Tagged: TABB Group

Alpha Bet

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. (more…)

Hired ETF Guns

I dare you.

Ever say that as a kid? “I’ll give you a dollar if you—” (fill in the blank)

Last week the SEC approved a plan by the NASDAQ for sponsors of ETFs trading less than a million shares daily – 93% of ETFs – to pay $50,000-$100,000 annually to market participants if they dare to trade any of these ETFs more aggressively.

We opposed this plan because it allocates dues and fees specifically, not equitably as the Exchange Act requires, and it promotes statistical arbitrage – trading securities for spreads. That’s harmful to buy-and-hold investors and the issuers who seek them out.

The NASDAQ argued – successfully – that stimulating trading in weak ETFs unattractive to automated market-makers will shrink spreads, boost volumes and benefit investors.

Yesterday at TABB Forum, a news site for the trading community hosted by influential consultancy the TABB Group, Stephen Bain from RBC Capital Markets wrote a piece called “The Hidden Cost of Tighter Spreads.” RBC studied trading before and after spreads between the best prices to buy or sell tightened through decimalization and automated market-making.

Bain wrote: “Our initial analysis documents a marked increase in short-term price gyrations for individual stocks, which have effectively doubled from pre-2000 levels to present. This finding represents a significant increased cost for investors – entirely contrary to claims that lower execution costs now prevail.”

We arrived at similar conclusions. The average US stock has Total Intramonth Volatility (TIV) of roughly 40%, calculated by subtracting the low price from the high price each day, dividing by closing price, then tallying those over 20 trading days. (more…)

You Never Know

An ode to erudition in professional sports, these pearls of wisdom overheard on sidelines come thanks to ESPN’s halftime report during the unfortunate demise of our Denver Broncos in Monday Night Football:

“If you hadn’ta been where you was, and did what you did, we wouldn’ta got what we got.”

“You can sum it up in one word: You never know.”

“You never know” is a good way to describe markets. And reason why market-structure analytics are essential to IR. Paul Rowady at TABB Group, the top market-structure authority today, wrote extraordinary commentary at TABB Forum yesterday saying monetary intervention by central banks poisons market data.

What’s the real price of your stock? As you ponder, Rowady says, “At any moment in time, one could argue that there simply cannot be true price discovery in any market where intervention occurs – which is most of them.”

Why? Because central banks, unlike the rest of us participants, can use unlimited money and unrestrained access to information – the Federal Reserve is not bound by “insider trading” constraints like you – to affect prices of every asset, every commodity, every currency. (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…)