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 The agreement stems from an investigation by New York Attorney
General Eric Schneiderman into the early release of Wall Street
analyst sentiment, which can move markets.
BlackRock agreed to pay $400,000 for the cost of the investigation,
but no fine or penalty, and to cooperate in any investigation
related to the probe.
"BlackRock deserves credit for recognizing the need for reform when
it comes to the dissemination of information that can move markets,"
Schneiderman said in a statement. He called the agreement "a major
step forward in restoring fairness in our financial markets and
ensuring a level playing field for all investors."
The Analyst Survey Program asked many of the world's most prominent
analysts at dozens of brokerage firms a series of questions related
to the companies they were covering, according to the agreement.
Although BlackRock's position is that the purpose of the survey
program was to quantify the analysts' publicly available insights,
Schneiderman found evidence that the program's design allowed it to
capture "non-public analyst sentiment that could be used to trade
ahead of the market reaction to upcoming analyst reports," according
to the agreement.
The analysts were surveyed on a quarterly or monthly basis,
depending on where they were located geographically, and the program
obtained hundreds of thousands of responses.
The U.S. surveys would ask analysts to answer questions on a scale
of 1 through 9, and the responses were averaged, aggregated and
converted into quantitative return forecasts.
The program was developed in 2003 by Barclays Global Investors,
which BlackRock acquired in 2009.
When it was started, Scientific Active Equities, the quantitative
investment group within BGI and now BlackRock, believed it could use
the responses to "forecast" analysts' "next estimate revision," the
agreement said.
An internal SAE document also revealed the program's success
depended in part on a "willingness to really give us advance
information," according to Schneiderman's findings. "We're trying to front-run" recommendations, another internal
document said.
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The timing of the questionnaires also made them susceptible to
obtaining advance information, the agreement said, including
"targeted survey waves" just before covered companies' "heavy
earnings" seasons.
Brian Beades, a BlackRock spokesman, told Reuters that the language
in the internal memos is "totally inconsistent with the standards by
which BlackRock does business."
He said the firm discontinued use of the survey "to avoid even the
appearance of any impropriety."
BlackRock neither admitted nor denied the attorney general's
findings in the agreement.
The attorney general's office said the conduct violated the Martin
Act, the state's securities fraud statute, and other state laws.
In July, Thomson Reuters Corp <TRI.TO> said it would suspend its
early release of the widely watched Thomson Reuters/University of
Michigan consumer sentiment data to a small group of clients in
response to a probe by Schneiderman.
The news and information company had an arrangement with the
University of Michigan to allow some of its clients to receive the
data 2 seconds before its other clients who get the survey five
minutes ahead of a wider public release.
(Additional reporting by Sakthi Prasad
in Bangalore; editing by Supriya Kurane)
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