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If you're a football watcher, you might know that we Dallas Cowboys fans are pondering pooling resources to hire this guy Tommy The Nose from Brooklyn to take care of the "Jessica Simpson Problem." (Note to Big Brother: only kidding!)
I said last week that we'd look at 2008 trends, but let's delay that to highlight instead a market structure matter we observed in at least three separate cases last week: the actions of sellside desks in and around upgrades and downgrades.
We've said before here how sellside firms, particularly what we call the big Prime brokers, have evolved into purveyors of services rather than providers of information to buyside clients. By the way, order flow last week indicated that Primes went the extra mile, putting capital at risk to help important institutional clients manage risk in the present uncertain equity-markets environment. Short interest (a function of risk management more than specific shorting) is up. Wholesale order flow is up (brokers transacting with brokers). Electronic volume is down (the buyside is asking the sellside for its commitment and assistance).
And back to the central point, we saw anecdotal evidence at minimum that a number of downgrades (for specific firms and for industries) might well have been reactions to selling already originating on the buyside. And we also some evidence of substantial activity ahead of upgrades. Still, we'll strike the cautioning claxon: we are by no means suggesting impropriety. But we ARE inferring that some sellside actions may result from what the buyside says rather than what equity research folks think.
IROs, the data exist at both Nasdaq Online and NYSENet to help you examine your own order flow. Look at activity for a given firm on the day of an upgrade or downgrade, and also volume on either side versus trailing averages. Nasdaq firms, you'll have to back into the data (drop me a note and I'll explain); I know because I did it as a Nasdaq IRO.
Why does it matter to your investor relations program? Well, for all kinds of reasons, not the least of which is understanding who actually influences your price, and who is merely capitalizing for economic gain on transactional opportunities. These details can only be seen, by the way, in executed order flow.
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