An ASIC spokesperson, while refusing to disclose full details of the inquiry, said investigators would map the landscape of the Australian analyst industry, with particular attention to the independence of its financial advice practitioners.
The spokesperson said while its investigations would not exclusively target tech analysts, its investigations would probably encompass trade in dot-com stocks during the tech-boom. However, the inquiry appears to follow vectors similar to those pursued by US regulators in their recent investigations into trading and advising activities by leading Wall Street tech-stock analysts.
Last month ten top US investment and brokerage houses, including Merrill Lynch, Salomon Smith Barney and a handful of smaller firms agreed to share in US$1 billion dollars worth of fines to appease NASD, the US' largest securities regulator. The agreement will have the effect of curtailing NASD's investigation into the activities of their stock recommendation services and trading arms.
According to the New York Times the agreement reached by NASD and the Wall Street firms was intended to force the latter to produce independent stock reports and give analysts protection from pressure to produce upbeat stock forecasts to attract investment banking fees.
The ASIC inquiry will explore two aspects of the independence of analyst working in investment banks and brokerage houses: the impact of buy or sell recommendations made by analysts on their remuneration and on the activities of their employers.
"We'll look at whether analyst remuneration is reflective of the overall performance of the investment bank he or she is employed by or tied to a particular transaction and, further, to what extent is the analyst remuneration affected or influenced by those employees activities on the trading arm of the investment bank," said the spokesperson.
ASIC has also hinted that its inquiry may lead to investigation of specific instances of breaches of the Corporations Act 2001.
"There may be specific breaches of the Corporations Act [2001] that we would look at in isolation...any information that comes to us we would need to examine further," said the spokesperson.
The inquiry is intended to assist ASIC in making recommendations to the government on how it needs to extend its powers to ensure it can regulate analyst activity effectively.
ASIC has already made recommendations regarding analyst regulation in its submissions to the Federal government's CLERP (Corporate Law Economic Reform Program) 9 proposals to reform corporate disclosure.
Provisions in the Financial Services Reform Act may already offer ASIC some means of regulating analysts. Under the new provisions analysts have two years to qualify for a trading license from ASIC or become a representative of a licensed securities dealer.
However, ASIC's CLERP 9 recommendations for analyst regulation go further recommending that analysts have specific obligations to disclose conflicts of interest when putting research stock reports forward to clients and prohibiting transactions where analysts have a direct pecuniary interest in outcomes in situations where clients may be acting on their advice.
