IR Monitor – 8 May 2024

In this week’s newsletter:

• Stock traders push back on ‘unfair’ pre-close calls: company pre-close calls with analysts are coming under scrutiny, warns Bloomberg
• A quickly evolving ESG landscape: some thought leadership from FTI Consulting
• UK giants should think twice before ditching London listing: an opinion piece. Switching to NY is expensive, complicated, and there’s no guarantee of a higher stock price
• CSRD will shape every company’s reporting – whether you like it or not. IR Magazine suggests that the majority of companies will align with the Directive
• Auditors balk at regulator’s push to expand their role, reports the Wall Street Journal. But many investors argue the recent proposals would help provide transparency 
• And finally … last but not least: the last 10 minutes of the trading day

This week’s news

Stock traders push back on ‘unfair’ pre-close calls: company pre-close calls with analysts are coming under scrutiny, warns Bloomberg

Bloomberg reports that Germany’s financial regulator is assessing whether some investors could be receiving an unfair advantage from pre-close calls held by issuers for sell side analysts. Concerns are arising from whether analysts are spreading information from pre-close calls at a pace where there can be market misinterpretation, in turn impacting the share price. BaFin, the German regulator, plans to survey the majority of DAX members about their practices, though there is no evidence of any wrongdoing at this point. This follows increasing market volatility in and around pre-close calls, amid investor tension from the broader economic and political landscape. The FIA European Principal Traders Association have noted that everyone should have access to the same information at the same time, whereas pre-close calls supporters emphasize how important they are in helping companies better manage consensus and reduce negative surprises.

A quickly evolving ESG landscape for IROs and CFOs: FTI Consulting

IROs and CFOs have traditionally taken a passive stance when it comes to matters of ESG . To be fair, the traditional skills and methods used in shareholder engagement and financial reporting have served them well. So why change, what isn’t broken? To answer this question, FTI Consulting’s experts Bryan Armstrong and Ben Herskowitz discussed in a recent paper  the pressing matters within the sustainability landscape in the US, not least the weaponization of the moniker in the last couple of years. As compliance with new sustainability regulations across different jurisdictions will become table stakes over the next few years, IROs and CFOs will need to dedicate significantly more time to demonstrate sustainable value creation. The paper stresses that ESG is just a tool that can be used in a multitude of capacities with varying levels of impact, both within and outside of the company wielding it. Importantly, it addresses whether companies are fully harnessing their ESG programs to create tangible financial value. 

UK giants should think twice before ditching London listing for New York

Marcus Ashworth from Bloomberg comments that firms listed on the London Stock Exchange should reconsider their plans to depart for the US. Although the US seems to offer greater liquidity and valuations, Ashworth notes that UK listed companies need to meet certain criteria before they consider any moves. Companies that are not household names or do not operate with easily understood business models, for instance, are likely to not fare well. Any shift must also pass what Ashworth describes as the “regulatory sniff test” and heavily regulated industries, such as banking, are expected to be non-starters. Size, liquidity, and whether new marginal buyers are prepared to pay a higher premium for the same stock are other factors to be considered. Despite the allure of US markets, if companies do not meet most, if not all, of these criteria, then they should shut down the speculation of departure according to Ashworth.

CSRD will shape every company’s reporting – whether you like it or not

A recent IR Magazine article suggests that the majority of companies not subject to the EU’s Corporate Sustainability Reporting Directive (CSRD) will align with its requirements all the same. According to a survey by Workiva of over 2,000 people working in corporate reporting or sustainability, 81 % of respondents not subject to the directive intend to meet in some shape or form the CSRD’s requirements. Despite increasing frustration with the endless string of letters and acronyms, almost everyone surveyed agrees that integrated reporting will have a positive, long-term value creating effect. And an overwhelming majority also agree that obtaining assurance over ESG data increases the likelihood a company will achieve its goals. This confirms what IROs already know: it’s crucial to stay informed and agile as the industry slowly transitions to a unified set of standards.

Auditors balk at regulators’ push to expand their role: Wall Street Journal

The Public Company Accounting Oversight Board (PCAOB) is adding pressure on auditors, who are not happy about it, reports the Wall Street Journal. The regulator wants audit firms to play a more active role in detecting fraud and to disclose nearly a dozen new metrics about their operations. Yet another proposal calls for more details on audit fees and cybersecurity risks, plus a confidential submission of financial statements. Auditors have pushed back saying this would add additional work to their already big pile and would have a negative impact on retaining their talent. Meanwhile, investors seem to be all for the proposed changes, as they have spent the last few years pushing for more disclosure from auditors. As one of them puts it: “Auditors are afraid that institutional investors will start using the auditor-ratification vote as a meaningful way to hold them to account”. As auditors keep vehemently arguing against the PCAOB’s proposal and calling for a revised draft, the battle is likely to linger…

And finally … the last 10 minutes of the trading day 

A recent Bloomberg analysis points out that whilst the trading day technically runs for 390 minutes in the US, only the last 10 minutes really matter. About a third of all S&P 500 stock trades are now executed in the final 10 minutes of the session, according to data compiled by BestEx Research – up from 27% in 2021. A similar trend can also be seen on this side of the Atlantic, with the closing auction in Europe now accounting for 28% of volumes on public venues, up from 23% four years ago. The findings add a new angle to the debate around passive investing, as the trend is mostly fuelled by index funds. These products typically buy and sell shares at the close, since the last prices of the day are used to set the benchmarks they aim to replicate. In turn, this can  can blindly inflate company valuations and wreak havoc when major indexes rebalance, triggering one-way trades. The litany of concerns has inspired high-profile attacks from critics such as Elon Musk, and more recently Greenlight Capital’s David Einhorn. 

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