How real-time surveillance shines light on a dark market

8 March 2018

By Adam Frederick



The capital markets industry is ripe for disruption. With the evolution of technology, machines are helping us do our jobs faster and more accurately than ever before. And when it comes to accessing real-time insights, IR executives no longer need to remain in the dark.

There are critical information voids in the IRO’s workflow, from insights about stock buyers and sellers, to market participant types driving valuation, and institutional targets that shift with investor sentiment. As someone who has spent the last 20 years advising IROs on shareholder and market intelligence, I know the power of real-time insights. Today’s latest surveillance tools are now driven by artificial intelligence, offering unprecedented clarity and actionable intelligence in an otherwise nebulous industry.


Working with outdated information

In the current market, investors have a much shorter time horizon than ever before. A study by SG Global Strategy Research reveals that the average holding period for a stock on the NYSE dropped from over 10 years in the 1940s to less than four months today.

According to Ana Avramovic, Trading Strategy Director at Credit Suisse, the annual turnover rate in U.S. stocks stood at 307 percent in 2015, up from 303 percent in 2014. Though down from the peak turnover rate (of 481 percent) in 2009, this still amounts to an average holding period today of just 17 weeks.

Given these stats, 13F data might be able to tell you who owned your stock four times per year, but is this actually adequate?


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Rising above market noise

Capital flows are dynamic and fast-paced. HFT, Passive funds, ETFs, and Quants, have all exploded in terms of popularity and assets under management. According to Credit Suisse, while overall volumes and HFT volumes both peaked in 2009, they still remain historically high. Meanwhile, active fund volumes have actually declined (both absolutely and relatively).

Prior to the emergence of artificial intelligence, deciphering “real” volume from ETF flows or HFTs was extremely difficult, if not impossible. Even traditional surveillance, driven purely by experienced analyst know-how and industry contacts, has struggled — at times — to provide true insight and accurate intelligence and rise above the noise. There is just too much data, and simply not enough manpower in the traditional surveillance model to effectively comb through it all.


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Looking to Artificial Intelligence for solutions

With the increasingly high turnover rates of investors, combined with the market’s deafening trading noise, finding relevant and actionable intelligence has become more difficult than ever.

In terms of investor targeting, relying solely on biased feedback from a variety of market participants and stale 13F data doesn’t cut it anymore. It’s no longer enough to have a list of top institutional managers and a cheat sheet of investor segments that own your peers. The speed of information flow and the short attention span of today’s buyside has made the timing of IRO marketing efforts absolutely essential. Like in the sales world, IROs need to constantly track and monitor their prospect base. When you’re “selling” your company’s story to the investment community, it’s critical to stay up-to-date on the latest trends, changes in sentiment, and competitive threats. Your success depends on the ability to get your message out to the right investors and put your senior management in front of the right names at the right time.

Investor targeting is where the marketing process first begins, but it certainly doesn’t end there. IROs also must be able to interpret how the Street is positioning for the near-term future, and understand whether your company’s share price is being driven by true institutional activity or ETF flows. Trustworthy real-time shareholder intelligence is crucial. Leveraging artificial intelligence shines a light on some of the market’s darkest areas and breaks through all of the noise. Essentially a Superhero version of the long-forgotten “Floor Specialist,” today’s tech-powered stock surveillance offers real-time analysis of market structure and capital flows (and their drivers). With these AI tools, IROs are equipped to understand and communicate shifts in short-term sentiment and investor expectations.

This new brand of real-time intelligence allows IROs to gain proactive insights into short-term price volatility and its causes, uncover short selling trends, quantify ETF flow impacts, identify Activists moving company shares, and recognize institutional shareholder activity. It’s actionable intelligence that you can feel confident in pushing upstream to senior management and the board; and also enables you to precisely forecast which institutions are most likely to buy or sell your shares.

AI surveillance not only dramatically improves your targeting efforts and ability to understand real-time trading drivers, but also provides the highest assurance that you always put your best foot forward.

Q4’s next generation AI surveillance tool, iris® is programmed to accurately report and even predict movements in shareholder and peer stock. From daily insights to weekly shareholder activity reports, she’s designed to arm IROs with real-time intelligence. This kind of actionable intel can truly empower you to strike your target audiences at the most critical moments, and ultimately expand multiples.


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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