More than twenty years ago, major brokerages entered into the Global Research Analyst Settlement (GRAS) to address allegations of twelve investment banking firms’ undue influence over research analysts at the time. GRAS imposed necessary but expressly provisional restrictions, including a five-year sunset clause, while the SEC worked to build a stronger, more durable regulatory framework applicable to the full universe of firms and their research departments.
In a recent opinion article, former SEC Chairman Arthur Levitt suggests that ending GRAS weakens safeguards against analyst conflicts. We share Mr. Levitt’s longstanding concern for market integrity. But GRAS was never intended to be permanent—and investor protection neither begins nor ends with a single settlement. Today’s newer rules are broader in scope, more enforceable in practice, and calibrated to new technologies that enhance information accessible by investors.
Since GRAS, the SEC and FINRA, which has responsibility for all investment firms that conduct analyst research, have implemented a comprehensive set of protections that directly address research analyst conflicts. Regulation Analyst Certification, for example, requires analysts to affirm that their views are their own and to disclose compensation tied to their recommendations. FINRA Rule 2241, meanwhile, governs equity research conflicts; Rule 2242 does the same for debt research. These measures surpass GRAS in scope and provide clear standards and strong oversight.
Mr. Levitt’s column also does not take account of FINRA’s responsibility to ensure that existing and future rules enable firms to produce quality and objective research in the interest of investors. As FINRA’s CEO Robert Cook emphasizes, current rules exceed GRAS requirements. Where Mr. Levitt focused on GRAS firewalls that helped to shield research analysts from the undue influence of investment banking personnel, Mr. Cook explains that Rule 2241’s provisions are intended to provide such protection, doing so with a broader scope while taking into account the complexities of different business models and unique fact patterns. Further, the SEC monitors market practices through examinations and collaboration with FINRA, targeting the very misconduct that led to GRAS.
Markets evolve—and regulation must keep pace. GRAS was a stopgap, not a permanent solution. Investor protection hasn’t ended; it has advanced. Clinging to an antiquated paradigm favors nostalgia over progress. Today’s framework surpasses GRAS in scope and provides flexibility to address the future – with investor protection top of mind.
