New York’s Attorney General Eric T. Schneiderman announced this week that he reached interim agreements with 18 Wall Street firms that they will not participate in surveys by elite investment firms that seek to get an analyst’s assessment of public companies before that information is publicly released. Attorney General Schneiderman, who dubs the practice “Insider Trading 2.0,” claims it puts the larger market at an unfair disadvantage and potentially subjects the banks to liability under New York’s anti-fraud Martin Act. The agreements were reached without any litigation being brought by the New York Attorney General’s office.

In September 2013, after reaching an agreement with Thomson Reuters, which was selling investors access to market-moving University of Michigan surveys minutes before the information was made available to the public, Attorney General Schneiderman expressed concern about this practice, noting that it could give traders who viewed the surveys a sneak peek into forthcoming analyst reports. Then, a January 2014 investigation into a survey by BlackRock, the world’s largest asset manager, revealed that many of the analyst survey questions were designed to capture analyst views, and the timing and structure of the surveys allowed BlackRock to obtain early information that could be used to front-run future analyst revisions. 

The participating banks in the interim agreements, which were effective immediately and to be fully implemented by early March 2014, agreed to instruct their research analysts to not respond to the surveys.  Attorney General Schneiderman applauded the participating firms for their leadership and cooperation, adding, “our markets will only be fair and healthy if everyone plays by the same rules.”   

Attorney General Schneiderman’s February 26, 2014 press release is available here.