Two members of the panel at the ICMA event, which was conducted under “Chatham House Rules”, meaning they cannot be identified in the press, said that they would prefer to avoid a new issue process which allowed orders to be entered at the touch of a button, as they valued the human contact in a traditional bookbuilding process.
Banks, however, are keen to improve the efficiency of syndication, particularly in markets where large numbers of active bookrunners are becoming common, and do not see a contradiction between this process and keeping human contact.
“'We would welcome the capacity for investors to put their own orders into the book, and there are plenty of other benefits technology can bring,” Jean-Marc Mercier, global head of syndicate at HSBC, told GlobalCapital.
“You can do the pre-trade data crunching and validation, provide deal updates and make sure nobody misses them.”
He continued: “'It’s not like people would just drop a €100m order into an electronic book without saying anything — naturally there would still be human contact, colour around the order and so on — but it would make things easier, for example when asset managers or private banks want to revise their orders many times over as different PMs add to the total.”
Syndicate banks themselves have been using tech firm Ipreo’s IssueNet software to manage order books since 2003, which allows them to bookbuild, reconcile, deduplicate and allocate new issues quickly. The platform recently signed its 100th member, Finland’s Pohjola Bank.
“''Not so long ago, I remember doing allocations at night with a pizza and Excel,” said Mercier. “This wasn’t a great solution — mistakes were made, and you would run overnight risk by pricing the next day.”
Ipreo’s managing director of fixed income, Allen Williams, said: “Clearly bringing in more interaction with the buy-side could be useful, but we will be guided by the banks. We will work with both sides to determine what they need and provide it.”
Without Ipreo’s technology, or another solution like it, the growth of the bond market in the last 10 years would not have been possible, especially when it comes to executing monster deals such as the Apple or Verizon bonds.
Mercier said: “Technology has helped raise the capacity of banks and the market to deal with more issues at once, to deal with large multi-tranche deals, and to flatten the competition between banks.”
Electronic collaboration and removal of duplication means that individual syndicate bankers can manage more new issues, giving less of an advantage to banks that can field huge teams. That also means syndicate bankers themselves can spend more time on the complexities of allocation rather than the grunt work.
Regulatory drive
Several regulatory initiatives could heighten to the drive towards using more technology in the new issue process.
The guidance from the European Securities and Markets Association about how the new Markets in Financial Instruments Directive (MiFID II) will work suggests syndicate managers may have to record individual allocation decisions.
ICMA commented that the proposal “will not be workable if it is for each investor. This is, because, with up to 500-odd investors placing orders in most Eurobonds today, lead managers have to run the allocation process as swiftly and as efficiently as possible.”
Compliance at some banks regularly monitor allocation decisions — but if regulators start systemically requiring this reporting, technology can undoubtedly help. Disclosure of prospectuses is also important, both to keep investors informed, and for regulatory purposes.
Williams said: “We’re working on improving communications around prospectuses right now. What we want to get to is a more standardised, user-friendly prospectus which be distributed through to sales and investors in a useable fashion.”
The Bank of England’s Fair and Effective Markets Review, which was discussed at the ICMA forum, could also push up required standards of documentation.
An audience member asked the primary markets panel whether they could be sure the market was “whiter than white” following the recent settlements imposed on banks for rigging the FX market.
The panel largely agreed that the primary market had little to hide. However, close attention from regulators to market practices might still mean more detailed documentation is needed to prove that the market adheres to high standards.