On the NYSE and Knight Floors

Denver is an icebox, so we went east to New York to warm up. Lovely here, the tree glittering at Rockefeller Center and the snowflakes magically materializing to music on the Saks & Co. façade. Festive!

Carmen Barone and the Barclays team graciously hosted me yesterday on the NYSE trading floor, and in the afternoon Marge Wywras at Knight Capital Group turned me loose with the traders on the Knight floor in Jersey City. That’s darned near a perfect business day to me. (more…)

The heart of the IR job

I’m moderating the NIRI Virtual Chapter meeting on modern equity markets tomorrow 12/1 at noon ET. See nirivirtual.org for details.

As I move the midsection flab from a grand Thanksgiving holiday aside to get at the keyboard (a little humor there), the US equity markets are closing up again. IR folks and executives, what’s proving the most accurate indicator of market direction lately? And what’s it mean to your own market structure?

(more…)

What “Money” Means Now

It’s almost Thanksgiving, and the sun-splashed snow along Denver’s South Pearl Street is festive! Groping for reflective thoughts this holiday season we found humorist Dave Barry’s mother, who told him these immortal words long ago: “Son, it’s better to be rich and happy than poor and sick.” As Dave Barry observed, “That makes sense, even in these troubled times.”

(more…)

How Do You Know What’s Real?

We’ve gone and done it.

We’re moving the Market Structure Map to a blog, to invite comments (so please comment!). Don’t worry, we’re not about to start tweeting. But I do like the interactivity at the blog. We’ll dual track with the email awhile, then move to alerts about the weekly post.

In the Michael Jackson movie “Just Do It,” the legend is backed by a cadre of dancers in one scene, who, through “green screen” technology are replicated so that it appears to viewers to be a vast dancing army.

Vast Dancing Army would be a good name for a rock band. And Green Screen might be at work in the equity markets. Is trading real, or replications that create an illusion meant to mimic reality?

(more…)

The Tale of Tail Risk

If you think “tail risk” is what happens if you grab a cat by the tail, well, that’s not far off. Did you know that an entire institutional subset is focused on the risk relative to theoretically ending up with a handful of grabbed cat? We’ll come to that in a minute, and how it might affect your stock.

First, these markets. Real, or more statistical arbitrage? Checking the data, something very unusual occurred last week. On November 4 in our data, the volumes we call electronic and speculative were dead, spot-on, even, at 35.8% of the total, each. That day, divergence in major market measures ceased, and volumes turned bullish. It stood out to us.

(more…)

Size (of trades) Matters

Mother Nature and Denver last week were like a samba episode of Dancing with the Stars, twirling furiously. In fact, snow torpedoed my trip to Boston, but only after an hour floundering through a foot of slush to the airport at an average speed of 25 mph. And today it’s 70 degrees on the Front Range.

Switching gears, I owe a mea culpa. We’ve berated the exchanges for fueling conditions that constrain real investment – fragmentation, rebates, direct access, sponsored access, high-frequency trading, flash orders etc, et al, since data and transactions are keys to exchange prosperity. But Duncan Niederauer’s interview in the weekend Wall Street Journal (see link below) was the best call yet for return to capital formation in the equity markets. I am now cooking up a comfort-food casserole of crow in the crock pot.  I did drop a note to Mr. Niederauer saying so, too.

(more…)

Volatility and Small Caps

We’ll spend the bulk of today’s note explaining why small-cap stocks increasingly find their shareholdings dominated by a few large quantitative institutions.

First this on equity markets: Last week we noticed a surge in “volatility trading.” We’ve written before about these tactics that capitalize on volatility as the asset instead of the direction of the markets or a given security.

(more…)

What We Should Do With Dark Pools

A word on the markets: options expired last week, while swaps and counterparty agreements pegged to volatility measures lapse tomorrow. Speculation and risk management trading are high as a result. If you expect your stock to behave as though everybody buying and selling it acts on fundamentals, you’ll encounter the unexpected.

The NYSE and Charles Schumer were talking today about rules for dark pools. The NYSE is partnered with dark-pool operator Liquidnet and is building a massive high-speed trading facility in New Jersey. The Nasdaq meanwhile plans to launch an exchange next year that will give priority to orders of size, to compete with the size advantage dark-pool operators offer.

(more…)

Stock Surveillance Batting .290?

The New York Yankees led the American league this year with a team batting average of 29% (.290). Is it just curious coincidence that IROs and CFOs polled for the October issue of CFO magazine gave their stock surveillance firms a 29% batting average too?

CFO magazine teamed with NIRI to assess shareholder identification efforts. Results revealed that fully 50% of respondents use stock surveillance but only 29% are very confident of findings. Paul Schulman of proxy consultancy Altman Group summed up: “CFOs may think they have an idea of who owns their stock, but when it comes to real-time knowledge, they really don’t.” Okay, we’ll say it: we are stupefied that IR departments en masse expend scores of thousands of dollars on information they believe to be right only a third of the time.

Anyway, a loud lament is the great gap between timeframes for regulatory filings like 13Fs and 13Ds versus the peripatetic way of the equity markets now. Investors and IROs rely on outdated information (we’ll step out on the bough and say that these ridiculous gaps actually mean that SEC requires investment firms with assets exceeding $100 million to furnish incorrect data to investors, as these position reports may bear no relationship to current reality).

There’s a larger issue and it’s yet again illustrative of how IROs should consider updating their thinking rather than frustrating their IR strategies and budgets with anachronistic measures and tools of limited reliability. It’s this: if investors are engaged in efforts to conceal themselves…could it be that they don’t wish to be known? Hm. Perhaps they’re running multi-asset products that don’t turn anymore on relationships or fundamentals alone. And if so, what fruit should an IRO expect from efforts to establish a relationship?

In context, we saw fascinating developments in our sample data pool during the first week of October. October 1-2, we observed broad program-driven and algorithmic strategies, but as the markets continued to behave in unexpected fashion, these strategies dried up and gave ground to short-term, highly speculative tactics—which would never show up in either stock surveillance or 13Fs, by the way.

We’ve used this comparison before, but what if geopolitical counterintelligence relied on hearsay and ignored satellite reconnaissance? It would be…odd. Satellite images are indispensable now to everything from geological surveys to spooks. It’s modern technology.

Be sure to read the CFO magazine article – Who Owns Your Stock?. And if you’re not using the equivalent of investor relations satellite imagery to understand the forces at work behind your volume, you’re trying to operate pre-Sputnik in a decidedly post-Sputnik era (apologies for any mixed metaphors).