Harish Raman has been promoted to head of equity capital markets (ECM) execution, origination and solutions for Asia North, Asia South and Australia, according to an internal memo confirmed by the company.
Based in Hong Kong, he will work with Ken Chow, head of Asia North, Australia and Asia South ECM origination and products.
Raman has more than 20 years of industry experience and has been head of the ECM syndicate for Asia at Citi since 2011. Prior to this, he was head of Asia equity-linked origination at UBS.
On the appointment, Doug Adams, global ECM co-head at Citi, commented: “We have strong momentum in our franchise in the region, with leadership positions across many markets and products. We are excited about the continued growth of our franchise under Ken and Harish’s leadership.”
Haoxiang Zhu, ex-director of trading and markets division, SEC
Haoxiang Zhu has left the SEC after three years as director of the trading and markets division.
He is returning to a previous role as Gordon Y. Billard professor of management and finance and associate professor of finance at MIT’s Sloan School of Management, where he spent almost a decade before joining the regulator in 2021 under SEC chair Gary Gensler.
Deputy director David Saltiel, also head of the division’s analytics and research office, has been named as acting director.
The news follows Gensler’s announcement that he will be leaving the commission as of January 2025.
During his time with the SEC, Zhu oversaw the modernisation of US securities market regulation. Projects in this initiative included the expansion of central clearing for Treasury repurchase and cash transactions, the US transition to T+1 and increasing transparency for securities lending, short selling and security-based swaps.
On this work, Gensler commented: “Investors and issuers will benefit because of these reforms achieved during Haoxiang’s time of service. I wish him very well in his next steps.”
Earlier in his career, Zhu spent more than seven years at the National Bureau of Economic Research as a research associate and faculty research fellow.
Mapfre AM, the asset management division of Spanish insurance company Mapfre which holds €57 billion in assets under management, has adopted BlackRock’s investment management suite Aladdin.
The investment platform will cover Mapfre’s public and private market assets, providing data analytics, portfolio construction, risk management, trading and operations tools. The Aladdin execution management system (EMS) will also be adopted, replacing Mapfre’s legacy in-house systems.
Aladdin will serve as a single platform for Mapfre’s global portfolio and investment activities, which cover 25 countries and financial centres. The service will be rolled out in phases, the company stated.
Álvaro Anguita, Mapfre CEO, commented: “The adoption of Aladdin will help us unify all of our apps and to streamline our investment process, which will in turn accelerate the growth of our company.”
Prashanth Manoharan, EMEA head of execution consulting, Liquidnet
Liquidnet has appointed Prashanth Manoharan as EMEA head of execution consulting as it develops its algorithmic trading capabilities.
In H1 2024, Liquidnet revenues were up 5% year-on-year (YoY) to £171 million. This was driven by equities activity, with revenues rising by 14% YoY.
As part of the European execution and quantitative services (EQS) team, Manoharan is responsible for developing Liquidnet’s core algorithmic trading offering, improving execution quality and investigating market microstructure.
Manoharan has more than a decade of industry experience, joining Liquidnet from BNP Paribas. He has been a director and head of cash equities analytics at the firm since 2021. Prior to this, he was head of electronic equities analytics for Europe and America as Deutsche Bank.
Alongside Manoharan, Oliver Ekers has been hired as an execution trader and Henry Baugniet as an execution analyst.
Ekers joins Liquidnet from Instinet, where he has been for almost 10 years. Most recently, he was part of the EU electronic trading team.
Companies are demanding more flexibility in share buybacks, and banks are tweaking their products in response.
The basic premise of a buyback is simple – to repurchase as many shares as possible with a given sum of cash, and thereby reduce the issuer’s capital, boosting its earnings-per-share ratio. The market is huge. S&P 500 issuers repurchased $877 billion in the 12 months to June 2024, while European issuers purchased around €200 billion over the same period.
This generates billions in trading revenues for leading banks, using strategies where banks are rewarded for maximising share purchases below an average-price benchmark. It is a truism in finance that incentives deliver the best performance, but in share buybacks, this can sometimes be a distraction.
A case in point is UK-listed education software company Pearson, which has now shifted away from a pure performance-based model to an element of fixed fees, in conjunction with its broker Citi. To understand why, we need to explore the context behind buybacks, starting with the more mature US market.
To prevent market abuse, venues impose restrictions on companies trading in their own stock, including volume restrictions to stop them from distorting the market.
Bruce Edlund, assistant treasurer, Cloud Software Group.
To allow buybacks, regulators have carved out special ‘safe harbour’ exemptions. In the US, the Securities and Exchange Commission has rule 10b-51, allowing brokers to buy back stock for their corporate clients during pre-earnings blackout periods. “You put it in place ahead of time, and the bank is executing this for you”, says Bruce Edlund, assistant treasurer at Cloud Software Group, which was formerly the Nasdaq-listed Citrix Systems, before being taken private in 2022. “It’s out of your control at that point”.
In Europe, the Market Abuse Regulations apply to both the EU and UK, along with exchange listing rules, which are even stricter than the US. “Companies need to be an exchange member to buy shares, so they go to a broker and ask them to buy their shares on the exchange”, explains a London-based banker familiar with the market.
Dark venues are banned, the banker adds. “Even on those permitted venues, you have to buy it through the order book electronically, and then the price that you buy at is also governed by the rules, so that corporates shouldn’t be seen as impacting their own share price”.
Choosing a strategy
The most obvious buyback strategy is the simplest. “You could just go in the open market”, Edlund says. “Just tell your banks, buy back 50 million, 100 million”. In practice, few companies follow this strategy.
One reason might be that the legally-enshrined role for banks and brokers lets them influence the choice of execution strategy. The way treasurers put it, being locked into a conversation about execution with their brokers narrows the focus to buying shares at the lowest price – using a product sold by the bank.
“The banks have all kinds of products that they love to sell you”, Edlund says, noting that their incentives are not always aligned with the client. “They make almost nothing on the open market, because everybody can do that and it’s very low cost there. They can’t really hide a big fee in there, right? Because you can check what the price was every day”.
The argument for more complex products starts from the need to maximise performance. “Most companies track the average price at which they repurchased shares during a quarter”, says Edlund, at which point, brokers offer to beat this average benchmark. “They’re making fees on that, but it should be ‘better’ than what you would have done in just straight open market purchases”, Edlund explains.
Michael Seigne, founder, Candor Partners.
Arguably not, according to Michael Seigne, founder of Candor Partners, which provides consulting services on buyback execution. Seigne spent 22 years at Goldman Sachs, including senior equity execution roles, and believes the products that dominate the market are fundamentally flawed. “Share buybacks present a unique sent of conflicts that often go unnoticed”, he says.
Whatever the motivations, the most popular strategy recommended by brokers involves more complexity and less transparency. “The banks have different names for these”, notes Edlund, “but they’re essentially discount to average programs”.
This is usually defined as the average of daily volume-weighted average prices or VWAP during a pre-agreed time period. In effect, the banks bid to beat this unknown benchmark by offering companies a discount. Todd Yoder, CFO of construction firm S&B USA, who was responsible for billions of dollars in share buybacks at his previous companies, explains.
“You let the banks compete on the spread to VWAP”, he says. “Once you established parameters around the notional spend amount and period of time, banks bid a basis point spread discount to the VWAP. One bank says we’ll pay you five and for another it’s 10”.
Since the budget is fixed – the amount of dollars allocated to the buyback by the company – the unknown quantities are the number of shares that get purchased and the time it takes the broker to complete the purchase. As Yoder says, “It’s figuring out what size and what time horizon you’re going to target”.
The magic ingredient
The way banks do this lies at the heart of the buyback market. They compete to buy the largest number of shares at the lowest price, and to provide that competitive discount, banks require a magic ingredient: volatility.
“The bank is taking a position as an organisation on the underlying stock’s trading volatility, similar to a derivative”, a banker explains. “You should be able to generate a discount because the share price moves, and it allows banks to pick the best time to buy and the corporates to get the best share price without knowing what the future is going to hold”.
Todd Yoder, CFO of construction firm S&B USA, at Bloomberg Market Forum FX in Focus (Photo by Corey Sipkin).
Seigne is a lone critic of this whole process, arguing that the average of daily VWAP is a ‘bogus benchmark’. It’s flawed, he says, because the nature of the averaging process allows the broker to game the benchmark, regardless of performance. The products, he says “are designed to allow the executing broker to get long the issuer’s volatility cheaply”.
Treasurers and CFOs confirm that volatility is central to the conversation. “They’ll come in, the broker’s quant people, and they’ll look at the daily volatility of your stock” recalls Edlund. “And for them, the more volatile, the better”.
Yoder explains how this quasi-derivative works. “You’re selling volatility to the banks and the more volatile the stock is, the more of a discount you can get to the VWAP”.
Volatility helps the banks because dips in the share price give them a chance to buy stock for the company at below the agreed discount price – letting them pocket the difference. But there’s a risk for the banks, as a banker points out.
“We often have instances where we have given our clients a guarantee, and we write them a check if we are unable to meet that guarantee. We do lose money. That’s just the nature of how the business operates”. According to this banker, only seven out of ten guaranteed discount buyback transactions are profitable for brokers, on average.
Dynamic hedging
Quite understandably, the bank trading desks buy hedges to limit these risks. “They’re trying to beat that benchmark”, Yoder comments. “When they do their strategy right, they’re going to put on different positions to protect themselves, right? They will probably collar it so the trade doesn’t get away from them.”
Bankers are keen to address the perception among treasurers that the pace of buybacks is connected to the trading desk’s choice of hedging strategy. “Hedging has nothing to do with what we are buying for the client, it’s not impacting our trading decision”, one says. “That hedge could be a number of different things – we could trade options in those shares”.
Brokers can also hedge using dividends. Seigne highlights the example of Dutch banking group ING, which between May and October 2023 spent €1.5 billion on buybacks, during which time its share price rallied. According to disclosures, the unnamed broker paid an additional €66 million in shares to ING “due to performance arrangements”. Yet, in reality, the broker didn’t lose this money, because of another factor – the ability to hedge.
According to Seigne, there is indirect evidence for hedging in the €1.5 billion ING buyback transaction. Regulatory disclosures suggest that the broker didn’t transfer the majority of the shares to ING until after the company paid a dividend in August 2023. Seigne believes that the broker did this because it prior to that date it was holding the shares as a hedge, enabling it to receive the dividend, which outweighed the €66 million contractual loss on its buyback contract.
“You could hedge that way”, a banker concedes. “But from a simple trading strategy perspective, it’s always better to buy the shares after the dividend, because when the dividend is paid, the share price drops”.
Using regulatory disclosures, this chart shows the progress of a buyback programme conducted by ING in 2023. After the payment of a dividend on 7 August, the volume of repurchases rises dramatically, suggesting that the broker held the shares beforehand as a hedge. The blue line shows the commonly-used moving average benchmark, while the green line shows a benchmark weighted by daily volume. Data source: Candor Partners
For Seigne, the race by brokers to complete buybacks on share price dips is a symptom of the flaws in the VWAP ‘bogus’ benchmark. If the average of VWAPs was volume weighted, then heavy buying at low prices would lower the average used in the benchmark, reducing the broker’s profits and hence their incentive to trade in such a way.
Whatever the processes used by banks to handle buybacks, the bursts and pauses in trading volume can be alarming for their clients.
Consider the multiple priorities that corporate finance teams have to juggle. They have to manage the company’s cash, while preparing for regular earnings calls where management will be quizzed by analysts. Meanwhile, unexpected events ranging from M&A deals to external shocks have potential to trigger large moves in the company’s share price.
Volatility may be helpful to banks in executing a discounted VWAP buyback, but is perceived quite differently by their clients. “If there are some peaks and troughs, then they’ll go hell for leather in the troughs, and you’ll see very little activity in the peaks”, according to a treasurer at a UK-listed company. “It’s a little bit difficult to manage, because from a cash flow perspective, we’ve had situations where some weeks there’d be literally no trading, and then other weeks where it would be 100 million. If you had a choice about how you structure things, you probably wouldn’t go for that.”
This race by the broker to complete the repurchase at the lowest price also conflicts with a more fundamental reason that the company engages in a buyback in the first place: signalling to shareholders, which is particularly important around the time of corporate results. “What you don’t really want to be doing is going into a results announcement where the share price has dropped a bit, and you’re no longer buying shares”, the UK treasurer says.
It’s a delicate subject because of the listing rules that force them to outsource buyback execution to a broker. But clearly, companies want to keep some influence.
Locked in
Even worse from the issuer perspective, the irrevocability of discounted VWAP deals clashes with significant events where the company ought to stop buying back shares completely. According to the UK treasurer, “No one goes into a share buyback expecting to cancel it. But at the same time, sometimes things happen”.
M&A deals are an example, adds the UK treasurer. “If you’re running a 12-month buyback programme, you’ve handed over the keys, a major acquisition pops up halfway through that process – do you really want to be carrying on, buying hell for leather, locked onto this roller coaster?”
In April 2020, the onset of the Covid pandemic abruptly changed the perspective of many UK companies from handing out cash to trying to preserve capital, making buybacks an unwelcome distraction, At this time, Diageo, BP, GSK, Unilever, Shell and Pearson all paused or cancelled share buybacks collectively worth tens of billions of pounds.
But for the broker, cancelling a buyback means unwinding the portfolio that has been accumulated by its trading desk – and this can be expensive when markets are volatile, as these companies all learned the hard way. According to a banker: “Whenever a client wants to amend any contract, the contract is amended at fair value. You terminate a transaction at its fair value.”
Such unwelcome experiences prompted Pearson to propose a completely different form of buyback contract. Rather than pay its broker, Citi, entirely through outperformance when repurchasing shares at a discount to VWAP, Pearson introduced a fixed fee element. This new arrangement also precludes hedging by Citi that could incur mark-to-market unwind costs, according to people familiar with the deal.
“Pearson has been a long-standing client of ours since 2017 and we have executed a number of buybacks for them”, Ali Farhan, Director of Strategic Equity Solutions at Citi told Global Trading. “In this instance, they wanted the flexibility to override the purchase instruction or to be able cancel the buyback. So we designed for that, and we structured it such that it’s a combination of a performance-based, how well we perform in the absence of any overriding factor, and fixed fee structure, in the event there is an overriding factor that prevents us from making trading decisions in relation to the buyback as we otherwise would”.
Farhan adds that since being pioneered with Pearson, the structure has been used by other Citi clients as well. He notes that it is part of a trend for shorter-term, more flexible buybacks. “Since COVID, we’ve seen more buybacks run on a quarterly basis, which are shorter-dated programs than before. It’s a lot easier for companies to take a three-to-six-month view rather than take a 12 month or two-year view”.
The disclosure problem
For buyside traders that buy or sell on behalf of portfolio managers, information leakage is a constant concern, leading them to carefully plan execution strategies in order to minimise it. There’s a debate among CFOs and corporate treasurers about how important this is for buybacks.
Yoder provides a US perspective. “Companies generally announce the board approval of a dollar amount for share repurchases, but the timing of the share repurchase is unknown to the public” he explains. “There is some leakage, but generally there is a lot of noise impacting share price outside of announcing the board approval of a share repurchase notional amount”.
There is less rosy view in Europe where treasurers are bound by market abuse regulations to disclose buybacks ahead of time, and report transactions on a daily basis.
“You’re always forced, by regulation, to be super transparent about what exactly you’re doing” complains a UK treasurer. “You’re disclosing every single day that this has been traded. If someone wanted to take the other side, there are opportunities for people to make money out of that”.
Examples are easy to find. In May 2024, Morgan Stanley distributed a ‘sales and trading commentary’ to clients, proposing investing in what it called a ‘forward-looking buyback basket’. The customised basket contained 62 EU-listed stocks which were expected to buy back the highest amount of their market cap over a three-month period.
Such client notes appear to show that corporate regulatory disclosures can be legitimately reversed-engineered into investment products. In submissions to the UK Financial Conduct Authority, Seigne argues for rules to be changed to conform to the US model, where trades are disclosed quarterly.
Meanwhile, attempts to introduce UK or Europe-style disclosure in the US have floundered. When the Securities & Exchange Commission proposed daily reporting on US buybacks in 2023, it was thrown out by the appeals court, after which the SEC abandoned the idea.
Bankers downplay concerns that hedge funds could be front-running buyback transactions. They claim that brokers have learned how to keep transactions sufficiently anonymous. “How we execute buybacks now, we are just another order on the exchange”, says one. “A hedge fund wouldn’t be able to tell which order is our order. So it’s not correct to say that a hedge fund is trading against the other side of the buyback”.
Niels Brab has been appointed as president of FESE for a two-year term. Delphine D’Amarzit, CEO and chairman of Euronext Paris, has been named vice president.
A total of 11 FESE members make up its board, representing exchanges across Europe and aiming to facilitate the European Commission’s goal of an interoperable European securities market.
Brab, currently chief of staff and head of group corporate and regulatory strategy at Deutsche Börse Group, has been a member of the FESE board since 2014. He succeeds Petr Koblic, CEO of the Prague Stock Exchange, who has been president since 2018.
On his plans in the role, Brab said: “As a core priority, we will ensure to deliver on filling the European Savings and Investments Union with life blood, and to transform Europe’s capital markets into a next generation of excellence. I look forward to engaging with all stakeholders to jointly deliver on the challenges of today and tomorrow.”
Alongside Brab and d’Amarzit, CEO of the Zagreb Stock Exchange Ivana Gažić has joined the FESE board for a two-year term. Koblic and Richard Végh, CEO of the Budapest Stock Exchange, have been reelected on a three-year basis.
Berenberg Global Liquidity Manager Nicky Brambleby discusses how trading approaches are tailored to meet client needs and navigate market complexities.
Nicky Brambleby, Global Liquidity Manager, Berenberg, explains how her team evaluates each client order, considering trade size, market conditions, and algorithm options to refine strategies, manage liquidity fragmentation, and ensure they meet client expectations for best execution.
This video clip is from the recently released Global Trading / LSEG documentary Life Cycle of a Trade: Joining the Dots.
Michael Krogmann, head of cash market business development, Deutsche Börse
Deutsche Börse Cash Market will go live with its dark pool, Xetra Midpoint, on 9 December.
Both offering an alternative route to liquidity and drawing flow from the lit market, dark pools can be a contentious issue – regardless, demand is increasing across Europe. Cboe currently leads the way in dark trading market share, while Aquis and Six Swiss Exchange have been in the dark pool business since 2022 and 2016 respectively. Euronext was the latest to join the fray, launching Mid-Point Match in April, and BME is expected to go live with SpainAtMid before the end of the year.
This is Deutsche Börse’s second iteration of Xetra Midpoint, after its original dark pool was shuttered in 2017. The group cited MiFID II restrictions on large-in-scale dark trades as the reason for the closure, but it had also faced controversy and dwindling engagement after entering into a partnership with Liquidnet four years earlier. Concerns that Liquidnet members would benefit from undue access to order information led major players to pull out.
Midpoint testing has been taking place over recent months, with Eurex holding ‘functional focus days’ throughout October. The dark pool was expected to be launched in November, following reports in the spring, but was postponed due to regulatory delays at Frankfurt Stock Exchange.
Xetra Midpoint executes orders at the real-time midpoint reference price, and is available to all trading participants on the Frankfurt Stock Exchange. It can be used with a minimum acceptable quantity functionality – meaning orders are only executed if they are matched above a certain share quantity. This mechanism is used to further mitigate information leakage. The venue also allows traders to opt for a sweep order, where as much of the trade as possible is executed in the midpoint book and the remainder is directed to Xetra’s central limit order book.
Michael Krogmann, head of cash market business development, Deutsche Börse
Michael Krogmann, head of cash market business development at Deutsche Börse, commented: “[Xetra Midpoint] allows traders to keep their strategies private while benefiting from instant connectivity. Market participants can continue to use one of the largest and most trusted trading platforms and, at the same time, profit from significant price improvement by saving half the spread compared to aggressive orders placed in the Xetra central limit order book.”
Maria Luís Albuquerque, commissioner of financial services and the savings and investments union, European Commission
Maria Luís Albuquerque has been appointed European commissioner for financial services and the savings and investments union for the 2024-2029 term. The Capital Markets Union (CMU) is notably absent from her list of priorities, replaced by the Savings and Investments Union (SIU).
While the CMU is still included in European Commission president Ursula von der Leyen’s political guidelines for her second term, maintaining that “completing the CMU could attract an extra €470 billion of investment per year”, it is only mentioned in passing in von der Leyen’s letter to her new commissioner.
The Capital Markets Union, recognised by many industry bodies and public figures as a necessity for the European Union, is not mentioned in Albuquerque’s list of responsibilities – or her title. She replaces Mairead McGuiness, whose full title included financial stability and the CMU. The Federation of European Securities Exchanges (FESE) recently stressed the need for the union to be fulfilled in order to keep IPOs in Europe, a focus for the region acknowledged in the commissioner’s duties.
Earlier this year, the European Commission began to discuss building the SIU on top of the CMU, which has been in development for more than a decade. As encouraged by former Italian prime minister Enrico Letta earlier this year, the SIU aims to mobilise private savings to finance the clean and digital transitions across Europe.
The initiative hones in on improving cross-border investment, as the original CMU aimed to do, developing a standardised investment fund structure for EU citizens to invest in. Those providing these funds would be instructed to handle withholding tax regimes and lower fees, with higher investor engagement expected to compensate for these changes. Mirroring the US market, users would gain access to simpler investing practices and better returns.
Albuquerque is tasked with developing the union and designing savings and investment products at an EU level with the goal of reducing capital market fragmentation.
Alongside this, she will oversee the continued development of the Banking Union and further work on the European Deposit Insurance Scheme will be made. In her speech to the European Parliament, von der Leyen stated: “public budgets can only go so far. We urgently need more private investment. [The] private capital gap is the main reason we lag behind on overall R&D spending, and thus on innovation.”
Building European competitiveness, in line with the Draghi report published earlier this year, is a key focus for the new Commission. Albuquerque is also tasked with reviewing the European regulatory framework to ensure that domestic companies and start-ups are able to finance their expansions in the region, continuing efforts to make the EU a more attractive prospect for firms to base themselves.
Other initiatives that Albuquerque will be involved with are anti-money laundering and counter terrorism-financing projects, the protection of consumers and retail investors and ensuring that risk is managed through supervisory system improvements.
Preparing for future threats and opportunities, such as cyber attacks and digital finance technologies respectively, will also be priorities.
State Street Global Advisors (SSGA) has appointed Dohei Echizenya as head, president and representative director of Japan, effective immediately.
Globally, the asset management subsidiary holds US$4.73 trillion AUM across clients in 59 countries.
The appointment follows SSGA’s expansion in Japan this year, with 11 US-listed ETFs and seven low-cost index funds added to its offering in the country.
In the Tokyo-based role, Echizenya is responsible for the firm’s strategic growth in the region. He reports to Kevin Anderson, head of APAC.
Anderson commented: “Japan is an important market for SSGA, and we see tremendous opportunities as the government implements various measures to promote Japan as a leading asset management centre. Dohei’s extensive experience in developing strategy as an enterprise manager, adept at running complex, scalable, and growth-oriented businesses, will be instrumental in leading our team in Japan to enhance our offerings to Japanese investors.”
Echizenya has more than 25 years of industry experience and joins SSGA from BlackRock, where he has been a director and head of iShares for Japan since 2018. Prior to this, he was a buy-side sales manager at Metzler Asset Management and executive director of the institutional equity division at Morgan Stanley in New York.
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