Last week, we told you that many major Wall Street firms were open to the idea of eliminating their ludicrous stock rating systems. In return, the companies -- such as Merrill Lynch
The beginning of the end came when New York Attorney General Eliot Spitzer obtained internal emails showing Merrill analysts praised certain stocks publicly while denigrating them privately. Spitzer forced a settlement, but other regulatory agencies are still conducting their own industry-wide investigations.
If stock ratings disappear, what's the alternative? One suggestion, proposed by Spitzer, calls for the creation of a research consortium from which all firms could draw. But The Washington Postsays the idea has been met by "strong objections," especially from companies that would have to contribute funding even though they'd have little need for the group's research.
As the various parties continue to negotiate at SEC headquarters in New York, the most likely solution, at this point, would have the firms buy research from independent companies, which they could then distribute to clients as they wished. That would not only eliminate conflicts of interest, but also likely raise the level of research available, since only the best analysts would survive in the long run.
No matter which solution is finally agreed upon, the Post says each brokerage would likely retain its own in-house research team -- if only to advise the investment-banking department. Whatever happens, we'll be happy to say goodbye to the world of "buy," "sell," and "hold," along with the conflicts of interest it generates.