Technology’s role in capital markets intelligence

20 July 2017

By Adam Frederick

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As an IRO you have an understanding of where the sell side stands in terms of your company’s ratings and earnings estimate. But do you know what the market is truly pricing in ahead of earnings, if investors are placing bullish or bearish bets? Do you know if investors believe you’ll hit the consensus numbers, or are they skeptically hedging against a miss?

And what about other predictive intelligence metrics? Who are the most optimal firm/fund targets for your company right now? Do you quantitatively understand the potential likelihood, or predicted ROI of your targeting efforts, before you set out on the road? Are Activist Investors secretly accumulating shares in your company as we speak?

New and exciting technologies are finding their place in the capital markets. And today, more than ever before, IROs are investing in cutting-edge predictive models and analytic tools to help answer the above questions and to better understand and prepare for upcoming market fluctuations.

Let me ask you an easy question: are you reaping the benefits of today’s technologies?

 

Technology levels the playing field

Last month, I joined Laurie Little, SVP at The Piacente Group and Don Cassidy, EVP of Business Development & Corporate Strategy at Georgeson on a NIRI OC panel. First off, as someone who has survived the harsh winters and sultry summers of the Midwest, any time I have the opportunity to visit SoCal, I’m all in! But in this case it was doubly sweet, as I was joining industry leaders to discuss a topic I’m very passionate about: technology’s role in capital markets and how IROs are now, for the first time, able to participate on a more level playing field with the buyside.

The discussion was quite thought provoking, and judging by audience engagement, I’d say this topic is grabbing the attention of IROs starved for better intelligence and foresight into trading, targeting, market expectations, activist monitoring, and more.

A bit of insight into what was discussed:

  • aiTargeting: Quant-based targeting software that leverages artificial intelligence and machine learning to predict which firms/funds are most likely to purchase a given security over the near-term, and why.
  • Activist Monitoring: By analyzing both equity and options trading/volume trends, looking for predictable, repeatable patterns, service providers like Q4 are now able to proactively identify activist accumulations in stocks, in real-time.
  • Predicting Market Expectations: Forward-looking sentiment and volatility expectations are constantly being priced into the market — by short- and long-term traders alike. IROs gaining insights into these market dynamics have a much better understanding of market expectations – for their own stock, as well as their peers — going into known events such as earnings, conferences, PDUFA dates, expected legislative results, etc.
  • Identifying Stock Performance Drivers – Utilizing historical correlations and regression modeling, quantitative programmers are able to breakdown the price/volume action of a given security, in real-time, to bring clarity to the driving forces behind the trading. Is your stock up simply because of ETF/Index flows? Are there HFTs or broad market dynamics impacting your shares? Or, is there a significant, stock specific institutional buyer/seller in the midst that is impacting the market? These are all questions that relative performance algorithms address and answer on an on-going, real-time basis.

 

Real-time intelligence: the way of the future

Over the past five years, we’ve seen a major shift in how the buyside conducts research, stock selection, and even in how they make buy/sell decisions. The reason for this movement is simple: technology. And, more aptly put, the advancements in quantitative modeling, big data analytics and artificial intelligence. Today, IROs are better positioned and ready to utilize these technologies to garner fresh insights and actionable intelligence surrounding trading in their company’s shares, their peers, and future market expectations on both.

The overarching theme and major takeaway from the NIRI OC panel: IR professionals need better intelligence. From an IRO’s perspective, what’s missing from their toolbox is real-time data and insight. Understanding who bought/sold their company’s shares two weeks ago is certainly valuable insight, but it doesn’t help IROs today when trading is awry or volume is spiking.

IROs need to be able to answer ‘what’s going on with my stock?’ with definitive, real-time insight. Answers to this question provided by intelligence firms over the years have varied widely, depending on provider, but have almost always been analyst conjecture — typically based on subjective analysis and human bias. But, with the advent of these new technologies and utilizing big data analytics to monitor and predict investor activity, firms such as Q4 are empowering IROs with truly actionable intelligence, based upon objective, quantitative analysis and void of human bias. It’s game-changing.

 

The power of knowing

Understanding real-time trading drivers and market expectations are key to stakeholder engagement and communications. The ability to quantitatively scope the best firm/fund targets, and prove value to your senior management by vastly improving the ROI of marketing efforts is not just a “nice to have” but rather, a necessity. Technology allows you to target smartly, putting your CEO in front of the right investors at the right time. Furthermore, an informed and sophisticated activist monitoring effort can provide an early warning signal when activist funds are accumulating a position, empowering you to be proactive should your company become ‘interesting’ to the likes of Carl Icahn or Bill Ackman. The benefits of today’s technologies are endless.

So let me ask you: are you getting the most out of the technology you have in play? If you answered no, what are you waiting for?

 

Adam Frederick is the senior vice president of intelligence at Q4 Inc and blogs regularly about surveillance and its applications for IROs.

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