Bulge bracket

Bulge bracket is a finance term referring to the first group listed on the 'tombstone'. That is, the group of firms in an underwriting syndicate (a group of investment banks) who are responsible for selling the largest amounts of the stock to investors. Their names appear first in the advertisement listing, called the tombstone.

The term 'bulge bracket' loosely translates into the largest full service brokerages/investment banks as measured by various league table standings. In common phraseology, Goldman Sachs, Morgan Stanley, and Merrill Lynch are considered the ultimate examples (sometimes called the “Super Bulge Bracket.”) Of late, Citigroup/Salomon Smith Barney, CSFB and increasingly JPMorgan Chase are considered to have joined the U.S. bulge bracket. Globally, JPMorgan Chase, Deutsche Bank and UBS Warburg/PaineWebber are typically thrown with the U.S. top five to form the so-called “Global Bulge Bracket.” (Outside of the U.S., Deutsche Bank, JPMorgan and UBS frequently outrank Goldman in the league tables, for example.)

For historical context, Aaron Brown writes: "In a tombstone ad, the lead underwriters were at the top, then the majors in alphabetical order, followed by the minors in alphabetical order, followed by the dreaded "line" under which the regionals were listed in alphabetical order.

Then came May Day, 1975, when fixed commissions were abolished. This touched off a merger wave and dramatic shifts of market share. The mergers messed up alphabetical order. For example, Burnham insisted on being listed under "B" after it had merged into Drexel Burnham Lambert. Some underwriters honored the request, some did not. Alliances formed and firms dropped out of underwritings if the leads did not agree to their alphabetization rules (don't get me started on issues like whether firms would honor the reversed ampersand in Goldman Sachs & Co.).

Along with this squabbling, a lot of the minor firms were arguing that they had become larger than some of the smaller majors, and wanted in. The big majors and the big minors struck a deal to relegate the smaller majors (who were causing the alphabetization troubles) and the larger minors into a new bracket. It didn't have a name, but it came between majors and minors with a small line (not the big line that separated regionals) to separate it. It became known as the "bulge bracket" because it tended to bulge out in the ads (it had a lot of firms and used reasonably large type). So a "bulge bracket" underwriter was an up-and-coming minor firm or once-major fallen angel.

The term fell into disuse as tombstones became less important and underwriting syndicates were rationalized. A few years ago it was ressurected to mean top underwriter, that is, above the majors. The trouble is the term grates on us older folks when used this way. It has a nouveau riche quality, arrogation of a grand-sounding title without knowing what it means. Using "bulge" to mean something good is not only bad history, it suggests the user values size above quality, and likes things fat and crowded."