At one of our Annual Conference's breakout sessions, Claire Noyce, Managing Partner at Hybridan chaired a panel including David Smith of the London Stock Exchange, Gareth Henderson of Winterflood Securities Limited and Jasper Berry of WH Ireland, who discussed what small and mid-size quoted companies should stop doing to improve their shares' liquidity.
David Smith from the London Stock Exchange outlined the three trading services offered by this market:
- SETS: providing a fully electronic order book that incorporates executable market making liquidity provisions throughout the trading day and currently used by 57 members of the Quoted Companies Alliance. To trade on this platform, companies must either be a constituent or on the reserve list of the FTSE100, FTSE250, FTSE Small Cap, FTSE AIM UK50, or, alternatively, be able to provide a minimum offer of £2,500.
- SETSqx: providing a non-electronically executable market maker quote provision with the addition of five daily standalone electronic auctions and currently used by 54 members of the Quoted Companies Alliance. To trade on this platform, companies must either not be a be a constituent or on the reserve list of the FTSE100, FTSE250, FTSE Small Cap, FTSE AIM UK50, or if not likely to issue new stock within the next three months and no market maker is prepared to provide a minimum offer of £2,500.
- SEAQ: providing a non-electronically executable market maker quote provision through rule-based telephone obligations at one Exchange Market Size and currently used 43 members of the Quoted Companies Alliance. The trading service is for existing AIM securities that have never qualified for the FTSE AIM UK50 index, reserve list inclusion or where the issuer and the adviser have never requested to move trading service.
David highlighted the importance of the £2,500 lower boundary, explaining that companies that could not meet this threshold were exposing the fact that they were not liquid enough to trade on trading platforms such as SETS.
In light of this, Gareth Henderson, Senior Market Maker at Winterflood Securities Limited underlined key actions that small and mid-size quoted companies could take to improve their shares’ liquidity.
Companies should stop focussing on short-term objectives, and instead concentrate on long-term ones. He stated that companies that were able to disseminate concise and relevant information of value to investors that explained the long-term vision of the business would safeguard and enhance their shares’ liquidity.
He also emphasised that companies should not underestimate the power of retail investors, citing a study that showed that the percentage of shares owned by institutional investors had declined from 57% in 1997 to 8% in 2016. Indeed, with an increasing number of online investment platforms, retail investors are and will continue to represent a large proportion of small and mid-size quoted companies’ investor base.
Equally, companies should allow retail investors to exercise their pre-emption rights, enabling retail investors to acquire new shares. This will both empower retail investors, but also boost the liquidity of small and mid-size quoted companies.
This was supported by Jasper Berry, Head of Institutional Sales at WH Ireland, who added that retail investors were the key pipeline for maintaining the day-to-day liquidity of small and mid-size quoted companies. Equally, he also underlined both the importance of companies ensuring that no one segment of shareholders is favoured over another, as well as ensuring to oversee measures that see retail investors’ shares diluted.
Another key action is that small and mid-size quoted companies must embrace modernity in the way they communicate with investors. He explained that this meant embracing social media and keeping company websites up to date, to accelerate the flow of information directly to investors and, subsequently, enhance share liquidity.
Equally, Jasper emphasised that it is essential that small and mid-size quoted companies meet regularly with their market makers and ensure that they are kept up to date with the company’s strategy. Small and mid-size quoted companies should, where possible and appropriate, seek to modernise the way they communicate and move beyond classic press releases. Jasper added that companies should use social media as a complementary communication tool alongside traditional methods.