Yearly Archives: 2010

Why Franklin Templeton Likes HFT

Last week in Miami, I took part in a panel discussion about modern trading realities. The weather Thursday was like it is in Denver now, about 60 degrees. Those of you south or north who need to warm up, come visit. I clocked some hours on the bike Saturday and Sunday. It wasn’t sunburn weather, but on bikes in December at 5,000 feet? Life’s good.

Getting back to trading, how come some investors rail at churn trading, while others love machine intermediation? Somebody must be wrong, right? (more…)

Why IR Pros Need to Love Some Math

Scheduling note: I’m in Miami Friday for a panel discussion on trading realities for the NIRI Senior Roundtable. Hope to see you there!

Today is the anniversary of Pearl Harbor. Near the end of WWII, my great uncle, Jack, was one of 316 sailors from 1,200 aboard the USS Indianapolis to survive its sinking and days in shark-ridden waters in the south pacific. Tough fellows, those guys.

On that happy note, let’s turn to everybody’s favorite topic: math. Click here for an example of math in action, a chart showing the spot market for the US dollar, called the DXY, and the Dow Jones Industrial Average, the past three months. The two juxtapose like the mirror image of a mountain in a still lake on a clear day. Wherever one goes, the other is equally opposite. (more…)

Soft Dollars and Investor Relations

A note on trading today: The dollar dropped out of the gate this morning, buoying stocks. Talk about soft dollars. The price of shares is a construct of the Fed at present.

Anyway, after sharing the Hyatt in downtown Seattle with the Kansas City Chiefs (convincing victors Sunday), we returned to Denver Monday, body-scanned once but otherwise briskly processed through airport security. So we’re a day late with The Map.

Speaking of body scans, the SEC’s current insider-trading probe is poking at the squishy Wall Street practice of rebating trading costs with “soft dollars.” We should know about soft dollars in the IR profession. Chances are, the last sizeable institutional position taken in your stock involved them. (more…)

Insider Trading and Rational Investment

Here in Spokane, the landscape is bleak and wintry, the temperature hovering at ten above. Crisp! Before we gather round our well-laid tables (in America at least) Thursday and give thanks, let’s weigh on the scales of investor-relations justice this insider-trading scandal soaking print ink.

The allegation, if you missed the story of the week outside South Korea, Ireland and Cambodia, is that funds are using “channel check” style information to gain an illegal advantage. Federal agents have swept into capital-markets concerns to seize files and persons and stop this pusillanimous peculation.

The last time government contended information misuse, machines took over the trading markets. (more…)

Why We Have Eleven Exchanges and Counting

Blaise Pascal, the 17th century French brainiac, is reputed once to have said in a post script: “I’d have written a shorter letter, but I didn’t have time.”

We wonder what Pascal would think of the 523-page Final Rule for Regulation National Market System (Reg NMS), published August 29, 2005. Step forward a half-decade, and it explains why deep and liquid markets that were thought to foster the interests of long-term investors have instead fed a fragmented maker/taker market system florid with high-frequency traders moving the same shares from place to place. (more…)

Nobody Wants to See You Naked

Should we ban nakedness?

The SEC thinks so. Continuing a raft of rules in response to the Flash Crash, the commissioners voted last week to restrict “naked access,” or trading at somebody else’s terminal.

Executives and IR professionals, you’ll get questions. Your shares are affected by these rules. What do you know about naked access, and is stopping it good? (more…)

The Trouble with Liquidity

We can’t compete with beat-by-beat election updates, so we’ll keep it short and sweet.

Speaking of sweet, we came back last night from six days in the desert trinity—Moab, Sedona, Santa Fe. Hard to beat this time of year!

You heard the one about two guys getting robbed? They’re walking down the street, a mugger stops them and demands their wallets. As they’re complying, one reaches in his wallet before handing it over and says to the other, “Here’s that $20 I owe you.”

It may be like that with the obsession over liquidity in the trading markets. (more…)

Options Expirations and Earnings Reports

If you want a belly laugh and a breath of fresh air, read John Cochrane’s oped on the treasury secretary in today’s Wall Street Journal.

Speaking of news, a common headline in web news strings for clients is: “Preparing for (fillintheblank’s) Earnings Announcement with an Option Straddle.”

Seen that? Traders wait for companies to say when they’ll report results. They prefer if you do it a few weeks ahead so they can get cheap puts and calls. Just days between your announcement and earnings, and options may be in high demand and limited supply. It’s a lesson, IR professionals, about modern markets. (more…)

CEOs Need to Be Asking Questions

In Denver, summer’s retreat this year toward the Continental Divide has been languid, its ambling trail marked by fiery aspens and long warm days.

But in the markets, pension funds have given stocks the cold shoulder, and fast. So says an article in the Wall Street Journal Monday, which traced the defection at noteworthy major corporate plans. Stocks comprise but half of plan assets now at best, and pensions themselves are in rapid decline as companies shift from defined benefits. (more…)

Boy, when it rains, it pours. Three years ago when we began grousing about how Reg NMS was turning equity trading into a foot race, people thought we’d been hitting the Hookah. Now it’s on 60 Minutes.

Along with Larry Leibowitz from the NYSE and Minoj Narang of Tradeworx, 60 Minutes interviewed Joe Saluzzi from Themis Trading (read their white papers about trading). Joe was on my panel about modern trading at NIRI National in 2009. Few people are better at explaining the peccadilloes of a market structure based on price and speed.

Here again is the problem, simplified to its most basic elements: Trades must meet at the best bid or offer. The participants able to get to the price fastest will always set the price. And because the exchanges and regulators alike have embraced a “maker/taker” model in place of the old auction and automated quotation systems, transient money is always setting your price. Yes, it requires the presence of something else underneath it, as the Flash Crash illustrated. But the structure, not the behavior, is the problem. The behavior is precisely what one would expect from the existing structure. (more…)