No broker backers for Merrill trade ban

By ELLEN READ markets writer

Local brokers have no plans to follow the lead of global stockbroking firm Merrill Lynch which this week banned its analysts from trading shares in companies they research.

The move follows increasing pressure in the US for financial firms to be - and be seen as - squeaky clean.

But New Zealand brokers say they have no plans to introduce similar rules, although there are some who think they should.

"In my view if you ban things it's like prohibition," said Forsyth Barr Group managing director Neil Paviour-Smith.

"People will do it secretly and you run the risk that you incentivise negative behaviour.

"I don't think it's a negative that an analyst covering a stock owns the shares. Certainly if they're positive about a stock and they own it themselves, it in some ways endorses that research," he said.

US companies are already prohibited from giving analysts exclusive briefings, but Merrill Lynch is the first broker to introduce such a ban on its own analysts.

The new, worldwide policy is effective immediately, although analysts with existing holdings will be able to keep them but under new disclosure rules.

Warrick Hunt, leader of business and assurance advisory for PricewaterhouseCoopers in New Zealand, welcomed the initiative.

"I'm delighted to hear that. I think it's highly desirable to see a similar standard that does apply in the auditing and accounting profession being extended.

"It hasn't happened here yet but I think it would be very healthy if it [did], or at least there was some method of control.

"While I've never seen any evidence that inappropriate information passes, it's a perception thing," Mr Hunt said.

The head of equities for fund manager Arcus Investment, Simon Botherway, agrees.

"I suppose what Merrill's are acknowledging is that there is both a real and a perceived conflict relating to research reports, particularly when the reports can move markets from time to time.

"So being seen to prohibit those analysts from trading is very important to maintaining investor confidence," he said.

Mr Botherway said such a ban had to be made firm by firm and he expected more to adopt such a policy.

Nevertheless, Mr Paviour-Smith and others have not sensed widespread local concern about analysts' behaviour regarding the stocks they're covering.

"It's a little more transparent here, plus each company has its own internal controls," a senior broker said. He said this was one situation where the small size of New Zealand's market worked in its favour.