Making a negative call? Meet the new boss - same as the old boss.
Jul 15th, 2008 | Filed under: Hedge Fund Industry TrendsSure, naked shorting and starting false rumours are socially undesirable. But isn’t there something a little ironic in the SEC’s clamp-down on negative opinions? Even the youngest junior analysts can remember a day not too long ago when the scarcity of any negative ratings was considered proof that research was actually just a lap-dog of the sell-side. Back then, with only one or two percent of analyst recommendations of the negative variety, the SEC wanted to see more “sell!” and less “buy!”.
After peaking in 2003, sell ratings are still relatively rare - but they may become even rarer if the SEC starts to investigate people who don’t happen to love a particular stock. As Thomson reported today:
“The big fear is that regulators will show up at hedge funds and brokerages, armed with subpoenas, demanding trading, phone and e-mail records to determine if any of them are to blame for declines in the shares of major financial companies such as Lehman Brothers Holdings Inc.”
In May 2002, the SEC issued new rules to remove what it felt was a muzzle on analysts’ negative views. In the press release announcing its new rules, the commission said its goal was:
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