Several media organizations are protesting a proposed Securities and Exchange Commission rule change that could prohibit stock analysts from talking to print journalists unless the analyst's potential conflicts of interest are disclosed in the reporter's story.
The change has been proposed by the New York Stock Exchange and follows last year's revelations that some stock analysts did not disclose if they or their firm owned certain stocks while commenting on them.
Under the proposed changes, a print news organization would be required to report an analyst's potential conflicts of interest -- for example, a full list of stocks owned by that analyst. If the list was not reported, the analyst -- and all colleagues at the analyst's firm -- would be prohibited from speaking to that news organization again. Earlier SEC rules required television and other electronic media to report analysts' potential conflicts of interest.
The proposed change "could be read to regulate the access and editorial discretion of the media," argued several news organizations in comments filed on Monday with the SEC. The news organizations included the Associated Press, New York Times Co., Gannett Co., Forbes Inc., Reuters, Dow Jones & Co. and The Washington Post Co. The news organizations are represented by the Washington office of Gibson, Dunn & Crutcher LLP.
The SEC proposed the changes late last year. The deadline for filing comments was Monday, and it is unclear how long it would take the SEC to act. NASD had joined the stock exchange in proposing the change but withdrew its support late last year, saying that the decision to report analysts' conflicts of interest should be left up to the news organizations.
Stock analysts act something like news reporters: They cover certain business segments, such as the media, the oil industry, automakers and so on, studying company financial reports and market trends and regularly speaking with top executives. They analyze this information and often make recommendations on whether investors ought to buy, sell or hold a company's stock.
Business journalists rely on analysts -- particularly on deadline -- to interpret breaking news about industry sectors. If the SEC adopted the proposed disclosure rules and news outlets did not abide by them, the number of analysts available to be quoted in stories would shrink each time an analyst's potential conflict of interest was not reported in a story.
The news outlets say that the proposed changes amount to a breach of their First Amendment right to print what they choose, a position staked out by the New York Times' parent Monday.
It is for editors, said Times Co. spokeswoman Catherine J. Mathis, "to decide how and whether to include [disclosures] in our reports without governmental pressure. And it is particularly counterproductive that the sanction proposed would prohibit analysts from speaking to reporters, thereby decreasing the flow of information to the public."
Paul Steiger, managing editor of the Wall Street Journal, owned by Dow Jones & Co., said the proposed change is not "effective or appropriate as a matter of constitutional law." The Journal and The Post are in a partnership to publish Post articles in overseas editions of the Journal.
The news organizations filing comments Monday offered a modification to the proposed change, saying that if an analyst makes a good-faith effort to disclose personal stock holdings -- regardless of whether the news organization includes them in the story in which the analyst is quoted -- the analyst will be considered to have complied with the SEC rules.