Jonathan Rogers_ifraweb
Jonathan Rogers
I caught a terrifying glimpse of the technology-era zeitgeist last week listening to a senior DCM banker complain about the impact of iPhone messaging applications on Asian bond sales.
The art of pricing a new issue, I’m told, is being distorted by the rampant use of chat apps to provide instant feedback on everything from the pricing of the deal to the timbre of the people running it.
Boy, do I feel like an out-of-touch baby boomer.
Far be it from me to offer a dirge on the mysterious, perhaps subversive, way in which mobile apps have infiltrated our lives. The first time I came across the ingenuity of such a creation was around three years ago – yes, I was late on the techie uptake – when a friend of mine solved the mystery of the Latinesque music we were bobbing along to in a bar on the outskirts of Singapore’s Chinatown.
He pointed his phone at the source of the music and, after a few moments of miniature computer processing, the magical box proclaimed it to be the output of a singer whose name now escapes me. I was certainly impressed, although I was also immediately mistrustful – a typical reaction among most individuals when confronted with a brand new technology. How was this piece of wizardry to be harnessed for the greater good?
FLASH FORWARD A few years and the bankers are, according to my drinking companion last week, exercising a big beef about the use of smartphone apps when it comes to the execution of new bond deals in Asia.
Anyone who has spent time in the US capital markets – as has this particular, rather suave individual – understands that tightlippedness is absolute gospel, and that miscreants who cannot keep mum are liable to prosecution. Not so in Asia, where indiscretion is the norm.
If discretion is the greater part of valour, indiscretion must be the greater part of a felony charge under securities law.
All those apps, including (no product placement here) the ubiquitous Whatsapp, are a hotbed of “information” about bond deals, from the very earliest rumours of a mandate, through the price discovery process and the eventual print. I’m reminded of the Smiths song about Caligula’s blushes at a hypothetical request from an unnamed young lady. Nothing is spared scrutiny, and there are no rules – of the boardroom, bedroom or bathroom – to maintain propriety when it comes to Asian bond deals.
I personally find it all rather amusing, but it has quite profound implications for the fixed income industry in Asia, and in other emerging markets that do not believe they are subject to the strictures of 144A bond market etiquette.
It wouldn’t really take very much for a glib quip on a Whatsapp group about the proposed pricing of a bond, its book size or the creditworthiness of an issuer to severely impact the outcome of a live deal. I’m rather surprised that a deal in Asia hasn’t seen the wheels fall off courtesy of app sabotage. That will of course happen. It’s only a matter of time.
GIVEN THE GEOGRAPHICAL diversity of Asia’s financial authorities, any complaints about this fly in the ointment are likely to go unheeded until it becomes a major input into the region’s cost of capital. That will not happen any time soon, and this discrete set of affairs simply serves to underline Asia’s reputation as the Wild West of the global bond markets, especially when it comes to private placements.
“Guess where Archie placed three-year money for [government-owned agency]? Libor plus XXX. Makes you want to weep.”
Archie – a broker or a private banker – clearly knew more than the client, thanks, perhaps, to his crafty little device and the individuals on his “friend” list. But it can’t be long before issuers and the buy-side infiltrate the sell-side’s private radio space. If companies are allowed to release price-sensitive information on Twitter, then perhaps bonds will soon be marketed on Facebook or roadshows conducted via iPhone apps. Imagine that. I can, as can many capital markets bankers. And we all shudder.
The commoditisation of the primary capital markets has been discussed for quite a few years now, but the move to full automation has always been dismissed. This is thanks to the belief that the job of winning a mandate and marketing and executing a deal is too people-centric with all that involves (mainly smiles, handshakes, food, booze and a bit of judiciously though-out melodrama) to ever be replaced by computers.
That may be true in the tightly regulated 144A market in the US, where players are likely to follow the rules by the letter and keep silent while a deal is in the works. By contrast in Asia, as apps get more sophisticated and their constituency more inclusive, you have to wonder about the possibility of handling a deal by computer from start to finish.
Capital markets bankers in any region where strict disclosure rules are applied patchily – if at all – must now be worried about becoming Luddites.
