Small brokerages have not gained market share as a result of regulations enacted early in the decade to increase market transparency and prevent conflicts of interest at major banks from biasing analysts' stock-market recommendations, according to a recent study.

Titled "The effects of regulation on industry structure and trade generation in the U.S. securities industry," the study was conducted by Georgia Tech finance professors Jonathan Clarke and Narayanan Jayaraman in collaboration with scholars Hyung Suk Choi and Stephen P. Ferris. It appears in the Journal of Banking and Finance.

"The relative stability in the market share of top brokers is surprising in light of Regulation Fair Disclosures' elimination of the information advantage enjoyed by high reputation analysts who are disproportionately employed by top brokerages – and the Global Research Analyst settlement's recognition of fraudulent behavior by the largest brokerage houses," they write.

Regulation Fair Disclosures, adopted in 2000, required the universal sharing of information, while the Global Research Analyst Settlement of 2002 was a response to the widespread practice of research analysts issuing biased recommendations in support of related investment banking transactions.

"The intended purpose (of these regulations) was to increase market transparency and to eliminate biased recommendations," the researchers note. "Yet these efforts at improving the information quality available in the marketplace have not shifted market share away from top to non-top brokers….

"We do find, however, that both of these regulatory actions reduced the variance of monthly market share changes, perhaps as a result of the improvement in the quality of the information environment for investors."