Grappling with IPOs vs buybacks and bracing for US T+1 settlement go live

Published on 8 April 2024

Adam Conn, head of trading at Baillie Gifford

Adam Conn, head of trading at Baillie Gifford, discusses what to expect from the upcoming week in terms of catalysts for market activity and potential volatility.

He also unpacks his predictions for the primary equities market over the next few months and offers his views on the dynamics between new equity IPOs vs. buybacks and the impact on liquidity.

With less than two months to go until the US’s T+1 settlement go-live date, Conn discusses the final preparations in the lead-up to the event and the scale of work entailed to meet the new obligations.

We have an extended version of the show only available to our email subscribers. In the full show, Conn offers a deeper dive into the European Unions steps to move to a T+1 settlement cycle, he looks at the importance of the growth of the retail investor in Europe and offers his take on the debate about the changing of trading hours. Subscribe here –

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North America: Weekly Review and Outlook on Markets (This week’s data, IPOs, etc.)

  • Last week, equities volumes were down compared to first-quarter highs. Bid-ask spreads were still tighter than the four-year average for the same period.
  • Last week, US investment-grade volumes were up relative to the first-quarter ranges and bid-ask spreads continued to tighten since January.
  • This week’s data: US and Canada’s inflation rate out on April 10 and US PPI numbers out on April 11.
  • This week in primary equities: Three IPOs expected to price at $1.2 billion e.g. the biggest is UL Solutions.

Europe: Weekly Review and Outlook on Markets

  • Last week, equities volumes and notional values were very low compared to year-to-date levels. Bid-ask spreads were also wider.
  • Last week, euro investment grade volumes saw the slowest week of activity since the beginning of January but bid-ask spreads still appear to be on its positive 2024 streak.
  • This week’s data:  EU’s Interest rate decision on April 11 and the UK’s GDP Growth on April 12.
  • This week in primary equities: Zero IPOs expected to price on European exchanges.

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Interview Transcript

Presenter Jo Gallagher Adam, I’m delighted to have you on the show. To kick us off, what could influence trading activity this week, and what might impact liquidity?

Adam Conn Jo, I’m afraid it’s going to be more of the same. We’ve got geopolitics, so we’ll all be watching the oil price, watching for headlines that come out, see if it spooks the market as it did last Thursday.

We’ve got another plethora of economic data in Europe. We have PMI data. We’ve got some unemployment data. And if we look across the US we’ve got quarterly earnings season just about to kick off towards the end of the week. So no shortage of catalysts.

I know sometimes guests like to predict what the market’s going to do. I’m afraid I’m not that individual. When I started on the floor of the exchange, there was a great saying that only monkeys picked bottoms.

All I can say is I think there will be opportunities for spikes in volatility that will create trading volume. And you know, as traders, that gives us opportunities to enter into stocks at the right prices.

Presenter Jo Gallagher Looking at the IPO market, we’ve started to see a pick up in activity there, particularly in the US. Have we reached a turning point and what should trading desks be paying attention to there?

Adam Conn Well, having said that, I would make no predictions. I’m happy to say that I do think we will see a pickup in equity capital market activity. We’re already seeing it in the debt market.

Interestingly, one of the leading indicators that I look at is what’s going on in the secondary trading of private equity. You know, if you look at this time last year it was really offered only. There are a lot more buyers in the market at the moment. That suggests to me that we’re going to see that translate into capital markets demand for good, high-quality growth companies, profitable companies coming to market.

From the message I received from capital markets desks that some of the investment banks, you know, there’s definitely that pent-up demand. And I think we’ll start to see that pick up again very soon.

I think another reason why the markets need that liquidity is that we’re also experiencing a high level of share buybacks, which is effectively taking liquidity out of the market. And you know, there is money sitting on the sideline that’s ready to come back in. I

f we see the first signs of interest rate cuts, I think that will be the signal that the capital markets desks will start to rev up their activity, and we’ll start to see maybe a plethora of new issues.

Presenter Jo Gallagher We have an important event coming up at the end of May. What are your remaining concerns that you have in the lead up to T+1 one in the US, and what should desks do in the final two months in preparing for that event?

Adam Conn As you’ll be aware, Baillie Gifford, we set up a trading and settlements desk in New York. If you haven’t done that already, it’s probably a bit late, given that we’re talking about May 28th for the US. But it’s really making sure that you have that capability to book out trades, match trades, affirm trades, generate, and then execute any settlement FX.

That’s part of the show. It’s not all the show as well. So if I think about some of the things on our checklist, they are making sure all of our standard settlement instructions are up to date, and that the brokers we use have those so we don’t delay settlements unnecessarily.

Our settlement team in New York is going out to our counterparts to make sure that their settlement desks, we have the right escalation points, and the service we’re getting is timely. Our FX desk is working with custodian banks, trying to persuade them that it’s a good idea to shorten cutoff times before the CLS (continuous-linked settlement) deadline, and making sure that the spot FX banks that we trade with are providing the cover that we need after the US close at 4 p.m. eastern time. And that includes the famous Friday afternoon.

So I’m afraid there’ll be no running off to the Hamptons. We and other international asset managers will need that coverage until at least 6 p.m.