If you appeal a parking ticket to the Parking Department, what’s your expectation of objectivity? The Parking Department collects revenues.

Which brings us to word circulating last week from CEO Duncan Niederauer that NYSE Euronext and other exchanges are confronting the growing problem of off-exchange trading. “It impacts the quality and integrity of the U.S. capital market – and ultimately the ability of markets to enable companies like yours to raise capital efficiently,” Niederaur wrote in a letter to issuers (which a variety of alert readers passed along to me).

Shouldn’t we first ask why money has fled displayed markets? Private equity is working great. It’s a non-displayed market. Pensions and endowments have nearly twice as much money in private equity than public equity today. Investors aren’t forced to transact off the exchanges. They choose to.

Now exchanges want regulators to herd them back to displayed markets…for your good? Or for theirs? There’s a biblical proverb that says, “The first to present his case seems right, until another comes forward to question him.”

I think fragmented markets are a problem. But the reason the NYSE and other exchanges want trading between brokers to move back to exchanges isn’t for capital-formation purposes. It’s because the NYSE and other exchanges are data and technology vendors. NYSE Technologies last year generated $473 million of revenue supplying data, circuits and technologies to those trading your shares. Continue reading →

What surprised me most was how twice as many people knew “high-frequency trading” compared to “dark pools.”

The Nasdaq’s Mike Sokoll, Liquidnet’s Nicole Olson and I kicked off a session on how equity markets work at NIRI’s conference on IR fundamentals in Santa Monica yesterday. As we were unfolding the map of market behavior, we polled the audience:

How many of you have heard of “high-frequency trading?”

It appeared to me that two-thirds of the hands in the room went up, and there were between 80-100 investor-relations and treasury professionals in the ballroom at the Loews Beach Hotel.

And yes. It was lovely there, above Muscle Beach (I walked from the sandy side of the hotel to the front for a cab back to the airport, five minutes in the lovely January sea air in suit and tie).

When we asked how many had heard of dark pools, only a third said so. That may change soon. One big reason more people know about high-frequency trading is that the media have given it ink. Yesterday, FINRA announced plans to scrutinize dark pools over whether gaming occurs, where traders may post orders on stock exchanges that create arbitrage opportunity in members-only markets where no price information is offered (dark pools).

Which leads us to IR 101 in 2013. I was trading notes recently with a friend and fellow IR veteran about the Nasdaq buying Thomson Financial and The ICE buying the NYSE, and we got to talking about what’s changed and what hasn’t in our profession.

Fifteen years ago it was 1998. eBay went public Sept 24 and closed up 163% at $47.38 (raising $63 million on 3.5 million shares offered). IR pros were doing the Big Four (positioning their companies in the capital markets, shaping internal and external financial communications, building capital-markets relationships, monitoring how equity is traded). Continue reading →

No, our title does not refer to Surveillance.  Despite the Thomson/Nasdaq deal last week.

Yesterday mavens of equity markets converged on Capitol Hill to debate trading woes. Apparently the Senate, unsatisfied with just one geological trope (“Fiscal Cliff”), must examine “Dark Pools.”

If you missed the news, we’ll summarize. On the Hill, leaders from the big exchanges argued that operators of trading facilities that don’t post prices and which may select which parties can participate in buying and selling are harmful to investors who want to know the true price and supply of stocks.

As you may know, “dark pools” are markets where equity traders may find shares without having to post a price, thus avoiding actions that might move market pricing or draw attention to orders. The price for shares in dark pools is determined by whatever price is best at the exchanges.

Exchanges naturally feel a bit like Best Buy in an internet world. You’re using our liquidity and our prices to determine what you can get at another market.

For their part, dark-pool operators including Credit Suisse (runs the world’s largest dark pool, Crossfinder) and ITG (operates POSIT) countered that markets are ill-served by an exchange oligopoly that writes its own rules, regulates itself and earns some $450 million in shared data revenue off the consolidated tape that is in effect a government-granted monopoly.

It’s akin to knowing that no matter what you do, if you match up trades at a certain pace you’ll earn a profit on data because it’s guaranteed – almost like rate-of-return utilities. Dark pools think that’s a whopping tradeoff for setting prices everybody else uses.

Joe Mecane, head of NYSE equities, made the point of the day though. The nature of markets fostered by rules has “created unnecessary complexity and mistrust of markets,” Mecane said. He wants Congress to simplify it. Continue reading →

Observe. Orient. Decide. Act. OODA.

This is how Pipeline Trading describes its predictive analytics for helping buyside customers identify large-block trading opportunities.

For those of you who missed the news that rocked The Street this week, Pipeline, a dark pool, was fined $1 million by the SEC for misleading clients about the nature of its liquidity.

Were you harmed? Check to see if your shares trade at Pipeli—

Oh. You can’t. It’s a dark pool. You don’t know if your shares trade there unless Pipeline’s orders route to your listing exchange.

Of Pipeline, SEC Enforcement Director Robert Khuzami said in a statement: “Investors are entitled to accurate information as to how their trades are executed.”

Pipeline offers a platform where institutional customers like mutual funds can find “natural liquidity,” or real orders from other buysiders. What’s more, Pipeline provides execution algorithms that mimic how high-frequency traders try to project price and volume in order to place profitable trades ahead of moves. If the buyside can beat HFT at its own game, then instead of being victimized, it can also generate alpha – market-beating returns on trades. Continue reading →

We’re late this week due to celebrations around the anniversary of the rebellion from the Crown. We played croquet, appropriately and cheekily British we thought (no offense to our good friends and former overlords across the pond). Croquet has actual rules we learned.

Sunday, Karen and I loaded the bikes and set out with good friend Jeffrey to conquer the passage between two of Colorado’s tall “fourteeners” named Princeton and Harvard. We rode from the Arkansas Valley floor at 8,000 feet up Cottonwood Pass (which sounds like “cotton whupass”) from Buena Vista to the summit at 12,126 feet and a stunning view of the fruited plain.

Choosing a route from point A to point B had me thinking about stock trades (you do this long enough, that’ll happen to you too). Stock trades must have routes. Sometimes it happens automatically. Whether orders for shares in your stock meet their matches internally at Barclays or by dint of timing, routing, pricing and chance at Susquehanna’s dark pool, RiverCross, often is a matter of routing. Even online brokers afford ways to route trades now. Continue reading →