The Securities Industry Association, the trade group for the nation's 700 broker-dealer firms, on Tuesday issued a best-practices code on conflicts of interest between research departments and other units at investment banking firms.

The guidelines cover issues such as analyst compensation and stock ownership and equity analysts' relationships to their firms' investment banking units.

The Washington-based group recommended that research departments at Wall Street firms report to business units other than the investment banking division to maintain their objectivity and independence. It also said analysts should avoid trading against their own recommendations and disclose their personal financial holdings.

The guidelines further urge investment banking firms not to link analyst pay directly to their investment banking transactions.

Stuart Kaswell, general counsel for the trade group, said the code was written over the last few months by an ad hoc committee made up of senior research professionals from the biggest Wall Street firms.

The chief executives of 14 underwriting firms, including Morgan Stanley Dean Witter & Co., Merrill Lynch & Co., Goldman Sachs Group, Bear Stearns Cos., and Citigroup Inc.'s Salomon Smith Barney, have voiced their support for the guidelines.

The code was released against a backdrop of ongoing market volatility that has sparked a backlash against equity analysts, some of whom have been accused of making pumped-up recommendations for stocks underwritten by their own firms.

Congressional hearings in Washington have been scheduled for Thursday to examine the role of equity analysts.

"From 1986 to 1999 research analysts were outperforming the market, and everyone was pretty happy," Mr. Kaswell said. "The year 2000 comes along, and everything falls apart." However, "it was a market that everyone got a little enthusiastic about," he said. "That's human nature.

"The investing client rather than the issuing client is what is important here," Mr. Kaswell said.

Michael Mayo, the outspoken banking analyst whose firm, Prudential Securities, shed its investment banking arm last year, commended the trade group's effort. "Every step that increases the integrity of the market is a step in the right direction."

However, investors also need to take some responsibility for their own actions, Mr. Mayo said. "I think there's a balance between preserving the integrity of the capital markets and the mentality of caveat emptor - it's buyer beware."

Other observers were not so supportive of the trade group's effort.

In a prepared statement issued Tuesday, Rep. John J. LaFalce of New York, the ranking Democrat on the House Financial Services Committee, said that while the guidelines may be useful, they do not go far enough. "The Wall Street analyst's role as an objective voice for investors is severely compromised by the system as it currently exists. The SIA's initiatives have several shortcomings."

Among other things, the guidelines perpetuate the analysts' ability to continue to own shares in the companies they follow, Rep. LaFalce said. He also pointed to the trade group's lack of regulatory oversight.

Mr. Kaswell said that the guidelines "are not rules; we are not a regulator, and we don't aspire to become one."

Rep. LaFalce said he would ask the Securities and Exchange Commission and the National Association of Securities Dealers to testify at the hearings on the issue.

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