They are supposed to be among Wall Street’s most closely guarded secrets: changes in research analysts’ views, up or down, of a company’s prospects. But some of the nation’s biggest brokerage firms appear to be giving a handful of top hedge funds an early peek at these sentiments — allowing them to trade on the information before other investors get the word.
The signals come from questionnaires that analysts answer and submit electronically, either monthly or quarterly, to some of their firms’ largest hedge fund clients. Chief among the questions posed to the analysts are those about possible earnings surprises at companies they follow.
What analysts tell investors about the companies they follow — and when — is central to the concept of a level playing field on Wall Street. When disseminated, analyst downgrades and upgrades can make a stock sink or soar. Getting that information early can be very profitable for traders. As a result, regulatory rules require brokerage firms to restrict the information flow from research departments to prevent the potential for trading ahead of research reports.Page 1 of 4 | Next Page