What Is a Squawk Box?
A squawk box is a term used for an intercom speaker that a brokerage firm’s analysts or traders use on trading floors or desks. Squawk boxes can be found in investment banks, along with stock brokerages, and on exchange floors. A squawk box allows a firm's analysts and traders to communicate with the firm's brokers.
Over the past several years, squawk box intercoms have been replaced by online instant messaging platforms for disseminating information and trading orders in real-time.
- Squawk boxes are audio intercom systems that allow for real-time dissemination of market and economic information to interested parties.
- Analysts famously made buy, sell, or hold recommendations on the stocks that they covered through squawk boxes, with hundred of eager ears waiting to hear what information will come out of the speaker next.
- Squawk boxes were once ubiquitous in financial firms such as investment banks, brokerages, and exchange floors, but have since made way to other forms of electronic communication.
Understanding Squawk Boxes
Also known as "hoot-n-hollers", financial firms use squawk boxes to inform their brokers about current analyst recommendations, market events, and information about block trades. This line of communication helps to keep brokers updated on important market factors and allows the firm to guide its brokers' trading. Unlike telephones, squawk boxes provide continuous, always-on audio connection to those parties on the line without needing to dial in. Participants may of course decide to mute their microphones to prevent ambient audio from coming across the speaker.
While many other forms of communication have arisen as a result of technology, the squawk box is still often a requisite in many investment banks and brokerages.
Squawk Boxes and Analyst Recommendations
Many listen to squawk boxes to understand current trends in analyst ratings. Traditionally analyst recommendations for securities range among "buy," "hold," and "sell." Buy suggested the security was undervalued and a good deal, while sell signified it was likely overvalued. Multiple terms now exist for each of the ratings (a "sell" can be a "strong sell," while a "buy" can be a "strong buy"), in addition to "underperform" and "outperform" ratings.
Analysts will research public financial statements, listen to company conference calls, and speak with managers directly, along with customers of a company, in order to deeply understand their inner workings and present status.
Analysts often use a discounted cash flows (DCF) model to support their qualitative analyses. A DCF is a valuation method, which relies on future free cash flow projections for a company. The analyst will discount these, using a required annual rate. A present value estimate is then used to evaluate the potential for investment. If the value the analyst arrives at through DCF analysis is higher than the current cost of the investment, the opportunity may be a good one.
Squawk Boxes and Block Trades
Another reason to listen to a squawk box is to get a pulse for current block trades. A block trade or block order is a submission for the sale or purchase of a large quantity of securities. Block trades can often occur between parties, often outside of the open markets, to lessen their impact on the security price. In general, 10,000 shares of stock, not including penny stocks, or $200,000 worth of bonds are considered a block trade. Understanding who is placing block trades or block orders can help a banking employee realize supply and demand for a new issue.