Yesterday, financial news aggregator TheFlyOnTheWall.com said that unless courts delay a ruling that requires them to delay posting analyst upgrades and downgrades, the company risks going out of business as customers cancel their subscriptions.
We then questioned why firms like Barclays are going after The Fly without also going after similar content aggregators such as Trade The News, Dow Jones, or Bloomberg.
We called the three firms involved in the suit and asked for comment: Merrill Lynch, Morgan Stanley, and Barclays. Merrill Lynch never responded, Morgan Stanley said they have “no comment at this time,” and Barclays says they “decline to comment.”
However, we did get a hold of the 89-page court document (see below) and found quite a few interesting things. A lot of it is common sense, but it reveals the fear that these banks have of electronic dissemination.
- “Thus, equity research at the Firms is not an independent, self-sustaining business, but rather, complements each Firm’s brokerage and trading operations.”
- The court and banking firms acknowledge that analyst research is widely distributed after it is initially sent out through several channels. “Entitled investors” may redistribute analyst research to people they know who play an integral part in their business.
- The greater the perception of value, the more that clients are willing to pay to gain and retain access to that research by directing their trading business to the Firm.
- Firms like Merrill Lynch regularly conduct searches on the Internet to find people who are distributing unauthorised content or reports.
- Barclays inherited this lawsuit from its acquisition of Lehman Brothers.
- Firms also do not dispute the fact that a lot of their reports leak once sent out.
- “The reason for this [the decline of resources] is not hard to fathom; the investment in research is justified by its ability to drive commission income, and when that linkage is broken, the justification is greatly diminished.”
- It bears noting that it does not matter to the Firms whether the unauthorised distribution is through a small internet company like Fly or through media giants like Bloomberg, Thomson Reuters, or Dow Jones. The damage is caused not by the identity of the publisher, but by the timely and systematic unauthorised redistribution of the Firms’ Recommendations, whatever the medium.
So again, we have to pose the question: If everyone knows that Bloomberg and Reuters are leaking news just like The Fly is doing (and as we showed you earlier today), then the bias against The Fly needs to be shed and all other websites doing the same thing need to be accounted for.
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