SEC Probes UBS Rating Leak

A year ago, federal prosecutors and the SEC charged several brokers at Merrill Lynch (MER), Lehman Brothers (LEH) and Citigroup (C) with allowing daytraders to eavesdrop on their internal squawk boxes, or communication systems. The day traders paid cash or trading commissions to brokers to get a heads-up on big block trades by institutional investors.

The investigation at UBS comes nearly three years after 10 big Wall Street firms, including UBS, paid $1.4 billion in fines to settle allegations that research analysts conspired with investment bankers to issue favorable ratings on stocks. The research settlement tarnished the reputation of Wall Street stock research and gave analysts a black eye.

But Wall Street research, in particular a stock ratings change by a big firm, has never lost the potential to move the price of a stock. A trader who gets advance notice on a rating change by a big firm often stands to make a quick profit if he or she can place trades before the rest of the market.

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