Market Structure Map

Helping IROs understand short-term market structure to maintain long-term peace of mind.

Sep 4-7—Investors Taking Somber View of Sellside Season?

Last week we wrapped up by noting that diminished program trading and increased short-term churning might be products of fear that could leave as the "A" team rode back onto Wall Street. Or not.

Our first look at September order flow gave us no warm fuzzies. In bland terms, we observed lower Wholesale order flow (suggesting that buysiders continue to shrink their brokerage relationships and adopt direct-access models), higher Speculative trading (statistical arbitrage and other largely market-neutral trading), and a dearth at boutiques known for tying trading to research.

We don't know yet if paltry activity at research and trading shops means these firms are on the brink of disappearance—and by no means are we suggesting that—or simply that they're farming out desks to trading specialists. We've heard that more firms are now trying to unbundle research from trading -- but a full step beyond Fidelity's push two years go, jettisoning trading rather than simply separating costs. That business is competitive, complicated and regulated and ever more the domain of structured products, prime brokers and pure traders.

There are lessons in context of sellside conference season on Wall Street, which commenced last week. Execs and IROs across the fruited plain and around the emerald sphere have been packing bags and staying in hotels and generally consuming the IR budget on gigs hosted by Bear Stearns, Citigroup, Bank of America and other sellside titans. We wonder if these features of conventional IR have mostly gone the way of the NYSE specialist in significance, if not practice. We don't see much trading correlation, to be frank.

Why? If the buyside controlling the bulk of liquidity "invests" across the balance sheet with quantitatively driven black boxes, maybe you're better off to adopt some different strategies and tactics too, just like the buyside and sellside have. Consider narrowing and specifically measuring your sellside relationships against trading activity, focusing on different kinds of investors (different investment theses) on one side or the other of options expirations and FOMC meetings, and shaking up the timing of your investor-targeting activities for better measurement of results.

True, some things we do simply for relationships. But at the least, consider weighing this season what impact all that conventional time and effort had on your IR program.

 

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Market Structure Map

Our weekly Market Structure Map provides unique insights — free — on trading markets, with an exclusive focus on helping investor-relations professionals keep cool in the IR chair.

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