Entries Tagged 'NYSE' ↓
December 4th, 2013 — The Market Structure Map
I’m reminded of a joke (groans).
A man is sent to prison. As he settles into his captive routine he’s struck by a midafternoon affair among his jailed fellows. One would shout out, “Number 4!” The others would laugh.
His cellmate, seeing the newbie’s consternation, explained: “We’ve been here so long we’ve numbered the jokes instead of saying the whole thing. Here, you try. Number 7 is a really funny one.”
“What, just shout it?”
The cellmate shook his head. He said, “Some people just can’t tell a joke.”
Speaking of numbered jokes, the NYSE filed with regulators to offer new order types – regulated ways to trade stocks – designed to attract large institutional orders now flowing to “dark pools,” or marketplaces operated by brokers where prices aren’t displayed. The exchange has long battled rules in markets that promote trading in dark pools, arguing that these shadowy elements of the national market system inhibit price-discovery.
Let’s translate to English. The NYSE is a big stock supermarket with aisles carrying the products your equity shopper needs, where prices and amounts for sale are clearly displayed. Across the parking lot there’s an unmarked warehouse, pitch black inside, with doors at both ends.
You can duck into the supermarket and check prices and supplies for particular products, and then hurry over to the warehouse and run through it holding out your hands. You might emerge with the products you wanted at prices matching those in the supermarket. Continue reading →
November 13th, 2013 — The Market Structure Map
Today a new era begins.
One day in May 1792, 24 brokers gathered beneath a buttonwood tree in lower New York City and agreed to confederate in conducting their stock-in-trade. Thus began the New York Stock Exchange.
Today, the NYSE is slated to cease trading publicly. The InterContinental Exchange – The ICE – cleared final regulatory hurdles and closed the transaction.
It’s a study, an archetype, of the monumental change these last 15 upending years in equities, that The ICE is a derivatives market that didn’t exist when the Order Handling Rules in 1997 fundamentally shifted market orientation from investing to intermediation.
You’ve heard the cliché about the tail wagging the dog? Derivatives depend for existence on some underlying thing, an asset. Where derivatives have exploded in securities markets everywhere, equity assets have shrunk, not in value but in number. Keep this thought in mind. We’ll come to its significance.
According to SIFMA, the trade association for US capital markets, interest-rate derivatives alone reflect about $600 trillion of notional value. Compare to assets from US investment companies directed at US equities, according to consultancy Towers Watson and the Investment Company Institute: Roughly $11.4 trillion from a total $34.2 trillion under management. Dwarfed.
Sure, other assets in US equities originate internationally. But there’s been a colossal shift since 1972 (an ironic numerical anagram), when derivatives began to percolate globally as first the dollar and then the raft of global currencies departed from mooring gold, creating value uncertainty that had to be hedged in securities markets.
The pace gained steam in the 1990s and in equities it coincided with a reversal in the number of public companies in the National Market System. That figure peaked near 8,000 in 1998, data from Wilshire Associates shows. Continue reading →
October 30th, 2013 — The Market Structure Map
We were in King Soopers and they were out of lemons.
For those of you elsewhere in the country and world, King Soopers is a Kroger-run grocery chain and I’m sure you’re thinking as I did when I first saw one, “Who names a store King Soopers?”
I bet you’re also thinking, how do you run out of lemons? Answer: deliveries hadn’t arrived. We take for granted that stuff will be on the shelves. Having lived a year in Sri Lanka in college, where oftentimes there wasn’t anything on the shelf because no shipments had come, I grasp limited liquidity.
When stocks rise in price, we figure there must be more buyers than sellers. When they decline, the opposite must be true. You laugh, yes. But how do shares get on shelves in the first place?
A long time ago, there were just a couple stores, like the New York Stock Exchange, owned by the firms who stocked the shelves – literally. Brokers had books of business comprised of owners of shares. In 1792 under a buttonwood tree in lower downtown New York City one May day, 24 brokers agreed to confederate, recognizing that pooling business would create a marketplace. The NYSE was born (next week it becomes a subsidiary of derivatives market The ICE). Continue reading →
September 11th, 2013 — The Market Structure Map
We smell autumn on the wind in Denver.
Soon the backbone of the continent will transform from verdant to orange and yellow and caramel as the aspens salute departing summer. It’s a process spanning weeks, an epoch compared to equity-market timeframes nowadays.
Investors want an edge, and it’s important for investor-relations pros to recognize what that means. It seems like everyone has lost patience with patience. One IRO lamented this week: “I am now starting to be convinced that are very few ‘rational’ price-setters. Even the long-only funds are very short-term.”
It’s against insider-trading law for advantage to spring from valuable information gleaned privately from another person, so instead traders are winnowing the public social chaff of the many for “alpha” – a way to outperform expected market returns.
Social Market Analytics, a Naperville, IL firm run by PhDs in theoretical chemistry and electrical engineering, tracks what it calls S-factors, turning tweets into data science for identifying stocks and sectors signaling directional outperformance. Continue reading →
July 17th, 2013 — The Market Structure Map
There’s apparently a reality TV show called “Dating in the Dark.”
It must lack the cachet of Survivor or The Bachelor because you don’t hear much about it. The gist is that a number of people of opposite sexes wander around in utter blackness falling in love. You wonder how that’s superior to the displayed market – so to speak.
But in the equity market, dating in the dark is a big deal. I’m talking about how stock orders find each other. Take Coca-Cola (KO), which reported yesterday. From July 8-12, according to Fidessa’s Fragulator, 25.6% of trades occurred on KO’s listing exchange, the NYSE. But 29.4% were on the FINRA NYSE tape, a reporting facility for trades between brokers rather than on exchanges.
The remaining 44% of KO’s trading mostly met in displayed markets at the Nasdaq, BATS and Direct Edge, and the NYSE’s derivatives-centric platform called NYSE Arca, formerly the ECN Archipelago.
Why does this matter to you, IR professionals? It’s important to understand what’s happening. This is the market you manage – the equity market for your shares.
So, FINRA – the Financial Industry Regulatory Authority – is trying to address concerns that a large amount of stock-dating in the dark is bad for markets. That volume of KO’s on the FINRA NYSE tape? It’s “dark pool” trading, where buyers and sellers meet secretly and anonymously through brokers acting like millionaire matchmakers.
Last week FINRA sent a proposal to its members that would create new reporting rules for dark pools. If adopted, alternative trading systems, or facilities where the principal function is matching trades but the regulatory structure is one for broker-dealers rather than the regime exchanges operate under, would report their trades to FINRA on a delayed basis using a unique market-participant identifier. That way, FINRA would know what trades and volume occurred in each facility to better identify market-manipulation. Continue reading →