Effect of the Technology Bubble on the Broker Vote

In the previous article, there was a short summary on the analyst level detail of the broker vote.  During the technology bubble in the late 1990's, there was a distortion in the vote.  At that time, the analysts covering the technology (especially Internet) sector received an increased number of votes at the investment banks.  This was an attempt to curry favor with the analyst in hopes of getting an allocation to a hot/oversubscribed IPO.  As with many situations in investment banking, this was unspoken.  On the whole, an analyst of the lead underwriter of the IPO would have a favorable reputation and the comment would be:  "He/she gives valuable insights."

Broker Votes for Research Analysts

Investment Banks are ranked by buy side firms during the broker vote process.  There are additional levels of detail that emanate from this vote.  Some firms also rank coverage by geographic region or country, sector or industry and individual analyst.  One of the measurements for research analysts is the broker vote.  Here is where the subjective/objective line can be crossed.  The fund managers and buy side analysts, after the initial rank, are asked to give details of who has helped them during the voting period.  This may be because of a timely stock call (buy or sell) or special insights or historical relationship.  The analysts are ranked by how many firms have voted for them.  This is done twice a year.

There are about 150-200 votes collected from buy side firms at any given time.  The top analysts generally garner votes from about 120 firms as not all buy side firms are interested in all sectors/industries.  There are also firms that refuse to give any details about research analysts.