NEW YORK: Eleven large news organizations last week mounted a challenge to a proposed rule that would require them to disclose potential conflicts of interests of certain sources.
Now before the SEC, the regulation would compel media to divulge relationships between stock and bond analysts they quote and the companies they cover.
Analysts would be forbidden to deal with any publications or broadcasts that flout the rule, or else suffer disciplinary action from the New York Stock Exchange, which proposed the regulation as part of an effort to comply with the Sarbanes-Oxley Act.
Dow Jones, AP, and other companies wrote a letter to the SEC that blasted the proposal on the grounds that it violates the First Amendment. Yet the carefully worded letter is clear in its support of what it calls "the laudable goal ... to bring greater transparency to the financial marketplace."
The Securities Industry Association sent its own comment letter criticizing the proposal. A NYSE spokeswoman would say only that the exchange is reviewing the comments.
In addition to the possible constitutional conflict, said John McInerney, senior director at Citigate Financial Intelligence, the rule is "duplicative, and not necessarily helpful."
McInerney sees at least two possible pernicious effects from the rule.
First, he noted, the media could begin to rely on analysts not regulated by the exchange, and, second, reporters could begin to quote unidentified sources.
"The spirit is right," he said, "but the execution is wrong. It's not in the spirit with which we treat the media in the US."