NASD Begins Consumer Education on Analyst Recommendations

The National Association of Securities Dealers Inc., which regulates the Nasdaq stock market and is the parent of the American Stock Exchange, yesterday announced an education campaign to help investors better understand the research published and the recommendations made by equity analysts.

To further this effort, the NASD is making available on its Web site,, the “Guide to Understanding Securities Analyst Recommendations” and a companion “Glossary of Analyst Research Report Terms.” The guide explains what analysts do and the role they play in helping investors make investing decisions. The glossary explains investment terms.

“In preparing this guide, we hope to assist both current and potential investors in successfully navigating through the large amount of financial information that is available today,” said Mary Schapiro, president of NASD Regulation Inc., the enforcement arm of the NASD. “Analysts can be a source of valuable information, but only if their role in the financial community is well understood.”

The guide covers two basic issues: that analyst ratings lack clear, standardized meanings, and the potential conflicts of interest that an investor should be aware of in assessing the usefulness of analyst ratings.

“The guide explains what analysts do and places it in perspective so you can understand when and why you may need to take analyst recommendations with a grain of salt and know what additional information you should seek out in managing your portfolio,” said Robert Glauber, the NASD's president/CEO.

Glauber also said the NASD is working with Congress and the Securities and Exchange Commission to develop standards that will govern analysts' actions and the firms that employ them. The NASD also proposed new rules that seek to eliminate any conflicts of interest an analyst and his firm might have regarding a particular security. The rules also would prohibit analysts from receiving pre-initial public offering stock of companies they cover.

“In today's fast-changing investment climate, it is often hard for investors to know where to turn for objective guidance about industry trends and issues that may affect their interests,” he said. “Analyst recommendations are just such an issue.”

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