UPCOMING WEBINAR - Learn innovative ways to integrate social media into your IR program!

Mark Thursday, July 16th in your calendar and join our free webinar to learn innovative ways to integrate social media into your IR program! Official invite to follow soon.  Or you can drop me a line sherylj@q4websystems.com to reserve your spot now!

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Mike McDonald of WebProNews cites an interview with Tarla Cummings, Social Media Manager from Location3 Media from the SMX Advanced Conference recently held in Seattle, WA.

When looking at your social media campaigns, Tarla discusses the acronym M.O.M. which stands for Monitor, Outreach, Measure.

MONITOR

Companies should make it a top priority to be in tune with who is saying what and where about them.  They should know exactly where they are being discussed across blogs, wikis, forums, tweets and any other social forum they can think of.

Mike points out “we used to refer to this practice more in terms of reputation management than we did marketing.  However, if there is one major takeaway about social media here, it’s that marketing and reputation management are getting closer and closer to being synonymous.”

Keeping track of everything that is being said in public forums sounds like an onerous task!  There are services out there, both free and paid – for example you can subscribe to free Google Alerts for mentions of your company.  Also, recently during the Trends in Media and Technology Session at the NIRI Conference in FL, Serena Ehrlich of Start-up Army cited a few more free monitoring services such as www.search.twitter.com or www.socialmention.com.

Dick Johnson of IR café was also on the panel with Serena and after the session, put together a list of monitoring sites and services he incorporated in a broader IR 2.0 menu he compiled for IROs learning about new technologies and connections in web and social media.  You’ll need to scroll almost to the very end of the document – the list is a good starting point.

In the context of monitoring social media, Brian Solis in his recent article “Unveiling the New Influencers” states that “…we need assistance in order to hear and see relevant conversations and the related people and communities where they emerge and inhabit.”

He then provides a comprehensive list of the “tools available so that we can start the process of uncovering the unknown and plotting our next courses of action which starts with the heading “Searching the Social Web”.

OUTREACH

Once the social forums are identified, companies should become active participants.  In particular, if someone has posted something negative about the company make an effort to win them over.   This can be beneficial in that it reflects well on a company to have made a public attempt at rectifying a negative situation – although he notes not everyone can be swayed to come back as a loyal consumer of your brand.

Please note that he is referring to this in a marketing context in which someone is unhappy about a product or service.  From an IR perspective, I would tread cautiously when responding to upset investors in a public forum.  I would assess each post on a case-by-case basis and would respond for example, if someone has posted something blatantly incorrect.  As in my view that would be in the best interests of the company and its shareholders to do so.

It is logical to want to respond to and correct any erroneous information about your company.  However, as previously stated, keeping track of everything is a large undertaking.  So as an IRO how do you go about staying on top of and addressing everything (in particular negative comments) being said about your companies online?  Serena (from the same panel cited earlier) points out a very valid consideration –  that it is not necessary to address all of the negative comments, as they may be coming from people who are not widely followed anyway.  Instead, she suggested investigating how much traffic some of the negative bloggers get first through sites such as www.compete.com, www.quantcast.com and www.alexa.com to help determine whether it was necessary to respond.

MEASURE

Okay, now for the crucial part – how do you measure all of this effort?

Mike feels that social media is not as difficult to measure as one would think – he states that a decent analytics package will provide a good idea about where the information is coming from.  One sure way to be precise is to  “simply make sure everybody is on the same page about your goals for these campaigns before you get things rolling.”

Further to this, Ben Straley from Meteor Solutions in this interview states “when you set goals for your social media campaign, you need to ask yourself what you want to accomplish and then measure your efforts. The type of business you operate actually determines what you should measure. Ultimately, the value of social media is not determined by how much money you make. Instead, it is determined by how your business receives value from it.”

I completely agree with Ben when he states you need to ask what it is you want to accomplish.  One way to help you do this is to put together an IR plan in which you set measurable short and long-term goals and objectives, identify target audiences, develop strategic messages and tactics and activities to deliver the program.

Of course, the plan must be monitored to measure its effectiveness and fine-tuned as needed.  In my experience as both an in-house IRO and consultant, a typical IR plan is measured on an annual basis, but like anything, this can differ based on a company’s particular business strategy.

Some examples of what to measure may include new institutional investors or an increase in holdings by existing investors, analyst coverage (increased coverage, improved recommendations), investor perceptions, media coverage, number of face to face contacts made through roadshows and meetings with targeted investors, website visits etc.  This is by no means a comprehensive list and again the specific objectives you set, will drive what is measured.

If you do use social media as part of your IR program, the resources I outlined above should give you a good starting place to keep track and measure what is being said and even give you insights on how to appropriately respond when necessary.  It will also allow you to proactively report back to management and the board keeping them apprised of what is being said about the company and nipping any potential issues before they get out of hand.  After all, there is nothing worse than getting a phone call or an email asking you about a situation in which you don’t know about.

If you are currently using social media and measuring your efforts, I’d love to hear what services both free and paid you are using.

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From my discussions with IROs whose companies have not yet taken the plunge with social media, the likely reasons for CEOs abstaining are concerns about disclosure risk, lack of time and quite frankly a discomfort with technology beyond email and browsing. This is not a slag but rather a reflection of the feedback we’ve been given with respect to senior executives adopting new technologies – oftentimes they simply prioritize other things.  Their social networks happen in other arenas and they may have other senior executives within their organizations actively involved in social media.

The topline results taken from UberCEO’s blog post reveal that:

• Only two CEOs have Twitter accounts.
• 13 CEOs have LinkedIn profiles, and of those only three have more than 10 connections.
• 81% of CEOs don’t have a personal Facebook page.
• Three quarters of the CEOs have some kind of Wikipedia entry, but nearly a third of those have limited or outdated information.
• Not one Fortune 100 CEO has a blog.

In reading the Uber post, be sure to scroll down to the comments. There are references to some interesting articles there as well, such as Doug Cornelius’ of  Compliance Building who shares his compliance risk perspective in ‘Corporate Blogs and Tweets Must Keep SEC in Mind’ and another by Dan Haugen of the Minneapolis Post on Best Buy’s new CEO, “Is Best Buy’s Brian Dunn the Most Socially Networked CEO?”

Should CEO’s get involved in social media? Those that do send a very clear message in terms of their transparency and their personal interest in listening to their stakeholders. Where there’s a willingness to get involved even a busy CEO will find the time with the support of a good team and the use of mobile devices. But the answer to the question in my opinion is really, “it depends”. Most organizations can benefit from involvement in social media but whether it happens with the CEO or other senior level executives really comes down to corporate strategy, division of labour and who would be most effective and committed to continuing the conversation.

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Mike Willis, Partner, PricewaterhouseCoopers
Chairman, XBRL International

Panelist(s)/Co-Speaker(s):
Michael Becker, VP, Global Disclosure & Financial Reporting Services
Business Wire

This session was quite comprehensive, so I thought it would be useful to discuss the agenda that was put forth:

WHY IS THIS RELEVANT?
Public companies push out a lot of IR content such as earnings releases, quarterly reports and annual reports.  Once disseminated into the public domain, third party information intermediaries distill, transcribe and structure the company reported information into their proprietary taxonomies and sell that structured information to the analyst community.  This third party intermediary information is also available through sources such as Yahoo! Finance, Google and MSN Money.  From these publicly available sources IROs can directly observe the omissions, errors and other communication problems created by the third party intermediaries such as changing disclosure concepts and/or omitting key company specific unique disclosures.  This intermediary distortion in turn can lead to inquiries that don’t make any sense or worse, no inquiries at all – which means the investment community is solely relying upon the data transcribed and rendered by third party sources, thereby diminishing the company’s opportunity to correct any errors.

If you are skeptical of the degree of errors and omissions to your company reports please take a minute right now and go to the public sites and review the data available for your company and compare that information to your company reports.  “The data provided by intermediaries is incorrect as often as 30% of the time and incomplete 100% of the time“. The typical omission is the unique company specific disclosure, which is highly relevant to company IROs.

This is unfortunate, as preparing and finalizing material documents is typically a very time consuming and costly process, largely due to manual assembly and review processes that draws upon a lot of internal resources such as the finance, legal and IR department’s time to compile, review and publish – not to mention the costs associated with filing with the regulatory bodies and mailing out hard copies.

WHAT IS REQUIRED?
As some of you may know, in January 2009, the SEC introduced a phased mandate for filing in XBRL starting with the largest companies with a worldwide public float of greater than $5 billion – periods ending on or after June 15, 2009 and then extending to all sizes of companies over the next three years. The rules require companies to provide their financial statements on their corporate websites in an interactive data format using XBRL at the same time their financial statements are submitted to the SEC.

Content Requirements
In the first year of filing in XBRL format, issuers are required to tag each unique disclosure concept in the company primary tables (balance sheet, income statement, cash flows, changes in equity) and “block” tag (e.g. one tag per note) the financial statement footnotes and schedules.

In all subsequent years of XBRL formatted exhibits, issuers are required to tag the financial statement disclosures and also individually tag each significant accounting policy, table within a footnote and each quantitative amount within a footnote.  It is this second year requirement that significantly enhances the volume and accuracy of company disclosures available to the analyst community in a very cost effective, accurate and timely manner.

The XBRL Exhibit is required to be filed concurrently except for the initial report in each of the first two years which would be due no later than 30 days subsequently.

For purposes of the company SEC exhibit, the MD&A, executive compensation, or other financial, statistical or narrative disclosure outside the financial statements is not permitted to be tagged.

Corporate Website Posting Requirements
The XBRL filing is to be posted on a company’s corporate website by the end of the calendar day submitted or required to be submitted to the SEC.  The XBRL exhibit must remain on the website for at least one year; however, legal liability provisions are phased out over a two-year period with no “required” involvement by the auditor.

The US SEC rules will apply to public companies and foreign private issuers that prepare their financial statements in accordance with U.S. generally accepted accounting principles (U.S. GAAP), and foreign private issuers that prepare their financial statements using International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

WHAT IS IT?
XBRL is a freely available international information standardized format specifically designed for business information.  As such, it is specifically designed to provide supply chain standardization to address pervasive process problems.  XBRL is applicable to business information, related business rules, formulas and controls to not only to make financial information easier for investors to analyze, but also to assist in automating regulatory filings and business information processing.

As an Internet standard, XBRL can be used to create a common language for disparate proprietary software applications to more seamlessly communicate.  This is sort of similar to html but in a more granular manner and specifically for business information.

WHAT’S IN IT FOR THE ISSUER?
There are many implications of using XBRL to improve processes.  For example, issuers can implement using the bolt-on approach in which filings and reports are created following the existing process and converted to XBRL once finalized, either in-house or by a third party.  There is also the embedded option, which would enable companies to map their disclosures to the XBRL US GAAP Taxonomy directly within their report writer or consolidation application.  Pushing standardization further back into the business information supply chain provides structure for automation of downstream processes including the accurate rendering of XBRL-tagged SEC filings that can be accessed via your website with many interactive features.

Embedding XBRL in corporate reporting processes enables:

• Seamless exchange of information between software applications like your website and your analysts’ modeling applications,
• Automation of manual processes = lower costs, improved quality & timeliness like for your summary tables and graphs provided on your website,
• Enhanced transparency, access and control of information contained across a wide range of disparate internal data stores similar to the wide range of internal data stores that you are trying to access to address performance related inquiries,
• Improvements in data quality and access, and
• Better access to more relevant information for better decision-making, enhancing business intelligence and performance management information.

XBRL is more than a trend that IROs must be cognizant of – it will soon be mandatory for all U.S. based issuers and there is a voluntary program currently taking place in Canada to help the Canadian marketplace gain a greater understanding of this information standard.  Therefore it is essential that there is a full understanding how communication between the investor community and IROs evolve with the XBRL standard.  So stay tuned for additional blogs and presentations on XBRL.

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Panelists were:  Timothy Carey, Managing Director, Digital Media, ICR, Inc; Ruth Cotter, Director, IR and Treasurer, Advanced Micro Devices; Eileen Cassidy Rivera, Vice President, Communications & Investor Relations, Vangent, Inc., and Darrell Heaps, President, CEO & Co-founder, Q4 Web Systems.

Michael opened the session by asking each panelist to introduce themselves and to describe their involvement /perspective on social media.

Eileen was a new user of social media and referred often throughout the session to the need to get one’s message down to 140 characters. In looking at the Vangent Inc. site, I didn’t notice any reference to Twitter. I searched Twitter for both Eileen and Vangent  Inc. but didn’t find anything, so I assume that Eileen is in the very early stages of adopting social media. Her newness in the area may have served as an inspiration to attendees who were thinking of also getting involved.

Eileen felt that IROs needed to look at getting information out in more new and creative ways in order to reach audiences who might be looking outside of traditional media. And to give these audiences better ways to access information. She said that brevity of message was important in social media.

Ruth said that “Content is king and even more so in social media. It’s a challenge for IROs to adapt their content for social media.” The AMD site was chock-a-block with all kinds of social media - in fact, I had to pull myself away in order to get back to writing this post. It’s obvious that the AMD culture has embraced this new technology. This page in their corporate section includes links to FriendFeed, YouTube, Facebook, Twitter, Flicker, Videos, Blogs. Other than one video for an Executive speech , social media hadn’t penetrated IR communications to the same extent but it’s likely that the road has been paved for Ruth to more easily expand the role of social media for investor relations.

Darrell said that “social media has added another layer to communications - it doesn’t replace the old. It just gives you one more way to get your information out to people who want to access it through social channels.”

Tim agreed and said that “a lot of the tactics that IROs use are still important. It’s not about replacing the old, it’s about having the right strategy to integrate social media into the investor relations program.” The entire panel concurred.

Darrell referenced a panel that he attended the day before on Trends in Media & Technology, where Robert Williams, Director Investor Relations at Dell Inc., had mentioned his surprise the volume of internal responses he received when he solicited questions for his quarterly earnings call. Darrell said that, “Social media drives more internal dialogue as companies respond to things that happen in the market. This can have a positive effect in bringing divisions closer together and in getting input from other areas of the company.”

Mike then asked each panelist what they felt was the largest trend or change in communications that new technology was leading to - was it social networking? Blogs? Enriched content such as video, photos and audio assets?

Ruth said that one of the greatest changes in communication was the ability for social media to address issues in a much faster way than traditional media. She had a great example of how social media helped to solve a market misperception about her company. AMC’s valuation had been discounted by the market because of perceptions about battery longevity. This problem actually stemmed from inconsistencies in the way that battery longevity was measured. Her CEO started a blog that ultimately resulted in changes in how battery life was measured, which soon dispelled this misperception.

In speaking with numerous issuers Darrell has heard many of them express concern about rogue comments in social media and their hesitation to get involved in blogging. Darrell felt that a good place for issuers to start, was to think of SM as a notification system, “60% of web users are using social media - issuers should think of it as an additional way to get information out. Today that means using your existing content, information that has already been vetted through your disclosure controls and procedures to give broader dissemination to this information”.

Tim felt that video had a key role to play, “Video makes things more personal. It puts a face to a name and helps viewers get to know a company better.” (This perspective supports a lot of what we heard the day before from both Laura Graves of Cisco Systems and Dell’s Robert Williams, who also both felt that video didn’t always have to be high production.)

Mike then asked Ruth about challenges she faced in incorporating blogs into IR communications, despite the fact that as a culture, the company seemed to really embrace blogs for product initiatives. He also asked her what IROs should be looking at before jumping in - what rules should they be thinking of.

Ruth, admitted that it was a challenge to get the company to accept blogging for IR. She said that issuers really needed to train their employees on using social media on behalf of the corporation and that employees also needed to be mindful of what they were communicating in their personal social media channels. She gave an example, of an employee had once mentioned on his Facebook page that he was going to be away and the specific location he mentioned led to a market perception that a deal was in the works (which it was). This resulted in movement on their stock. (I heard a very similar story from another executive in a social media webinar I attended last year - different company, but essentially the same story.)

In terms of what companies should do to prepare for their involvement in SM, Ruth felt it important to have a social media policy in place.  She also said that AMD provides in-depth training for their employees on social media and that employees needed to get an internal license in order to use SM on behalf of the company.

At this point, numerous questions came from the audience - it was clear that attendees were very engaged in topic. One person asked how to monitor who was talking about their company?

Darrell said that there were numerous ways that one could automate this, including subscribing to Google alerts for mentions of your company. (This same question came up in the Trends in Media and Technology and Serena Elrich of Start-up Army offered a number of free monitoring services.)

Another person asked, “How do I keep up with responding to all of the mentions?”

Ruth said that, “The purpose of social media is to spur a conversation so we don’t usually respond. You have to consider how important it is to respond on a case-by-case basis.”

The next question asked by an attendee was, “How many big institutional investors are involved in social media?”

Darrell said that as an example Seeking Alpha, a portal for financial blogs, was visited by 4 million unique users per month, and that 1 million of these were institutional investors.

Following this, someone asked, “How do I get my information out to analysts and institutional investors?”

Tim responded by saying that short videos were a good format - again largely because they expose other people within the company. Ruth agreed with this and said that her company found them very valuable.

Darrell said, “You need to repackage your content to make it easier for them to consume both on your site and in social media. For example, instead of just providing your presentations in pdf format, also use Slideshare, which makes for a much better user experience and makes it easier for others to share your content.” He felt that it was, “Important to get involved in social media and be a part of the conversation so you know what’s going on. You can’t ‘control’ the conversation, forget about that, but you can help set the tone.”

“You also need to look at your corporate/IR website and consider the role that it plays. Right now, with current budget cuts, public companies are focusing more on face-to-face meetings, but what does that analyst do before he goes to your meeting? He looks at your website for context on your company. And what does he do after he leaves your meeting? He goes back to your site to verify the facts that came up in the meeting. You need to understand this and stop using your site as a filing cabinet - you need to use it as a strategic tool to provide more context.”

Tim agreed and said, “If you have a good vision, a good leadership team and strong performance you should bring this all together to help users understand why they should invest.” (I talked about this very topic and gave some good examples in an IR Website Best Practices webinar we ran a few weeks ago. )

The topic then turned to using social media for issues management.

Ruth said that using social media could get the word out so much faster than traditional channels. (See reference to Dominos versus Wendy’s in my June 10 post as a great example of this.)

Tim felt that issuers should have a strategy in place for issues management through SM, before a situation arose, so that when an incident occurred, they knew how to respond.

Darrell felt that it was important to be proactive - if a company knew that a situation was going to be contentious, it was better to be out in front communicating about it before a problem arose. He said that Barrick had done a good job of this related to a specific mining site, where they anticipated community backlash. By being upfront, they were able to address concerns before they became problems.

Questions were still being asked as the clock ran down and the time was up.

Clearly this topic continues to be of great interest and companies need to find ways to get involved that suit their cultures and their comfort level.

As I was using TwitterBerry to tweet the session live, I may have omitted something, so if you attended or were a panelist, I look forward to your comments.

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Companies using our  Q4 web platform will be able to easily embed SlideShare presentations into any area of their IR websites and publish directly to both their IR website and SlideShare.com. Additionally, SlideShare is launching a separate Investor Relations category. Companies will also have the opportunity to promote their investor relations presentations to SlideShare’s 18 million visitors in a targeted manner.

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Robert said that Dell uses social media primarily to reach out connect with people who are interested in their company and want to access their information in different ways. He said that it was important to socialize SM internally with legal, finance and other executive positions, who may be concerned about risk, in order to help them understand the importance of being involved and the fact that you just can’t vet everything through the same DC&Ps. “The IRO is in a perfect position to handle social media because they understand the risks, they understand the story. And it’s not like they’re monitoring every phone call I make or every conversation I have with an analyst.”

One has to remember that when it comes to blogging there should be no material statements, no material events and no material omissions.

Laura admitted that at recently as a year ago she was saying, “Social media is not for me” but now she avidly uses it to reach both existing and new investor audiences. Laura said that it’s very important to get your internal people on side, which may be more difficult  with an older established company – you may have to do more work to bring them along but a few quick wins should help.

On this note Laura talked about the contract between Dominos pizza and the employee YouTube debacle, which was quickly addressed and quieted through social media and the Wendy’s ‘severed finger in the chili’ where the issue was addressed through more traditional channels and continued to haunt their brand for many months. (That story alone should be a wake-up call to most senior executives.)

Serena gave specific advice throughout the discussion. She said that it’s important to monitor what’s being said about your company online through sites like www.search.twitter.com , www.socialmention.com , or through RSS feeds. You can even index whether mentions are positive or negative. Serena also felt that issuers should have social media policies that include who represents the company on Twitter, Facebook and other SM. Serena also mentioned a number of other sites as information resources on social media and IR best practices including IR Café and Q4Blog.

Both Laura and Serena said that getting involved in SM doesn’t have to take up a lot of time for a busy IRO and instead, suggested finding someone with the company who is active in Twitter and excited to represent the company online.

Dick said that coordinating SM efforts between IR and PR was very important. He also said that investors are more likely to look for information on your corporate website than any other source and that it should be considered your primary source of information for investors. He offered a checklist as a handout, which he also provides on his site. He then said that a checklist is just the starting point, that a website should not be a filing cabinet and that issuers should look to provide more context for their investment proposition. (Q4 covered this topic previously in an IR website best practice presentation.)

Laura described a scenario which often happens and how social media provides a powerful tool to address misinformation. In the truncating of headlines by the media, often a message is dramatically altered which could significantly alter your stock. A company could issue a press release saying something like, “XYZ reports that sales are soft in Q1 but are expected to be strong in Q4”. The media shortens this headline to read, “XYZ reports that Sales are Soft”. A buzz begins and you can see your stock spiraling down – social media gives you a powerful voice to address these issues and correct the information. And if your company is actively involved in SM, people will know where to go to verify the misinformation.

She also suggested having a section on your site called “Hot Topics” where things like this can be flagged for investors to access further information.

Following this one of the delegates asked how she could keep up with addressing everything negative that was said about her company online. Serena responded by saying that this wasn’t necessary, and that sometimes these negative comments are coming from people who are not widely followed anyway. She suggested to measure how much traffic some of these negative bloggers get (before determining where it was necessary to respond) through sites like www.compete.com , www.quantcast.com , and www.alexa.com

Both Robert and Laura said that V-logs (video logs) were very good ways to address issues and to put investors in touch with more people inside the company. (In fact Dominos CEO addressed their issue through a video.) Robert said that they use V-logs to address 5-6 questions on the quarter and this has been a very effective strategy for them. 

How to get started – read Reg. FD with a ‘blog mindset’, and find a mentor. Put a calendar together to ensure regular blog posts. You’ll find that you won’t have to spend a lot of time thinking up things to blog about as issues will come up that provide blog topics.

There were a lot of good points made in the session, some of which I may not have captured in this post. I welcome comments from any of the participants or panel members to provide additional information.

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The conference kicked off yesterday with a lively presentation by Todd Buchholz, renowned economist and best-selling author of “New Ideas from Dead CEO’s: Lasting Lessons from the Corner Office”. His presentation was entertaining and his stories were a lesson in the value of common sense. (Some great stories regarding A.P. Giannini, the founder of  The Bank of Italy - which is now The Bank of America. Too much to cover here but you might want to buy the book.)

In the first part of the session (for the benefit of anyone who spent the last several months in a coma) he brought us up to speed on some of the conditions that sent the economy into a downward spiral. Most of it you’ve heard by now such as 90% of the foreclosures in the U.S. housing bust occurred in California, Florida, Las Vegas and Scottsdale, Arizona. And the fact that the insurance policies that local banks drafted to protect themselves against mortgage defaults expired faster than the yogurt in your fridge (90 day period for a 15-25 year mortgage).

But what you’d likely more interested in are the signs that the economy will recover and faster than you think. Here’s why Todd believes that the economy is already rebounding:

• Best thing we have going for us in getting out of the recession is the fall of commodity prices
• Risk of inflation is very low
• Unions do not have the same power (read strangle hold) on the economy
• Unemployment is not as bad as the media indicate because they have not taken into consideration the huge increase in our workforce in comparing today’s unemployment numbers with those of the 1980s - sure there are more people out of work but there are also significantly more people.
• Real disposable income is up
• The Housing Affordability Index indicates that mid-income families can afford a mid-price house at today’s interest rates
• The Federal Reserve has increased the money supply to induce greater consumer spending
• The seduction of retail discounts is starting to dissipate consumer fears and they are starting to spend

As a parting message Todd said that what the US really needs to work on is the education of it’s labor market. That we shouldn’t be so focused on ‘Peak Oil’ but rather ‘Peak People’ by investing in education in fields like petroleum engineers, agricultural engineers, medical science, technologies etc. These skills are needed to compete in the future and are sorely lacking in the US now.

Todd’s presentation was fast-paced and keeping notes was a challenge so for more details, buy the book.

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The weather is hot in Florida and so are the sessions here at the NIRI ’09 conference.  Yesterday I tweeted live from the “IR Emerging Issues and NIRI Advocacy” session.  The second session entitled “How the Buy and Sell Side Trade Your Stock Today”, was so hot, that I decided to put together some notes and compile for this blog.

This session was designed to help IR professionals understand what happens behind price and volume.  Here is an overview of what was said:

Moderator: Tim Quast – ModernIR

Panelists:

John Adam, Head of Issuer Service and Corporate Access – Liquidnet

Brian Barrett, Senior Trader – Franklin Templeton

Anthony Corso, Managing Director at Agency Trader (head of trading operations) – Rosenblatt Securities

Bryan Harkins, Head of Sales & Strategy for Market Center – Direct Edge

Joe Saluzzi, Partner, co-founder and co-head of equity trading – Themis Trading

Moderator: Looking back 10 years, if an institution wanted to build a position in a company how would they do it?

Anthony: Communication and transparency.  However these days there is a lot of fragmentation – for example there are a lot of new exchanges; information is difficult to aggregate; price discovery mechanisms have changed; participants have grown exponentially with mutual funds, institutional, professional investors and day traders making up the landscape.

Moderator: Brian can you give us a run-down of how you would accumulate a position of $50 million in a $5 billion market cap. company?

Brian: Not much has changed for us on the buy-side; we would accumulate in a way that would have the least impact pricing on the portfolio – try to buy or sell a position without moving a stocks price. In general, the buy-side wants to make it harder for the sell-side to see our position.  Evolution over the last five years has lead to fragmentation: that means smaller blocks being traded through high frequency traders.

Moderator: Do any of the other panelists have anything to add?

Joe: I have seen character of volume change; through high frequency trading as these traders get paid a rebate from the exchanges to do buying.

Bryan: Decimalization (all stocks moving away from fractions to trading in penny increments) made it hard for traders to discern spread capture between the bid and ask as this task was taken over by computerized trading or liquidity providers.

John:  If a company’s stock is having unusually high trading volumes, those volumes may not be indicative of “true trading”.  What I mean by that is that these high frequency traders are creating a lot of noise.  So it is hard to separate out the institutional volume.  As such, dark pools were created to eliminate the impact allowing institutions to trade more efficiently.

Moderator: Okay, what about the sell-side?  What about Goldman, Credit Suisse – are they supporting issuers? 

Joe: Committing capital to make money through market makers and specialists are gone with the move to machines.

Bryan: Fragmentation and dark pools are new, but off-exchange trades (such as those traded via dark pools) are still occurring, through advanced technology.  Computers are now dominating the market but U.S. markets are now running more efficiently.

Brian: Dark pools were initially put in place for the buy-side, although doing a trade in there doesn’t mean there is somebody in there to do business with (i.e. if I am buying a block of shares, may not be a seller).  So there has been a recognition that they needed to be opened up to the sell-side.

Question from audience: How much transparency is there for dark pools?  Do you have to report a dark pool trade?

Brian: Yes – in the U.S. all of the trades aggregate and print through FINRA as soon as the trade is executed.  Conversely in Canada, dark pool trades do not print on the TSX.  Volatility has also lead to fragmentation and backing away from doing large blocks of shares.  Personally, I still look for liquidity and price points.  For example, when I start building a position in a company, I do a few things:

1. Quantitative Analysis – trade cost analysis: historical spread between bid and ask and how much the opportunity will cost?  Should we act now or wait and see?
2. Liquidity – not looking to make a footprint (transparency as well, but too much will trigger attention to volume of trading)

Moderator: So essentially due to high-tech evolution, there is no transparency of who is trading a stock?

John: Yes high frequency trading makes it hard to figure out what your investors are doing in the market.   So just because there is heavy volume doesn’t mean there is an institutional investor acquiring or selling off a large position.

Moderator:  Okay, let’s take some more questions from the floor…

Question1: At the end of the day my stock usually stabilizes, then right before the close there is a surge that seems to drive the price down – what is causing this?

Answer1: (collaboration from all panelists): well at the end of the day, the volume weighted average price gets calculated.  But based on our prior discussion you could surmise it is due to the high frequency trading coming in to through things off kilter.

Question2: So if IRO’s can’t determine who is trading their stock, how would we determine effectiveness of a roadshow?

Answer2: John: know your holders; since there has been a drop in sell-side coverage, should interact more with buy-side to gain sentiment.

Anthony: I actually have to disagree with John on this one – buy-side may not divulge what they are doing in market.  Should actually engage a good service provider to tell you where your stock is trading.

Question3: How would you judge the quality of data from surveillance providers that IRO’s/companies are paying for?

Answer3: John: Market is more difficult to understand true picture; again very fragmented.

Question4: What do you think of short-selling rule from Washington?

Answer4: Joe: well I disagree with it as the lobbyists there represent the exchanges and the exchanges are paying the rebates to the high frequency traders.

Brian: Buy-side and sell-side are going to start to consolidate to stop fragmentation.

John: There is a place for short-selling:

1. Part of an efficient marketplace
2. Rife in market to enable abuse

Although a lot of PM’s don’t want to loan out stock anymore especially in today’s market climate.

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