I almost can’t believe this is actually happening – the “Chinese Wall” between research and banking at Wall Street firms is about to be torn back down after being put in place ten years ago to cure the ills of the Dot Com IPO boom/bust that cost a generation billions of dollars in investment capital.
After the dot-com bust a decade ago, regulators forced Wall Street to adopt rules aimed at keeping stock analysts from over-praising companies doing deals with their banks. President Barack Obama is set to sign a law that would undo at least some of the changes.
One measure in the bill, passed by Congress March 22 to ease securities rules for closely held firms, would restore communication between bank research and underwriting arms. Those links were restricted in 2003 by regulators and by a separate settlement between then-New York Attorney General Eliot Spitzer and 10 firms including Goldman Sachs Group Inc. and JPMorgan Chase & Co.
Supposedly it is the Venture Capital lobby that is pushing this because they feel Wall Street is ignoring “emerging” companies as a result of the wall. Yes, those poor saps at Facebook and Twitter and LinkedIn and Zynga and on and on who’ve had so much trouble attracting attention from investors, my heart weeps for them.
Aside from the VCs who are looking to lubricate their exit glidepaths, I’m not sure who exactly is aided by this or why it’s even up for discussion in the first place. But I know exactly who could be hurt by it – those in the investing public who take sell-side research on stocks at face value and do not understand that they will be used as cannon fodder, allowing more “important” customers and company insiders to unload shares.
I don’t get it…