Lawyers for top Wall Street firms raised strong objections today to a proposal by regulators that they fund independent research through a consortium.
Two sources familiar with the talks, held at the Securities and Exchange Commission in Washington, said the idea of a consortium whose research all the brokerage firms could distribute appeared to be losing steam.
Instead, several firms offered to buy independent research from other sources and provide it to investors.
Wall Street firms and regulators are negotiating rules to prevent conflicts of interest between investment banking and research analysts and to end several regulatory inquiries. But no deal emerged from today's talks, and participants would not comment.
Sources familiar with the discussions said the Wall Street firms raised a number of objections to a consortium, which was proposed by New York state Attorney General Eliot Spitzer. Some firms have questioned whether creating a single source of purportedly unbiased stock research would serve investors well.
Others noted that the consortium would still be funded, albeit indirectly, by banking fees collected from companies being covered by the research. Firms that serve few retail investors, such as Goldman Sachs Group Inc., were said to be reluctant to contribute money to a consortium.
Donald C. Langevoort, a professor of securities law at the Georgetown University Law Center, said he was not surprised that the consortium idea was fading.
"What motivates high-quality investment research is competition and compensation, analysts getting rewarded for the quality of their work," he said. "Consortiums limit competition."
Several firms with large retail brokerage businesses, such as Merrill Lynch & Co., were said to prefer a system under which they would buy reports from independent, research-only firms.
None of the solutions being seriously discussed would force Wall Street firms to eliminate in-house research departments. The firms have said they need analysts to advise investment bankers.
Under the consortium idea, in-house analysts would be allowed to publish reports but they would also have to provide investors with the consortium reports.
Participants in today's meeting also discussed creating an industry-funded oversight committee to monitor Wall Street research firms and certify their independence.
Some firms have said such a committee would not amount to much of an improvement over the current system, in which many banks have internal committees that monitor research and manage potential conflicts of interest.
Today's meeting included lawyers from all of Wall Street's biggest firms. Representatives of the SEC and the securities industry's two regulatory bodies -- NASD and the New York Stock Exchange -- attended, as did Spitzer and state regulators.
An agreement between the industry and federal and state regulators on regulatory changes is not likely to end all the investigations of Wall Street conflicts.
Officials in Spitzer's office have said the attorney general still may take legal action against firms, particularly the Salomon Smith Barney unit of Citigroup Inc., or against individuals. Massachusetts this week sued Credit Suisse First Boston Corp., claiming biased research.
Staff writer Jonathan Krim in Washington contributed to this report.