Conflict of Interest - Global Settlements

Here are the details surrounding the separation of research and investment banking:

• To ensure that stock recommendations are not tainted by efforts to obtain investment banking fees, research analysts will be insulated from investment banking pressure. The firms will be required to sever the links between research and investment banking, including prohibiting analysts from receiving compensation for investment banking activities, and prohibiting analysts' involvement in investment banking "pitches" and "roadshows." Among the more important reforms:
   
  • The firms will physically separate their research and investment banking departments to prevent the flow of information between the two groups.
     
  • The firms' senior management will determine the research department's budget without input from investment banking and without regard to specific revenues derived from investment banking.
     
  • Research analysts' compensation may not be based, directly or indirectly, on investment banking revenues or input from investment banking personnel, and investment bankers will have no role in evaluating analysts' job performance.
     
  • Research management will make all company-specific decisions to terminate coverage, and investment bankers will have no role in company-specific coverage decisions.
     
  • Research analysts will be prohibited from participating in efforts to solicit investment banking business, including pitches and roadshows. During the offering period for an investment banking transaction, research analysts may not participate in roadshows or other efforts to market the transaction.
     
  • The firms will create and enforce firewalls restricting interaction between investment banking and research except in specifically designated circumstances.
     
• To ensure that individual investors get access to objective investment advice, the firms will be obligated to furnish independent research. For a five-year period, each of the firms will be required to contract with no fewer than three independent research firms that will make available independent research to the firm's customers. An independent consultant for each firm will have final authority to procure independent research.
   
• To enable investors to evaluate and compare the performance of analysts, research analysts' historical ratings will be disclosed. Each firm will make its analysts' historical ratings and price target forecasts publicly available.