The Bond Market Association last week released a slate of proposed suggestions for removing potential conflicts between fixed income origination and research. The trade group proposed measures that include physical separation from bankers, eliminating the use of analysts as marketers and basing analyst compensation on factors other than deal-specific banking revenue.
Many firms are said to be considering whether these conflicts should be dealt with in the same way mandated for equity research by the global equity research settlement. The use of physical separations and chaperoned communications between bankers and analysts has become the norm under those guidelines. At least two firms have taken action already. UBS Securities reorganized its fixed income research unit in April, creating two groups, one to publish and recommend securities to investors and another with no client focus to advise bankers on new issues (BW, 4/14).
Meanwhile, Bear Stearns barred its high yield analysts from pitching new deals to investors in June in an effort to err on the side of caution (BW, 6/9). The firm was still considering whether to allow investment-grade analysts to pitch new deals.
Both firms had stressed that their actions were voluntary and not mandated by the global settlement, which had exclusively addressed conflicts related to equity research. The Bond Market Association noted that the settlement and regulatory probes into equity research had "independently prompted" member firms to evaluate potential conflicts in fixed income.
"There are a lot of similarities between, certainly, high yield and equity research. It's prudent that these guys are trying to get ahead of the curve," says Brad Hintz, an analyst with Sanford C. Bernstein. "Before [Eliot] Spitzer bites them also."
