Public reporting of material information on stock exchange websites and investor relations sections of corporate sites used to be reserved purely for investor-specific information. Today, they are adorned with marketing spin. Here is an insight and an opinion.
The reliance on the official noticeboards of public venues for corporate information is a staple part of ensuring that executives across the boardrooms of the entire business have material information on which they can base very significant decisions.
There is a litany of ‘news’ which makes its appearance every day onto regulatory reporting portals of the London Stock Exchange, as well as onto Investor Relations sections of corporate websites.
Back in the 1980s, when the internet was a figment of the imagination of pretty much anyone who was either not Tim Burners-Lee or a Computer Science fellow at Stamford Research Institute and any critical information and company reporting would be eagerly awaited in its quarterly printed periodical form, things were a lot clearer than today.
Today, we are completely digital, both in terms of the reporting of critical events, material information, and investor-specific corporate data and a litany of regulatory news announcements adorn even the once-conservative portals of the London Stock Exchange and other prominent grass-roots venues.
A longstanding practice among many prominent retail FX companies is to publish press releases every month which state their trading volumes, many of which are presented by marketing departments and contain metrics and figures which are not required to be reported publicly.
One particular question with regard to these monthly soundbites should perhaps be how useful they really are, and if not viewed by auditors from large professional services companies such as Deloitte, or Price Waterhouse Coopers, how accurate they are.
For the purposes of clarification and accuracy, there are certain categories that must be considered, and the rules and guidelines that apply.
- Publicly reporting companies which are listed on major exchanges in London or New York. These companies are most certainly reporting reliable information.
- Jurisdiction: Non-publicly listed companies in Britain, Australia or other recognized region that are either large, long-established spread betting companies or liquidity providers and prime brokerages would not be allowed to issue inaccurate volume figures because the compliance departments would have to approve all figures.
My understanding is that these two points are about as far as that extends.
Every month, a whole host of retail FX firms from across the world issue press releases which indicate monthly trading volumes, however, how can these be considered accurate or a reference point on which to base genuine research if they are produced by marketing departments within non-listed firms and are not signed off by an auditor?
Companies which present correct volume figures
Within the retail FX sector in the United States, publicly listed firms dominate the retail market, and their information is, by law, publicly available and required to be reported to the exchanges on which they list as part of the listing requirements of broker dealers.
Interactive Brokers, FXCM, and GAIN Capital are all listed on the New York Stock Exchange, and must report their trading volumes accurately.
In London, CMC Markets, IG Group, and Plus500 are listed on the London Stock Exchange, and therefore must report their trading volumes accurately.
All of the brokers in those categories have their volumes issued by their investor relations departments, which are responsible for reporting to directors and shareholders.
The reporting of volumes is often the preserve of marketing departments rather than auditors, however, and can be interpreted in several ways, and indeed is not a required aspect of reporting therefore can be considered, in most cases, PR.
Stock exchange regulatory news sites full of ‘noise’ and PR these days
Many regulatory filings these days tread a fine line between pure marketing spiel and genuine material information, and stock exchanges are allowing this to be propagated, which casts a shadow over the otherwise prestigious listing regime in London.
An example of this made its presence felt this week as asset management company Toscafund sent a letter to the Exechtive Chairman of British plant and tool hire firm Speedy Hire. The letter contained material information which could determine the success of its campaign to remove Speedy Hire Chairman Jan Astrand.
This was a loaded agenda on the part of Toscafund, which urged Mr. Astrand to resign from his position in advance of the company’s Annual General Meeting, thus its reporting on a public noticeboard could be construed as a PR exercise for Toscfaund.
Toscafund, whose business is investment in corporate stock as well as other assets, identified a £20 million cost synergy which could arise from a merger between Speedy Hire and HSS which is a similar British plant hire firm.
Regardless of this, other Speedy Hire shareholders were denied the opportunity to hear the activist’s argument other than through the media – because of an obscure ruling restricting activists’ use of regulatory channels.
This is just a recent example and whilst the company in question bears no relation to the electronic trading sector, there have been plenty of attempts to attract attention via London Stock Exchange reporting channels by FX firms attempting to show their potential strength or influence potential investors.
The most distracting and perhaps toxic result of such a practice is that mainstream news channels use stock exchange reporting sites as a reference point for absolute factual information and therefore regurgitate verbatim what appears there as though it is factual, even if a PR intention is what drove its very existance on the reporting sites in the first place.
In my opinion, public venues on which the stock of blue chip major multinational companies is listed and the value and corporate standing of which any announcements may affect, should monitor what is allowed to be published and what should not.
Two good examples of this have been IronFX’s rather outlandish $800 million IPO suggestion, which the Wall Street Journal reported. In this case, no actual report appeared on a public exchange but the fact that IronFX managed to provide ‘confidential’ pre-IPO papers to mainstream news sources which, instead of being a PR which would have carried less weight, were in the form of a regulatory filing to a major stock exchange, thus it was taken seriously by a mainstream and respected news source.
Of course, no such IPO took place.
Similarly, FxPro submitted plans to launch an IPO in the UK led by Australian bank Macquairie, just a year ago, with mainstream news sources in the UK immediately pouncing on it to the point that it proliferated the pages of all of the mainstream news papers in the country. Plans to issue an IPO were withdrawn during the early part of 2016.
Damage = zero. PR and profile raising achievement = massive.
Powerful PR? You bet.
Whether any intention to list was actually in place from the outset is never something that anyone outside the private boardroom will ever find out, however it works as far as showing potential growth and prowess, and is far more effective than a ‘do I believe it or do I not’ PR from the marketing department which is uploaded to a newswire site.
The absolute same applies to trading volumes, and most of the experienced industry executives are fully aware of this, however its permeation of the web is far reaching.
FinanceFeeds spoke to a series of senior executives and compliance and regulatory officials in London, which work within prominent liquidity providers and prime brokerages in order to take a close look at this matter.
One particular senior institutional industry figure explained “I think that anyone that reports volumes that aren’t audited is probably not telling the truth.”
“At the very least they are likely to be double counting” he said.
“The ability to do this does also depend on their regulatory status, for example I wouldn’t be able to release anything like that without my compliance guys climbing all over it” he continued.
Then we got to the subject of double-counting. “You can still double count” said this particular executive. “Technically I could triple count my client volumes, because of the way that we hedge” he revealed.
“This means that you report both the client side, and the LP side. If a client buys 1 million EURUSD, and I buy 1 million EURUSD from my LP to hedge, I have technically transacted 2 million, but actually it’s only 1 million of client volume, so technically claiming 2 million of volume would be correct, albeit rather misleading” he said.
When asked if this is unlawful, the institutional FX executive said “No, because you’re not reporting inaccurate information, because you have actually transacted 2 million.”
Another liquidity provider explained “Even if the volumes are audited and signed off, I do not see value in it as there are many tricks in calculation of the volume”, thus concurring with the opinion of the aforementioned industry executive.
He concluded “Unless there is one unified method of calculating volumes, which does not exist, then it is all inaccurate.”
Indeed, there is only one unified method of calculating volumes, and that is via centralized exchanges rather than OTC transactions, meaning that those firms executing contracts via electronic futures exchanges would be unable to mask or alter the volume figures, as reports are publicly available from exchanges, however OTC transactions conducted by private firms are not subject to any scrutiny, and regulatory authorities do not concern themselves with volume reporting procedures in any jurisdiction as this is not a regulatory matter.
Neither is it a tax or auditing matter, because only profits for tax purposes or revenues for valuation purposes are. There are no stipulations for reporting volumes.
Back in the 1980s, car manufacturers used to pre-register surplus stock so that they could produce monthly reports on how many cars were ‘sold’, so that, for example, Ford and General Motors could compete over who had the biggest market share, however these were not real figures because many unsold stock and demonstrators were pre-registered, and the registration and licensing office provided the figures.
The real sales figures were only known internally, and were never published.
It is worth considering that the same should be taken into account with regard to trading volume information. Go figure!