Merrill Lynch, Credit Suisse First Boston and Banc of America Securities are independently looking into tightening the disclosure statements that accompany fixed-income research reports. The considerations come as fixed-income research is increasingly viewed as an area that is vulnerable to regulatory action and firms are eager to implement voluntary changes to their research practices--and to strengthen protections. BofA, meanwhile, is also considering eliminating its "buy," "sell" and "hold" recommendations on bonds because the recommendations imply relevancy beyond the day that they are printed, which is not necessarily the case, according to a research official at the firm.
Marc Pinto, managing director and head of credit research for Merrill Lynch in New York, explained that the central tenet of the Bond Market Association's best practice guidelines, released earlier this year, is that firms should manage potential conflicts of interest between research and trading. In practice, this means researchers can't tip their trading colleagues about changes in their overweight or underweight recommendations, Pinto said, adding that Merrill analysts still talk to traders. "Merrill, in its efforts to make sure the investors are fully apprised of the way we work, may add a sentence to our disclosure statements saying that our analysts are speaking to traders, which could be perceived as a potential conflict," Pinto said. Merrill's legal and compliance professionals are in the process of reviewing the fine print of both its current disclosure statements and the BMA's proposals to determine if its disclosure statements fall short of the recommendations and need to be changed.
CSFB is also considering changing its disclosure statements in anticipation of the market abuse directives being released in Europe in the next year, said Bunt Ghosh, global head of fixed-income research and economics at CSFB in London. "Distribution can't give traders a heads-up; research people can't disclose changes of their views to the desk before they're published," he said. Ghosh declined to elaborate on what specific changes might be implemented or even what the firm is considering. BofA's legal and compliance teams are also reviewing how the firm may be able to strengthen its fixed-income disclosure statements, according to an official at the firm.
One analyst lamented the BMA's recommendations and said feedback from traders is vital to producing valuable research. "It's difficult to write about this up-and-down market without talking to salesmen and traders," he said.
