Thread by @KAnantrao

Everybody Lies: My one such experience in Institutional Broking
Characters:
Investment Manager: IM
Equity Research Analyst: ERA
Equity Sales Manager: ESM
Equity Trading Head: ETH
Equity Dealing Member: EDM
We wont be ever revealing the names of individuals or companies.

It was first half of year 2013 our ERA & ESM both arranged a meeting for an IM of large fund who was managing around 12-15K cr. of corpus. The said IM was keen to meet a then Nifty-50 PSU Banking (non SBI) top management just around the time when quarterly results were due.

There is possibly a rule which bars managements from meeting institutional investor some 3-5 weeks before the quarterly numbers or so (i have no clue about the said rule so apologies in advance) & our guys were perhaps slightly on the wrong side of the fence by a day or two.

The ESM before joining us had worked with the said company for 20+ years & was last employed in the treasury of the said PSU, therefore knew many in the senior mgmt. who were either his ex-colleagues or ex-bosses & with some amount of fawning he was able to get their

attention as well as appointment for this particular IM. The ESM was also a self professed champion of TA & FA and was great believer of Golden Crossover method.
Before going to meeting he consulted the in-house Technical Analyst on PSU Banking Stocks & got a lukewarm reply

The ESM-ERA-IM went & met two people in top management for more than an hour. The IM came out extremely impressed after the meeting as if a student had laid his hands on question paper of an exam scheduled after a week. En route to office, the IM instructed to buy 50-60L shares

to the trader in his firm specifically instructing to give a major chunk of the order to the broking firm which arranged the meeting. This was surprising as typically DII's don't give a buy/sell trade in a stock to the broker who initiates buy/sell reco in that stock or gives

corporate access. They are usually compensated with other trades as per their rating/ranking along with the overall business given so far in a FY which can never exceed more than 5% of the total brokerage disbursed by the said DII in that FY.

Anyhow it was above the paygrade of ETH so, when he received an order to buy 20L shares at 840 per share or better (the PSU Bank had a FV split from Rs.10/- to Rs.2/- in Jan 2015), he instructed his EDM to do the needful within the mandate.

The ESM-ERA duo reached office by that time and were jubilant to know that the client IM has given a 168 cr. order for their efforts, they made no bones in rubbing it in to TA-ETH & Co. on their efforts in winning a large trade (for a small firm)from a prestigious client & IM

The ETH smiled & ensured his team executed the trade properly. But the TA was young in age, he knew something was amiss with the ETH especially his smile. He prodded the ETH about his smile to which he replied, wait for quarterly numbers next week.

The ERA in his earnings preview wrote profusely about the PSU BANK and its expected numbers based on the private interaction he had along with the ESM & IM last week and the same was circulated to other DII's through the respective ESM's followed up by personal call with details

of the private meeting that had happened between PSU BANK team and ESM-ERA. Due to client confidentiality, the duo of ESM-ERA kept the name of IM confidential which is a good business practice. Many clients showed interest in the gossip as result day came closer & some claimed to

have bought it in their fund recently.
Finally the results were declared around noon & to the dismay they were way below the worst expectations of the street. The stock which was flat throughout the pre result week started tanking post results.

The Furious IM called the ERA-ESM to explain the bad results & how he was taken for a jolly ride by the company mgmt. The duo of ERA-ESM were already stunned by the numbers themselves & decided to adopt the best practices of OMERTA ie code of silence. They were wary of backlash

both from the clients as well as in house given they had not spared any colleague while hogging credit for the trade. The IM threatened to downgrade the brokerage firm in the next review and wanted to meet the same mgmt. people once more for explantion. Unfortunately for ERA-ESM

the same people from the company mgmt had stopped answering calls/messages from ERA-ESM duo. This continued for 3-4 weeks to & fro of trading accusations and charges while the stock continued its downward journey and had lost 25% in a month. Finally the IM agreed to meet the

Head of Equities (HoE) of the brokerage house who himself was a IM of repute for 17 years in the 90's. The IM bitterly complained to the HoE about being impregnated with a large unwanted position and the company mgmt as well ERA-ESM were to be blamed for the unwanted pregnancy.

He also threatened with downgrade of rating / ranking in the upcoming annual review of brokers empanelled. After calmly hearing out the IM's emotional outburst, the HoE replied, have you ever heard about CAVEAT EMPTOR? What can a broker do if a corporate mgmt. lies to investor

Who would have become a hero if the mgmt had been proven correct.Whose fund would have benefitted if the mgmt had been proven right.Who decided to buy XXX quantity from the market after meeting the mgmt. When has a mgmt. ever said bad about itself. Why didnt the IM conduct due

diligence before taking reasonably large sized position.
The IM had little to say or had no answers to these questions when the HoE upped the ante. As an elder to the IM, he narrated many such instances of having averted a "honey trap" at the last moment. He managed to do so by

applying a simple logic, why am I so privileged to have this information first?
Conclusion: When you receive any information which is said to be privileged in nature, ask yourself, whats so special about you that you are being fed with this so called Privileged Information.