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IR and communications
serve as a fundamental service for investor
relations officers at a majority of U.S.-
listed companies. The type of information
and support provided by this program on a
regular basis include:
• day-of-trading feedback from active
market participants that provides color
and context on unusual volatility or
trading volume;
• updates on material institutional
ownership changes as they are
uncovered and a systematic update of
institutional ownership on a monthly
basis;
• insights on the motivation behind
institutional ownership changes
and the strengths, weaknesses,
opportunities and vulnerabilities of the
structure of the shareholder base; and
• access to resources—human, dataoriented
and technical—that an
investor relations officer can leverage to
extend the capabilities of the investor
relations team.
Publicly traded companies in the
United States are considered by the
investment community to be among
the most transparent in the world. The
investor relations profession is well
advanced and the quality of communication
from companies to investors is second
to none. The transparency provided to
companies listed in the United States by
the investment market, however, lacks
timeliness and its opaqueness continually
frustrates investor relations officers whose
organizations are in continuous need of
information regarding the trading and
ownership of their equities.
The two principal areas of frustration
in terms of information flow for publicly
traded companies are:
1. the time lag in the disclosure of
institutional ownership positions with
the SEC; and
2. the fragmentation of equity trading
in the United States and the resulting
inability to get a clear signal from the
market to determine drivers of trading
on a daily basis.
Let’s first address the time lag
in the reporting of institutional
ownership. SEC Rule 13f-1 mandates
that institutional investment managers
with at least $100 million in equity
assets disclose to the SEC their entire
portfolios of equity securities and some
equivalents on a quarterly basis. These
filings, commonly referred to as 13Fs,
are to state the investment managers’
complete equity portfolios as of the end
of each calendar quarter. However, the
SEC allows investment managers 45
days following the end of each quarter
to submit the filing. For example, an
investment manager’s Form 13F stating
its holdings as of June 30, 2013, would
not need to be submitted to the SEC
prior to August 15, 2013.
The second issue of fragmentation
has been a steady topic of discussion at
exchange operators, regulators, trading
firms, institutional investors and publicly
traded companies themselves. Equities
in the United States now get traded on
more than 50 venues, which include
multiple exchanges, private alternative
trading systems (commonly referred
to as “dark pools”) and internally at
specific broker-dealers. Additionally,
the size of the average trade in a U.S.-
listed equity has been in steady decline
over the past 10 years and has moved
from an average size of more than 1,000
shares to less than 300 shares today.
The fragmentation of the market overall
and the fragmentation of the actual
transactions have made understanding
the drivers of day-to-day trading in
equities challenging.
The role of a company’s market
intelligence and surveillance provider
is to overcome the hurdles put in
place by SEC regulations relating to
institutional ownership and today’s
equity market structure. To do this, the
market intelligence and surveillance
provider undertakes a thorough research
process that starts with a complete
understanding of the registration of
ownership of a company’s security
via the Depository Trust & Clearing
Corporation (DTCC). The vast majority
of investors, institutional and retail alike,
hold equities in “street name” via banks
and brokers that act as custodians of
their assets. These custodians, in turn,
have accounts at DTCC that allow for
the electronic transfer of assets when
equities are bought and sold. In the
United States, the settlement of a trade,
the time at which a buyer delivers cash
to the seller and the seller delivers shares
to the buyer, occurs three days following
a trade, which is known as T13. This
transfer of assets almost always occurs
via DTCC. The issuer of the equity,
the publicly listed company, has access
to these DTCC records for a nominal
annual fee. The market intelligence and
surveillance provider, who will gain
access to the DTCC settlement records
with an issuer’s permission, utilizes
DTCC settlement records as a roadmap
for the research process to uncover
the ultimate buyers and sellers of the
company’s shares.
U.S.-listed companies are also at a
disadvantage in that there is no regulation
mandating that custodians holding the
company’s shares via DTCC disclose
the identities of the investors behind
their DTCC accounts. This means that
the market intelligence and surveillance
provider must utilize its expertise to
understand the multitude of relationships
between institutional investor portfolios
and each DTCC nominee to get an initial
understanding of who may be buying or
selling shares. The inability to access
information via custodians requires the
market intelligence and surveillance
provider to then engage in an outreach
or survey process to the institutional
community to gain information on the
current holdings of their portfolios.
Although institutions are not required
to disclose this information, many are
comfortable doing so to a credible and
established market intelligence and
surveillance provider who will also
furnish a letter of authorization from the
issuer stating its role in conducting this
research.
Identifying the buyers and sellers of
a U.S.-listed equity is an ongoing and
iterative process for any market intelligence
and surveillance provider. Given the
lack of mandated disclosure rules in
the United States outside of Rule 13f-1,
an issuer should not expect that every
institutional position reported by a market
intelligence and surveillance provider is
an exact accounting. However, the issuer
should expect high-quality information.
Most issuers define accuracy of market
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