New York, NY – According to this week’s edition of the Wall Street Letter, Investorside — the independent research industry’s trade organization — is lobbying the SEC to encourage the twelve Wall Street investment banks involved in the Global Research Analyst Settlement to continue purchasing independent research to provide to their retail customers.
The Global Research Analyst Settlement, which is scheduled to expire in July 2009, mandates that twelve of the largest investment banks in the world provide at least one independent investment research report for every company that investment bank provides research coverage for. These settlement firms were forced to set aside over $460 million to spend on independent third-party research.
While Investorside is not seeking to have the legal mandate extended, they are hoping that the SEC promote a “best practices guideline” that will encourage the twelve investment banks to continue providing independent research to their clients.
Between 60 and 70 different research firms were hired to provide some form of coverage under the Global Research Analyst Settlement. However, a handful of firms won the lion’s share of the settlement business — a development which has caused these firms to be a little nervous as the disappearance of this revenue could have a major impact on their profitability.
Despite this nervousness, we are not convinced that the SEC will be terribly supportive of this issue, particularly as any recommendation they make will be purely for show and will have no legal backbone.
Most would agree that the Global Research Settlement, while well intentioned, has not been terribly successful — particularly when measured by the amount of use that retail investors have made of this research. Consequently, many feel that the investment banks involved in the settlement are unlikely to continue buying independent research on behalf of their clients — at least at the levels seen under the settlement.
We do suspect that a number of the settlement banks will continue to provide some research to their retail clients after the settlement ends. However, many investment banks were providing independent research to their retail investor clientele BEFORE the advent of the settlement. As a result, we believe many of these firms will revert to the same level of spending that they engaged in pre-settlement.
IN THE SPIRIT OF FULL DISCLOSURE, THE AUTHOR OF THIS POST, MICHAEL MAYHEW, IS A BOARD MEMBER OF INVESTORSIDE.