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Spoofing, Surveillance and Supervision

Jay Biondo, Product Manager - Surveillance at Trading Technologies, co-authored an article along with James Lundy and Nicholas Wendland, both of Drinker Biddle & Reath LLP, reviewing the CFTC's regulations and expanding efforts, 21st century surveillance and supervision, as well as strategic recommendations.

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September 30, 2004

Sellside Is Feeling the Pinch

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Sellside analysts are working harder and the quality of sellside analyst coverage of small stocks has declined since the passage of the Sarbanes-Oxley Act of 2002, according to a survey by Citigate Financial Intelligence (CFI). The survey equally sampled analysts, buyside professionals and investor relations officers (IROs) about the effects of the law.

Many sellside analysts said that they have to do more and more. Meanwhile, an "astounding 75 percent of the IROs surveyed believe that the sellside covering them is overworked," according to the survey. Of the analysts surveyed, 43 percent said that they cover more companies than they did three years ago.

Citigate said that coverage has declined in both traditional and new sectors. "Informal surveys and anecdotal evidence tells us that the coverage of companies in very old sectors (manufacturing, process utilities) and the very new - the Internet and some technology - has been reduced or eliminated," according to the survey.

Other Citigate findings:

* Small-cap companies have lost coverage while large-cap companies have gained some coverage. Large-cap companies are finding new investors by using sellside coverage and targeting new investors.

* Volatility in small-cap stocks seems to rise when the stock is covered by more than five analysts.

* Sellside analysts' most valuable service is their industry information, not speed, company models or access to management.

CFI polled 90 professionals. Sarbanes-Oxley calls for increased levels of securities and public accounting compliance standards.