Brokerage firms that do little business with individual investors are not expected to stand in the way of a "global settlement" to target alleged conflicts of interest and end multiple probes into Wall Street practices, sources said today.
Conflict between firms with large retail brokerage business, such as Merrill Lynch & Co. and Morgan Stanley, and those that deal mainly with institutional clients, such as Goldman Sachs & Co., Credit Suisse First Boston Corp. and J.P. Morgan Chase & Co., had emerged as a major stumbling block in talks with regulators aimed at crafting a set of reforms that would apply across the industry.
Last week, New York Attorney General Eliot Spitzer and Securities and Exchange Commission Chairman Harvey L. Pitt proposed a settlement in which all Wall Street firms would contribute money to an independent research committee.
Under the proposal, the committee would use the money to purchase reports from a handful of independent, research-only firms. Brokerage houses would then be required to provide their retail clients with the independent research reports along with any reports prepared by their own analysts. Under the proposal, Wall Street firms could still employ analysts who would continue to advise bankers and draw salaries influenced by investment-banking fees.
The firms with a primarily institutional customer base had complained about being forced to pay millions of dollars for research reports aimed at individual investors. But sources familiar with talks between regulators and the firms said that those concerns had been addressed and that any final settlement would reflect Wall Street's different business models. Spokesmen for CSFB, Goldman Sachs and J.P. Morgan declined to comment today, as did officials at the SEC and Spitzer's office.
The SEC and Spitzer, along with NASD and the New York Stock Exchange, the securities industry's self-regulatory bodies, gave Wall Street firms until Wednesday to decide whether they would accept the reform plan. The proposal is also said to include stricter rules to separate bankers and research analysts within Wall Street firms.
In addition to funding independent research, the newly formed committee would also oversee Wall Street research departments and monitor them for potential conflicts of interest.
Lawyers for the top firms spent much of this afternoon in conference calls to iron out differences and determine whether a global settlement could be agreed upon as soon as Wednesday. Firms under heavy regulatory scrutiny, such as CSFB and the Salomon Smith Barney Inc. unit of Citigroup Inc., were said to be pushing for an immediate resolution. Firms under less pressure, such as Morgan Stanley, were said to be urging caution and recommending that the firms pay closer attention to the details of any possible agreement. This go-slow approach was said to be causing friction between Morgan Stanley and the other firms.
Despite certain differences, Wall Street as a whole has expressed great interest in moving beyond a series of probes, sparked by Spitzer's investigation of Merrill Lynch this spring, that have exposed embarrassing e-mails in which Wall Street analysts privately disparaged stocks of investment-banking clients they were publicly recommending. Some of the e-mails also appeared to suggest that some Wall Street firms awarded hard-to-get shares in initial public offerings to executives at firms that were banking clients.