Monday, August 12, 2013

Maybe the "Chinese Wall" is not all that we have been led to believe?

With I.P.O.'s on the Rise, Analysts Get New Scrutiny -

In the years after the internet bubble, the so-called "Chinese Wall" keeping Analysts and sales people apart was strenthened.  The rationale for this was to reduce the conflicts of interest that arise if an analysts' rating influences whether the firm gets the business or not ("Hey we will rate you a buy if you are our client." ).

Well now the NY Times is suggesting that maybe this wall is not as secure as we had hoped/been lead to believe:

For years, stock analysts have been barred from pitching I.P.O. business.....Today, companies routinely interview analysts when selecting bankers to underwrite their I.P.O.’s. During these meetings, the analysts say, they increasingly feel pressure to say the right things to curry favor with a company’s management and owners. They also see themselves as participating in their banks’ efforts to win business, a potential breach of government regulations."

The article even quotes Jay Ritter (A professor I am convinced is a genius): "“The walls between research and banking can still be porous,” said Jay R. Ritter, a professor at the University of Florida who studies the I.P.O. market. “It doesn’t surprise me that there has perhaps been some backsliding.”"

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