Bookbuilding & Deal Distribution Processes: Buyside traders are doing it for themselves
For the past decade or so, institutional investors have been facing a lack of transparency and efficiency across legacy book building and deal distribution activity, often plagued by inefficient, phone-based, relationship-driven processes. In today’s world, however, there is a recognition that investors have moved on from the model of the post-big bang’s reliance on investment banks and brokers to execute their flows. Nowadays institutional asset managers and trading desks need to rather rely on themselves and engage with alternative liquidity providers and electronic trading platforms in order to be able to interact directly with each other.
The buyside pain of managing liquidity
Since the global financial crisis and the subsequent introduction of MiFID II in 2018, the systemic issue of liquidity in public equities has worsened as a result of decreased capital commitment by major banks and reduced broker engagement. Pre-2018, there were typically between 7-9 brokers covering a mid-cap FTSE 250 company, whilst now there are perhaps two or three brokers, one or two of which are most likely appointed advisors. It is difficult in this environment for equity market participants to form a reasonable view on the prospects of a business and, therefore, the pricing of that stock in the markets. This has had a major impact on overall liquidity in the markets and, as a corollary, has negatively impacted the ability (and pricing) of companies seeking to raise money, thereby increasing their cost of capital.
To achieve better ways of managing liquidity and executing workflows, institutional investors need to move away from the inefficiencies of old-school-style stockbroking, in particular a reliance on investment banks and brokers that were building those deals on their behalf. Frequently, these banks and brokers were inherently conflicted as they sought to execute these illiquid flows on behalf of institutional clients. Furthermore, the processes around creating volumes in excess of five days worth of volume were often opaque and considered broadly inefficient.
In order for institutional investors to assess their ability to execute flows themselves, the trend towards digitalisation and advances in technology are providing the answer. Appital’s trading platform, for example, enables the buyside community to discover latent liquidity and gain greater exposure to previously inaccessible deal flow opportunities. At the same time, buyside firms are able to interact with like-minded institutions in the liquidity formation process or in the pursuit of returns for the end investor.
Designed as a marketplace to improve the opaque and inefficient process of creating volumes in excess of five days worth of volume, the Appital platform provides a profile into the absolute user interface, which can then be used to proactively build books of demand upon an originator’s request. To achieve this, a unique level of detail is provided by buyside traders and secured into the back-end of the Appital platform, which benefits the users by accurately targeting these transactions in a far more efficient and effective way. The platform thereby allows investors to keep control of situations, as opposed to the opaque bookbuilding practices of the past.
Over recent months, Appital has been busy partnering with compatible organisations in an effort to further bring innovation and automation to equity capital markets. Appital’s collaboration with Turquoise, part of the London Stock Exchange Group, allows the buyside community to proactively source liquidity in the market and interact with like-minded institutions in the liquidity formation process, giving institutional investors real-time visibility, full transparency and maximum control over the bookbuilding and deal distribution process. Institutional investors can arrange all flow within the Appital platform and take advantage of an innovative and efficient way to access liquidity opportunities and trade in a market for size, at the best price. Appital users are able to execute all deals through the Turquoise MTF, via a single point of access and with seamless straight-through-processing (STP) to over 20 settlement venues.
In addition, Appital has been integral in driving the technological infrastructure development necessary to integrate their platform into existing market structure. Appital’s platform has recently been fully integrated with FlexTrade’s FlexTRADER EMS, which means buyside firms can now receive Appital opportunities directly into their current trading infrastructure via a FIX-based API. As a result, these buyside traders can now decide for themselves how to execute an order from their portfolio managers, rather than relying on outsourcing it to an investment bank or broker.
Focused on bringing innovation and automation to equity capital markets to address the unlocking of latent liquidity as one of the biggest pain points for the buyside community, Appital has essentially provided an alternate way of executing workflows. Looking forward, Appital is intent on scaling the proposition of further EMS integrations to help the institutional buyside community enhance liquidity and allow trading desks to be more self-sufficient in managing that illiquid flow.