June 30, 2016


Adam Frederick

Not All Surveillance Products Are Created Equal…

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In this day and age of artificial intelligence, machine learning computers, driverless cars, drones, virtual reality, cloud computing and more, why are IR professionals and the C-Suite still being spoon-fed the same old analytics from 30 years ago?

Back in the late 1990s when I first got into stock surveillance, we used clunky computers, mildly efficient databases, calculators, landline phones and best of all… fax machines!

We used to call the floor specialists directly for color on trading, market participants, indications of interest, etc., providing our surveillance clients with meaningful and robust qualitative information. Large block trades and brokerage order flow were extremely easy to track. Stocks traded in 1/8’s, then teenies, and then on to decimals. Markets were often $0.25 – $0.50 wide – sometimes more. Spotting something “unusual” didn’t exactly take a genius. It just took keen market knowledge, common sense and hard work.

Today’s markets, however, are fast, dynamic, and opaque with tight spreads and small average trade sizes. Twenty years ago the average trade size was close to 2,000 shares. Today the average trade size is less than 200 shares, trades in fractions of a penny and is executed by high tech servers and powerful algorithms at lightning speed.

Let’s face it. It’s a different world! And Q4 is embracing the new world and changing the way IR professionals view stock surveillance and capital markets intelligence as a whole.


Tell Me How You Feel

Investors are constantly looking for alpha – that edge that separates their portfolio returns from the pack’s. Fundamental research, technical analysis, quantitative modeling, social networking analytics, satellite imagery – they all play a role in today’s decision making process for the buyside. IROs must demand the same type of sophistication and rigor from their capital market intelligence providers as well.

Investor sentiment dictates many buy/sell decisions on Wall Street. Will earnings be strong this quarter? Is the company’s new product going to flop? These questions are basically “answered” by the market ahead of time. Sentiment is priced into the market in a variety of ways, but with the proper knowhow and mathematical acumen, it can not only be identified, but proactively quantified.

A formally backtested and novel Sentiment Indicator like Q4’s enables IR professionals to better understand and quantify investor sentiment before a known upcoming event, meeting, conference, earnings call, etc., allowing them to proactively prepare for and/or tame those biases in the market.


Why So Volatile?

Anyone that has monitored the capital markets is familiar with the term volatility. One of the most often used measures of volatility is the CBOE Market Volatility Index (VIX). In essence, the VIX is nothing more than a weighted blend of various options prices for the S&P 500 Index, and is used as a measure of overall perceived risk in the marketplace.

At Q4, our Quantitative Team and options experts have engineered a proprietary Volatility Indicator for individual stocks and ETFs. This algorithm allows our corporate clients to accurately and quantifiably measure and assess the market’s current expectations on future movements in their underlying share price. Answers to everyday concerns are quickly and easily understood. And much like the Sentiment Indicator above, the Volatility Indicator provides insight into not only your own stock, but your peers and the entire stock universe as well.


It’s All Relative

Whether looking at a single day’s price performance, the past week, or even the past several months, IROs and the C-Suite are constantly comparing themselves to their peers. Our Relative Performance models help issuers better understand the driving forces behind stock price fluctuations and volume trends. Using historical correlations and advanced regression analysis our platform sifts through the trading noise to bring light to the dark. These models empower corporate leadership teams with valuable and actionable insights into the inner workings of the market forces and dynamics on a real-time basis.

Having a better understanding of the drivers behind stock price performance and valuations is key in staying informed in today’s fast-paced marketplace. Innovative technologies deliver on these mandates and keeps you abreast of the true catalysts in your shares, and that of your peers and closest competitors.


In the End…

By utilizing smarter technologies and advanced algorithms, innovative surveillance tactics are able to uncover previously untouched data to gain insights and inferences into the trading landscape. The power behind Trading Analytics doesn’t just provide data points, but rather objective, quantifiable scores and indicators that apply broadly, across the board. Actionable, predictive intelligence is something that’s been missing from many surveillance offerings for the past several decades. Trading Analytics fills this void.

Adam Frederick

Written By Adam Frederick

Adam Frederick is the senior vice president of intelligence at Q4 Inc. and blogs regularly about surveillance and its applications for IROs.

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