Electronic trading has significant implications for IR
Without question, quantitative trading approaches - carrying names such as "black box trading," "algorithmic trading" and "statistical arbitrage" - are all the rage. Added to these approaches are terms like "pattern matching," "genetic algorithms" and "neural networks."
At the essence of these strategies are two distinct features: (1) humans aren't involved in the decision-making process; and (2) models are designed to either "learn" like humans or to detect non-intuitive relationships among a sea of data that can't be readily seen by humans. Basically, creating models and approaches that are, ultimately, better than humans because they can act faster, trade more cheaply, make decisions dispassionately, process more information and see things humans simply can't.
The rise and rise of this automated trading is causing a significant re-think in IR circles. Black box trading taken together with Exchange traded funds and basket trading are examples of processes where the stock can be bought without the thorough analysis of the underlying equity story of an individual company. This is causing a re-evaluation of traditional IR practices, as direct contact with institutional investors to profile the investment opportunity becomes redundant.
And since ETF’s, basket trading etc are traded in real time, the share price can move intra day in a significant way, unseen by the IRO and their advisors.
This is unlike regular index funds and mutual funds traded on an end of day basis, and where a fund manager is making (normally long term) decisions about investment based on established criteria. Instead, therefore of targeting fund managers, will companies increasingly rely on the media to reach out to the thousands of individual investors buying their stock in a bundled way.
Adding to the complexity is the move away from short term guidance. Quarterly single figure EPS guidance is being replaced with regular updates on the company’s strategy; market share, industry analysis, product enhancements etc.
However in a computer-traded world, to whom should this story be communicated and how? A new challenge for a new era.
At the essence of these strategies are two distinct features: (1) humans aren't involved in the decision-making process; and (2) models are designed to either "learn" like humans or to detect non-intuitive relationships among a sea of data that can't be readily seen by humans. Basically, creating models and approaches that are, ultimately, better than humans because they can act faster, trade more cheaply, make decisions dispassionately, process more information and see things humans simply can't.
The rise and rise of this automated trading is causing a significant re-think in IR circles. Black box trading taken together with Exchange traded funds and basket trading are examples of processes where the stock can be bought without the thorough analysis of the underlying equity story of an individual company. This is causing a re-evaluation of traditional IR practices, as direct contact with institutional investors to profile the investment opportunity becomes redundant.
And since ETF’s, basket trading etc are traded in real time, the share price can move intra day in a significant way, unseen by the IRO and their advisors.
This is unlike regular index funds and mutual funds traded on an end of day basis, and where a fund manager is making (normally long term) decisions about investment based on established criteria. Instead, therefore of targeting fund managers, will companies increasingly rely on the media to reach out to the thousands of individual investors buying their stock in a bundled way.
Adding to the complexity is the move away from short term guidance. Quarterly single figure EPS guidance is being replaced with regular updates on the company’s strategy; market share, industry analysis, product enhancements etc.
However in a computer-traded world, to whom should this story be communicated and how? A new challenge for a new era.
posted by Mark Hynes @ 11:21 am
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