January 16, 2013

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.

First, as market rules were re-written, regulators forgot about issuers. Second, exchanges and their trading customers prefer anonymous markets, and they shape the rules.

But here’s the biggest reason: Public companies haven’t asked for anything.

The startling discovery we made? We don’t need to lobby Congress or the SEC. That’s particularly good news, since we also found public companies reluctant to petition legislators and regulators.

“You could fix it with a rule filing,” FINRA officials said in a conference call.

Fix what? Trading data. What about ownership data? Trading is the leader now, and ownership the laggard. If the 85% can be solved and the 15% requires moving heaven and earth, let’s take the 85% first, okay?

In 2011, as we jousted at windmills, many of you told me you didn’t want the name of your company and the letters “SEC” to appear in the same sentence.

Well, how about a letter to your exchange?

For the rest of this story, please read the updated Issuer Data Initiative. If just 25 companies out of 3,700 in the national market system were to do what we recommend, everything could change.

A last note: Read Jason Zweig’s column in the Wall Street Journal from last Saturday, January 12. He talks about how your holders are lending out securities. If you can’t find it, reply and I’ll send it to you.

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