NEW YORK (CNN/Money) -
The North American Securities Administrators Association (NASAA) confirmed Thursday that 12 states will make up the task force investigating brokerages across the country for possible conflicts of interest between investment banking and research departments.
The announcement comes as Merrill Lynch is considering changing its stock-rating system to a format in which every stock it covers is either a buy, hold or sell in response to a probe into its research practices by the New York attorney general, sources familiar with the situation told CNNfn Thursday.
In addition to New York, California and New Jersey, who were named to chair the task force on April 23, Alabama, Arizona, Connecticut, Florida, Illinois, Indiana, Massachusetts, Utah and Washington will conduct the investigation.
NASAA spokesman Ashley Baker told CNN/Money the states were chosen about two weeks ago based on which had the most resources to take the lead in the investigation.
A spokesman for the Maryland attorney general said their office will be monitoring the investigation and supplying information to NASAA, but will not be part of the active investigation as the task force is intended to benefit all the states.
The task force was formed after New York Attorney General Eliot Spitzer opened an investigation into Merrill's research practices last month, saying the firm's analysts issued positive stock ratings in order to get or maintain investment banking agreements with companies under Merrill's research coverage.
Merrill is currently discussing a possible settlement with Spitzer's office which could be used as a basis for settlements with other brokerages. According to sources, Merrill is considering changing its current analyst ratings to decrease investor confusion.
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Merrill currently uses a system of four numbers to rate stocks on a near-term and long-term basis, giving investors ratings such as 2/3 or 1/1.
A Merrill Lynch (MER: up $0.84 to $42.94, Research, Estimates) spokesman refused to comment, but told CNNfn, "We are always working to improve our research product."
The firm already has agreed to Spitzer's request for greater disclosure of its business relationships with companies covered by its analysts. Merrill Chairman and CEO David Komansky issued a rare public apology for the company's past research practices, saying they fell short of the company's professional standards.
If no settlement is reached, the parties are scheduled to be in New York Supreme Court May 9 to schedule depositions as the case moves to a discovery phase.
Also on Thursday, Spitzer's office met with high-level Securities and Exchange Commission officials to try to generate a list of uniform rules that would cover Wall Street analysts and investment banks.
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