IPOs in 2018: Could technology replace people?
The month of January flew by, but not before leaving us with its annual pile of technology predictions.
Among them was Deloitte. In its 2018 Global Predictions report, the firm predicted sweeping changes in technologies from machine learning to ad blockers – some exponential in scope, others to be felt more “imperceptibly.”
The authors asked a question many of us are asking ourselves when it comes to the relentless march of technology: “(Is) our way of life at stake, or is this the start of one of the greatest enhancements to the human experience?”
I believe firmly that it’s the latter, and it’s especially true for the capital markets industry. However, while technology has allowed us to do more than we thought possible even 10 years ago, it’s not a solution in and of itself: it’s a tool. Using it improperly can set all of us up – especially investors and publicly listed companies – for failure.
That’s why it’s important to understand that technology, properly used, ultimately strengthens and enhances the human relationships that drive the true value of going public. It does not, and should not replace them.
It’s true that exchanges connect capital with companies that need it to grow, but more fundamentally, we connect people. Listing companies want to look at an exchange and see a group of people they can work with, and who in turn can connect them to people who can fuel their success. This is, of course, at the heart of the commitment stock exchanges make to investors and public companies alike.
Here’s why that commitment is so important, and how we at NEO are embracing it.
The February example
Two things can be said about recent market volatility – that the initial sell-off was triggered, as it always is, by human emotion, and that it was amplified by High-Frequency Trading (HFT) technology.
While HFT technology was originally designed as a means to support liquidity and mitigate risk, it now also leads to over-reactions in the markets and, worse, some of its users leveraging it to the detriment of natural investors, particularly during volatile markets.
We could simply shrug our shoulders and embrace all HFT platforms. After all, technology must advance, and we must adapt, right? We believe that this would put at risk the very foundation on which stock markets were founded – to put investors and capital-raising companies first.
At NEO, we have taken steps to prevent predatory and opportunistic HFT market behaviours, and today, these behaviours make up less than 5% of NEO’s overall volume. This creates a more level playing field for investors. It’s also better for building a sustainable ecosystem supporting companies that are public or seek to become public in Canada.
Fueling public companies, serving investors
So why is the human equation so vital to public companies? Let’s take liquidity as an example. It’s vital to the success of any listed company. NEO’s combination of technology and a unique market-making program – further combined with our trading model – ensures stable and robust liquidity throughout the trading day, reduces unwarranted volatility, and subsequently boosts market confidence.
But what our technology actually does is provide a useful way to strengthen the trust between investors and public companies by introducing more integrity and transparency into our market. We’ve layered a human quality into our technology to create a fair market where investors and companies can raise capital to grow.
Access to market data is equally important. The rapid rise in data collection technology has yielded mountains of useful information. Some exchanges choose to sell it at exorbitant fees. We choose to provide real-time market data for all NEO-listed securities, for free. This gives everyone the opportunity to see a more complete view of listed issuers, and make better-informed trading decisions.
Although important, it’s not the technology and how we utilize it that’s important. It’s the ability to arm people with the tools they need to make better decisions and build stronger relationships that matters.
Technology can’t replace storytelling
We also can’t lose sight of what really gets investors to stop and pay attention to a company: the narrative that underpins any successful public company. This story conveys the vision, the path to growth and a way for investors to play a role in it – and ultimately profit from it.
PwC recently published a post that stressed its importance of the equity story in any IPO. The author, Daniel Klausner, Managing Director, Capital Markets Advisory Leader, PwC Deal, states that “aligning the equity message both internally and externally may provide incremental clarity and vision for employees during the IPO process, produce a common theme for recruiting and retaining top talent and ultimately facilitate a consistent and clearer articulation of the company’s value proposition to investors and/or potential acquirers.”
Starting a company involves a lot of passion. So does growing it, seeing it through the good times and bad. The feeling of elation and anxiety on listing day is no different. Investors will look at your numbers, but they also want to hear your story, and the steady march of innovation has made it possible to send that story far and wide.
At NEO, we help you make these important decisions by working with you directly, and connecting you with our network of legal, financial and consulting partners who can help you define your story and assess your best path forward.
Our industry looks far different today than it did 10 years ago, and much of that is a result of technological innovation and disruption. But as we evolve, we simply can’t lose the human element and blindly embrace technology without thoughtful consideration. Technological innovation and disruption works best when it creates closer bonds between people, not replace them.
That is the path that we, at NEO, have followed since day one and that are committed to going forward.