NEW YORK (CNN/Money) - The chairman of the House subcommittee on capital markets criticized New York Attorney General Eliot Spitzer Friday, saying he overstepped his jurisdiction in brokering an agreement with Merrill Lynch over rules governing securities analysts.

"The New York attorney general's office expanded beyond its legitimate jurisdiction in a failed attempt to usurp federal rulemaking and oversight of capital markets -- markets whose smooth operation demands uniformity of practice and whose reach obviously extends beyond state borders," U.S. Rep. Richard Baker, R-La. said in a statement. "Ultimately, Mr. Spitzer's rules are a cause for confusion in the markets, not progress in the way Wall Street operates.

"Representative Baker is an embarrassment. He is wrong on the issue of enforceability," Spitzer said in prepared remarks provided by his spokeswoman. "His response to our settlement is explained by his failure to grasp the issues at hand and his failure to do anything to protect small investors."

Spitzer and Merrill Lynch this week announced a settlement requiring the firm to pay a $100 million fine to be shared among New York and 49 other states, the District of Columbia and Puerto Rico to settle charges that the firm's research analysts recommended investors buy stocks they believed were poor performers to keep clients happy.

Baker said Spitzer's rules subvert existing industry-imposed regulations. He said Spitzer's agreement calls for the appointment of a compliance monitor, a "hand-picked" Merrill employee, to enforce existing rules for just one year. That monitor would report directly to a general counsel in the attorney general's office.

"In Louisiana we call this putting the fox in charge of the hen house," Baker said.

But Spitzer's spokeswoman said it has not yet been determined whether that compliance monitor will indeed be a Merrill employee, though she did not rule it out.

"No one has said it will be someone from Merrill Lynch," spokeswoman Juanita Scarlett said. "The monitor will be approved by the attorney general."

Baker's comments come on the same day that securities regulators from 30 states said they were forming a task force to investigate conflicts of interest among stock analysts at Wall Street brokerage firms.

The deal also calls for Merrill Lynch to stop rewarding research analysts for helping to bring in lucrative investment banking fees for arranging mergers and new stock offerings.

Spitzer's deal calls for analysts to be paid solely for the quality of their stock research. Spitzer says the move should help prevent analysts from giving shares of some companies positive ratings to help win investment banking business from the same companies.