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Eurobond syndicate practises - Transparency or skulduggery?

Some investment banks in the euro bond market are pushing for underwriting syndicates to disclose their order books. On the surface, it's a technical debate about how to organize bond deals. Underneath, it's a fierce clash about different banks' competence. The argument polarizes US and European firms. Marcus Walker hears the claims and counterclaims, and how the internet might lead to an unexpected solution


Charlie Berman

The dreaded pot system is becoming a familiar sight in international bond deals. It involves co-managers on a syndicate revealing their sales orders to the lead-managers, who then decide how to allocate securities among the investors in the collective pot. The method arose for emerging-market and US high-yield deals, spread to US corporate and agency deals, and is beginning to be used in Europe. But in the latter case, it is encountering heated opposition from many of the region's indigenous banks.

Proponents say the pot creates transparency for the syndicate managers and ensures a better quality of distribution for the borrower. The traditional method of allocating a quantity of non-earmarked bonds to syndicate members, whose sales to the market can't be verified, allows them to mis-state their placement success. But detractors say the lead-managers abuse the disclosure of orders within a pot to poach investors from rival banks.

The dispute takes place in the context of a fast-growing euro-denominated market for corporate bonds, in which the pecking order among investment banks is still fluid.

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