Democracy Comes To The Stockmarkets

Online broking is a competitive business. Brokers live or die by the value and service we deliver to clients. So improving services is vital to our success.

ASX BookBuild is a pioneering new initiative that adds significant value to the online broking business. Until recently clients of online brokers were rarely able to participate in initial public offerings (IPOs) or other capital raisings. The largest brokers had the broadest client reach, so companies raising capital had little choice but to use them. Other brokers and their clients were out in the cold.

ASX BookBuild has turned this upside down. Clients of any broker – online brokers included – are now able to obtain stock in capital raisings. Building on other recent ASX innovations, our clients now have access to a much wider range of investment opportunities.

Take Stavely Minerals, which recently raised $6m in a fully subscribed IPO using ASX BookBuild. We dipped a toe in the water with the Cadence Capital placement, which also used ASX BookBuild, but Stavely was the first ASX BookBuild IPO our clients participated in. Rising more than 60% (at time of writing) on its 20-cent issue price, Stavely was an opportunity our clients just didn’t have under the previous system.

Greater access to capital raisings like Cadence and Stavely Minerals is important, but so is convenience and simplicity. Clients sign a once-off ASX BookBuild client agreement, then use an online broking platform to bid for stock on-market. It’s familiar, it’s easy to use, and it’s transparent.

From an online broker point of view ASX BookBuild raisings are less labour-intensive, with stock automatically credited to the client’s account upon settlement. Administration is simpler for clients too, with fewer reasons to hold multiple broking accounts for access to IPOs.

Based on CMC Markets experience of ASX BookBuild to date, we expect momentum to build. There’s inevitably a ramp-up phase, and it takes time to educate clients but the case for ASX BookBuild is compelling. The BookBuild technology and supporting operational processes have now been fully tested, potentially making it an ideal platform for the retail allocation of the upcoming $4 billion Medibank Private IPO.

This will ensure that the 4,500 employees, 3.4 million members and the broader population of Australia (which includes the enormous SMSF sector) have an equal and fair opportunity to invest in a former national asset – simply by having an account with a broker.

While initial issuers like Stavely Minerals and Cadence Capital are laying the ground work, larger issuers should follow now that they see the facility working. With allocation and pricing flexibility built into the ASX BookBuild platform, issuers have greater control than under the previous system. Over time, increasing participation by larger issuers should help drive down the cost of raising capital in Australia.

That of course is good news for shareholders in general, whether they’re CMC Markets clients or not. In fact, ASX BookBuild helps democratise the entire capital raising process and has the potential to reduce costs for companies.

Investors get greater access to capital raisings, including IPOs. Brokers, including on-line brokers, are no longer excluded from the process. Also, companies should gain access to capital at a lower cost and with a broader shareholder base than before.

With ASX BookBuild, democracy has come to capital markets. Not only is history being made but CMC Markets is delighted to be part of it.