June 7, 2012

NIRI Seattle-Style

If you like your NIRI National Conference crisp, Seattle delivers.

Gray days in the 50s gave those from the south a welcome break from drenching June humidity. Yesterday morning, the sun at last teased us as we savored our westward view of Puget Sound one more time from the Grand Hyatt before winging east to Denver.

One thing stood out this year to me. By my ground-floor observation walking and talking, paneling, chatting with clients and friends, Market Structure finally moved off the back row at NIRI.

It was like the markets yesterday roaring back nearly 300 points. People are starting to grasp that things like that aren’t fundamental. The Eurogloom didn’t miraculously give way to golden shafts of heavenly light. Spain and Italy didn’t wake suddenly to healed capital access. Economic readings weren’t swept skyward overnight on the economic equivalent of a giant stalk from a magical bean. Nothing changed.

So why did markets jump? Because policy makers said so. Federal Reserve officials were talking the dollar down in force – something we noted in your Market Structure Report macro sections, clients. And European officials huddled over strongly worded statements about the exigency of remedies.

Markets reacted like oil prices anticipating surging OPEC output. Ben Bernanke observed in a 2002 speech before he was Fed chairman that the act of credibly threatening an increase to the supply of money can have the same effect as if the supply has actually grown. He likened it to rumors of an alchemist claiming a way to conjure unlimited supplies of gold – and what the mere rumor would do to gold prices.

We saw this Emperor’s Clothes effect in sentiment. Last week sentiment was neutral, investment weak, the dollar marching relentlessly up. But right away Monday the dollar weakened, program trading picked up, and the occasional positive sentiment peeked out from data apathy. We’ve been telling clients since then in the “What’s Ahead” section of trading summaries to expect temporary improvement (that’s what it is).

In effect, we have the same thing in our equity market. Markets don’t behave the way most think they do – or how they should – and we’ve thus far been bystanders. A NIRI board member who stopped by our booth to gauge our views of the show said, “Market Structure has got to get higher priority. People are talking about it. It’s going to move up on the radar screen.”

Why is it so critical? Because lots of CEOs and CFOs don’t know how markets work. And when they ask us how they work, we IR pros often don’t know either, right?

If IROs don’t shoulder the educational challenge of crafting a clear picture, who will? Nobody. And if nobody does, our job security declines just like our ranks, which have thinned by an average of 270 companies each year for the past 14 years (no typo). That means we’ve lost a minimum of 3,780 IRO roles since 1998.

One grand bright spot on getting that clear picture shone during the panel on which I sat (if you’re a NIRI member, downloadslides or listen to a replay). Panelist David Weild, head of capital markets for Grant Thornton and chairman and CEO of the Capital Markets Advisory Group, proposed an Issuer’s Bill of Rights. Would you favor these five things? Would your executives?

1. Equal Standing for Public Companies. Issuers must have equal input to the trade execution community on market structure.

2. Representation. A standing issuer advisory council to the SEC made up of issuers and issuer advocates.

3. Transparency. Timeliness and completeness in trading and ownership data.

4. Choice in Market Structure. An end to the one-size-fits-all marketplace.

5. Centrality of Investment. A market structure that encourages fundamental investment strategies over trading tactics.

A client and good friend came up as we were dismantling the booth and said, “If we’re serious about this Bill of Rights, I’m willing to burn some political capital on it. We need to get organized.”

If these five rights make sense to you, kick them around with your CFO and CEO – and tell NIRI. Change rarely occurs from the top down, but from the bottom up.

Maybe we can at last rally as an industry and save ourselves. Seattle gave us hope.

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