Brokers slip clients tips

Some brokers are "tipping" privileged clients about private analyst recommendations to buy or sell stocks before that advice is made public. Those tips are leading to "abnormal trading volumes" on associated stocks before recommendations are made public, new research shows. A leading market research group says it has examined publicly available data containing broker identifications for roughly 3800 analyst recommendations on 338 listed stocks. The Capital Markets Co-operative Research Centre says it has looked at the volume of trades made by certain brokers before and after analyst recommendations were made public, and found "clear spikes" in trading volumes by some brokers before the analyst reports were released to the public. CMCRC chief executive Michael Aitken said while the behaviour might not be illegal, it gave an advantage to those "in the know". Gareth Hutchens

By InvestSMART · 16 Jul 2013

By InvestSMART ·
16 Jul 2013

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Frequently Asked Questions about this Article…

What did the research find about brokers tipping privileged clients before analyst recommendations?

Research from the Capital Markets Co‑operative Research Centre (CMCRC) found evidence that some brokers were tipping privileged clients about private analyst recommendations before those reports were made public, with clear spikes in trading volumes by certain brokers ahead of analyst report releases.

What is broker tipping and how does it relate to analyst recommendations?

Broker tipping refers to brokers giving advance, private notice to select or privileged clients about forthcoming analyst recommendations to buy or sell stocks. According to the article, those tips were linked to abnormal trading volumes in the associated stocks before the analyst advice was publicly released.

How many analyst recommendations and stocks did the CMCRC study look at?

The CMCRC examined publicly available data containing broker identifications for roughly 3,800 analyst recommendations across 338 listed stocks.

What does 'abnormal trading volumes' mean in this context and why should investors notice it?

In this context, 'abnormal trading volumes' means noticeable spikes in the number of trades for a stock before an analyst report is made public. The CMCRC found such spikes tied to certain brokers, which can signal that privileged clients may be trading on non‑public analyst advice.

Which organisation published the research and who commented on the findings?

The Capital Markets Co‑operative Research Centre (CMCRC) published the research. CMCRC chief executive Michael Aitken commented that while the behaviour might not be illegal, it gave an advantage to those 'in the know.'

Is tipping privileged clients about analyst recommendations illegal?

The article reports Michael Aitken saying the behaviour might not be illegal, but it does give an advantage to those who receive the tips. The research highlights fairness concerns rather than a clear legal ruling.

How can everyday investors spot possible tipped trades or pre‑announcement volume spikes?

The article suggests looking for clear spikes in trading volume in a stock before an analyst report is released. CMCRC's analysis compared trade volumes by certain brokers before and after recommendations, and identified those pre‑release spikes as a potential sign of tipped activity.

What should everyday investors take away from the findings about broker tipping and trading volume spikes?

Everyday investors should be aware that some trading activity and price moves can occur before analyst recommendations are publicly released, potentially reflecting privileged tips. Knowing this can help investors avoid reacting to unexplained pre‑announcement price spikes and to place more weight on publicly available analyst reports and official disclosures.