Tagged: Issuer Data Initiative

Data Darkness

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. (more…)

Our Best Sentiments

Question: “Would you like more timely information about who owns your shares?”

Answer: Yes!

Question: “Would you be willing to ask for more timely information?”

Answer: Um…

Let’s change that “um” to a yes! You know about NIRI’s effort to shorten 13f reporting windows? Read about it here. All you have to do is fill out NIRI’s prepared template and email it to the address provided. There are 23 comment letters supporting the initiative as of March 5. With 1,600 companies in NIRI, we ought to be able to push the number up. See comment letters here: http://www.sec.gov/comments/4-659/4-659.shtml

This effort illustrates the difference between saying something and doing it (and there’s some serious doing here, which is great news!).

Speaking of which, TD Ameritrade is separating the chatter from the chart in its six million retail accounts with the TD Ameritrade IMX, an index showing what retail investors are thinking by tracking what they’re doing. Sentiment out this week for February was the best in stocks since June 2011.

Of course, one measure doth not a market make. We have an algorithm that looks for relative flows from retail money, and we saw more this period too. But other measures differed. As of March 5, Sentiment was 4.55, just below Neutral. We measure Sentiment by tracking relative changes in market-share for big behaviors and weighting that movement according to midpoint price-changes. It’s like a market-cap-weighted index. Statistically, 23% of clients had Negative market sentiment, 68% were Neutral, and 9% were Positive. (more…)

Reality or Fantasy

Don’t forget to write your letters, folks!

Which letters? See last week’s Market Structure Map on prompting the NYSE or the NASDAQ to file a rule for better data.

Speaking of rule-filings, here’s an example. Last week ahead of an SEC review deadline, NYSE Arca, an automated facility focused on ETFs and global derivatives-trading, withdrew a proposal permitting ETF sponsors to pay market-makers to trade ETFs.

Filed in April last year, the proposal is similar to one from the NASDAQ on which we commented. We opposed it because these plans distort prices and true supply and demand. If you were paying brokers to buy and sell your shares, would your share-price reflect the views of investors or the market-incentive offered by payments to brokers?

At best, it would be hard to tell. Plus, if a party with a financial incentive to create demand for its product can manipulate outcomes for its own gain, it’s sometimes called racketeering when prosecuted criminally. Why would we permit something that in one place is considered criminal to in another one serve as a barometer for market demand?

Despite this logical conundrum, word is that NYSE Arca will reformulate and re-file the proposal. The NASDAQ’s proposal supporting sponsor payments for ETF traders is still matriculating, and the SEC must decide on it by March 8, according to Traders Magazine. (more…)

Issuer Data Initiative

“Nobody seems to care about the issuers.”

That short sentence in an email from an investor-relations officer recently reflects what many in our profession feel about share-ownership and trading data for public companies.

Back in March 2011, we decided to do something. You old-timers here at the Market Structure Map, you remember? With hope, fanfare and even media coverage, we launched our quixotic quest for better data. We beseeched the SEC, FINRA and staffers for members of Congress on committees regulating markets.

Turns out we were more like Don Quixote than Sancho Panza. Moving Congress is nearly a fool’s errand. And we also found that unless it produces dollars for regulators, yours is their last priority. But we also made a startling discovery about how to succeed.

Here’s the problem today. Shares trade in fractions of seconds but reports on ownership follow months later. Vanguard founder Jack Bogle says data on share turnover show average holding periods for institutions are now less than five months. Since 13fs are filed 45 days following quarter-end, reporting periods are longer than holding periods!

But ownership data don’t mean what they did before rules the last 15 years transformed market structure. Let me drive that point home. Too much attention is paid to WHO, and not enough to WHY.

Trading “back in the day” was the means to the end. Today, trading IS the end. Nearly 85% of volume is the product of a trading objective, not investment. So complete trading data matter greatly now – and you don’t have them.

ModernIR provides great statistical measures of trading behavior because markets run on rules and math, and we can apply statistics to both. But why do public companies have incomplete data? The act creating the SEC says all constituents shall have equal treatment. (more…)

Big Tick Talk

We all love soaring markets. When were you last dead sure what drove your stock up?

Today, a German court will decide if German taxpayers must back last week’s European Central Bank plan to buy Eurozone debt, which powered US equities to multi-year highs Sept 6. Stocks have moved higher since, with the dollar at May lows. What that court says may prompt stocks to swoop or swoon.

Thursday the 13th, Ben Bernanke speaks after the Federal Reserve’s monthly Open Market Committee meeting. That may boost stocks too, or disappoint them.

By the way, Friday I speak (having zero macro impact) to the IR council for MAPI, the manufacturer’s alliance, on “what lies beneath” market structure today. See you at the Intercontinental in Chicago.

Next week is huge. Options expire, quarterly rebalances to S&P indexes take place, and important European bond auctions go off – all between Sept 19-21. Correlation between the US dollar index and the S&P 500 is nearly symmetrical to late April’s when we warned clients of an imminent market retreat. Stocks then declined a thousand points over several weeks until the dollar in July began its longest slide since the Flash Crash. Beware risks.

In the data, evidence abounds. We’ve seen stocks curiously leap ex-dividend, whole peer groups shoot up 15%, and random shares move double digits up or down in two days without regard to the market or the peer group. Global statistical arbitrage – using math to calculate trading spreads globally – is rampant in behaviors, including the normally “rational” slice. As high as we’ve ever seen. (more…)

Stocks, dollars and Newtonian physics

Isaac Newton posited 334 years ago in his third law of motion that mutual forces of action and reaction between two bodies are equal.

I wonder what he’d think of the relationship between the US dollar and equities, where this small action produces that decidedly unequal reaction.

After the Federal Reserve acted to shore up bank balance sheets by buying long bonds and mortgage-backed securities last week, the dollar trampolined and markets dropped like Newton’s apple.

Pundits blamed dismal economic data. Yet we saw money market-wide shifting from equities September 16 with quad-witching. Before the Fed offered a dim economic portrait. If money was reacting, it sure had a funny, proactive, organized way of showing it.

Today and Monday, the dollar weakened and stocks zoomed skyward in a Newton-flummoxing frenzy to reclaim paradise lost. How many believe this is rational investment behavior? If you do, there’s a solar-panel plant in California that might interest you. (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…)

Do Traders Use Protection?

It’s a question that burns in the minds of IROs daily. No, not that one. This one: “Will an ISO post to the Nasdaq if the TIF modifier is one other than an IOC?”

Sentences like that are why alcoholism remains widespread. It’s also the reason IR folks don’t want to know how markets work. Too complicated.

Yet if we’re brutally honest, we know we should understand more. I mean, you can’t claim to be a great Yankees fan and not know the rules of baseball.

The sentence above from Nasdaq Reg NMS FAQs says: If I’ve chosen to fill my order up to the designated number of shares at a set price without leaving the Nasdaq to check for better prices elsewhere, suppose the time to complete the order is something besides “immediately or forget it.” Will that order be accepted at the Nasdaq?

This is how markets work. If you want homework, Google “Rule 611 Reg NMS.” (more…)

A Lighter Shade of Dark

Want to know about dark pools? Join the NIRI Virtual Chapter at noon eastern time Wednesday May 25.

I’m moderating the discussion. The all-star panel includes Nicole Olson of storied dark pool Liquidnet; Adam Sussman of expert market-structure research firm TABB Group; and Joe Saluzzi at Themis Trading, one of today’s leading voices on the nature of trading markets. You know him from Bloomberg, 60 Minutes and CNBC.

Two weeks ago at the NIRI finale for the season here in Denver, we were indulging in the benefits of having brewery Molson Coors in the chapter. And someone was talking to me about “black pools.”

I thought, “IR folks don’t get dark pools yet.”

This afternoon an IR pro in California emailed, asking how to figure out what percentage of their shares trade in dark pools. You can’t know, exactly. (more…)

I am the doofus on camera that I feared I was.

Fortunately, Lou Cordone, head of Thomson Advisory Services is not a doofus, so we balanced out.

We said last week we’d have big news about the Issuer Data Initiative? Thomson Reuters heard about the Initiative, examined its merits, and decided to lend a hand. They invited me to film a segment on their “Smart Topics” program for Thomson’s surveillance clients.

Thomson is a neutral party. But we cannot thank them enough – you too, because this effort is for public companies – for their kindness and generosity. See it from the IDI landing page, or click here.

More huge thanks are due. The office of the general counsel for a client, a major technology company, lent an editorial eye to the draft letter for Congress and the SEC. Thousands of dollars of legal work, pro bono. The petition is that much stronger. And we’re speaking again with the SEC the week of May 9 about the status of the Initiative. (more…)