Merrill overhauls stock rating system
A new system requires analysts to assign “underperform” ratings to one out of every five stocks they cover.
Merrill Lynch & Co. has unveiled a new system for ratings stocks requiring that analysts assign “underperform” ratings to one out of every five stocks they cover as a way of increasing transparency for clients.
Under the new system, to be launched June 2, analysts for the New York-based brokerage firm cannot assign “buy” ratings to more than 70% of the stocks they cover, “neutral” to more than 30% and “underperform” to less than 20%.
“By introducing distribution guidelines, we can be certain that our analysts’ distributions correlate more closely with historical return statistics,” Candace Browning, president of Merrill Lynch Global Research, said in a statement.
Merrill Lynch is also requiring an investment thesis from its analysts that provides a rationale for their recommendations and a price objective for every stock they cover.
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