Brokers embrace unbiased research
The two main broking industry bodies have combined to draw up guidelines for brokers over stock research and recommendations.
The move comes amid increasing doubts among investors over the integrity and independence of broking analysts’ research.
‘Best Practice Guidelines for Research Integrity’ was compiled by the Securities Institute and the Securities & Derivatives Industry Association and has been backed by the investment banking industry. It is the broking houses’ involvement in lucrative corporate finance (managing and underwriting sharemarket floats, mergers etc) that has been seen as creating a conflict of interest for brokers and reflected in biased stock recommendations.
It is believed that brokers are unlikely to put a ‘sell’ recommendation on companies considering mergers, takeovers or equity capital raising because it will harm their chances of winning business out of such corporate activity.
The new guidelines require separate reporting structures for the research and financing sides of a broking business.