BlackRock agreed to terminate an analyst survey program that gave the firm access to information at the expense of other market participants, according to an investigation by New York Attorney General Eric Schneiderman, whose office secured the settlement and made the announcement on Thursday.
The world’s largest money manager, with $4 trillion in assets under management, ran what is believed to be the largest analyst survey program, said the attorney general in a press conference today. Though BlackRock was not fined, it agreed to continue to cooperate with the ongoing investigation into the early release of Wall Street analyst sentiment.
The NY AG’s office is cracking down on a practice, known as Insider Trading 2.0, which provides an elite group of technologically sophisticated market players with access to market-moving information ahead of others. Confidential whistleblowers aided in the investigation that led to the settlement with BlackRock.
As a result of the investigation, BlackRock has agreed to permanently discontinue the practice of systematically surveying Wall Street analysts for their opinions on firms they cover, according to the announcement. The money manager will stop the practice not just in the United States but worldwide.
“It includes the increasing common practice in which sophisticated, preferred participants get access to early information. This creates a two-tiered system,” said Schneiderman in a press briefing today.
With early access to market moving data, firms can front run the market, gain an unfair advantage over other analysts’ clients, he said. The move comes after Schneiderman's office reached an interim agreement with Thomson Reuters to discontinue selling University of Michigan’s market-moving consumer confidence data to high frequency traders, five minutes before it was released to the general public. Schneiderman revealed the Michigan survey data was also being sold to a more elite group of traders, who for a “substantial” extra fee were allowed to see the data two seconds earlier than the group who thought they were first in line. At that time, Scheiderman expressed concern for brokerage analysts that answered surveys that provide traders with a sneak peak into future analyst reports.
BlackRock surveyed analysts not just to understand the underlying value of stocks but also obtain and analysts’ sentiment on possible earnings scenarios and M&A, said Schneiderman in the press conference. This was very important during earnings report season, he said. Schneiderman said the BlackRock program “was a massive survey that received hundreds of thousands of answers to clever questions over a number of years.” Since BlackRock acquired BGI (Barclays Global Investors) in 2009, the program expanded further.
“BlackRock was soliciting information in upcoming reports. The information was not in previously published reports,” said the NY attorney general.
Meanwhile, the investigation is ongoing and includes brokerage firms that chose to answer surveys at the expense of other clients. “We’re looking at folks who obtain the information and analysts who provide the information,” he said. Since BlackRock is a huge client of Wall Street firms, some brokerage firms appeared to be actively encouraging their analysts to participate, and at other times it was the analysts’ motivation to participate, said Schneiderman.
In response to a reporter’s question about why BlackRock wasn’t fined, Schneiderman said the goal was reform. “Our work is not really about seeking punitive remedies. It’s about restoring fairness and integrity.“I welcome their continued cooperation in restoring fairness and transparency to markets,” said Schneiderman.