Inside Financial Services

The Logic Of Sell-Side Disclosures Has Stopped Making Any Sense

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I just finished reading a research report on some financial services company or other—the sell-side’s daily output sometimes becomes a bit of a blur—and the most notable thing about it, I now realize, is that, of the report’s twelve pages, five consist entirely of six-point, single-spaced disclaimers. They go on forever. In those disclaimers I am told, for example, which companies mentioned in the report have been investment banking clients of Citi over the past twelve months, and am told, too, which companies in the report Citi is pitching banking business to. I am informed which companies Citigroup Capital Markets “owns a position of 1 million USD or more in the debt securities” in.  I am admonished that the information I just read may not be accurate or complete and that it would be prudent of me to do some additional work on my own. I’m told how Citi determines its ratings and what those ratings mean. I’m also told the names and addresses of the entities, by country, that distribute Citi’s research outside the U.S. and the local entities that regulate them. (If you happen to be in Chile, for example, you’re dealing with “Banchile Corredores de Bolsa, S.A., an indirect subsidiary of Citigroup Inc., which is regulated by the Superintendencia de Valores y Seguros. Agustinas 975, piso 2, Santiago.” Good to know!) I’m told about trademarks, and which Citi unit is a unit of which other Citi unit, and am warned that everything I just read is under copyright, and that I’d better not copy any of it. I’m told . . . . Wait, let me take a break for a moment to rest my fingers.

I have a question: how did we come to this?  You’ll get no argument from me that sell-side research should sometimes be taken with a grain of salt, and that the disclosures provided at the end can be extremely helpful in informing the reader how skeptical he should be. When I was on the sell side, for instance, you wanted to be sure to know whether the subject of the report had an investment-banking relationship with the report’s issuer, and how strong that relationship was. Disclaimers gave you that information. But do I really care whether Citi owns $1 million or more of Bank of America’s debt? Or where Citi’s Singapore unit operates?




This is disclaimer kabuki, and it doesn’t help anyone but the lawyers. Regulators and compliance executives now require sell-side firms to disclose so much in their research reports that, in aggregate, the disclosures are much less helpful to the research user than they once were. Now a disclosure that might actually be relevant and helpful now finds itself buried in a sea of blather. And yet the tide never recedes. There will likely never be a day, for instance, when someone in a bank’s compliance department somewhere (or at the S.E.C.) will suddenly slap himself on the forehead and say, “You know what, maybe we can ease up on talking about potential derivative counterparty positions!” Rather, the volume will only grow. So next year at this time, I wonder how many pages of a typical twelve-page sell-side report will be taken up by disclaimers. It almost certainly won’t be fewer than the numbers of pages you’ll find this year.

Slowly but surely, the bureaucracy is taking over and running things for its own sake, to little real benefit of the consumer. That’s too bad. Once upon a time, the disclosures on a research report truly were helpful. Not anymore.

What do you think? Let me know!

7 Responses to “The Logic Of Sell-Side Disclosures Has Stopped Making Any Sense”

  1. Bill

    Tom!!! You forgot the disclosure for this piece!

  2. etoleary

    It’s too bad that business today can’t be conducted based primarily on principles rather than rules. Principles give rise to individual judgments; rules invite parsing. Which do you think produces better behaviors–the Ten Commandments (thou shalt not steal) or the Beatitudes (blessed are the poor in spirit)?

    Tom, you’re correct in your observations. I wonder what it would take to break this mold and send the bureaucrats packing.

    • Binata

      My Billy Jack LessonBy: Mary Jo Brunette, Farmington, MNThe main lessons I’ve leraned from watching the BJ series are “acceptance” and “love” for all humanity, albeit, in our personal lives or business walk. Its theme song, One Tin Soldier, could be an anthem, as it tells it like it is, “Go ahead and hate your neighbor, go ahead and cheat a friend. Do it in the name Heaven; you can justify it in the end. There won’t be any trumpets blowing come the judgment day on the bloody morning after, one tin soldier rides away.” If that isn’t a lesson, I don’t know what is. It reminds me of God’s Golden Rule: do onto others as you’d like to be done onto you.Another fine lesson from the film is Billy’s message that he shared with Jean, while Jean concerns herself with what is about to happen to her kids. “What is going to happen tomorrow is going to happen and all your worry in the world isn’t going to change anything. Come on, smile.” Once again, this is so god-like, in that God also tells His followers to not fret over worries, such as in Matthew 6: 25-27. I tell you this, do not worry about tomorrow. For like the birds of the fields, God gives them food when they have no idea where there next meal will come from. Are you not more important to the Father than mere birds?” And in conclusion, as verse 35 points out: Therefore do not worry about tomorrow, for tomorrow will worry about itself. Each day has enough trouble of its own.” I rather consider that verse very “Billy Jack-like,” poignant, specific, and true.I personally believe that God’s Holy Spirit granted these messages, via Tom and Delores’ lips, representative of Christ, instructing further Biblical-type lessons for our modern times. I might take it a step further and note that perhaps God used Mr. and Mrs. Laughlin as mouthpieces of wisdom. Perhaps I’d take it a step further and say they are modern-day prophets; where the Bible left off, modern prophets of today continue to distribute Godly affirmations, similar to priests in a church—like wise modern-day forecasters to reach the youth of the world.I, for one, am grateful that they’ve used their wisdom to help benefit the youth of this world. Thanks Tom and Delores for sharing your voices and being “our voice.”Current score: 0 (Please enable JavaScript to vote.)a0a0(vote for this entry)

  3. SWPilgrim

    Two words on every page : “CAVEAT EMPTOR!” should be sufficient.SWP

  4. North Left Coast

    Just more of the “pass the buck” or CYA mentality that pervades every space of American life. It would be more entertaining with a tag line that says, “Hey, we’re getting paid to issue this report, and yes, we have an opinion (biased and conflicted six ways to Sunday for sure), but any action you take based on this report is on you.” … or, just do what SWPilgrim notes above.

  5. Mark

    A wise man once said “overdisclosure is failure to disclose”. Doesn’t matter if it is a security, a mortgage or whatever.

    The more INCOHERENT NOISE there is, the more it is tuned out.

  6. Cruncher Strongboy CPA

    It is impossible to read and make sense of the words. And after the Supreme Courts decisions on Obama Care, first that the required purchase was a TAX and not a fee, and now that “established by the States” means also the Federal government because it to is a TYPE of STATE makes any meaning unknowable.

    Printed words no longer have meaning as those in power say we can change meaning at will to fit our need today and differently tomorrow to fit tomorrow’s need.

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