As a VP of Independent Trading Group (ITG), an issuer designated market making firm, Chris Kaplan brings a more institutional approach to provide liquidity for clients with stocks that are thinly traded. ITG, which is Canada’s only brokerage firm dedicated exclusively to professional trading, employees a large resource base and investment tools to not only create new liquidity for clients’ stocks but also opens the door to a variety of investment opportunities. With more than 20 years of capital markets experience, Mr. Kaplan’s institutional approach when market making for clients is designed to add more value for clients and enable them to reach goals that create momentum to a targeted liquidity event. In this interview with BioTuesdays, Mr. Kaplan discusses the benefits of market making services and what differentiates ITG from other members of the industry that make markets in stocks.
Let’s begin with a short history of ITG.
We were established in 1992 and currently have about 15 market makers, representing 60 issuers as a designated market maker and 140 TSX assignments. Each market maker has a knowledgeable specific back up in case someone is away, so there are always human eyes protecting your stock.
Can you explain the function of market making?
Our job is to maintain a favourable tradeable spread in a stock, create depth to the stock quote, provide market visibility, mitigate price volatility and promote orderly price discovery in your stock. The end result is greater liquidity for the shares across all markets, tightening the spread and leading to a lower cost of capital in the future when required in a very fragmented marketplace. A large buyer or seller can significantly change the price of a stock, so we are always there every day monitoring the stock to make sure nothing suspicious looking happens. For example, we are around when there are few buyers on a particular day to avoid large price fluctuations.
How widespread is market making?
There are so many stocks trading on the TSX, CSE and NEO that have little or no following, even though some of these companies have fantastic stories to tell. Unless that story can be conveyed to the right people and unless there’s news flow, investors will not be interested and the stock price will suffer…out of sight, out of mind.
How does ITG differentiate itself from other firms that offer this service?
Unlike other market makers, ITG does not offer banking or research services, which means we have no conflict or blackout periods. We are completely transparent, buying under our broker number. We call a two-sided market in a stock on a continuous basis, so we are both a buyer and a seller. We have in-depth institutional sales and trading backgrounds, which is beneficial when sourcing liquidity, placing blocks of stock and making introductions between a company and a large investor. By taking an institutional approach, we can take larger positions in companies we like, allocating more capital and taking more risk. We also deploy inter-listed trading strategies that provide simultaneous liquidity on both sides of the border, ensuring seamless interactions from investors in multiple jurisdictions. As a gatekeeper, we report any suspicious trading activity to regulators, and the company we represent.
Are there tangible results of market making?
In an independent survey by TMXV LiquidityPro Program, companies on average had a 40% increase in trading volume three months after hiring a market maker. Companies who engaged market maker services also experienced a reduction in their average spread, an 18% increase in the number of days when a trade occurred and a 6% decline in price volatility measured by the closing price against a 10-day moving average price. Investors don’t want to buy stocks that don’t trade actively, they want the assurance that if need be, they can buy or sell when the situation arises. Our market making adds liquidity and allows investors to participate with confidence in the marketplace. Essentially, I bridge the gap between companies and viable mid-cap fund managers, hedge funds and high net worth individuals who take a longer view on a stock.
What sort of feedback do you give clients?
For example, take our client Kane Biotech, which trades on the TSX Venture Exchange. We give Kane a detailed monthly trading report that lists buying and selling brokers, including ITG, by volume on Canadian exchanges, as well as top buying and selling brokers. The monthly report also includes ITG’s total volume and our market share of volume on all exchanges. Among other things, we report our stabilizing trades filled on passive bids and offers, and active trades taking offers and selling bids of others. Our reports help company management get a clear picture of what is going on with their stock.
Any closing thoughts to share with our readers?
Every company is different, we are happy to discuss your readers’ needs, just give us a call, we can get to know each other and take it from there.
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