NEW YORK, March 18 (Reuters) - A U.S. district court ruled this week against a request by major Wall Street banks to modify a core element of the 2003 legal agreement that created a firewall between research analysts and investment bankers.
The firewall, which was created as part of a pact between the Securities and Exchange Commission and the banks, essentially requires their research and investment banking departments to have separate staffs and prohibits communication between the two groups unless a compliance officer is present.
In a Monday order, Judge William Pauley III of the Southern District of New York said that he would not ease the rules governing communication between the two departments, saying that it would undermine their separation.
Pauley said that this modification would break down the firewall that was put up by the SEC and the companies when they settled in 2003.
The SEC reviewed and approved the requested changes, according to letters from the banks to the judge that were released on Wednesday.
The 2003 settlement came after the technology stock bubble had burst and regulators released emails showing that some research analysts had privately disparaged the stocks of companies they publicly lauded. Many of those companies were also investment banking clients, and the SEC filed complaints against the banks.
The SEC, Morgan Stanley and Citigroup were not immediately available for comment. (Reporting by Caroline Humer; Editing by Steve Orlofsky)