Companies listing on the NYSE need more advance preparation
Bill Coote saw the selection of a specialist as a very serious step. 'It's like a marriage,' he proposes. 'Once you make a selection it's 'till death do us part.' But after being through the ordeal, the treasurer of Bowne & Co declares it 'not a big deal'. In fact, he would like to see the selection process improved to give companies more information and more contact with potential specialists.
With all that is roiling the exchanges, from decimalization to demutualization to longer trading days, selecting a specialist may seem like the least of any public company's listing concerns. But for the New York Stock Exchange and its specialists, it's a key part of their platform. 'We focus on services, and this is where the specialist comes in, playing a very important role in providing real-time trading information to the IRO and CFO,' says Catherine Kinney, the NYSE's head of client services.
The debate over the future of the stock exchanges now being played out in Washington and on Wall Street is being watched closely by the specialists, prompting them and the NYSE to publicly trumpet the value they add to the market equation. 'One of the powers of the internet is that it challenges intermediaries; if they're not providing sufficient value, they will get bypassed,' says Patrick Healy of Issuer Network, a Maryland-based firm that advises companies on listing. That means specialists are now more visible than ever in the investor relations community, emphasizing their contribution to tighter spreads, less volatility and better price continuity.
In fact, the specialist is a benefit many newly listed companies feel the NYSE has undersold, particularly in today's volatile market. 'It's important to have one go-to person,' says Kinney. 'A company may want information about who's participating in the trading or what the short-selling looks like. The specialists are developing extensive staffs who, along with the trader, see a lot of the order flow and are able to give companies extensive insight.'
Trial by fire
Once Bowne decided in spring 1999 to switch from the American Stock Exchange to the NYSE, Bill Coote and his colleagues started out reading as much as he could about choosing a specialist and conferred with Bowne's IR agency. Then they went it alone, unlike many firms that use outside counsel for the process itself. The NYSE provided a helpful timeline, beginning with the formalities - a package of information like an investor kit with annual reports, 10Qs and so on for the NYSE eligibility committee. Then a one-page letter with some specific wording and a brief on the company for specialists thinking of participating in the selection process.
With the listing about a week away, Bowne's top executives showed up at the NYSE on interview day to be handed packs of information about four specialist firms. After a brief hour of study, the specialists filed through a half hour at a time - and no coming back for extra questions. A company finding itself dissatisfied with all the candidates would have to wait another week for a new batch, which could move back their listing date.
'If you've never been through the process you don't know what to ask,' Coote complains. 'Then it just comes down to personality.' For example, in the third interview Coote asked, 'What will a 20-hour trading day do to your firm?' A good question - too bad he didn't think of it for the first two interrogees. 'The process needs a little work,' he declares. 'You really have to do your homework. Get a list of companies that have recently listed and talk to them. Then have your questions for specialists prepared up front.'
Bowne chose Susquehanna Specialists, then moved on to the nitty-gritty of listing - not least of which is changing the stock certificate to conform with the NYSE norm: it has to have a human likeness, whether a Greek god or similarly arrogant CEO. Bowne also had to decide whether to ring the opening or closing bell at the launch, taking into consideration who else is ringing it that day. In the event, Bowne's first choice for a listing day was also the day Al Gore descended on Wall Street to announce his run for president. 'How much coverage would we have got? None, so we didn't do it,' says Coote. 'My advice is, if there's somebody really famous that is going to upstage you that day, don't do it.'
Interestingly, Bowne happened upon an increasingly common problem for IROs: stale information on the company from third parties who failed to pick up the listing switch. 'There are so many feeds going into different data banks that it's hard to track where they're coming from,' Coote says. 'We went across all the news services and through all the proper channels, but some information providers didn't pick up the change.' In the middle of the stress of listing, Coote also discovered business descriptions and management lists sometimes years old floating around in cyberspace.
Homework
Jim Coufos, managing director at Spear Leeds & Kellogg, echos Coote when he sums up his advice for companies that are choosing a specialist: 'Do your homework.' That means not only preparing a solid list of questions for the interview process, but checking on the candidates in advance. 'Carefully review the prospective specialist units through whatever sources you can, including your investment banker and other advisers.'
Coufos also advises the soon-to-be-listed to focus on the individual a specialist unit is proposing to handle their stock, and speak to the companies whose stocks that person is currently handling. 'And look for a commitment from the specialist unit and the individual that he or she will remain as your specialist for the foreseeable future.'
The NYSE says specialists step in to provide liquidity for just 18 percent of the trading volume, the rest of the time bringing buyer and seller together directly. For companies anxious to avoid trading volatility, that commitment of capital is an important consideration. Coufos suggests a company new to the NYSE look at the trading statistics for the specialist units and individuals they're considering, especially the percentage of share volume the specialist gets involved in. 'That gives you an idea of their willingness to commit capital and participate in the market. Generally, the higher the percentage, the better the market.'
'Don't be afraid to ask the tough questions,' Coufos continues, 'like how much does a specialist participate in his or her stocks, and how much do they know about your company.'
When a company is going to be listed, the exchange sends a 'specialist application' to the floor so specialist units can volunteer to be included on the selection roster. A step few companies take, but one that Coufos recommends, is to solicit interest from specialists beforehand. 'If you know a quality specialist through advisers or other listed companies, and would like them to be included in the selection process, contact them with company information and let them know about your company. This says to them simply, Here's who we are and we'd very much like you to apply to be our specialist.'
Getting to know your specialist involves a lot more than the 30 minute interview during the selection process. As soon as the listing is complete, expect to spend time 'developing a relationship and building trust,' Coufos says. Make sure your specialist gets all the IR information your institutional shareholders do, and invite the specialist to any analyst meetings or investor events your company is holding. Coufos says a specialist should regularly meet with senior management at the companies they handle. For example, Gateway, which was the first major company to go through the specialist selection process in 1997, regularly hosts Spear Leeds & Kellogg specialists at investor events in New York as well as at their corporate headquarters.
Leveraging visibility
Lee Wolfe, head of investor relations at Qwest, says the company appreciated the opportunity to select its own specialist when it switched from Nasdaq to the NYSE. Still, it was tough choosing among the five firms the NYSE presented for their consideration, with Qwest's CEO and general counsel along with Wolfe handling the process over Christmas and New Year's, in order to be ready for the listing on the first day of trading in 2000.
With a relative small ad budget of its own, Qwest nonetheless got a lot of mileage out of listing ceremony. The exchange placed teaser ads in the Wall Street Journal and New York Times about Qwest's CEO, Joseph Nacchio, being the first one to ring the opening bell in the new millennium. On the day of listing, a laser show lit up Broad Street outside the NYSE, and Qwest was featured on several national TV programs from the exchange. 'Through these opportunities we were able to leverage visibility that went far beyond the number of dollars spent,' Wolfe says.
Look out for a special section on choosing your specialist in the next edition of Investor Relations magazine