The Israel Securities Authority has decided that analysts will have to disclose possible conflicts of interest in their reports on public companies. Analysts will also disclose their private interests and the methodologies they employ.
The Securities Authority said that conflicts of interest lay in the links between investment houses and banks where the analysts were employed and the companies covered. “Investment houses and banks provide various financial services to customers operating in the capital market, and this activity sometimes creates conflicts of interest in the analysts’ work,” says the Securities Authority.
In addition to any link between the analyst’s company and the company covered, the analyst will have to disclose any personal ties with the company, included whether he or any relatives has business ties with the company covered or its owners, owns shares in it, or received any compensation from the company during the preceding year.
Investment managers, advisers and journalists daily receive numerous analysts’ reports on companies, almost all of which include favorable recommendations to buy the share. Furthermore, in the Internet era, analysts’ work has accelerated and the number of reports publicly published has increased.
Although many investors feel that they are being flooded with information, analysts’ reports influence their decisions. Frequently, on a day when a positive recommendation for a share comes out, that share soars.
Concerns about conflicts of interest among analysts has been on the agenda of capital markets worldwide in recent years. For example, in the US, there have been numerous cases of severely misleading analysts’ reports caused by conflicts of interest between their work and that of other departments at the investment houses where the analysts worked. These cases have caused institutions such as the New York Stock Exchange to set clear rules for analysts.
Published by Globes [online], Israel business news - www.globes.co.il - on March 13, 2007
© Copyright of Globes Publisher Itonut (1983) Ltd. 2007