did anyone else catch this bit from Matt Levine’s newsletter this morning?
There’s a wonderful puzzle in investment bank research, which is that the thing called “research” is heavily regulated with the goal of making it objective, honest, fair, free of conflicts of interest, not disseminated early to favored investors, etc. But then there is another thing, which you could loosely call “sales,” in which people at the bank call up customers and say things like “hey you should buy this stock” or “boy this company’s bonds look undervalued, do you want some?” or “you know what’s hot right now? Iron condors, that’s what.” Sometimes the sales tactics go a bit beyond breezy phone calls to encompass “desk commentary,” in which a salesperson or trader or analyst on a desk writes down some thoughts about a stock or bond or strategy or whatever, pops them into e-mail, and sends them to clients. The job of a vast swath of the bank is to buy and sell securities, and the way you do that is by providing some intellectual content to customers. This content is not necessarily objective (the goal is to get you to do the trade that the desk wants to do), nor is it necessarily fair (different customers get different ideas from different salespeople). It is just, you know, trying to get customers to do trades by saying smart things, the same way a car or art or real estate or whatever salesperson does.
There is no obvious conceptual distinction between the thing called “research” and the non-research “desk commentary.” Here is an article from two Davis Polk & Wardwell lawyers asking if new Finra rules and enforcement efforts will kill desk commentary: “If desk commentary is deemed research and its authors deemed research analysts, then the application of the new equity rule and the debt rule will likely force many firms to either stop distributing desk commentary or limit it to groups of 14 or fewer customers.” Their proposed solution is a safe harbor for desk commentary – sent only to institutions and prepared by someone whose main job is sales or trading, not producing research reports – that would not be subject to all the research rules.