With the rise of proprietary trading desks, investment banks sometimes find themselves taking positions in the stocks of companies they are advising in merger talks. At least a few of those instances are probably coincidental, and the firms will certainly argue that they are.
But an academic study released last month suggests something more troubling: that as investment banks advise companies in takeover situations, they are also investing in the targets of these merger talks. The research, which says the rate of such investments is too high to be merely coincidental, has now interested securities regulators as well, The Wall Street Journal reported Monday.
The Journal, by reviewing stock-ownership and deal records, identified dozens of instances in which investment banks appeared to be buying shares in target companies around the same time their bankers were advising the acquirers. The transactions involved most of the major investment banks, including Citigroup, Credit Suisse Group, Goldman Sachs, Merrill Lynch and Morgan Stanley.
The firms either declined to comment or said they found no problems with the trading, The Journal said.
The issue is “definitely on our radar screen,” says Stephen Luparello, a top official at the Financial Industry Regulatory Authority, or Finra, formed last year when the National Association of Securities Dealers and the enforcement unit of the New York Stock Exchange merged.
Finra has asked banks for their trading data, but Mr. Luparello told The Journal the inquiry may not find any problems.
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