Tagged: BATS Exchange

Did You Carry the One?

Suppose the chairperson of the national central bank strode from the organization’s Gothic façade on Maiden Lane and said, “Job growth is likely temporary, and folks are going to have to borrow money and buy stuff just to keep the economy running like a used Yugo.”

How would you expect stocks to react? Exactly. They would soar, as they did Monday March 26.

Speaking of bizarro-world, if you missed the BATS Exchange IPO drama Friday, you must have been on a monastic sojourn in the hinterlands. It showed several things. You can run a great business. You can raise money from investors. You can be quality folks who are nice to boot, as our friends at BATS are.

But if somebody forgets to carry the one in that mathematical equation for the opening auction, the incredible shrinkage occurring in the dollar can immediately translate to your shares, speeded up to nanoseconds.

Humor aside, we were asked by various members of the media (and quoted by the WSJ Saturday for the lead article on page one) and many clients about BATS. Should you worry about trading markets because the IPO for a technology-driven stock exchange failed?

Not for that reason. BATS will be fine. They will be back, and soon. Mark it.

But something should concern you. We’ll come to it in a moment. (more…)

We’re back from NIRI National!

Orlando sweltered like you’d expect a swamp in central Florida in June might. We heard 1,300 were on hand, up triple digits from last year. There were new faces in the crowd and new vendor names, though big ones were absent too because exhibit costs go up while things like annual reports and total public companies decline.

We were tethered to the booth mostly but I sat in on the session about how equity markets work. Rich Barry from the NYSE, John Adam of Liquidnet, and Brian King at BATS paneled, and well. Our client Moriah Shilton at Tessera moderated like a pro.

The room was packed to standing-room-only. In the two years since I sat in Moriah’s seat on the stage, how markets work and what to do about them continues to populate the thoughts of IR folks, clearly. They streamed to the mics throughout with queries.

Karen and I nudged each other and shook our heads at this one: “How can we understand where our shares trade and for what reason?” (more…)

Karen and I are getting in boat shape ahead of a trip to Antigua (Motto: “Don’t ever say the name ‘Allen Stanford’ around here”). But we’ve encountered obstacles to the cycling part of the regimen: Wind and fire. One more, such as earth, and we’ve have a good name for a rock band. It’s been bone-dry and breezy on the Front Range, and already several range fires have burned black swaths.

Speaking of fires, we’re marching through them with the Issuer Data Initiative. The Number One Need is more names behind it. If you haven’t committed support for better trading data, do so today. Your peers will thank you someday, and you can remind them then that they owe you.

Before we get to what happened Mar 16-21 in trading markets, a word on BATS Exchange. The Kansas City operator of the third-largest American trading venue has made no secret of its interest in listing companies for public trading. BATS made it official today, announcing plans to offer IPOs another path to global liquidity.

Provided BATS offers competitive listing prices and good data, it can compete. We hope exchange executives will consider the key data points in the Issuer Data Initiative. BATS has a reputation for data excellence already, providing a great deal of free data to its trading clients.

We see too that BATS filed a proposed rule change with the SEC last month that will require customers to mark trades as principal (for their own accounts), agency (on behalf of others) or riskless principal (buying from or selling to a customer). See, issuers? Exchanges file rules to change how things are done. Issuers are participants in markets too. If they want something changed, they too can ask.

What drove trading markets roughly March 16-21 also speaks to the importance of good data. Somebody always must execute the trade and report it. That’s the way we all know the volume for any stock. On March 16, the G-7 countries announced a concerted effort to devalue the Japanese yen by flooding markets with currency. March 16-18 also included the monthly options-expirations cycle, and S&P quarterly index rebalances.

During the same period, we observed uniformity in trading activity for a set of “primary dealers” that work with central banks in the United States, Europe and Japan. Across the market-cap and sector spectrum, the same behavior occurred for this set of primary dealers.

We surmise that central banks armed these large brokerages with cash, which is how central banks engage in “quantitative easing.” The brokerages, also all commercial banks today, deployed it by buying securities from selling institutions. It had the desired effect, stabilizing equity markets and reducing upward pressure on the yen.

We’ve seen that many stocks have returned to their pre-March-10 “rational price” levels. But the behaviors producing those prices aren’t rational. If these were riskless principal transactions, do governments now own a bunch of equities with taxpayer dollars? Or were these all principal trades and so the brokers now have high levels of inventory?

Let’s suppose it’s the latter. Fine, so long as markets rise. Brokers can sell inventory as more buyers return to equities. It’s bad, however, if, say, Portugal defaults, causing the Euro to weaken and the dollar to rise. US equities would slide, and brokers would dump inventory to protect themselves as markets fell.

So everybody get out there and buy something made in Portugal.