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Online Stock Market Trading By Hartley Bernstein - Contributing ColumnistWill independent research eliminate the conflicts of interest that tainted Wall Street analysis? That may depend on your definition of independent.Visit our AXcess News Forum and add your comments on this story. Try your hand at writing, the best story will be published on our news network. Take our business poll too!

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Stock Market Game May 14, 2004 (AXcess News) New York - The research scandals of 2003 had many reverberations. Regulators expressed outrage when they discovered that brokerage firms had been issuing biased research reports and skewing their analysis to curry favor with corporate clients. The public was distressed to learn that the leading lights of Wall Street had been rigging their research to satisfy investment banking interests. Politicians vowed to end the brokerage and corporate abuses that had shaken investors' faith in our financial institutions.

381. pearled gray Celluloid and polished stainless steel, The Wall Street pens are highly symbolic not only for their shape,

Stock Investing Game As a first step, federal and state regulators joined together to sanction ten leading brokerage firms that had failed to eliminate conflicts of interest between research and investment banking departments - Bear, Stearns & Co. Inc.; Credit Suisse First Boston LLC; Goldman, Sachs & Co.; Lehman Brothers Inc.; J.P. Morgan Securities Inc.; Merrill Lynch, Pierce, Fenner & Smith, Incorporated; Morgan Stanley & Co. Incorporated; Salomon Smith Barney Inc.; UBS Warburg LLC; and U.S. Bancorp Piper Jaffray Inc.

Patrick Bateman (Christian Bale), the son of a wealthy Wall Street financier, is pursuing his own lucrative career with his father's firm.

Journal Prime Rate Street Wall To settle these actions, the brokerage firms agreed to pay a total of $1.4 billion and to separate their investment banking and research divisions. They also agreed to furnish "independent" research to customers, in part by purchasing independent analysis from outside sources.

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Stock Market News As it turns out, however, independence is in the eye of the vendor. Some so-called independent analysts own positions in the stocks they endorse. For example, as recently reported in the Wall Street Journal, Thomas Brown, an ex-Donaldson, Lufkin & JenretteAdvertisement

Stock Investing Basics analyst offers his views of companies on a website called Bank Stocks . But Mr. Brown also operates a hedge fund, Second Curve Capital LLC, which occasionally holds sizable positions in the stocks he is analyzing. Brown's website contains a broad disclaimer that suggests he may be buying, holding or selling stocks that he rates, but he does not necessarily disclose his specific holdings at the time he publishes recommendations.Does that mean Brown and other of his ilk are not truly independent? The SEC settlement offers little practical guidance. According to the SEC, research is independent if it has "no association with investment-banking activities." That may be accurate, but it is hardly sufficiently nuanced. Those indignant regulators and politicians stopped short of carving a meaningful definition of independence designed to eliminate conflicts.

Stock Investing Software Regulation of these independent research providers will present a different challenge. The NASD and other self-regulatory organizations already require analysts to disclose their stock ownership, and theoretically could enact more stringent matters restricting those holdings, but most of the new breed of independent researchers are not employed by brokerage firms and therefore not subject to the NASD's jurisdiction. Parameters for these researchers will have to be established and enforced by the SEC or state regulators.Until now, the more responsible independent researchers have been policing themselves, in some cases restricting themselves from buying or selling stock within a day or week of a report. NASD rules for brokerage firms, however, are considerably more stringent. The NASD prohibits analysts from trading in stocks for 30 days before publishing a report and 5 days after, and they may not make trades that are contrary to their recommendations.

Stock Market Trading Independent analysts also can fall victim to some of the same pressures that affected the brokerage firm researchers. Hedge funds, traders and institutions can be expected to lobby for better ratings.

Stock Investing For Dummy Independence can be compromised in other fashions. Many listed companies depend upon independent research simply because they are not covered by the major brokerage houses. Such independent analysis can be valuable, and credible, but without adequate standards it will remain difficult for investors to distinguish the legitimate analyst from the huckster. While all analysts must disclose "material facts," including their compensation, the disclosure requirements are vague at best, and subject to broad interpretation. As independent research continues to flourish, those standards must evolve and sanctions must be created that protect investors.Otherwise we soon will be longer for the days of incestuous relationships between brokerage firm analysts and their investment banking departments.

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