April 26, 2011

Great Markets and Poor Data are Contradictory

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.

If your company has yet to back it, sit your GC down and explain why it’s a must, and shoulder your support behind it here.

It’s about data. If you don’t have good data – on financial performance, lab experiments, climate change, how your stock trades, you name it – you can’t make informed and correct decisions. On average, about 25% of your volume will match up at your listing exchange, as we’ve pointed out. Even if the Nasdaq and the NYSE merged, the big problem remains: fully 50% of your trades meet elsewhere, and the exchanges aren’t providing those data.

To wit, yesterday at Direct Edge there were 84 issues that earned Clearly Erroneous Trade designations – occurring outside boundaries of acceptable price-fluctuation. Direct Edge isn’t to blame (we like the folks there); they’re the impresario. But those data don’t exist for you, no matter where you’re listed. It’s just volume on the consolidated tape – or lack thereof.

Some weeks ago, a large technology client updated guidance. Trading data that day at the exchange and what reported to Google, Yahoo! Finance, Bloomberg, et al differed by a whopping 16.5 million shares. How the exchange presented data did not jive with the way the consolidated tape distributed it. And 74% of volume met off the exchange in a black hole.

Data are the gateway to knowing why price and volume change. In your stock, in the market. For instance, did investment enthusiasm suddenly surge April 20 because – shazaam! – investors had not tabulated earnings correctly? We review data, and to use a scientific term, “Pffffththth.”

We see uniform events. Institutions took out insurance policies about April 6 for fear of markets, and then cashed them in with VIX expirations April 20. Brokers had to scrounge for shares to cover the policies. Markets soared.

Now everybody is following like it’s got substance. Maybe the followers will become the leaders and function will follow form. Maybe not. The answer is in the data.

We can’t help but voice the question that hangs in the aftermath of such musings: How come you’re expected to fulfill your fiduciary duty as stewards of the shareholder capital structure with incomplete and unreliable data?

Before anyone contemplates a merger between our major exchanges, seems to us public companies are owed an answer.

Closing note: The Map is on hiatus next week as we float the waters of a far tropical clime. We’ll bring you a report May 10.

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