On the tape (Reuters):
LONDON, July 5 (IFR) - Rising disquiet over new issue bond market practices has prompted a rethink among debt syndicate officials regarding the processes they employ and the manner in which they transmit information to investors, bankers said. Underwriters have been discussing ways to fairly provide investors with information on price and the size of order books. So-called price whispers, where dealers float a level with a small group of investors could be a thing of the past, for instance. Another practice that is about to change is regular updates on the size of order books and the controversial, some would say cavalier, use of internal tickets to inflate the magnitude of investor interest.
Investors routinely overstate their true interest in order to receive a larger allocation of bonds at pricing. "I think both sides need to be careful. The world has changed - all the clients we deal with are trying to operate higher standards," said the syndicate official.
This has been the buy/sell side conundrum forever. If the deal looks hot (and you know it was -as it always is - pre-shopped to the big guys) you have to double or triple what you want to end up with. Then, god forbid, it falls apart you end up with an over allocation. The street knows the chronic padders, but this crap inflates the book to monstrous proportions. I can't think of a way around this. Blame it on the street for hyping, blame it on the buyside for padding - whatever. This is the way it is. It also allows the street to reduce pricing due to demand and see how many people drop from a deal or increase the size of the deal to meet demand. Accrues to the issuers benefit either way. Who wins: street gets underwriting commission and follow on trades, issuer gets lower rates and more money, and the buyside? Well, someone has to be left holding the bag.
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