Market Structure Map

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

May 5-9: Plot Your Sellside Outreach By Following Order Flow

We're coming round to the last spate of sellside conferences before summer in Nantucket. When weighing where and how you spend sellside time, don't forget to measure order flow.

For context, you've no doubt read in the Wall Street Journal and elsewhere of cutbacks at firms ranging from Bear Stearns (up to 10,000 will be let go, one article said), to Thomas Weisel (a fundamentally focused firm reducing headcount by 20% since the beginning of the year), and others too, ranging from boutiques to Citigroup. In order flow, we can observe for clients how some firms are declining (most of Bear's order flow has moved to JP Morgan now, but at lower levels than Bear had previously), while others like Collins Stewart and HSBC are on the upswing.

No question that part of the reason relates to deal flow. Fewer deals mean less for bankers to do and less money to go merrily around on Wall Street. But a big factor is without question the changing nature of trading. The buyside drives more order flow to electronic platforms itself, which means less to broker-dealers, particularly ones without sophisticated order-management systems. Derivatives trading of all sorts is way up, which means less conventional business on sellside trading desks.

And we're in the midst of a massive wave of competition between traditional exchanges and alternative trading systems. The exchanges are competing for derivatives business, and the alternative platforms are competing to function like exchanges, or in fact becoming exchanges (both Bats Trading and UK-based interdealer iCap Corporates have filed for Exchange status).

What's all this mean in terms of sellside outreach? Well, before you spend scads of time fostering precious coverage somewhere, be sure the firm can back up all that effort with its trading desk. True, shops like Weisel will route substantial order flow to other outlets like Knight Securities and Madoff and UBS and so on. But the measure of worth of information, and therefore, value to institutional clients, is on trading desks. Period.

So pay attention to how firms trade your stock. You may find golden opportunities there for new supportive sellside relationships. And you may avoid spending valuable investor-relations and executive time building what may never get past compliance because of a dearth of trading interest.

We have so much more to say…but brevity is both the soul of wit and a form of courtesy.

 

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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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