2013 in Review


Market Environment

After a strong first quarter, commissions frustratingly continued their five year decline despite a robust stock market.  One positive for equity research (and a negative for macro research) was a decline in the lockstep correlation of stock prices, creating an environment more conducive to stock picking.  In the bullish environment, short ideas and forensic research struggled.

January: Frost Consulting projected that global investment bank spending on research declined from $8.2 billion in 2008 to $4.8 billion in 2013, a 42% decline. http://www.integrity-research.com/cms/2013/01/15/decline-in-bulge-research-spending/

February: TABB Group predicted U.S. equity commissions would rebound in 2013. (Wrong!) http://www.integrity-research.com/cms/2013/02/26/tabb-predicts-uptick-in-u-s-equity-commissions/

June: Frost Consulting estimated that 70% of equity commission volume traded in the UK was paid through Commission Sharing Arrangements (CSAs), and that 50% of commission volume in Europe (ex-UK) was traded through CSAs with 40% in the U.S. http://www.integrity-research.com/cms/2013/06/04/white-paper-on-research/

June: Greenwich Associates estimated that U.S. institutional equity commissions dropped 15% to $9.3 billion in the twelve months ending February 2013. http://www.integrity-research.com/cms/2013/06/25/greenwich-no-relief-for-the-weary/

June: The Greenwich U.S. Equity survey showed the bulge bracket investment banks’ share of the equity research vote declined while the trading share remained constant, suggesting that the buy-side values research from smaller brokers and independents more highly but the trading goes to the bulge firms anyway. http://www.integrity-research.com/cms/2013/06/28/battle-of-the-bulge/

August: Stocks in the Russell 1000 averaged correlations of 30% to the index, down from crisis correlations of 50-60%. http://www.integrity-research.com/cms/2013/08/19/a-stock-pickers-market/

August: A difficult market for short investors made it a tough environment to sell short-oriented research. http://www.integrity-research.com/cms/2013/08/21/tough-times-in-shortsville/

November: For the third quarter, average daily volume of combined New York Stock Exchange and NASDAQ listed volumes was down 20% from the first quarter of 2013, and 6% below the already low levels in the third quarter of 2012.  http://www.integrity-research.com/cms/2013/11/13/itg-posts-a-solid-quarter-despite-headwinds/

Mergers & Acquisitions

2013 showed some signs of life for transactions, although in some cases they seemed more like desperate exits than happy mergers.  It remains a buyer’s market, with revenue multiples typically in the 2x to 3x range.

January: ConvergEx Holdings announced the sale of order management services provider Eze Castle Software LLC and execution management services provider RealTick LLC, to an affiliate of private equity firm TPG Capital. http://www.integrity-research.com/cms/2013/01/23/convergex-sells-eze-castle/

February: Cowen Group said it signed a definitive agreement to acquire Dahlman Rose & Co., a research-driven investment bank focused on global supply chain industries. http://www.integrity-research.com/cms/2013/02/11/cowen-group-acquires-dahlman-rose/

March: Goldman Sachs received $32.5 million, representing a small loss, for its remaining stake in Epocrates Inc, its last remaining investment from its Hudson Street initiative to distribute independent research. http://www.integrity-research.com/cms/2013/03/19/goldman-sells-last-hudson-street-vestige/

March: MSCI announced it was selling CFRA to an undisclosed ‘private investor’ who turned out to be Peter E. de Boer, previously S&P’s head of strategy and an investment banker at Morgan Stanley and JPMorgan. http://www.integrity-research.com/cms/2013/03/14/msci-to-sell-cfra/

April: Bolstered by a merger with Leucadia National Corp in 2012, Jefferies announced a series of strategic partnerships with Asia-based brokerages.  http://www.integrity-research.com/cms/2013/12/11/jefferies-equity-expansion-strategy/

June: IHS, Inc. acquired PFC Energy, an industry consultant for the oil and gas industry.  http://www.integrity-research.com/cms/2013/06/24/ihs-acquires-pfc-energy/

July: Ford Equity Research acquired Columbine Capital Services’ quantitative research business through an exclusive licensing agreement.   http://www.integrity-research.com/cms/2013/07/23/ford-equity-research-acquires-columbine/

August: Capital Economics, Ltd., a London-based economics research firm, retained corporate finance firm Quayle Munro to try to find a purchaser (unsuccessfully so far). http://www.integrity-research.com/cms/2013/08/09/capital-economics-for-sale/

August: S&P Capital IQ was said to be looking to sell its fund research business (unsuccessfully so far). http://www.integrity-research.com/cms/2013/08/20/sp-capital-iq-considers-selling-fund-research-unit/

September: Euromoney completed its acquisition of HSBC’s Quantitative Techniques group which was rebranded as Euromoney Indices. http://www.integrity-research.com/cms/2013/10/08/playing-the-index-game/

September: Factset acquired Revere Data LLC reportedly for $15.4 million, for an estimated 2.5x revenue multiple.   http://www.integrity-research.com/cms/2013/12/18/more-ma-mergermarket-sale-and-the-purchase-of-revere-data/

October: The NPD Group acquired Leisure Trends, a market research firm specializing in the sports and recreation sector.  http://www.integrity-research.com/cms/2013/10/17/npd-group-acquires-sports-market-research-firm/

November: London-based private-equity firm BC Partners bought Mergermarket for £382 million ($623 million) from Pearson, for a revenue multiple of 3.8x and EBITDA multiple of 13.8x.  http://www.integrity-research.com/cms/2013/12/18/more-ma-mergermarket-sale-and-the-purchase-of-revere-data/

December: Moody’s Corp. acquired outsourcing provider Amba Research Services reportedly for between $80 million and $85 million representing a little more than 2x revenue. http://www.integrity-research.com/cms/2013/12/16/moody%E2%80%99s-acquires-kpo-provider-amba-research/


The challenging commission environment led to a number of shuttered businesses during the year.

January: CapStone Investments Inc., a San Diego-based stock-research boutique, shut its doors after merger talks with Ascendiant Capital Markets LLC collapsed. http://www.integrity-research.com/cms/2013/02/08/another-brokerage-casualty-capstone-investments/

February: UK stockbroker Seymour Pierce signed a “pre-pack” agreement with Cantor Fitzgerald, under which it went briefly into insolvency before transferring assets to Cantor. http://www.integrity-research.com/cms/2013/02/13/uk-broker-folds-into-cantor/

June: Direct Access Partners (DAP), an institutional brokerage firm which was building a distribution platform for independent research, closed after the SEC accused two employees of bribing a Venezuelan official for bond business. http://www.integrity-research.com/cms/2013/06/11/one-less-brokerage/

October: Meredith Whitney shuttered her independent research business and launched a long/short hedge fund instead. http://www.integrity-research.com/cms/2013/10/14/meredith-whitney-shutters-research-biz-and-opens-hedge-fund/

October: Lazard Capital Markets (LCM) sent a team of 29 research analysts, salespeople and traders to FBR in a negotiated settlement. http://www.integrity-research.com/cms/2013/10/16/lazard-transitions-employees-to-fbr/

Insider Trading

Preet Bharara failed to nail Steve Cohen, but succeeded in severely damaging his firm and his reputation.  The SEC was also active in bringing actions.

March: Two units SAC Capital agreed to settle civil insider trading charges with the SEC for a record $615.7 million.   http://www.integrity-research.com/cms/2013/03/18/two-sac-capital-subsidiaries-settle-sec-insider-trading-charges-for-616-mln/

April: A survey of hedge fund professionals revealed extensive involvement with insider trading: 46% believed that their competitors engaged in illegal activity, 35% had felt pressure to break the rules, and 30% had witnessed misconduct in the workplace. http://www.integrity-research.com/cms/2013/04/04/hf-survey-suggests-insider-trading-here-to-stay/

April: A Canadian investment banker who deduced an upcoming merger on his own settled his case with both the SEC and the Ontario Securities Commission. http://www.integrity-research.com/cms/2013/04/29/two-plus-two-insider-trading/

April: A former employee accused Thomson Reuters of firing him for telling the Federal Bureau of Investigation that the company’s release of consumer sentiment data violated insider-trading laws http://www.integrity-research.com/cms/2013/04/09/whistleblower-alleges-early-release-of-embargoed-data/

June: A portfolio manager and his employer, wealth management firm Whittier Trust, were charged by the SEC with engaging in insider trading over a three-year period. http://www.integrity-research.com/cms/2013/06/10/another-sec-insider-trading-case-settled/

August: A technology stock analyst who set up his own boutique was charged with leaking inside information to hedge funds, including SAC Capital. http://www.integrity-research.com/cms/2013/07/31/another-stock-analyst-charged/

September: A former securities analyst with Royal Bank of Scotland Group Plc in Stamford, CT pleaded guilty to insider trading on IBM’s acquisition of software company SPSS. http://www.integrity-research.com/cms/2013/09/16/australian-analyst-pleads-guilty-to-insider-trading-in-us/

October: A survey of investment advisers showed that insider trading continued to be a hot button compliance issue, along with advertising/marketing, social media and political contributions/pay to play. http://www.integrity-research.com/cms/2013/10/21/survey-compliance-vigilance-remains-high/

November: SAC Capital agreed to plead guilty to insider trading violations, pay a combined fine of $1.8 billion, and close to outside investors. http://www.integrity-research.com/cms/2013/11/06/sac-pleads-guilty-in-landmark-1-8-bln-insider-trading-case/

December: Former SAC portfolio manager Michael Steinberg was found guilty on five insider trading charges related to trades he made in the shares of Dell and Nvidia. http://www.integrity-research.com/cms/2013/12/23/sac%E2%80%99s-steinberg-found-guilty-of-insider-trading/


UK regulators put heat on corporate access and threatened to ban altogether the ability to pay for research with client commissions.  Market data firms received negative scrutiny and the SEC promised to focus more on accounting fraud.

March: The SEC laid out its priorities for 2013 and insider trading remained at the top of its list.  http://www.integrity-research.com/cms/2013/03/11/sec-priorities/

May: JP Morgan Chase requested data from Bloomberg LP on journalists’ access to the bank’s employees’ use of its terminal. http://www.integrity-research.com/cms/2013/05/20/jp-morgan-presses-bloomberg-on-access-to-subscriber-data/

July: The Investment Management Association (IMA), the trade association for UK Asset Managers, formed a blue ribbon panel to conduct a review of how research is paid for and how the purchase of investment research could be improved. http://www.integrity-research.com/cms/2013/07/09/ima-appoints-panel-to-review-research-market/

July: Thomson Reuters reached a settlement with New York’s Attorney General to halt the early delivery of consumer sentiment data to premium subscribers. http://www.integrity-research.com/cms/2013/07/15/early-release-of-sentiment-data-not-unlawful-but%E2%80%A6/

September: The SEC accused a San Diego-based investment adviser of misappropriating over $1million in soft dollar commissions. http://www.integrity-research.com/cms/2013/09/04/sec-accuses-advisor-of-misappropriating-soft-dollars/

September: The SEC issued a no action letter to Carolina Capital Markets confirming that it is permissible to use commissions generated by fixed income securities transactions to purchase research.  http://www.integrity-research.com/cms/2013/09/10/sec-condones-fixed-income-soft-dollars/

September: The new co-head of enforcement for the SEC confirmed that it will focus more on accounting fraud. http://www.integrity-research.com/cms/2013/09/19/sec-enforcement-targets-fraud/

September: Citigroup agreed to pay the State of Massachusetts $30 million to settle allegations that one of its analysts selectively disclosed information about Apple’s supply chain. http://www.integrity-research.com/cms/2013/10/07/leaked-citi-research-prompts-30-mln-settlement/

October: The FCA announced it would be conducting a thematic review of commissions and would release a Consultation Paper in November. http://www.integrity-research.com/cms/2013/10/30/fca-chief-attacks-commissions/

November: The FCA released its consultation paper which would ban payment for corporate access with commissions, and also would eliminate commission payments for primary research and reduce mixed-use payments for market data services. http://www.integrity-research.com/cms/2013/12/02/fca-proposes-changes-for-research-commissions/

Social Media

Social media was accepted by the SEC as a potential avenue for corporate disclosures.  Social media showed teething pains as a distribution mechanism for research and as a source of investment insights.

February: Twitter was used to pass on false market rumors to investors prompting the stock prices of two public companies to sell off dramatically. http://www.integrity-research.com/cms/2013/02/25/catfishing-comes-to-the-stock-markets/

March: The SEC cleared Netflix CEO Reed Hastings of violating Reg FD when he posted a market moving piece of corporate news on his Facebook page, allowing the use of social media to distribute corporate information. http://www.integrity-research.com/cms/2013/04/03/social-media-blessed-by-sec-for-corporate-communications/

April: Our profile of BrandLoyalties.com which attempts to relate online consumer sentiment to equity valuations. http://www.integrity-research.com/cms/2013/04/01/online-consumer-sentiment-data-used-to-generate-alpha/

October: Academic studies suggest that the value for crowd-sourced investment research decreases as networks become more broad-based. http://www.integrity-research.com/cms/2013/10/15/crowd-sourcing-investment-research/

Bulge Research

Nomura gutted its investment in Lehman’s non-US equity franchise while the Institutional Investor poll suggested that some bulge firms are backing away from a commitment to their research.   BoA Merrill Lynch dominated the Extel and II polls.

March: Japanese investment bank, Nomura cut 20 members of the bank’s London-based equity research division. http://www.integrity-research.com/cms/2013/03/25/overcapacity-leads-to-cuts-at-nomura%E2%80%99s-equity-research-group/

May: Nomura appointed the former head of UBS’s global equity research to run its European equity research. http://www.integrity-research.com/cms/2013/05/14/nomura-tries-to-smooth-the-waters/

July: The 40th annual Thomson Reuters Extel survey put an end to a 12-year run for UBS as the leading pan-European brokerage firm for equity research as UBS was ousted by Bank of America Merrill Lynch. http://www.integrity-research.com/cms/2013/07/02/extel-survey-results/

October: The Institutional Investor poll showed a handful of bulge bracket investment banks playing the game intensely while other bulge firms seem to be backing off. http://www.integrity-research.com/cms/2013/10/10/all-america-research-the-battling-bulge/

Independent Research

Highly ranked analysts continue to defect to start their own boutiques.  Independents were overshadowed by bulge firms in the WSJ rankings as the bull market favors a bias toward buy recommendations.

January: The former chief executive of Xinhua Finance signed a plea deal with prosecutors to settle charges of a series of self-dealing transactions that netted US$50 million. http://www.integrity-research.com/cms/2013/01/24/xinhua-finance-insider-pleas/

February: U.S. Department of Justice announced it is seeking $5 billion in its civil lawsuit against Standard & Poor’s credit rating agency. http://www.integrity-research.com/cms/2013/02/07/standard-soon-to-be-poor/

February: Gaming industry analysts Frank Fantini and Todd Eilers formed a strategic alliance to distribute gaming market research reports. http://www.integrity-research.com/cms/2013/02/12/gaming-research-providers-form-alliance/

February: Code Red said it added over 2,000 new users to its research management system over the previous twelve months. http://www.integrity-research.com/cms/2013/02/27/code-red-says-it-is-in-the-green/

March: Footnoted.com relaunched its website after completing a management buy-back from Morningstar in 2012. http://www.integrity-research.com/cms/2013/03/04/footnoted-relaunches-website-after-buy-back/

March: ClearForest, a Thomson Reuters subsidiary, suffered a severe attack by a hacking group affiliated with Anonymous. http://www.integrity-research.com/cms/2013/03/05/anonymous-hacks-clearforest/

March: Wedge Partners decided to outsource its trading to Rosenblatt Securities. http://www.integrity-research.com/cms/2013/03/07/wedge-transfers-trading-desk-to-rosenblatt/

April: Co-founder Nancy Lazar left ISI Group to form a new macro research shop, Cornerstone Macro LP, taking with her François Trahan of Wolfe Trahan and ISI’s policy team. http://www.integrity-research.com/cms/2013/05/01/macro-upheaval/

May: Independent research firms took the top two spots in the latest WSJ Research Awards, but overall independents were under-represented in the rankings. http://www.integrity-research.com/cms/2013/05/15/independents-the-wsj-research-awards/

May: Craig Moffett, a former top ranked telecommunications analyst at Sanford C. Bernstein, opened his own boutique with three of his Bernstein colleagues. http://www.integrity-research.com/cms/2013/05/28/another-top-ranked-analyst-sets-up-indie-shop/ He was joined in September by Michael Nathanson, a top ranked media analyst, and the firm was renamed MoffetNathanson LLC. http://www.integrity-research.com/cms/2013/10/11/all-america-research-the-independents/

June: Scott Mushkin, an Institutional Investor ranked retail analyst, left Jefferies & Company to join Wolfe Research along with two of his team members. http://www.integrity-research.com/cms/2013/05/29/wolfe-goes-retail/

October: NASDAQ OMX announced a partnership with quantitative boutique, Newfound Research, to create a suite of indices. http://www.integrity-research.com/cms/2013/10/08/playing-the-index-game/

October: Despite the continuing defection of key staff ISI Group continued to hold its own in the II polls. http://www.integrity-research.com/cms/2013/10/11/all-america-research-the-independents/

Political Intelligence

Lots of smoke but little fire.  The spotlight was turned on political intelligence firms in the wake of the passage of the STOCK Act but no regulatory actions were taken and despite threats from legislators no rules were proposed.

January: The SEC reportedly subpoenaed documents from the Marwood Group in connection with political intelligence it provided to clients.  No charges were brought during the year. http://www.integrity-research.com/cms/2013/01/22/marwood%E2%80%99s-prescient-advice-receives-scrutiny/

April: The GAO released a report on the political intelligence industry. http://www.integrity-research.com/cms/2013/04/08/gao-report-prompts-cry-for-more-transparency-in-political-intelligence/

April: Height Securities was investigated for a report it sent out anticipating changes in healthcare legislation.  No charges were filed during the year.  http://www.integrity-research.com/cms/2013/04/22/political-intelligence-firm-investigated-for-potential-insider-trading-violation/

November: The SEC investigation into political intelligence reportedly was stalled. http://www.integrity-research.com/cms/2013/11/27/political-intelligence-investigation-hits-pot-hole/

Expert Networks

The year showed improvement for expert network firms and new entries were launched by Google and Dowhower.

May: Gerson Lehrman Group hired a former SEC enforcement lawyer to lead its compliance effort. http://www.integrity-research.com/cms/2013/05/07/new-compliance-head-for-glg/

August: WorldOne partnered with ExpertConnect to improve its expert network capabilities. http://www.integrity-research.com/cms/2013/08/07/a-new-expert-network-alliance/

September: Expert networks were reportedly thriving in regions like Asia where corporate transparency is much less developed. http://www.integrity-research.com/cms/2013/09/09/expert-networks-expand-in-asia-amid-lighter-scrutiny/

November: Google Helpouts and Dowhower released new expert network offerings. http://www.integrity-research.com/cms/2013/11/11/resurrection-of-expert-networks/


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