Market Structure Map

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

Sep 24-28—Know Your Quarter-end Market Structure

September and third-quarter trading ended inconclusively last Friday. In the sample group, we saw slight increases in structured products (sellside solutions designed to manage risk and achieve mostly short-term returns for buyside clients), prime brokerage order flow indicating modest hedge-fund month-end shuffling and a tight balance between what we call Prime and Electronic order flow—to us more proof that the buyside is cost-focused and using direct-market-access trading whenever possible.

What's this mean to you, IROs? Three major takeaways:

1. Learn the kinds of trading desks driving your order flow at month-end and quarter-end. Why? Because it's the smoke over the fire under your boiling liquidity. Okay, skipping metaphor overkill, the point: this information tells you who's got the bulk of your free-floating liquidity (13F's are way too late to offer accurate answers, and indicated positions have little bearing on current market structure anyway), be they short-term trading vehicles, hedge funds, programs, and so on. They may also pinpoint possible hidden liquidity overhangs, and reveal what to expect when program traders adjust models in the new month and quarter. The how is wordier, but drop me a note and I'd be happy to explain.

2. Investors have not committed with enthusiasm to equities, despite the Fed's intervention and recent Dow strength. Why do we say that? Because order flow reflects unprecedented risk-management efforts. If you're planning aggressive October outreach, plan it carefully or expect few results. And if you know that your financial results will significantly depart from expectations, the degree of response in your equity will turn on this fact (unenthusiastic response to strong performance) and on point #1 above (sharp downticks on poor performance as quant models sell into anemic value buying).

3. Be picky about your sellside relationships and spend more time going direct to the buyside, because the buyside is spending more time going direct to the market. Explanation is likely to be redundant, but we'll simply say that single-issue long investment is harder and narrower now, and knowing your market structure is key to spending time wisely.

 

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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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