Pre-close calls are a symptom of a larger problem

What is a pre-close call ? 
All listed companies must publish quarterly (or half year) figures. Ahead of the date of the release, the company must observe a quiet period, during which communication with market participants is prohibited. This called the quiet period. 
Ahead of this quiet period, many companies call analysts to assess where they stand and (sometimes) provide them with additional details so that their earnings expectations are not too far off. The management of expectations is a key topic for investor relations so as to avoid any negative surprises on the day of the release. 
The first analyst to take a call, especially if it leads to a change in their estimates has an advantage. They then call their clients immediately and spread the news on the change in discourse, sometimes triggering a substantial share price reaction. The analyst is then rewarded by the client because he helped them make money. 
Obviously, this practice is more than borderline. Either the information provided is public (i.e. non-inside information) and non-material, and there shouldn’t be any change in the share price, or it is material and there should be an official, open to all communication.
This is well known and ESMA recently reminded all issuers of the importance of the MAR regulation and the fact that pre-close calls should only contain non inside information. ESMA notably suggests pre-close calls should be recorded and made available to National Competent Authorities on request. 

A symptom of a larger problem 

Beyond the obvious problem of malpractice and potential breaches of the MAR regulation, pre-close calls are symptomatic of a broader problem in equity research.

Which broker gets the first call from the issuer? 

It is very clear for many Investor relations that, very much like roadshows, the first (and second and third) pre-close call is an asset than can be monetized by the broker with asset managers. Therefore, in many cases it is considered a way to reward brokers. You give the roadshows or the pre-close calls to analysts that fall into line with the company's narrative. And, funnily enough, through the magic of the invisible hand of the market, it usually also happens to be analysts at banks which have business relationships (financing, ECM, DCM, corporate services, etc.) with the issuer.

Integrity matters for research providers and asset managers 
This issue isn’t new and AlphaValue was founded 16 years ago based on the idea that independence from issuers should be a key differentiating feature within research. But, with the drop in the wallet paid for research, mostly driven by the sharp decline in the price of read-only research (bear in mind large bulge bracket US banks now offer the full research package for USD10k per year vs USD1m back in 2017), any side revenue can make a substantial difference for a broker.   
More generally, the key assumption that better research is associated with analysts that are close to the company still leaves us puzzled. Either they benefit from inside information and therefore put asset managers at risk, or they don’t and the perceived benefits are dwarfed by the risks that they may fall complacent to the management and the company. 
We know that these are generally accepted market practices and that many asset managers will feel compelled to play that game to benefit from potential incremental performance over the short term. But 1/ unless you are Millenium or Point 72, you are less likely to be the broker's first call when they have borderline information and 2/ over the long run, any behaviour that leads to a less-efficient market is detrimental to all the market participants. 
Many asset managers agree that ESG and market integrity matter but too few act accordingly.

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