US regulators probe into investment banks shares trading
United States securities regulators are reviewing whether investment banks' trades in shares of companies linked to merger and acquisition deals they were advising were based on coincidence or inside information, according to The Wall Street Journal on Monday.
Investment banks must keep their trading and merger advisory businesses separate, although one arm of a bank could buy shares in a company without knowing that another arm is advising on a deal involving that firm. The report quoted Stephen Luparello, a top official at the Financial Industry Regulatory Authority (FINRA), as saying the issue was "definitely on our radar screen". FINRA is the largest non-governmental regulator of the U.S. securities industry. Its interest stemmed from an academic study which found such trading happens more often than would be expected by chance, the report said. The Wall Street Journal said it had reviewed stock ownership and deal records and found dozens of cases in which investment banks appeared to buy shares in companies that were targets of acquisitions by firms they were advising. Such transactions involved most of the major investment banks including Citigroup Inc.; Credit Suisse Group; Goldman Sachs Group Inc; Merrill Lynch & Co. and Morgan Stanley, the report said. The FINRA investigation is the second leg of a broad sweep intended to review industry practices and ensure that brokers have followed risk-disclosure rules. Under FINRA rules, marketing and sales materials have to display investment risks as prominently as they display potential benefits. The requests, mailed in December, ask firms to send in marketing materials and supervisory policies as well as explanations of how collateralized mortgage obligations were valued.