflict of interest arising out of reports published by equity research units.  The new rules could also prescribe mechanisms to ensure that the research analysts’ trading activities or financial interests do not prejudice their reports.

Veritas is a very reputable firm which has been producing independent research since 2000. It is staffed with forensic accountants, and most of its 13 analysts are Chartered Public Accountants, Chartered Accountants and/or Chartered Business Valuators.   We would be very surprised if the firm was participating in ‘bear cartels’.  It is not a Muddy Waters, which explicitly front runs its own research.

It is unclear what jurisdiction Sebi would have over Veritas, which is based in Toronto with no offices in India to our knowledge.  Nevertheless, it is unfortunate if Sebi is taking steps to try to discourage forensic analysis.  There is a shortage of sell ideas in equity research, and, although company management does not like critical equity research, it is healthy for markets.

Investment banks are the top providers of environmental, social and governance (ESG) research in a new study we are releasing today.    Our survey of institutional investors found that ESG research is growing in importance among asset managers, with the majority of respondents expecting to increase spending despite overall reductions in research spending.

ESG research analyzes the performance of publicly traded companies in reducing their carbon footprint, improving social conditions inside and outside the workplace, and the quality of governance.  Over 35 investment research firms providing ESG research were mentioned in the study.

The top three providers of ESG research in the study were Citigroup, CLSA and UBS.  Respondents generally relied more on ESG research produced by investment banks rather than by independents, and investment banking ESG research was ranked more highly.

A majority of survey participants considered ESG research critical to their research process and expected to increase usage of ESG research over the next 12 months.

Integrity Research conducted the survey of asset management users of environmental, social and governance (ESG) research in the 2nd Quarter of 2011.  The survey covered ESG research trends, interests and future usage plans, as well as feedback on specific ESG research providers.  Nearly half of the survey participants were from Europe, nearly one third from North America and the remainder from Asia and Africa/Middle East.

The 63-page Integrity ResearchFocus® report details the survey findings including ESG Research usage patterns, comparative analysis and rankings of the ten most prevalent ESG providers. The report is used as a “buyers guide” for investment professionals and other users of ESG research. For additional information, go to http://www.integrity-research.com/cms/our-services/researchfocus/integrity-researchfocus%C2%AE-esg-research/.

Connotate, Inc., a New Jersey-based provider of data mining software, announced that it has acquired Fetch Technologies, a data mining firm with a strong footprint in the retail sector.  Terms of the deal were not disclosed.

Founded in 2000 based on technology developed at Rutgers University, Connotate provides customized search software that collects, organizes, and monitors web content.  One of its strengths is creating structured data from the web, such as creating a time series of pricing data from internet websites.  This data can then be transformed into what the company refers to as “high-value information assets”, to feed asset manager valuation models, or for analysis of revenue trends of publicly traded stocks.   Customers include asset managers as well as media companies such as Reuters, Dow Jones & Company, Associated Press and McGraw-Hill.

Connotate has raised $5.25 million in funding, including private equity investment in June, 2010.  At one point it was part of Goldman Sachs’ Hudson Street platform, also receiving investment from Goldman’s private equity group in 2007.

El Segundo-based Fetch Technologies was a spinout from the University of Southern California Information Sciences Institute’s Artificial Intelligence (AI) research.  Prior to its acquisition by Connotate, Fetch Technologies had raised at least $5.7M in funding.

Fetch Technologies helps companies access massive amounts of real-time Internet data, especially in the areas of retail and background checks. The company pulls in everything from pricing data for retailers and shopping engines to criminal background history or news stories. Customers include Shopzilla.

Combining the two companies allows Connotate to extend its footprint and meet the growing demand for solutions that monitor, aggregate and deliver real-time Web data—delivering any data from any site at any time in a structured format.  A recent IDC report forecasts that spending on ‘big data’ analytics will grow from $3.2 billion in 2010 to $16.9 billion in 2015.  Last week, we reported on recent studies analyzing web search data for early insights on pending economic releases and financial market data.