Q: Of all the reforms, which one do you think is having the best results so far?
A: The NASD rules on research recommendations passed last Sept. 9 are a great example of how to regulate properly. It required firms to disclose in every report the percentage of its buy, hold, and sell recommendations, and what percentage of companies in each category the firm has done investment-banking deals with. Firms must also provide a three-year stock-price chart that marks where previous recommendations and price targets were made. Simply by more disclosure, not through "thou shalls" and "thou shalt not," they've given firms an incentive to do the right thing.
Q: How should individual investors interpret this new information?
A: If you see that only 2% of a firm's recommendations are sell and all its investment-banking business is done with companies rated buy, you're going to realize what kind of a shill [it is.]
Most firms have moved away from that, though. The firms that get it have between 15% and 35% of their recommendations