An Interview with Patrick Birley, CEO of ISDX
Swen Lorenz: Patrick, you run the ISDX, which when spelled out stands for ICAP Securities and Derivatives Exchange. In a nutshell, what does ISDX do?
Patrick Birley: We are a fully regulated UK based stock exchange offering an alternative venue for companies seeking access to public markets. Our history is that we evolved from the old OFEX and then Plus Markets which came about to ensure that companies were not faced with a monopoly provider of exchange services.
SL: Britain already has two well-known markets for equities, the London Stock Exchange and the Alternative Investment Market (AIM). The LSE owns AIM and they form a strong unit, with AIM basically providing a stepping stone for smaller companies who are not yet big enough to join the main board of the LSE. The ISDX has now come in as an “alternative to AIM”, as you describe it yourself. Explain to us why ICAP, the City firm that owns the ISDX, chose to challenge the well-established LSE/AIM model?
PB: ICAP bought the former Plus Markets primarily because it held a RIE (Recognised Investment Exchange) licence that has the potential to be used in multiple asset classes and the Group may choose to leverage this ability at some future date. However, in the meantime, we are focused on developing our equity market offering and we have made good progress in the last year or so. It is worth pointing out that ISDX has a Growth Market (similar to AIM) and a Main Board (similar to the LSE) so we don’t see ourselves as a stepping stone but rather as a partner that will remain loyal to issuers and remain able to serve their needs as they grow.
SL: How has the ISDX developed since ICAP embarked on the project?
PB: Initially we needed to make some adjustments to our rules and this saw a reduction in the number of shares quoted on our market. Subsequently we have re-written the rule books to simplify the admissions process and started engaging much more extensively with the community in order to build trust. There have been a few ‘false-dawns’ in the previous guises of our market so this time around we have been keen to do the work first, and talk about it afterwards. Relationships with our community (mainly issuers, investors, advisers, brokers and market makers) have started to improve significantly and there is a strong sense that we are building something long term and worthwhile.
MI: The companies that have so far chosen to list on the ISDX are sometimes also listed on other markets. That in itself isn’t unusual and happens with many equities around the world. However, if you’re dealing with small companies and trading in their equities gets fragmented between different platforms, isn’t that actually a disadvantage? How do you protect investors against oversized spreads and lack of liquidity? Isn’t the very existence of the ISDX leading to a further fragmentation of the market?
ISDX: The market makers in ISDX stocks are generally the same as they are on AIM stocks. ISDX distributes data on their prices and trades to most data-vendors and the more advanced ones show a combined picture ensuring that there is a joined-up picture available. Many large-cap stocks trade on multiple venues (the end client is often unsure where their trades are concluded) so trading on two venues shouldn’t create any serious issues. It might take some extra effort in the short term but we believe that there is real merit in having competition for trading.
MI: How can investors trade shares on the ISDX?
ISDX: Most brokers will offer to trade ISDX stocks but historically it has required a phone call to confirm the price. This has recently changed and most brokers should now be able to offer electronic execution through the RSP system in the same way as AIM trades. The system only went live at the end of March so some brokers may be slightly slower on the uptake. But give your broker a call and they should be able to help.
MI: Have there been a number of outstanding IPOs on your market yet? Which ones have proven particularly popular with your community?
ISDX: We went from only two new clients in 2014 to 21 in 2015, of which 18 arrived in the last six months. It is always difficult to pick out any particular one but I suppose I am particularly delighted to have welcomed the first firm focused on Cuban investment (Lenigas Cuba) and the first quoted Blockchain company (Coinsilium).
MI: Another segment of the ISDX is the Social Stock Exchange (SSX). We already featured an interview with Tomas Carruthers, the CEO of the SSX, in our last issue. Why did you choose to partner with them?
ISDX: I met Tomas shortly after joining ISDX and was engaged by the social theme. I have been encouraged by a number of buy-side investors who are becoming increasingly thoughtful about long-term returns that combine financial and social and/or environmental outcomes so was keen to find ways to work with SSX. I believe that this has been a win-win arrangement so hopefully it is good for everyone!
MI: I understand that during 2015, you and your colleagues quietly broadened the operation of the ISDX. You had two new listings in 2014, then 21 in 2015. Of the 2015 cohort, 18 were listed during the second half of the year. It seems that the ISDX has been gathering steam! Can you update us about what has been happening during 2016 so far? Presumably you’ll be much more visible among the investment community from now on?
ISDX: That’s right – we’ve been keen to get things moving and then talk about them, which probably seems very old-fashioned! The last piece of the jigsaw was getting automated trading for private clients and with that starting to roll out, we feel it is time to raise our profile and you will hopefully hear more from us over the coming months. I should emphasise that we will continue to evolve our market and want to combine a traditional, customer orientated approach with some innovative twists so hopefully there will be plenty to talk about.
MI: You will soon be presenting your entire story and your value proposition to our audience at the Master Investor Show. The ISDX is one of the show’s biggest supporters and you will be speaking on our main stage. Any sneak preview on what the audience can expect to hear about from you?
ISDX: We’re looking forward to the show and particularly to meeting a wide range of investors. We are there to listen as well as talk! In terms of my session on the stage, I will simply be setting out our stall and letting investors know how ISDX operates and why we want companies to join with us as we grow.
MI: There is also one ISDX-listed company in particular, Milamber plc, that you are bringing along to the Master Investor Show. They are a tiny firm, but they seem to have ambitious plans and exciting portfolio companies. Can you tell us what our delegates should be interested in when speaking to the Milamber executives on the exhibitor floor?
ISDX: We recently held an event with Milamber at the ICAP offices in Broadgate and it was a great success with talking robots and all sorts of technical wizardry! Yes, they are small but they have some fantastic companies that they are working with and everybody should make an effort to come and meet Milamber at the show.
MI: Many smaller companies don’t get much research coverage, if any. Another one of our exhibitors at the show is All Street, an independent research provider who are aiming to empower investors. Have they been covering ISDX-listed shares?
ISDX: Getting high quality research in the small-cap space has been challenging but All Street are a great example of what can be provided at a very reasonable price. Emma and her team have great energy and offer a straightforward service which should help companies get exposure amongst the investor community.
MI: It sounds like 2016 will be an exciting year for the ISDX. We will probably be checking in with you for an update before the end of the year. Thank you for the interview, and we are looking forward to seeing you and your team at the Master Investor Show.
ISDX: Thanks Swen and all best wishes for a successful show!