FLASH FRIDAY is a weekly content series looking at the past, present and future of capital markets trading and technology. FLASH FRIDAY is sponsored by Instinet.
Contestant: I’ll take Exchanges for $1000, Ken.
Ken Jennings: This little-known firm has, according to its website, listed more companies on the NYSE and Nasdaq than anyone in history.
Contestant: What is The Issuer Network?
Ken Jennings: Correct!
This fictitious Jeopardy! back-and-forth didn’t really happen, but someday it might.
Pat Healy has been in business for a long time. In 1995 he launched the first stock exchange listings consulting practice for publicly traded companies, and 26 years later, he’s still at it.
Healy appeared in an October 2000 Traders Magazine article “Pushing Around the Big Board: Is Nasdaq Going to Eat the Big Guy’s Lunch?”
From the article: “…Nasdaq’s success is no accident, says a former regulator, who explains how Nasdaq raised fees on listed companies, then plowed much of the added revenues into retention programs.
“Nasdaq smartly put this money into people and programs that gave special attention to their top 100 companies,” according to Patrick Healy, former director of financial policy and strategy at the National Association of Securities Dealers.
“That caused these companies to stay with Nasdaq,” added Healy, who now runs The Issuer Network, a company based in Chevy Chase, Md., that advises companies on which exchange to list.”
Traders Magazine caught up with Healy just this week, to see what he’s been up to for the past two decades.
Talk a little about your business, The Issuer Network?
I think that question is best answered in the About Our Clients section of our website, as we are all about our clients. There you can see logos from just a few of them — I think it’s an impressive list of brands like Facebook, Yelp, Zillow, Groupon, United Airlines, Coors, and Nordstrom. Our goal is simply to help them optimize the benefits to be derived from the NYSE/Nasdaq competition.
Our clients are a mix of what we call “switches” and IPOs. A switch is a company like Nordstrom, Coors or United Airlines, that was already listed on one exchange and considering a move. We advise them and negotiate for them. In the end they receive a sweeter deal. IPOs are companies like Facebook, Yelp, Zillow, Groupon. Switches and IPOs are fundamentally the same process. We commonly refer to it as a “bakeoff”!
With regard to what has changed from 20 years ago, one of the most significant yet often overlooked changes is ticker symbols. It used to be that the ones, twos and threes were NYSE; fours were Nasdaq. So the problem for issuers was that if you were on one exchange and you wanted to switch to the other, you had to switch your ticker symbol. There’s a natural reluctance by issuers to change exchanges because their historic ticker symbol is part of their identity and part of their brand. For example, if you’re a company like ADP on the NYSE and you wanted to list on Nasdaq, you’d have to change to ADPC or something like that. Nobody wants to do that. Thus, having to change ticker symbols was a major impediment to companies wanting to switch markets. We and others worked very hard with the SEC to bring about suitable portability rules. That change took place around 2007. It was very significant because it removed a major impediment to switching. If you look at the data, you’ll see how dramatically switches have increased over the last 20 years.
How has your career evolved over the past 20 years?
It’s been a phenomenal, fantastic run. My background is: I’m a former CFO with a CPA and an MBA. I was honored to serve on the faculty at Georgetown for eight years. It was just my way of giving back to the Jesuit community that had been so good to me. And I caught this business opportunity at the right time — I did some consulting for Nasdaq and discovered that there were all these listed companies and IPOs who needed guidance. The bankers were happy to do your transaction, but after that there was nobody providing listing consulting services. So that was the impetus for my business. I later met this gentleman by the name of Dick Grasso. You may have heard of him. He kind of changed my life and really educated me a lot on the markets. In the book “King of the Club” I was honored to be referenced as “Grasso’s secret weapon”. Quite a compliment!
I deliberately run my business under the radar. What I mean by that is you won’t find me advertising anywhere. You won’t find me much in the public eye. I am a resource to investment bankers and consulting firms who have clients who are contemplating a transaction and need guidance. So I really live and die by my reputation. Word of mouth and my relationships have served me very well.
I was blessed to be approached by Bill O’Brien and Direct Edge about joining their board when they were launching their exchange. Bill did a superb job of putting all that together out of Knight Capital and deserves a ton of credit. It was basically an ECN turned stock exchange that ended up being acquired by BATS. From an education and experience perspective, it was incredibly valuable to me because it moved me closer to understanding the nuances of electronic trading.
How has the exchange business evolved, from your perspective?
The change has been dramatic. There have been two seismic shifts in the markets from an issuer perspective. One, symbology; two, NMS. What Reg NMS did was eliminate the specialist as a price discovery mechanism. People can say what they will, but that’s been dramatic. With the specialist, you had an intermediary, who, for lack of a better term, was a shock absorber who really played a significant role in dampening volatility. Now, I know that the current DMMs claim that they’re the same thing, but it’s not the same.
Back then the NYSE market share was 85%, pre-Reg NMS. It’s less than a third of that now. And the NYSE did not own Arca pre-Reg NMS. While some may vehemently disagree with me, I need to be honest: human interaction has been reduced to a de minimis level. That’s just a fact.
How have the last two decades altered my perspective on the markets? The answer is: they’re much improved for the average investor and more competitive in terms a listing venue for issuers for two reasons: One, because it’s easier to move exchanges. Two, price discovery mechanism has been improved for the average Joe. The NYSE is now a hybrid electronic market while Nasdaq is totally electronic. The other exchanges are irrelevant to issuers because they don’t list stock.
What about SPACs? Is this a lasting thing or a trend that will pass?
I think at a minimum we’re looking at three to five years. And for anybody who tells who you that they can look out accurately beyond three to five years, I will tell them that I’m not drinking the Kool-Aid. Here’s what’s really important from my perspective with regard to SPACs. I couldn’t care less where a SPAC is listed. A SPAC is a temporary listing by definition. It’s not heavily traded nor is it heavily marketed. It is little more than an investment vehicle.
What I do care about with regard to SPACs is what they become later in the de-SPAC process. That entity will become a real listing decision by a real company. Now, when a SPAC decides to do a deal, where that SPAC was previously listed becomes irrelevant. The new listing decision to be made by the de-SPAC enterprise in the reverse merger — that I’m extremely interested in!
What’s in your future?
When you get the answer to that will you let me know? Here’s where I’m going. This has been a great couple of decades. I’m interested in blowing out this de-SPAC business and taking it to a much more visible level. In other words, I’m going to come out from underneath the radar via a value proposition that SPACs will find very difficult to resist – free consulting. We’re offering this to SPACs seeking to list as a quid pro quo for their de-SPAC listing business. Then I’m probably going to sell our practice as I am launching another venture.
My other venture is called Ernie.com. It is social media on steroids for sports. Stay tuned.
