Steps to eliminate tainted bond research

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On Wednesday, the Bond Market Association published a set of guidelines aimed at promoting credibility in fixed-income research in an effort to preempt potential regulatory pressures in the wake of recent conflict of interest concerns surrounding Wall Street equity research.

These guidelines, while voluntary, address many of the same issues addressed by regulators in dealing with equity research over the past few years including:

  • A prohibition of promising favorable research coverage in return for business.
  • A ban on retaliation against analysts for publishing unfavorable research.
  • A suggestion that firms withold information regarding the content or timing of research reports from traders.
  • A recommendation that firms structure analysts’ compensation to promote their independence.
  • A limit on personal trading activity.

BMA officials acknowledge that these guidelines have been established to ensure that bond market analysts are “free from the external influences that could inhibit their ability to produce impartial assessments.”

Does this suggest that Wall Street faces another global research settlement?  It is unclear whether or not there is sufficient evidence of tainted bond research to warrant such an action.  We do, however, think a major bond market settlement is unlikely as fixed income research is not normally distributed to unwitting retail investors, but instead to more wary institutional investors (who should know better).

For the complete Financial Times article covering this topic, click here

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