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Sciùri buona sera, siamo giunti ad un altro fine settimana e come è d' abitudine posto qualcosa di "didattico", oggi vorrei trattare il cosidetto Chinese Wall forse sapete già di che si tratta , se la risposta è negativa spero almeno di darvi un idea sul tema
The concept of a Chinese Wall is that of establishing a zone of non-communication between distinct sections of a business, in order to prevent possible (and probable) conflict of interest.
A Chinese Wall is most commonly employed in investment banks, where such banks offer corporate finance services to companies (managing the fund-raising, for example), and at the same time also provide financial research information to a more general audience.
Because it is possible to manipulate the financial research reports to encourage the general public to purchase shares in a company (for example), the conflict of interest arises when such a company is also the customer of this particular investment bank.
In fact, despite Chinese walls, these situations of conflict of interest allegedly arose during the heydays of the "dot com" gold rush, where research analysts essentially marketed companies which they, or related parties, own shares of. By putting out positive research advice, or even simply by choosing to talk about their client amongst the thousands of possible companies they might have discussed, the share price of these companies could be boosted without regard for actual financial worthiness. In a way, this was one of the many factors contributing to the dotcom "bubble" which eventually burst around the first half of 2000, resulting in a lengthy sluggishness in world markets for years to come.
The U.S. government has since passed laws improving the Chinese Wall concept (e.g. Sarbanes-Oxley Act) to hopefully prevent such grievous dereliction of duty by research analysts and their banking employers.
There are some who critique the Chinese wall, saying that it prevents some small companies from being properly valued, since without the ability to get exposure via a tie-in with the investment bank, most investors would simply not know about them.
ethical (not physical) barrier between different divisions of a financial (or other) institution to avoid conflict of interest. A Chinese Wall is said to exist, for example, between the corporate-advisory area and the brokering department to separate those giving corporate advice on takeovers from those advising clients about buying shares. The "wall" is thrown up to prevent leaks of corporate inside information, which could influence the advice given to clients making investments, and allow staff to take advantage of facts that are not yet known to the general public.
Maintaining client confidentiality is crucial to any firm, but particularly large multi-service businesses. Where firms are providing a wide range of services, clients must be able to trust that information about themselves will not be exploited for the benefit of other clients with different interests. And that means clients must be able to trust in Chinese Walls. Some Wall Street scandals in recent years, however, have made some people doubt the effectiveness of Chinese Walls, as well placed executives of respectable firms have traded illegally on inside information for their own benefit.
"Chinese Wall" , why and what does it mean? This article will define that term, give a little history about it, and discuss why it appears in the news.
The question of analyst objectivity is a big issue, especially in regards to how analysts treat their firm's investment-banking clients and individual ("retail") investors. In other words, if an analyst's employer has a commitment to bring a stock to the market, how objective can that analyst be? Won't they tend to promote the stock in order to get the big bucks?
These are good questions, but the issue is not new. Following the crash of 1929, the government sought to provide a separation between investment bankers and brokerage firms in order to avoid the conflict of interest between objective analysis and the desire to have a successful stock offering. These regulations became known as the "Chinese Wall" because they were meant to create a barrier as effective as the Great Wall of China between the two operations. Most investment/brokerage firms even re-located departments to different floors. This issue received more attention in the wake of dotcom fallout perhaps as people were seeking a scapegoat.
Historically, Wall Street analysts have been paid a combination of a base salary, a percentage based upon trading volume in the stocks that they cover, and a percentage of any investment banking deals with which they are involved. These packages are generally structured to reward good stock picking; however, the potential for ethical conflict is greatest in investment-banking deals.
Ideally, investment bankers involve the firm's analyst early in the process in order to get their opinion of the deal. The analyst will have a better understanding of the client company's industry and is generally better able to determine the viability of the deal. If the analyst does not think that the client company has the fundamental strength to be public, the bankers should drop the deal and move on. If the analyst thinks that the client company has a good business plan and profit potential, the company should go to the Street to raise funds to grow and contribute to the economy.
Generally speaking, we analysts (Reg FD Disclosure: I am a practicing analyst) try to find good investment ideas because we can only succeed if we build a reputation as a good stock picker and forecaster. The cliché that "analysts are only as good as their last idea" is very true. I call this the "invisible hand theory of research" because the desire for long-term success in this industry guides the analyst to focus on finding good stocks rather than to promote the stock du jour.
Henry Blodgett and Mary Meeker typify the dotcom market, and they were involved in the largest deals and got the most airtime. In their defense, I think they tried to rationalize an irrational market. They saw that the market was paying for "new paradigm" stocks and tried to find a way to apply rational valuation techniques to irrational prices.
Grazie x la gentile attenzione
The concept of a Chinese Wall is that of establishing a zone of non-communication between distinct sections of a business, in order to prevent possible (and probable) conflict of interest.
A Chinese Wall is most commonly employed in investment banks, where such banks offer corporate finance services to companies (managing the fund-raising, for example), and at the same time also provide financial research information to a more general audience.
Because it is possible to manipulate the financial research reports to encourage the general public to purchase shares in a company (for example), the conflict of interest arises when such a company is also the customer of this particular investment bank.
In fact, despite Chinese walls, these situations of conflict of interest allegedly arose during the heydays of the "dot com" gold rush, where research analysts essentially marketed companies which they, or related parties, own shares of. By putting out positive research advice, or even simply by choosing to talk about their client amongst the thousands of possible companies they might have discussed, the share price of these companies could be boosted without regard for actual financial worthiness. In a way, this was one of the many factors contributing to the dotcom "bubble" which eventually burst around the first half of 2000, resulting in a lengthy sluggishness in world markets for years to come.
The U.S. government has since passed laws improving the Chinese Wall concept (e.g. Sarbanes-Oxley Act) to hopefully prevent such grievous dereliction of duty by research analysts and their banking employers.
There are some who critique the Chinese wall, saying that it prevents some small companies from being properly valued, since without the ability to get exposure via a tie-in with the investment bank, most investors would simply not know about them.
ethical (not physical) barrier between different divisions of a financial (or other) institution to avoid conflict of interest. A Chinese Wall is said to exist, for example, between the corporate-advisory area and the brokering department to separate those giving corporate advice on takeovers from those advising clients about buying shares. The "wall" is thrown up to prevent leaks of corporate inside information, which could influence the advice given to clients making investments, and allow staff to take advantage of facts that are not yet known to the general public.
Maintaining client confidentiality is crucial to any firm, but particularly large multi-service businesses. Where firms are providing a wide range of services, clients must be able to trust that information about themselves will not be exploited for the benefit of other clients with different interests. And that means clients must be able to trust in Chinese Walls. Some Wall Street scandals in recent years, however, have made some people doubt the effectiveness of Chinese Walls, as well placed executives of respectable firms have traded illegally on inside information for their own benefit.
"Chinese Wall" , why and what does it mean? This article will define that term, give a little history about it, and discuss why it appears in the news.
The question of analyst objectivity is a big issue, especially in regards to how analysts treat their firm's investment-banking clients and individual ("retail") investors. In other words, if an analyst's employer has a commitment to bring a stock to the market, how objective can that analyst be? Won't they tend to promote the stock in order to get the big bucks?
These are good questions, but the issue is not new. Following the crash of 1929, the government sought to provide a separation between investment bankers and brokerage firms in order to avoid the conflict of interest between objective analysis and the desire to have a successful stock offering. These regulations became known as the "Chinese Wall" because they were meant to create a barrier as effective as the Great Wall of China between the two operations. Most investment/brokerage firms even re-located departments to different floors. This issue received more attention in the wake of dotcom fallout perhaps as people were seeking a scapegoat.
Historically, Wall Street analysts have been paid a combination of a base salary, a percentage based upon trading volume in the stocks that they cover, and a percentage of any investment banking deals with which they are involved. These packages are generally structured to reward good stock picking; however, the potential for ethical conflict is greatest in investment-banking deals.
Ideally, investment bankers involve the firm's analyst early in the process in order to get their opinion of the deal. The analyst will have a better understanding of the client company's industry and is generally better able to determine the viability of the deal. If the analyst does not think that the client company has the fundamental strength to be public, the bankers should drop the deal and move on. If the analyst thinks that the client company has a good business plan and profit potential, the company should go to the Street to raise funds to grow and contribute to the economy.
Generally speaking, we analysts (Reg FD Disclosure: I am a practicing analyst) try to find good investment ideas because we can only succeed if we build a reputation as a good stock picker and forecaster. The cliché that "analysts are only as good as their last idea" is very true. I call this the "invisible hand theory of research" because the desire for long-term success in this industry guides the analyst to focus on finding good stocks rather than to promote the stock du jour.
Henry Blodgett and Mary Meeker typify the dotcom market, and they were involved in the largest deals and got the most airtime. In their defense, I think they tried to rationalize an irrational market. They saw that the market was paying for "new paradigm" stocks and tried to find a way to apply rational valuation techniques to irrational prices.
Grazie x la gentile attenzione
