June 11, 2014

The Big News

With crowning dreams of California Chrome and the unfortunately tinny conclusion to the equine trifecta dominating news, you might have missed what counted last week.

There was Liquidnet, operator of a members-only trading market for the buyside (a “dark pool”), paying $2m to settle SEC charges it shared confidential client information through its Infrared ID program at the NYSE and a couple other applications.

There was Wedbush, clearing firm for high-frequency traders, facing SEC charges that it inadequately policed how clients used its brokerage desk to directly and anonymously trade stocks (called sponsored access or direct market access for you word collectors).

Big news, both. But not The Big One.

No, I learned the big news first from Karen (our chief operating officer and my beloved spouse), who emailed a link saying, “Read this.” Not much later, Joe Saluzzi (NIRI National was fortunate to have Joe as my fireside-chat guest yesterday afternoon on whether markets are both broken and rigged) emailed snippets and said , “From Chair White speech…”

He meant Mary Jo White, SEC chair. She’d addressed the Sandler O’Neil Global Exchange and Brokerage conference June 5. And she said, drum-roll please:

“The secondary markets exist for investors and public companies, and their interests must be paramount.”

She means the stock market. Most public companies never want to see themselves and the letters “SEC” in the same sentence. Oh but wait now. This is different.

Their interests must be paramount.

What’s paramount to us in the IR community? I’m a fan, as we probably all are, of the NIR Community Forum – eGroups. We dissect many interesting things, ranging from good places for investor meetings in New York, to formats for company fact sheets, to which conference-call provider to use, to whether you should manage in-house or outsource analyst-estimate tracking.

Do you know how your stock trades? We don’t tend to talk about that — yet it’s the foundation for everything we do.

True story: One of our clients reported results some weeks ago and the stock was down sharply – 6% – to start the day. The first six trades were for one share apiece, thanks to order routers sweeping through markets and hitting the bid or ask and routing out. They took one share each. Six shares caused a price drop of 6%. Do you think that’s fair?

The SEC chair thinks your concerns are paramount.

Are we prepared as a profession to present our concerns, or will the rules continue to be laid and made by exchanges and traders, who have their own priorities (which are not your best interests, by the way)?

You see why this is big news? We should rally to it. How great would it be for a NIRI-led delegation of public companies to visit Washington DC and lay out four or five key items that we, as a profession, want to have a direct hand in setting?

This is why market structure matters. You’ve got to know yours, and how the market works. What’s the saying about preparation? You do it so that when opportunity comes, you’re ready.

Otherwise, we’re passengers, not pilots. We can be at the table. Without stocks of public companies, there is no secondary market. IROs, it’s your time.

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