Content Matters

In a court ruling yesterday, US district judge Denise Cote ruled against financial content aggregator TheFlyontheWall.com, barring them from distributing analyst recommendations from three key banks in near-real time.

The suit was brought by BarCap, BofA Merrill Lynch and Morgan Stanley, which argued that the service should not be allowed to republish their upgrades and downgrades until at least four hours have passed from publication and not before noon each day.

Under the judge’s ruling, theFlyontheWall will be barred from publishing such recommendations before 10am for reports published prior to the market open (9:30am) and within 2 hours of publication for those issued during market hours.

The ruling could have serious implications for news services and blogs which often write about analyst recommendations soon after publication. The judge’s ruling did leave a bit of a window, saying that reporting the analyst changes in the context of market movement would be ok (for example, to report that PALM stock was down 20% on Canaccord Adams downgrade). Specifically:

Theflyonthewall.com won’t violate the injunction if it refers to the banks’ recommendations “in the context of independent analytical reporting” of a significant market movement on the same day, the judge wrote.

Unsurprisingly, the ruling has caught the attention of financial bloggers.

Barron’s Tiernan Ray writes “The question for myself and others, such as my friend and colleague Eric Savitz, over at the Tech Trader Daily Blog, is how much room the ruling gives bloggers and reporters to write about what’s already moving stocks pre-market or throughout the day.”

He asks the logical follow-up question:

So, does that mean that before 9:30 am, Eastern, I and others should refrain from even referencing analysts’ equity research reports regarding stocks?

The Globe & Mail's Streetwise blog points out that while BarCap, Merrill and Morgan may have sued, many firms actively seek the exposure provided by having their recommendations published:

The banking industry is pretty split on the practice. Some firms send research immediately to media organizations (including this one), while others still try to protect analyst reports so that they have more value to select clients - the ones who pay the bills by generating trading commissions.

For those that encourage media reports, the tradeoff is a little free publicity, and in general the pendulum has been swinging that way.

The ZeroHedge blog, whose servers host TheFlyontheWall service, responds in their typically snarky way in a post with a title too long for Twitter:

Banks Stifle First Amendment, Attempt To Create A Tiered Market Of "Clients" And "Everyone Else" As Theflyonthewall.com Is Blocked From Instant Stock Research Reporting

This is merely a case of picking on the weakest: the next ones to lose their First Amendment right will be, in order of importance, StreetAccount, Thomson Street Events, Briefing, and, ultimately Bloomberg. The reason: keep the market as two-tiered as possible so that clients of the above three banks (which list will likely expand promptly as more banks join in) have an upper hand over all the slower retail and algo operations. With this forced lag in information (which is a joke because anyone who cares, knows the second a research report goes public anyway), and with the ever increasing transaction times courtesy of nanosecond collocation facilities, soon the self-cannibalizing market will only rely on stealing money from those accounts who are still willing to participate in a market that is now split into two distinct groups: those who make money, and are clients of MS, ML and Lehman (and the rest of Wall Street), and everyone else.

For those interested in reading the full ruling, you can read the complete injunction here.